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Dhaka Thursday,  Mar 28, 2024

BPC to see Tk 2,000cr profit as oil prices fall

EB Report

Bangladesh Petroleum Corporation is making a whopping profit of Tk 13 to Tk 36 per litre on petroleum products on the back of the sliding global oil prices since June last year.

The production cost of octane is Tk 56.85 per litre but the customers are buying it for Tk 99, giving the state-run corporation a profit of Tk 35.49 per litre.

The profit margin is Tk 13.77 per litre for kerosene, Tk 14.68 for diesel, Tk 19.57 for furnace oil and Tk 18.75 for jet fuel.

In other words, the state-run company is set to make more than Tk 2,000 crore in profits this fiscal year, said an official of the company.

The development has now prompted the World Bank to call for the introduction of a system that makes automatic adjustment of oil prices in line with global market rates.

The system would then invalidate the need for petroleum subsidies and free up the resources to invest on growth enhancing sectors such as education, health and infrastructure.

For fiscal 2014-15, the government has set aside Tk 2,400 crore for petroleum subsidies, but of the amount only Tk 200 crore to Tk 300 crore is likely to be used in the end, said a finance ministry official.

Subsidies to energy and petroleum have remained sizable in recent years due to high international oil prices and inadequate adjustments in domestic prices; fuel prices were kept artificially low. The BPC subsidises fuel by selling it domestically at lower than the international prices.

The governments says it provides oil subsidies to support access to energy for the poor, but the WB said energy subsidies are neither pro-poor nor efficient across the world, including Bangladesh.

The WB said, while there is some element of truth to this argument, energy subsidies often disproportionately benefit wealthier segments of the society, given they use more energy.

“This is true in Bangladesh where the poor are mostly dependent on traditional bio-mass and have little access to electricity and other public utilities.”

More than 40 percent of the population in Bangladesh does not have access to grid electricity.

The WB said energy subsidies also divert public funds from social programmes and welfare schemes that may be of greater benefit to the poor.

On Sunday, the WB said now is the perfect time for Bangladesh to go for automatic oil price adjustment, meaning the petroleum prices would go up if they go up internationally, and vice versa.

As a condition for obtaining $987 million in loans from the International Monetary Fund, the government has promised that if the gap in oil price between the local and international markets exceeds Tk 10, it will make price adjustment.

Though the margin is much more this time, the government has no plans to cut prices in the local market, in a bid to recover the cumulative losses it had incurred over the years.

The WB in its latest Bangladesh Development Update said domestic petroleum prices have not been revised in line with the changes in the international market, resulting in BPC building up huge liabilities to the tune of Tk 50,430 crore at the end of June 2014.

Since global fuel prices have started to fall in mid-2014, domestic fuel prices have not been adjusted. Fuel subsidies have effectively turned negative, and the authorities have not indicated any plans to adjust them in the near term.

Thus, the oil windfall has been accruing entirely to the BPC, the Washington-based multilateral lender said.

The bank said the current macroeconomic conditions in Bangladesh and the low international oil prices provide a historic opportunity to deregulate domestic oil prices.

It said public resistance to subsidy reform is lower when economic growth is relatively high and inflation is low, as is the case now in Bangladesh.

It said successful and durable reforms require a depoliticised mechanism for setting energy prices. Many countries have successfully implemented reforms only to see subsidies reappear when international prices increase.

The WB said the automatic price adjustment mechanism should only be a prelude to deregulating petroleum prices.

It said the government can commence implementing a sequence of structural changes over the next two years.

This should include deregulation of crude and product imports and removing entry barriers to allow private oil marketing companies to operate in the petroleum market, it said.

On the opening-up of oil marketing to the private sector, the WB recommended clear monitorable steps and designated responsibilities.

The BPC markets petroleum products through its subsidiaries Jamuna, Meghna and Padma oil companies.

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