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The Financial Express

Market-based pricing policy is preferable

| Updated: October 21, 2017 06:16:46


Market-based pricing policy is preferable


The owners of compressed natural gas (CNG) filling stations have, of late, raised their voice in chime with others, for reducing the gas price proportionately to the planned cut in price of fuel oil. Earlier, Consumers Association of Bangladesh (CAB) and other stakeholders protested the 'planned' hike of the gas prices.
Strongly opposing the move to raise prices of natural gas, the pump owners urged the authorities at a press conference this week, to implement the recommendations that were made in 2013 by a high-level committee of the energy ministry for sustainability of their business in CNG sector.
Their demand came against the backdrop of the authorities' move to raise the gas prices by 87.66 per cent on an average, over the existing ones. The government, on one hand, said that the prices of fuel oils would be reduced in phases by Tk 25 to Tk 30 a litre in view of the marked fall of the global oil prices in the recent times. On the other, it stated that the power tariffs would be raised as well. Last year, the Bangladesh Energy Regulatory Commission (BERC) hiked the retail power prices by 2.97 per cent and gas prices by 26.29 per cent.
The owners of CNG filling stations claimed that they had invested Tk 35 billion in 2000 to establish 590 pumps across the country with active support of the government. Apart from this, Tk 25 billion were spent to convert vehicles into CNG mode, which played a significant role in reducing air pollution in the capital and other areas of the country as well. If gas price is not proportionately cut, the vehicle owners, they said, will definitely prefer fuel oil.
On its part, the government claimed that the gas price needs to be raised in order to recover the deficit created by the high price at which Petrobangla is buying gas from the international oil companies. Household gas prices, as the concerned functionaries of the government indicated, will be Tk 1200 per month for double burners, up from Tk 650 at present, and that for single burners, Tk 1100, up from Tk 600; domestic consumers using meters will pay Tk 16.80 per cubic metre, which will be up from Tk 7.0 per cubic metre. The price of CNG is set to be Tk 58 per cubic metre, up by 66 per cent from Tk 35 now, according to reports.
Frequent moves by the authorities to hike prices of natural gas, fuel oil and electricity on the plea of covering the losses incurred by the parastatals concerned are, as the analysts say, not new. Keeping issues about widespread corruption and inefficiencies aside, such parastatals offer too often such a logic in defence of their stance, in order to make it credible to the common man.
The fact remains that when domestic prices of fuel oil, natural gas and others had steadily gone up over the past few years, the purchasing capacity of people at large went down. Inflationary pressure substantially eroded their capacity to purchase, despite their increased income in nominal terms.
According to analysts, if the fuel oil prices are set after taking the international market situation into consideration it will not only bring down the average cost of living but also boost economic activities that have been sluggish in recent times for different reasons, including that of absence of fuel-good factors.
The Centre for Policy Dialogue, a local think tank, said recently that apart from reducing inflation by 0.2 per cent, just 10 per cent cut in fuel oil prices would boost the gross domestic product (GDP) and private investment each by 0.3 per cent, exports by 0.4 per cent and the average household consumption and an individual firm's earnings by 0.6 per cent each.
The chief of the energy regulator, on an earlier occasion, admitted that there were some corruption and wastages in the power sector, as he faced many queries over the logic for fresh moves to hike power tariff. Such issues, as he promised then, will be addressed. Such malpractices, experts say, result in what is otherwise called systems loss. And this loss adds up to power cost.    
There is a widespread fear that the authorities concerned are having problems over managing the country's troubled energy sector. Almost all state entities that are involved with power generation and distribution are allegedly graft-ridden. No reform programmes, so far, to rid these entities of their corrupt ways, worked.
Increasing the power tariff without improving the service quality is likely to put the country's macro-economy under pressure, thus adversely affecting activities in productive sectors like those of agriculture and industry.
The government had never reduced power tariff since the country's inception. Power sector experts are putting emphasis on improving the supply-side management and efficiency of power plants, instead of opting for oft-repeated hikes in power prices. They say the hike in power tariff is a result of inefficiencies of the power generating and distributing agencies but the consumers must not be penalised for it.
Against this backdrop, it is now imperative to move away from the ad-hoc price adjustment system to a pricing policy that is transparent, predictable and market-based. The 'planned' hike afresh will obviously have chain-effects on the prices of products and thereby depress the purchasing power of the people.
Instead of raising power tariff, the authorities do now also need to ponder over reducing the natural gas price proportionately, keeping in line with the projected cut of the fuel oil prices. The regulator should therefore take pragmatic steps to reduce the systems loss of the power distribution and generation agencies by overhauling their management and administration.
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