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Automatic fuel pricing system by March 2024

Published : 23 Dec 2023 11:03 PM | Updated : 24 Dec 2023 12:13 PM

Bangladesh is planning to introduce an automatic fuel oil pricing system aligned with the international market by March 2024. 

Such an initiative is being taken to comply with the conditions set by the International Monetary Fund (IMF) for its loan. 

Fuel oil prices on the global market have experienced significant fluctuations since the outbreak of the Ukraine-Russia war, prompting the need for a more dynamic pricing mechanism. 

Mir Mohammad Aslam Uddin, Deputy Chief Information Officer, Ministry of Power, Energy and Mineral Resources confirmed this information to Bangladesh Post. He shared that this process is still in progress including dynamics, mechanism and policy. He hopes that this automation process will officially start some time between March and June, 2024.  

Despite this volatility, Bangladesh last adjusted fuel prices on August 30, 2022 and has not reduced prices since 2013, leading to substantial profits for the state-owned Bangladesh Petroleum Corporation (BPC).

Economists and think tanks, including the Centre for Policy Dialogue (CPD), had previously urged the government to align fuel prices with international rates during periods of profit for the BPC, but such recommendations went unheeded.

The honorary professor of geology at Dhaka University, Dr Badrul Imam, shared his positive thoughts about the fuel pricing policy with Bangladesh Post. He claimed that both consumers and the government as a whole would benefit greatly from this project. 

“Why do we not have an adjustable fuel pricing policy like India does? The government has profited from this industry in recent years, so it is critical to create an effective fuel pricing system that benefits the majority of people,” Imam pointed out.

A source from the Ministry of Power, Energy, and Mineral Resources claims that under the new agreement, fuel prices will be modified every month while taking the cost of imports and the exchange rate into account on the day of payment. Customs tax, dealer commission, possible BPC development costs, operational costs, shipping fees, and a tiny profit margin will all be included in the total price.

Officials from the Energy Division clarified that the prospecting pricing formula is based on the import parity price of refined fuel oils. As 70 percent of Bangladesh's fuel oil imports are already refined, domestic fuel prices will now fluctuate in cycle with the international market price of refined oils.

While consumers may face the risk of increased fuel prices, they are also expected to benefit from price reductions. Farmers, vehicle users, and captive power plant operators, who purchase fuel directly from the market, stand to gain or lose based on market fluctuations.

However, energy experts express skepticism about consumers reaping the benefits of this new pricing mechanism. The adjustment of public transport fares has historically been a chaotic process in Bangladesh, often resulting in disruptions and fare hikes. The modality of public transport fare adjustment under the monthly fuel price adjustment system remains unclear, raising concerns among experts.

The Bangladesh Energy Regulatory Commission (Amendment) Bill 2023 was passed in parliament on January 29. This amendment allows the government to adjust gas and electricity prices without a public hearing which apparently raises concerns about transparency and fair pricing.

Md. Nurul Amin, Chairman, Bangladesh Energy Regulatory Commission, told this correspondent that they have not received any written instructions in this regard from the ministry. He admitted that the automation of fuel pricing has been heard for a while, but he has no clear information.

The government's recent policy shift to allow the private sector to import and refine crude oil could create this automation process more complex. Critics argue that this shift may lead to unchecked pricing by private operators, undermining the intended goals of the new system.

Despite concerns, the government sees the automatic adjustment system as a means to relieve itself of fuel subsidies, while also capitalizing on VAT, tax, and customs duties collected from the fuel oil trade. 

As the nation prepares for the implementation of the new system in March 2024, the effectiveness of these measures in promoting fair pricing and benefiting consumers remains a subject of debate among experts and stakeholders.

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