The subtle and not-so-subtle logic behind fuel price hikes

On the evening of November 3, the government increased the per litre price of diesel and kerosene oil by Tk 15. The next day, bus owners announced an indefinite strike in protest, and it was activated almost immediately from Friday, November 5. It appeared as if we didn't have an administration that cared enough to ensure millions of students and job-seekers could reach their respective exam centres. Since the strike was announced over the weekend, a discussion with the bus owners—who had announced that public buses would not run until they were allowed to increase fares—could not take place before Sunday. Similarly, trucks and launches also stopped their operations.

Despite the extraordinary sufferings imposed upon the general populace, not an iota of compassion could be seen among the representatives of government. The idea that no discussions can take place over the weekend is a mind-boggling government policy. During these two days, we had to hear and endure some very "subtle" and "not-so-subtle" logic from government decision-makers, where they tried to bolster the decision of hiking fuel prices. In accordance with the owners' wishes, the government increased transport fares on November 7. The decision was taken in the evening and the government's circular also came out in lightning speed. Friday and Saturday are off days, but the evening, which is after work hours, is also considered to be "off" time. However, in order to protect the interests of the transport owners, the government found no obstacles in publishing the circular in the evening, during such off hours.

Once public transport was back on the streets, many bus operators began to collect fares at a rate of 50 to 60 percent above the stipulated prices. The rule that CNG-run buses should not charge increased fares was also widely flouted. In Dhaka, a large number of vehicles run on gas, not diesel, including a portion of long range trucks. It is rumoured that the price of gas will also be increased soon. At that point of time, the fares may be revised again, and diesel-run vehicles are also likely to be included in that probable hike.

For these reasons, the question we must ask is—is the government protecting the interests of a few transport owners rather than that of the general population?

Certain claims have also been made recently on the issue of price hikes being connected to the smuggling of oil to India. It is expected that an explanation from a responsible minister or a government agency will definitely be circumstantial and information-based. However, does any supporting logic or fact exist for this claim? Did the government ask any agency to conduct an investigation in this regard?

No such information exists. Due to the constant vigilance of the BGB and BSF, along with the fact that there are barbed wired fences all around the border, the act of smuggling oil has become quite difficult. The BSF even takes a strong stance against cow smuggling. Journalists who are working around the border areas confirm that no big incidents of oil smuggling takes place these days. Even if some smuggling incidents happen, the amount would be insignificant at best.

Many years ago, Indian trucks would depart with containers filled with oil. It should be mentioned here that, only through the Benapole border, 250 to 300 Indian trucks enter Bangladesh with goods on a daily basis. Each truck has a container capacity of 300 to 400 litres. They used to empty the containers and then fill them up before returning. This method of smuggling has also been stopped. There is now a rule that prohibits border area petrol pumps to sell oil to Indian trucks. The Indian trucks are not allowed to leave the depot to reach the petrol pumps either. There is also very little opportunity to fill up the containers using drums filled with oil. In no man's land, each and every Indian truck is thoroughly checked by the BGB. Even after all this, a certain amount of smuggling might take place, but the amount will never be significant enough to justify a price hike.

Then there is the issue of oil price increase in the international market. The price for unrefined oil has increased, and the Bangladesh Petroleum Corporation (BPC) has been incurring losses over the past five months. The calculation is such—for each litre of diesel, the government had to pay a subsidy of Tk 2.97, 3.70, 1.58, 5.58 and 13.01 in June, July, August, September and October, consecutively. Thus, from June to October, the BPC has incurred losses worth Tk 1,147.50 crore. However, it is not unusual to see the price of oil going through ups and downs in the international market. The cost of a barrel of oil was USD 83.54 in October. It is assumed that the price will increase further. In a very dubious manner, the energy ministry has decided not to divulge certain information, or to hide it in its entirety. It mentioned that the price of diesel was decreased by Tk 3 and fixed at Tk 65 per litre in 2016. They also mentioned with pride that the price has not been increased even once till 2020. But why didn't they increase the price in these past five years?

Let us ask a better question here. Was the government actually supposed to increase it? As per previously announced government policy, the rule is to adjust the pricing, not to decrease or increase it. If prices increase on the international market, local prices will get a facelift. Similarly, if prices drop internationally, local prices will face a downward adjustment accordingly. So during the period of 2016 to 2020, how did the international oil market perform? In 2016, one barrel of oil cost USD 43.29. The average prices in 2017, 2018, 2019 and 2020 was USD 50.80, USD 65.23, USD 55.99 and USD 39.68, consecutively. At a certain point of time in 2020, the oil price came to the minimum level of USD 11. Had we followed the policy of adjusting oil prices with the proceedings of the international market, then the price would have been lowered much earlier. However, the announced policy was not followed at all, and now the claim is that the price has not been increased adequately.

Apparently, in October 2021, the USD 83.54 price tag of a barrel of oil caused the BPC to incur a loss of Tk 13.01 per litre. Now the question is, when the price was USD 39.68 per barrel in 2020 and the minimum price was USD 11, how much profit did BPC make against each litre of oil? The energy ministry refrained from publishing that part of the equation.

M Tamim, a professor of the petroleum and mineral resources engineering department of BUET, told The Daily Star, "The price of octane has not increased in the international market, but at home, it is being sold at a price of Tk 89 per litre. The import cost of this oil is probably within Tk 40-45 range. For this oil, VAT, duty, tax and supplementary duty amounts to Tk 40. If the government wishes, they can easily sell it at Tk 70 to 75 per litre. But instead, they are making profits here."

Thus, even though the government claims to subsidise fuel, they are actually making a profit of Tk 15 to 20 per litre in selling octane.

BPC has made a profit of more than Tk 43,000 crore in the last seven years as proceeds from selling oil. Apart from this, the government also gains 28 percent tax and VAT from each litre of unrefined oil. This 28 percent tax and VAT means the government earns Tk 19 per litre.

Professor Tamim also mentioned that, apart from the profits earned by BPC, the government gets Tk 9,000 to 10,000 crore as VAT and taxes. It is unquestionable that the government will charge VAT and taxes. However, the question here is why the government took away the Tk 43,000 crore earned by BPC. A policy of stowing away a certain portion of profits for "rainy days" could have saved the day—for example, when prices are increasing in the international market, that fund could have been utilised to subsidise prices.

However, this money has been spent, wasted or swindled in the name of "development" projects. The government is acting like a businessman here. It is making profits by selling oil to the people. The oil importing agency of the government is not following a transparent process—it is not clear at what price they procure oil, what is their transportation costs, etc. There are allegations against them for misdoings on massive levels, but no visible investigation is being conducted. Instead, the government's solution is to increase the price of oil. The welfare of the public is not in their thoughts.

The first wave of Covid-19 led to 2.5 crore people being pushed into poverty. The second wave took the number of new poor to more than three crore. The government has not taken any special initiatives for them. The prices of daily essentials have increased by leaps and bounds. Now diesel, kerosene and LPG gas are also more expensive than ever. Transportation costs also increased. The combined effect of all these will impact all aspects of daily life. It is as if there is no one out there to think about people's livelihoods.

Golam Mortoza is a journalist at The Daily Star. The article has been translated from Bangla by Mohammed Ishtiaque Khan.