Dhaka Courier

To subsidize or not: Increased gas prices

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As leftist parties of the country observed a nationwide strike on the 7th of June in protest of the gas price hikes with support from the opposition political party, BNP, there were also concerns raised by citizens from different walks of life, consumers and different rights bodies regarding the same issue. However, as the cost price of gas has inevitably increased with the importation of costly LNG in the country’s energy mix, the main question before the price hike was whether the government should further subsidize the prices under austerity measures and absorb the difference in increased costs or not.

The weighted average price of gas across domestic, industrial and business users in the local market now stands at Tk. 9.8 per cubic foot up from the previous average price of Tk. 7.38, an increase of 32.80 percent and was announced by Bangladesh Energy Regulatory Commission (BERC) effective from the 1st of July, 2019. The increase in price comes after different public hearings held by BERC in June last year and March this year although the final circular for the increase came at a far later date. It is also worth mentioning that the hike comes at a time when five of the six gas distribution companies in the country are making profits with the previous prices.

The last time that there was an increase in gas price was in March 2017, but since then we have started importing LNG from Qatar and Oman using the two FSRU’s moored off Moheshkhali Island, already capable of contributing a total of 1000 mmcfd of natural gas to our national grid and supporting our already depleting onshore gas reserves. The cost of LNG per unit is incredibly high when compared to the cost of our locally produced onshore gas, and this is the main reason for the hike according to the government.

According to Prime Minister Sheikh Hasina, even with the latest increase in gas prices, the government shall have to subsidize the LNG imports to the tune of Tk.10,000 crore, which is already a staggering amount. With the GDP growth rate at 8.1 percent this year and the economy showing great signs of continued improvement, the increase in gas price may have an adverse impact on the economy in the future but shall definitely have an impact on small and medium businesses in addition to lower and middle income families.

It is thought that if the government did not raise the gas tariffs, it would have had an additional subsidy of Tk. 14,000 crore at its hands, according to the State Minister for Power, Energy and Mineral Resources, Nasrul Hamid. The revenue gap would have been significant without a tariff hike, yet many consumers and rights bodies believe that the impact on businesses and households would be greater.

Experts point to alternatives in managing the possible shortfall in revenue had the increased gas prices been subsidized through austerity measures, which include stemming the illegal gas connections as well as significant decreases in the system loss throughout the gas network in the country.  Both these measures would have to be strongly marshalled throughout the country and would require a significant effort from the gas transmission and distribution companies countrywide.

However, with a further LNG import project in the form of an onshore LNG terminal in tendering process by RPGCL and with a lack of development in the offshore gas exploration and production in the country, further price hikes in gas seems inevitable in the future. It just remains to be seen whether the government shall continue to subsidize the sector or try to manage the shortfall through price hikes.

  • To subsidize or not: Increased gas prices
  • Vol 36
  • Mishel Khan
  • Issue 1
  • DhakaCourier

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