BPC pays dearly for lack of automatic oil pricing formula

In contrast to the automatic oil pricing formula followed throughout the world including countries in this subcontinent Bangladesh sticks to a very old and traditional system of it, which is why the state-run Bangladesh Petroleum Corporation (BPC) is facing continuous trading losses.

Sources in the BPC said the state trading agency lacks a pricing formula that fixes automatically the price of fuel oil for the retail consumers on the basis of its international market prices.

Most of the countries including India, Pakistan, Sri Lanka, the Philippines, Australia and Germany fix the retail price of fuel oil every month or on a weekly basis as per international market prices, senior officials at the BPC said.

For the sake of survival, the BPC recently proposed a new oil pricing formula to the authority concerned in the government as a way out of the government's subsidy trap after a certain period.

This will save a large amount of money in terms of the subsidy the government is providing every fiscal year, they opined.

Senior BPC officials said the proposed pricing formula, submitted about three months ago, is under active consideration of the government.

If the price of gas and electricity for retail consumers is revised on the basis of costs, why the price of fuel oil should not be revised on the basis of international market prices, they questioned.

The BPC cannot lag behind and hang on to a traditional system in this important sector, when the country is rapidly growing over the last decade and the country is looking forward to becoming a middle income nation in near future, they stated.

The estimated import volume based on consumption is 7.5 million tonnes for the current fiscal year (FY) against the import of 6.948 million tonnes in FY 2017-18.

It imports 1.174 million tonnes of crude oil, 4.543 million tonnes of finished products and procures the rest from the local fractionation plants. The BPC products include diesel, furnace oil, kerosene, octane, petrol, etc.

BPC Director (Finance) Md Altaf Hussain Chaudhury said the BPC is incurring losses to the tune of Tk 200 million every single day due to the lack of this pricing formula.

He said the corporation incurs losses due to selling of fuel at prices much lower than the import cost. It imported diesel at $ 59 per barrel in June 2017 which soared to $ 76 a barrel in November last.

The Asia Pacific/Arab Gulf Market Scan shows that the price of diesel was $ 91.73 per barrel on August 29 last but it rose to $ 94.26 a barrel on September 3.

The BPC is facing losses to the tune of Tk 85 billion a year in oil trade as the import cost with 31 per cent tax and freight, premium plus margins for marketing companies and dealers.

The fuel price in the international market is escalating due to global political turmoil and the oil output cuts by OPEC (Organisation of Petroleum Exporting Countries and the non-OPEC oil producers.

The oil producing countries decided in November 2017 to extend their production cuts until the end of 2018, prompting the steady rise in fuel oil price.

"We are compelled to sell products at a subsidised rate. The BPC incurs a loss of Tk 22 for each litre of oil it sells," he said.

Between the fiscal years 2000-01 and 2013-14 it incurred an aggregate loss of Tk 270 billion. So the BPC requested the government to provide subsidy but the government considers the amount given to the BPC as a loan which is not rational, he said.

The BPC made substantial profits for three consecutive years from late 2014 to October 2017.

During the period it repaid debts worth Tk 30 billion in FY 2014-15, Tk 10 billion in FY 2015-16 and Tk 12 billion in FY 2016-17 in dividends.

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