Energy Bangla

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Dhaka Monday,  Feb 6, 2023

Gas Prices Hiked By Up To 179 Per Cent

Emran Hossain

The government, in an executive order on Wednesday, increased retail piped gas prices in four consumer categories by up to 179 per cent with effect from February 1.

Four other consumer categories—household, fertiliser, the tea industry, and compressed natural gas—did not see any change in their rates but were bracing for multiple impacts from the price hike.

The hefty increase in prices of gas meant for use in power generation and industrial production would increase living costs in many ways, economists and consumer rights activists said, making survival difficult, especially for the poor and small and medium-sized business entities.

The cost of meals at hotels and restaurants would jump because of the gas price increase under the commercial category, the experts said, potentially leaving hundreds of thousands, especially those in cities, counting on cheap eateries, often at makeshift roadside shops, half-fed.

Yet, the experts said, these inconveniences would barely achieve anything, for they would not generate the dollars that the government needed to boost its import capacity to come out of the energy and power crises.

‘Eventually, the government will suffer tremendously because its revenue generation will fall,’ Consumers Association of Bangladesh energy adviser M Shamsul Alam told.

‘Economic targets can never be achieved when mere survival becomes a constant struggle,’ he said.

The gas price hike came barely five days after the electricity price was hiked by five per cent a unit and the electricity demand charge by up to 42 per cent.

Gas prices across all eight consumer categories increased by an average of 23 per cent in June 2021.

Just the day before the latest gas price hike, the state minister for power and energy, Nasrul Hamid, said that electricity prices would be adjusted every month by an executive order from now on, hinting at yet another round of hikes in electricity prices.

The electricity price increase has now become inevitable, an energy expert said, as the price of gas meant for use in power generation underwent the highest increase of 179 per cent with the price of a cubic metre jumping to Tk 14 from Tk 5.02.

Captive power, or electricity generated by factories for their own use, saw the price of a cubic metre of the gas climb to Tk 30 from Tk 16 following an 88 per cent rise.

Small, cottage and others recorded the highest 178 per cent increase among the new industry rates announced for three sub-categories, including large and medium.

The rate per cubic metre of gas for the small, cottage, and other industries was increased to Tk 30 from Tk 10.78.

The rate per cubic metre of gas for the medium industry was increased to Tk 30 from Tk 11.78 marking a 155 per cent increase.

Large industries saw the lowest hike of 150 per cent in their gas rates, with the price of per cubic metre of gas rising to Tk 30 from Tk 11.98.

The price of per cubic metre of gas consumed commercially by hotels, restaurants and others was increased to Tk 30.50 from Tk 26.64 – a 14.48 per cent hike.

Following rounds of negotiations with the government, business leaders agreed to pay a maximum of Tk 25 if gas was supplied continuously and at the correct pressure, which they claimed the government had never achieved.

Factories with the best gas supply currently get barely half of what they need.

‘Since the price hike will not produce dollars to increase import capacity, the chance of Bangladesh increasing gas supply anytime soon is highly unlikely,’ said Khondaker Golam Moazzem, research director, Centre for Policy Dialogue.

International media reported that long-term LNG contracts available through 2026 were sold out, with the spot market potentially staying highly volatile over time.

Bangladesh meets roughly a fifth of its gas demand through imports, mostly from long-term contracts, and has not purchased gas on the spot market since July.

The last gas price hike was justified by the need to import 100 mmcfd from the spot market—a promise the government did not keep.

The fresh price hike means industries would have to pay more without any improvement in the gas supply, said Moazzem, sending production costs through the roof.

Small and medium investors will bear the brunt, but large investors will suffer too, he said, adding that some industries would face a double blow because their captive power expenses would also jump.

The production cost would be particularly high in some industries, such as steel, ceramics, glass, and textiles, whose production is directly reliant on gas.

‘The price hike will reduce the subsidy need to some extent, but a far better way of getting the job done is to explore our own gas reserves,’ said Moazzem.

The government never heeded energy experts’ longstanding call for reducing gas import reliance and investing more in renewable energy. The government rather aggressively invested in expensive fossil fuel imports.

The government also did not take any effective measures for high inefficiency and corruption in the power and energy sectors, logging some of the world’s highest system losses.

‘The burden of flawed policy, inefficiency, and corruption is passing onto the shoulders of consumers,’ said economist Anu Muhammad.

The Technical Evaluation Committee of the Bangladesh Energy Regulatory Commission revealed in a March 2022 public hearing that the state-owned Petrobangla, the lone buyer and importer of natural gas, pocketed Tk 2,538 crore by importing 553 mmcfd less LNG than promised in the financial years 2019-20 and 2020–21.

Over 50 per cent of installed power capacity cost Bangladesh Tk 72,567 crore in capacity charges in the decade ending in the financial year 2020–21, according to the Bangladesh Working Group on External Debt.

The capacity charge is nearly equal to the accumulated loss of the state-owned power sector regulator, the Power Development Board, over the same period, which is largely covered by subsidies.

On Wednesday, Petrobangla reported supplying 2718 mmcfd, including 480 mmcfd of LNG, against its capacity to supply 3,760 mmcfd.

The gazette notification announcing the new gas prices said that the prices were readjusted under the authority vested in Section 34 (ka) of the Bangladesh Energy Regulatory Act, 2003.

The section of the BERC Act was amended in December, enabling the government to change power and energy prices by executive order, bypassing the BERC.

The overall energy sector expense greatly increased following an abnormal rise in LNG price in the global energy market because of the Russia-Ukraine war, increase in other costs such as bank interest and weakening of the taka against the dollar, said a press release sent by the power and energy ministry.

The price hike was required to meet increased demand in the upcoming irrigation season and summer, the press release added.

The free access statistics website TradingEconomics showed per MMBtu LNG was sold at $3.4 on January 8, the lowest LNG price ever reached since December 2021.

LNG price has sharply declined since December when per MMBtu LNG was sold at $7, showed the statistics website. In August 2022, the price rose to nearly $10.

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