The government has increased fuel oil prices by 42.5% to 51.6%, highest in 20 years, dealing a big blow to people already overwhelmed by skyrocketing prices of essential goods amid record inflation.
The Energy and Mineral Resources Division on Friday night hiked diesel and kerosene prices by Tk34 per litre to Tk114 and octane and petrol prices by Tk46 per litre to Tk135.
The new prices took effect at 12am on Saturday, said a press release of the Ministry of Power, Energy and Mineral Resources issued Friday night.
The government announced the hike at a time when oil prices in the international market are on a downward trend. Brent crude price on Friday was $95.50/barrel. It had gone as high as $129/barrel several weeks back.
Sources at the Energy and Mineral Resources Division and Bangladesh Petroleum Corporation (BPC) said the latest price hike is the highest since 2001.
The previous highest diesel price hike was by 37.5% on 27 October 2008; the new hike broke that record as the price went up by 42.5% and that of octane by 51.6%.
Diesel is the most consumed fuel in the country, accounting for around 73% of the country's total fuel consumption. Price hike of this fuel by 42.5% might have a disastrous impact on the transport and daily essential products as happened last November when the government increased the diesel price by 23.8%, said traders and industry people.
Nasrul Hamid, state minister for Power, Energy and Mineral Resources, however, said the people-friendly Awami League government always takes decisions considering the comfort and convenience of the people.
"The government did not think of increasing the price of fuel as long as it was possible. Some adjustments have to be made in view of the global situation. If the situation normalises, the fuel prices will be revised accordingly," he said.
Md Sakhawat Ali Babul, joint secretary of the Bangladesh Road Transport Owners' Association, said, "I do not see any reason to hike the price of diesel by Tk34 per litre. Every trip will now cost us Tk5,000-6,000 more. It has become difficult for us to provide transport services without hiking fares immediately.
"Many filling stations have stopped selling fuel oils since Friday evening. With such an abrupt decision, the situation has become complicated. A decision on transport fare will be made in a meeting Saturday," he added.
Abul Kasem Khan, member of the Board of Trustees of Business Initiative Leading Development (BUILD), said, "The latest fuel price increase will considerably increase transportation cost, which in return will impact prices across all sectors."
He said global fuel prices went up recently. India also increased prices a few months ago. Hence, the Bangladesh government has increased the prices in view of the market reality.
"But, we hope that the price hike is short-term. International prices are falling, so fuel prices will stabilise and soon revert to earlier prices," he added.
Agricultural Economist Jahangir Alam Khan said, "Due to less rainfall this season, many people are installing pumps for irrigation, leading to an increase in expenditure. Now, the increase in fuel prices will further add to that cost.
"Usually, 70% of [agricultural] land is irrigated with diesel-run water pumps during the Boro season. There will be a huge impact of the fuel price hike. Many will reduce production because of the rise in cost, which will lead to an increase in imports. Rice import may double from the current amount of 10-15 lakh tonnes."
Shams Mahmud, former president of Dhaka Chamber of Commerce and Industry, said, "This will have a negative impact on recovery for the export sector and the CMSE industry, both of which play a big role in the internal economy. Due to the ongoing load shedding and low gas pressure, the RMG and its backward linkage industries are already in trouble, while the forex market is volatile."
He said, "This fuel price increase will further erode our competitive advantage in an already challenging environment.
Shams, who is also the managing director of Shasha Denims Ltd, said, "In the RMG sector – the main source of dollar earnings for Bangladesh – we are to set the prices for the 2023 spring season now. It will be very difficult to forecast and set proper prices because of all the uncertainty in the cost of raw material inputs, including energy and the dollar exchange rate for imports. All these will ultimately have a negative impact on the financial sector."
Haji Majedur Rahman, an importer of various commodities including onion, garlic and ginger at Shyambazar of Old Dhaka, told The Business Standard, "We are already counting losses as importing products got costlier amid soaring dollar price. Now the fuel price hike has just made the list of our concerns longer."
Majedur regularly imports goods from India through Benapole and Bhomra land ports. "Bringing a goods-laden truck from Benapole to Dhaka costs around Tk28,000. The truck fare will now increase, and if the transport cost increases, the prices of these products will naturally go up. Eventually, the consumers will have to bear that extra cost," he said.
Mohammed Amirul Haque, managing director of Secom Group, said, "Traders have not yet overcome the shock of the previous increase in fuel prices. The domestic market is reeling from the dollar crisis and the increase in the prices of raw materials in the global market. Such a massive price hike of fuel oils again will shock all sectors.
"The government made profits by selling fuel oils to us at higher prices when the prices were lower in the global market. So, the government could have subsidised energy now. Besides, instead of raising the prices by 40-45% at once, a 10-15% hike would have been more logical."
Speaking with The Business Standard, Dhaka Chamber of Commerce and Industry (DCCI) President Rizwan Rahman, said, "Fuel is an essential commodity. This [the price hike] affects everyone and everything from the marginalised people to transportation costs.
"However, we didn't have too much of a choice. The transport minister recently told us that the government is importing oil. Everything is related to the volatile dollar market. Until we are able to stabilise the ongoing dollar crisis are bound to face pressure."
"Production costs are set to go up and business will bear the brunt of this. This additional expenditure was not considered when we did our books of accounts last year.
"Large businesses may survive this phase but small ones will find it very hard. We urge the government to remain alert and observant and take appropriate measures to neutralise the situation," he added.
In its press release, the Energy and Mineral Resources Division claims that the BPC has posted a loss of Tk8,014.51 crore in fuel oil sales in the last six months.
At present, due to the international oil market situation, rational price adjustments have become essential to keep BPC's import operations normal, it says.
India fixed the price of diesel at Rs92.76 per litre and petrol at Rs106.03 per litre in Kolkata on 22 May 2022, which has remained in place till now, it mentions.
These prices correspond to Tk114.09 and Tk130.42 respectively. In other words, compared to Kolkata, the price of diesel in Bangladesh was Tk34.09 less per litre and petrol Tk44.42 less per litre. As the price is low, it is time to increase the price of fuel oil as there is a fear of oil smuggling, it argues.