Fuel Prices Reset as Global Surge, Subsidy Burden, Smuggling Bite

The gasoline pricing has been adjusted due to escalation of international market rates, increased transportation and insurance expenses, higher import costs, and mounting pressure from fuel subsidies, reports BSS.

The move also aims to cut losses of the Bangladesh Petroleum Corporation (BPC), rationalise domestic fuel prices and curb fuel smuggling as lower domestic prices compared to neighboring countries had created a high risk of cross-border trafficking.

Despite the hike, gasoline is still cheaper in Bangladesh compared to many neighbouring and Asian countries as the government is giving around Tk 70 in subsidy per litre of Diesel.   

Bangladesh’s revised prices , set diesel at Tk 135 per litre, up from Tk 115; octane at Tk 165 from Tk 145; petrol at Tk 160 from Tk 140; and kerosene at Tk 155 from Tk 135. The new prices took effect on September 21.

Despite the latest Tk 20-per-litre hike, Bangladesh’s diesel price at Tk 135 remains lower than in many Asian countries, according to Global Petrol Prices.

Diesel costs Tk185.48 per litre in Pakistan, Tk177.81 in Indonesia, Tk173.23 in South Korea, Tk168.53 in the Philippines, Tk164.83 in Myanmar, Tk161.24 in Nepal and Tk146.77 in China. In Vietnam, it costs Tk137 per litre.

The gap is wider compared with developed economies, where diesel costs Tk580.54 per litre in Hong Kong, Tk347.83 in Germany, Tk329.40 in France, Tk317.78 in the UK and Tk291.32 in Sweden.

The government said the adjustment was aimed at maintaining normal fuel supplies, preserving BPC’s financial capacity and reducing the risk of smuggling imported fuel into neighbouring countries because of price differences.

It also considered the need to contain subsidy pressure so that government funds could continue to support normal supplies of fuel, electricity and gas as well as social safety-net programmes.

According to the Energy Division, BPC incurred losses of around Tk 22,875.66 crore in the six months from March to August this year. Based on current international prices, diesel would have to be priced at around Tk 205 per litre to fully reflect the international market rate.

However, considering the financial capacity of ordinary consumers, public transport operators and irrigation-dependent farmers, the government is still supplying diesel at a substantially lower price. 
The government said it had earlier refrained from immediately passing the full impact of international price increases on consumers in the public interest. BPC was able to absorb losses for an extended period using additional funds accumulated in the past.

The government said shipping through the Strait of Hormuz has declined significantly because of the ongoing US-Israel and Iran conflict in the Middle East. Around 70 percent of Bangladesh’s imported fuel and 20 percent of global energy supplies pass through the route.

At the same time, security risks have increased amid conflict involving the Houthis in Yemen and around Bab-el-Mandeb, disrupting commercial shipping in the Red Sea. Many vessels are consequently being forced to take longer alternative routes, increasing fuel transportation risks, insurance costs and freight charges.

Bangladesh imports around 70 lakh tonnes of fuel annually, including around 45 lakh tonnes of diesel, according to the Energy Division. The wide gap between international and domestic prices had further increased pressure on BPC. 

Without the price adjustment, annual losses from diesel alone could have reached around Tk 40,000 crore.

BPC Chairman (Additional Secretary) Dr. Md. Rafiqul Islam said the government had been compelled to adjust domestic fuel prices as international fuel prices and freight charges had increased several times.

He said BPC’s total losses over the past six months had reached around Tk 23,000 crore and warned that continued losses could create a serious crisis in the country’s fuel sector.

Rafiqul Islam said handling costs, alongside the basic price of fuel, had risen at an unprecedented rate. Freight charges that previously stood at $3-$4 had increased to $15-$17, resulting in average monthly losses of Tk 3,800 crore to Tk 4,000 crore for BPC at the existing domestic prices.

Responding to questions about why lower global oil prices were not immediately reflected in the domestic market, he said it takes 15-30 days for cargoes purchased from the international market to reach Bangladesh after being loaded onto vessels. 

The Energy Division said fuel is imported using foreign currency, while relatively low domestic prices had created a risk of fuel being smuggled across the border into neighbouring countries.

Such smuggling could result in the wastage of foreign currency and allow the benefit of domestic fuel subsidies to flow outside the country, it said.

According to Energy Division data, diesel prices in Bangladesh remain lower than in many regional and Asian countries. 

In Bangladeshi currency, diesel is sold at Tk 164.83 in Myanmar, Tk 161.24 in Nepal, Tk 179.42 in Sri Lanka, Tk 151.22 in Thailand, Tk 137 in Vietnam, Tk 140 in the Maldives, Tk 168.53 in the Philippines, Tk 185.48 in Pakistan and Tk 144.79 in the United Arab Emirates.

Talking to journalists at the Secretariat on Monday, State Minister for Power, Energy and Mineral Resources Aninda Islam Amit said that continuing large subsidies could also put pressure on the government’s capacity to finance social safety-net programmes.