Is the 2.5x gas price hike justifiable for industry?

For the past few years, industries have been suffering from a gas shortage, causing production disruptions, and some small and medium-sized factories have even shut down. Two years ago, the previous Awami League government increased the gas price for industries by 150 to 178 percent, promising uninterrupted gas supply. Last year, the price was also slightly raised. However, even after two years, the gas shortage in the industrial sector has not been resolved. Now, the government plans to increase the gas price by 2.5 times, promising a boost in supply. This decision to raise gas prices in the industrial sector is likely to fuel inflation.

According to a report published on Tuesday (January 7), with approval from the Energy Division, the Bangladesh Oil, Gas, and Mineral Resources Corporation (Petrobangla) has proposed an increase in gas prices to the Bangladesh Energy Regulatory Commission (BERC) on Monday. The proposal suggests raising the price of gas from 30.75 BDT per unit to 75.72 BDT per unit. Under the new proposal, new connections will be charged at the full new rate, while existing consumers may receive some discounts.

Petrobangla generally sources gas from two sources. It purchases domestic gas from various companies, costing them on average 6.07 BDT per unit. However, importing liquefied natural gas (LNG) costs over 75 BDT per unit. As a result, the organization is incurring losses. The government is unwilling to provide subsidies, and so Petrobangla now wants to pass on the full cost of LNG imports to the industrial sector. According to Petrobangla's proposal, for old customers, the bill for the excess gas consumption beyond the approved load will be charged at the new rates. For industrial units that have been promised new connections, they will be charged the old price for up to 50 per cent of the approved load, while the remainder will be charged at the new price.

If this happens, investments in the industrial sector will be significantly hindered, and production in existing factories will also undoubtedly decrease. This will not only put pressure on investors and business owners but also on consumers. The overall industrial sector in the country will face a major negative impact. Petrobangla has informed the media that its proposal for price increases has been submitted to the commission. On Tuesday (January 7), it will be reviewed, and the next steps will be decided based on the commission’s board meeting's decision.

The commission can reject the proposal after evaluating its logic. Even if the entire proposal is not rejected, some price increase may be considered to address the gas shortage. However, if the price is suddenly doubled, it will certainly have a detrimental effect on the industrial sector. The commission must carefully consider whether it is logical to increase the price of gas by 2.5 times. Even after previous price hikes, supply in the market has not increased. On the contrary, the decision to raise prices will discourage industrialization. New investments in industries will not come, and employment will not be created. Foreign investments will also be deterred. Moreover, simply increasing the price of gas will not solve the problem. The industrial sector must reduce its dependency on gas and search for alternative fuels. Raising gas prices to solve the supply issue is a temporary solution. Experts also suggest that even if the price of gas increases, the supply will not significantly improve. Domestic gas production is gradually decreasing. We urge the government to focus on increasing the exploration and production of domestic gas to alleviate the crisis. The plans for drilling new wells should be implemented promptly.