Fuel pricing mechanism lacks clarity for decades

Despite having an automated fuel pricing policy, Bangladesh has not consistently adjusted the prices of diesel, petrol and kerosene according to the prescribed formula, raising questions about transparency in the fuel pricing mechanism.

Under the original policy circular, fuel prices were supposed to be reviewed and adjusted at the beginning of each month based on international market prices. However, the government has often kept prices unchanged for months instead of making regular adjustments.
Even the latest Tk 20-per-litre increase, along with previous price adjustments, was not made strictly in line with the automated formula, the government’s subsidy decisions have played a major role in determining the retail prices.

Question is why the responsibility for determining prices of liquid fuels such as diesel, petrol and kerosene remains with the Bangladesh Petroleum Corporation (BPC) and the relevant ministry instead of being entrusted to the Bangladesh Energy Regulatory Commission (BERC).

Energy Ministry should establish a clear mechanism showing international prices, taxes, operating costs, subsidies and the final retail price would help consumers understand why fuel prices are increased or reduced. And at the same time they should discuss the tax structure on petroleum products as it is another factor that is affecting retail prices, which directly affects consumers. Yes, the Middle East crisis has a great impact on international fuel market this time but look at India, they are the lone country those managing the issue very smartly, India reduced certain duties or taxes on petroleum products to ease pressure on consumers. So, the people did not feel any pressure over fuel price.

Bangladesh could follow the same policy, but it’s a political decision. It is a fact the government is giving subsidies on electricity, gas and liquid fuel, our argument is that subsidies for gas, electricity and petroleum products should be considered from the perspective of their overall impact on the economy rather than being assessed separately. A rise in fuel prices can have an immediate impact on inflation because higher transport costs quickly increase the prices of food and other essential commodities. On the other hand, the impact of an electricity price increase, by contrast, may take longer to spread through the economy.

Where necessary, the government could consider maintaining relatively higher support for petroleum products while reducing subsidies in areas where the economic impact of price increases is comparatively slower. BPC has accumulated substantial profits during periods when international fuel prices were relatively low. BPC has kept significant amounts of money in bank deposits and fixed-income instruments. The financial position of BPC is also relevant to the subsidy debate. I heard that the corporation recently provided around Tk22,000 crore to the government after breaking its fixed deposits.

But we must remember that under such circumstances the accumulated funds and BPC’s financial position should be considered when determining whether consumers should bear the full burden of sudden international price shocks. Bangladesh therefore needs a predictable and transparent fuel pricing mechanism rather than relying primarily on ad hoc price adjustments. A transparent formula involving international prices, taxes, subsidies, BPC’s financial position and consumer affordability, which could help reduce uncertainty and ensure that fuel price adjustments do not create unnecessary pressure on inflation and household expenses.

Successive governments focused heavily on expanding electricity generation while neglecting domestic energy development. That strategy might have worked if the economy had remained strong enough to sustain rising import costs. But much of our economic growth was driven by large infrastructure projects that did not generate sufficient employment or strengthen the productive economy.

A genuinely independent system operator would improve transparency, optimise dispatch decisions, and reduce inefficiencies in Bangladesh’s energy sector, as Bangladesh’s energy challenges require a comprehensive approach. Only by optimizing the entire energy system can achieve long-term energy security.