The real victims of rising fuel prices are end consumers

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The announcement of rising fuel prices, made on November 3 by the Ministry of Electricity, Energy and Mineral Resources, could not have come at a worse time. Just as the economy is trying to get back on track and people have slowly started to breathe fresh air and return to their workplaces – desperately trying to recover from the economic stress they have been facing because of Covid-19 – they now face additional challenges. Worse, it is not a challenge of nature; it is artificial. Already, non-food inflation has been on the rise for three months. The prices of basic necessities have also increased in recent times. Raising the prices of diesel and kerosene by up to 23 percent is now a double whammy for powerless consumers, who are losing out in every way.

Whenever there is an increase in the price of petroleum products in the country, the government presents a number of reasons to the people. These are all well known reasons. The fact that higher prices would ultimately be passed on to consumers is also a widely practiced technique. So why are such measures taken by policy makers? We can review their arguments to see where the real problem lies.

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International fuel prices are under upward pressure due to attempts by global economies to recover quickly. As economic activities have intensified and progress with increased consumer demand, there is a shortage of supply in the market. Thus, higher demand, supply shortages and rising commodity prices have accelerated inflation in several developed and developing economies. The International Monetary Fund (IMF), in its report titled “World Economic Outlook: Recovery During a Pandemic” in October 2021, predicted that this trend could continue until mid-2022.

If this is the logic behind the increase in fuel prices in Bangladesh, then why don’t we see the prices of petroleum products go down when they go down in the international market? Fuel prices have been low for the past seven or eight years. Economies like Bangladesh, which depend on oil imports, have benefited enormously from this period. The Bangladesh Petroleum Corporation (BPC), which operates mainly at a loss, made profits after lasting losses. However, electricity prices have increased several times during this period. During the pandemic, PCB profits increased by a higher amount as prices were low. According to the Ministry of Finance’s Bangladesh Economic Review 2021, in fiscal year 2020-21, BPC made Tk 5,839.39 crore in profit, compared to Tk 5,066.54 crore in the fiscal year. 2019-2020 fiscal year.

Consumers are not taking advantage of these low fuel prices. Fuel prices in Bangladesh are not determined by demand and supply in the market – the government sets them. In this case, consumers also deserve to benefit from lower prices in the international market. After all, the losses suffered by BPC are not due to the fault of customers. This is because of mismanagement, loss of the system and weak supply chain in PCB. Due to its poor governance, fuel marketing companies become involved in corruption and the interests of consumers take a back seat. Thus, the BPC must not only work to improve the fuel pricing mechanism, but also to strengthen the supply chain and the supply mechanism. Nowadays, many countries participate in the futures market for trading commodities, including petroleum products. Bangladesh cannot take advantage of low prices in the international market as the country’s law does not allow PCB to participate in the futures market. The country could buy fuel at a lower price in advance when prices are low internationally, and save a lot of money. Of course, there are risks involved – for example, if the price drop is steep and rapid, there will be a loss. Can a country like Bangladesh afford it? The answer is that if you participate in the futures market, everyone has to follow the rules of the game and accept the positive and negative results. Initially, the country can start by buying part of the total requirements on the futures market. Of course, such measures require a change of perspective on the part of the BPC.

The other common reason given by policymakers for the price readjustment is the drop in prices in our neighboring countries, especially India, which creates opportunities for smugglers to take petroleum products out of the country until the Indian border. But how much of the country’s total fuel reserve is smuggled out? Moreover, it is not the fault of innocent consumers. Once again, this is a question of governance.

The increase in the price of diesel will affect many sectors of our economy. Diesel represents 70 percent of the total fuel consumed in Bangladesh. Sectors such as road and river transport, power generation and agricultural production depend on diesel. Leaders in the transportation sector were quick to demand increases in bus and boat fares in response to the government’s decision to increase the price of diesel. They said they wanted to offset the increase in the price of fuel, referring to the losses they suffered during the pandemic. But pandemic or no pandemic, passing the additional cost on to passengers is an age-old tactic. The cost of irrigation is expected to increase, causing the prices of crops and commodities to rise as well, although farmers may not necessarily be the beneficiaries of rising commodity prices. Consumers will also suffer from the higher costs of transporting goods, as the prices of basic necessities are expected to rise. Although kerosene is used by a smaller number of people these days, the high price of kerosene will also have an impact on poor consumers.

It is a time when the government should give the people of the country some breathing space, instead of raising prices, so that people can recover better. This could reduce taxes on fuel prices for a while, so that the burden on people is lighter and people can have time to recover from the stress of the pandemic. The burden of rising fuel prices will not only fall on consumers in general, but also on businesses, especially small businesses that have been hit hardest during the pandemic. The government collects various types of taxes, including value added tax (VAT), customs duties and business tax, on fuel prices. These taxes now represent about 30 percent of the price of fuel. Some of that could be sacrificed during this difficult time. Such measures are not unheard of: India has reduced taxes on gasoline and diesel in an attempt to lower their prices and give their people some breathing space. Given the very high prices of electricity and gas this year, 20 countries in the European Union have taken emergency measures, including cuts in the energy tax or granting subsidies to poor households. .

A transparent pricing mechanism is essential to deal with the unpleasant situations created whenever upward price adjustments are made by the government. Instead of an arbitrary decision from the summit, consulting relevant stakeholders such as transport owners, representatives of the agricultural sector, small traders and consumer rights groups can help avoid the suffering of the people.

Unfortunately, every time there is a government announcement about rising fuel prices, the ripple effect kicks in far too soon. This is even earlier than when the announced measure is implemented. This time is no exception. The prices of many goods and services are already on an upward trend. This could delay the country’s economic recovery.

Dr Fahmida Khatun is Executive Director of the Center for Policy Dialogue (CPD).


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