The Financial Express

The unsettling upward revision

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As the Covid-19 situation started easing for the last couple of months, expectations over an economic rebound were running high.

But a toxic cocktail created by creeping inflation at home and supply chain disruptions and an increase in most raw material prices globally has largely put a damper on such optimism.

The latest increase in the prices of diesel, kerosene and furnace oil domestically has unsettled almost everything. Businesses are crying foul. Transporters have hiked rates and fares, leading to street protests by political parties and students.

The price situation has deteriorated further because of higher transportation and production costs. Exporters say they will lose competitiveness in the international market.

Passengers and bus operators almost regularly engage in brawls over overcharging while students block roads demanding a cut in their bus fares.

In sum, the hike in fuel prices has triggered troubles of all sorts for the government. Many tend to believe that the government could have waited a bit longer before deciding on the fuel price hike.

The government reportedly had made a hefty profit --- more than Tk 450 billion --- from its oil operations between 2015 and 2020.

The Bangladesh Petroleum Corporation (BPC) incurred an estimated loss of Tk 6.0 billion due to the recent increase in international oil prices, mainly because of the cut in oil production by the OPEC+ countries. These countries aimed to cash in on an apparent start of the economic recovery in major countries following a marked improvement in Covid situation.

As a countermeasure, some major global economic powers such as the USA, China, Japan and South Korea are planning to release their strategic reserves in the market to drive down the petrol prices. US President Jo Biden has announced the release of 50 million barrels from its reserves. This action has already impacted oil prices. Brent Crude, the benchmark in international oil price, has come down to $78 a barrel from its peak at $82 on November 03.

Though the actions by the major oil-importing countries are likely to create a short-lived effect, there is another ominous sign on the horizon for the oil exporters. Europe is now facing yet another surge in Covid infections. Several countries are now mulling imposing restrictions again, which would slow down their economic recovery process.

A report published in this paper a couple of days back revealed that the BPC is now making a daily profit of Tk7.50 million from its oil operations. The decline in oil prices internationally has made it possible.

Since the government hiked the oil prices because of the rise in international prices of the item, it should now be logical on its part to revise the domestic prices downward, considering the changes in the international oil market scenario.   

As far as the past track record of the government is concerned, it is unlikely to go by logic and will stick to the present price chart of petroleum products.

Under the circumstances, it would be better if the government implemented the automatic price adjustment mechanism for petroleum products.

Under the mechanism, prices at the domestic level need adjustments in line with the ups and downs of oil prices in the international market, taking into account a specific timeline.

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