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Why the price of fuel and electricity increased ahead of Ramadan!



Thu, 29 Feb 24

In various countries around the world, discounts are often offered on goods before Ramadan. However, the opposite scenario is observed in our country. Such incidents have deeply concerned us. It is assumed that this time around, we will witness a normal scenario where prices of goods will follow the usual trend. Furthermore, the increase in electricity and fuel prices will exacerbate inflationary pressures. The electricity and fuel sector authorities have announced that starting from March, there will be an increase in the prices of electricity and fuel. Now the question arises, why did such measures need to be taken just before Ramadan?

The state minister of Power, Energy, and Mineral Resources, Nasrul Hamid, has stated that the price per unit of electricity will be increased from 34 to 70 paisa. On the other hand, the increase in the price of oil will be based on the international market rates. This means that if the price of oil increases in the international market, it will also increase in Bangladesh.

Again, if the price decreases in the international market, it will also decrease in Bangladesh. Under this method, the price of fuel for electricity generation will be adjusted periodically. Simultaneously, for electricity production, the price of gas has been increased by 70 paisa per cubic meter. In this case, even if the price of gas for ordinary people hasn't increased, the cost of electricity production will still rise. However, it's not just the gas price that has increased for government, IPP, and rental power plants; the gas price has also increased at the same rate for captive power plants used by industries for their own consumption.

The government says that in the current fiscal year, the government has to give a subsidy of 43 thousand crores to the power sector. And the amount of this subsidy in the energy sector is 6000 crores. In other words, the total amount of subsidy is 48 thousand crores. Its amount as foreign currency is four billion dollars.

In addition to domestic electricity generation, the government also imports electricity from abroad. Coal and LNG are imported as fuel for power generation. That means dollar is required for importing these two fuels. In this case, money can be managed by raising prices, but converting that money into dollars is more challenging. Already there is an extreme shortage of dollars in energy import and payment of foreign debt installments.

The government believes that providing a substantial subsidy is not feasible for them. Therefore, in the coming years, subsidies will be gradually phased out by adjusting prices. However, if a substantial amount of subsidy, such as four billion dollars, is provided, the average selling price of electricity per unit would need to increase by 12.50 taka. Currently, the average selling price of electricity is 8 Taka 25 paisa per unit. However, according to the statement of the state minister of Power, Energy, and Mineral Resources, Nasrul Hamid, the production cost is 12 taka per unit. Therefore, on average, the loss per unit is 3 Taka 75 paisa. He has also mentioned that in the coming years, this subsidy will be adjusted.

However, in the current year, the price is not increasing only once. In the current year, electricity prices will increase several more times. Last year, in 2023, the price was increased in three phases, divided into five parts each, totaling 15 increments. If this trend continues uninterrupted this year, electricity prices will increase at least twice more.

When the price of fuel increases, it's not just the common people who end up paying higher bills. The production costs in agriculture and industry also rise. Simultaneously, when the price of fuel increases, transportation expenses also rise. In terms of transportation costs, expenses increase in both the transportation of raw materials and the transportation of finished goods.

Not only that the government has a special incentive to adjust the price of fuel, but the loans we have taken from the International Monetary Fund have also stipulated the price adjustment. India coordinates with the international market to determine domestic fuel prices in the country.
However, in our country, especially in agriculture, diesel is still predominantly used for irrigation by a significant portion of farmers. As a result, when the production costs of farmers increase due to higher fuel prices, it affects the market.

Compared to last year, this year the prices of rice, lentils, vegetables, and everything else are already high. If fuel prices increase again now, the prices of agricultural products will rise even further. This increase could easily be accepted by people if their income also increased. However, in our country, people's income did not increase over the past year. As a result, the increase in fuel and electricity prices will further exacerbate the new crisis for the people.

During the middle of last year, the price of crude oil or unrefined oil in the international market rose to $91 per barrel. Although in January of the current year, the price of crude oil was slightly lower, it has now risen again to above $78. It is anticipated that in the coming months, this rate will increase further.

In the international market, the price of coal has fluctuated between $156 to $127 per ton over the past two months. As a result, the current price of coal is not stable. If it increases further, the production costs of coal-fired power plants will also rise.
In that case, with the three big projects of the country, the production cost of electricity of Adani-power plant in India will increase further. As a result, the production cost of electricity will continue to increase. In that case, if the government wants to withdraw the subsidy, the average loss at the customer level will have to increase more than 3. 75 paisa.

Recently, the government has been unable to pay the bills of power plants. Therefore, there is a special effort to secure funds through bond issuance. As a result, a large amount of money will be accumulated in the government's hands, which can be used to address the situation.

However, it is essential to analyze how much of price increase will be tolerable for the people. Unfortunately, this consideration is never made before the price hike. Once again, news of price hikes amidst the expenses of Ramadan and Eid has disheartened the people.

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