The price of power need not go up in the country if the government is willing to bring down the price of fuel oil in line with the international market, said economists and experts.
Even allowing the Bangladesh Petroleum Corporation to bypass VAT and import duty on furnace oil will allow the authorities avoid a hike in power price.
Not only will power generation costs for state-owned Power Development Board come down, but a fuel price drop may also help bring down prices of essentials and have a positive effect on inflationary pressure.
A Bangladesh Petroleum Corporation (BPC) official, on condition of anonymity, said the BPC wants the price of fuel oil to come down as the lion’s share of electricity is produced using furnace oil.
“If the government withdraws Value Added Tax (VAT) and import duty on fuel oil, the price will drop,” said the official.
Energy Adviser to Consumers Association of Bangladesh (CAB) Prof M Shamsul Alam told the Dhaka Tribune, “The government need not hike power price. We think the price of fuel oil should instead be reduced.”
Alam suggested the issue could even by addressed by giving BPC a waiver from taxes and duties, before a general reduction in fuel oil price.
“It is very unfortunate that due to lack of cooperation between two government organisations – BPC and NBR – we are not getting tax rebate on the import of furnace oil while non-government power generation companies are enjoying that facility.”
Prof Alam suggested cutting the prices of fuel including petrol, octane and diesel further, so that the transportation sector enjoys the benefits. He also advocated a reduction in kerosene prices in the interest of low-income people.
All the power distributor companies have already sent proposals to the Bangladesh Energy Regulatory Commission to adjust power prices upwards by seven to 11 %. The government has so far increased power price in six different phases since taking power in 2009.
In a circular on January 26, 2011, the Internal Resources Division under the Finance Ministry stated that public, as well as private electricity generating companies and industries, will enjoy VAT-free and duty-free import of furnace oil.
On May 8, 2017 in a letter to the National Board of Revenue (NBR) Chairman Md Najibur Rahman, the BPC chairman Abu Hena Md Rahmatul Munim said if the VAT and import duty are withdrawn on the import of furnace oil as per the circular, they will be able to reduce furnace oil price by Tk11.28 per litre at the consumer level. The price per liter furnace oil is set at Tk42 at present.
On April 20, 2017, the petroleum corporation imported 21,869.554 tonnes of furnace oil and sought rebate on import duty, but the customs authority rejected the request.
Following up on the circular, BPC held several meetings with the NBR and sought the rebate, said the BPC official.
Assistant Commissioner of Chittagong Customs House Md Mofazzal Hossain, however, in a letter, stated that BPC had no formal agreement with the authorities concerned in this regard.
The tussle between the two state-run agencies continues till now.
If fuel price is reduced, the country’s economy will be benefitted, Prof Mustafizur Rahman, distinguished fellow at the Centre for Policy Dialogue (CPD), told the Dhaka Tribune.
Since the prices of gas has been rationalised and the government is going to implement the new VAT law, prices of fuel should be cut further in line with the international market prices in consideration of consumer rights, he added.
On May 7, 2017, State Minister for Power, Energy and Mineral Resources Nasrul Hamid in the Parliament said the government will not reduce fuel oil price in local market.
He said the government has no plan to reduce the prices as Bangladesh Petroleum Corporation may face loss in the next fiscal year if international market prices rise again.
Oil price in January 2016 reached $33.85 per barrel and it increased to $66.03 in April 2017. If the rising trend of oil price continues, the state-owned corporation would incur loss in the upcoming fiscal year, according to Hamid.
He said BPC still owed the government Tk27,419.81 crore in loans as it incurred losses earlier selling fuel at subsidised rates.
The government slashed prices twice –on April 1 and on April 25 last year following a slump in the international market, he noted.
On April 1, 2016, Bangladesh brought down the price of furnace oil to Tk42 from Tk60 and on April 25 it reduced the price of per litre octane to Tk89 from Tk99, petrol to Tk86 from Tk96, diesel to Tk65 from Tk68 and kerosene to Tk65 from Tk68.
Even after the reduction in oil price, BPC is still making on average 40% profit through sale of all sorts of fuel oil products.
On April 16, 2017, Centre for Policy Dialogue (CPD) recommended that the government adjust diesel and kerosene prices with global rates in the upcoming budget for the Fiscal Year 2017-18.
“Since the poor are the main consumers of these petroleum products, living in areas that are not connected to the central grid, the government should adjust and reduce prices,” said CPD research fellow Towfiqul Islam Khan on the think tank’s analysis on the state of the Bangladesh Economy in 2016-17.
Dr Badrul Imam, Prof of Geology Department at Dhaka University told the Dhaka Tribune there will be a positive impact on the economy if oil price is lowered since Bangladesh is an oil-importing country.
The price cut will also lead to the reduction in government subsidy and prices of daily essentials.
He suggested the government can readjust prices every six months in line with the international market.
At present, BPC imports about 1.3 million tonnes of crude oil and 4.2 million tonnes of refined oil from abroad while around 300,000 tonnes of petroleum products are received from different gas fields and private fractionation plants.
Crude oil is processed only in the Eastern Refinery to produce diesel, petrol, octane, furnace oil.
The petroleum corporation is now making around Tk10,000 crore profit per year by procuring oil at low prices and selling those at higher rates in the domestic market.