Originally posted in The Financial Express on 08 June 2022
Worrying war impact on oil market
May go bankrupt, minister says and seeks remedy
Bangladesh’s petroleum agency now counts a soaring loss of around Tk 934 million daily as international oil prices have been high since the breakout of Russia-Ukraine war on February 24.
Officials say of the loss Bangladesh Petroleum Corporation (BPC) incurs, around Tk 895 million is on diesel trade and Tk 39 million on octane as per international oil price as on June 3, 2022.
The state corporation is now incurring a net loss of around Tk 50 per liter against sales of diesel and Tk 34 per liter on sales of octane, a senior BPC official told the FE Tuesday.
Import duties and taxes, including value-added tax (VAT), account for BPC’s loss of around Tk 17 per litre.
“This loss is huge,” says State Minister for Power, Energy and Mineral Resources (MPEMR) Nasrul Hamid.
“The BPC will turn bankrupt if it continues to incur such loss,” he told the FE Tuesday.
“We shall discuss the issue with government top-ups soon to decide a way-out,” says Mr Hamid.
The BPC imports mainly diesel and octane from the international market to cater the growing need of domestic market.
The country requires around 15,000 tonnes of diesel and 1,100 tonnes of octane daily to feed domestic demand.
The corporation’s marketing losses will soar further if the current volatile global market, buoyed by limited inventory and the Russia-Ukraine standoff, continues to prevail, BPC sources fear.
The price of Brent crude, the benchmark in international oil price, is now hovering around US$120 per barrel, which surged as high as $130 per barrel for a brief period in early March
The Brent crude price was around US$ 82 per barrel on November 4, 2021 when the prices of diesel and kerosene were raised by around 23 per cent to Tk 80 per liter from previous Tk 65.
The prices of octane and petrol, however, were kept unchanged to their previous April 2016 level at Tk 89 per liter and Tk 86 per liter respectively.
The November 2021 oil-price hike had sparked widespread protest, leading to several days of transport strike, which was called off after hike in transport fares.
Commoners also protested the oil-price hike and students made home their demand for charging in transport fares.
Diesel is the key petroleum product that the BPC imports from international market most followed by furnace oil and octane.
The BPC itself fixes the domestic prices of a number of petroleum products, which include furnace oil, jet fuel, bunker fuel and marine fuel, most of which have less direct reflection on commoners.
To cope with the uptrend in oil market, the BPC recently increased domestic prices of all such fuels, and among them, furnace-oil price was raised by 19.35 per cent to Tk 74 per liter on March 25, 2022.
Among other major petroleum products, BPC also imports octane, jet fuel, furnace oil and marine fuel to meet domestic demand.
The corporation currently imports around 5.0 million tonnes of diesel, 1.30 million tonnes of crude oil, 600,000 tonnes of jet fuel, 300,000 tonnes of octane, 500,000 tonnes of furnace oil and 120,000 tonnes of marine fuel annually.
The BPC alone procures around 85 per cent of the country’s oil requirement and the rest by the private sector.
Furnace oil is mostly used in power plants in the country and most of which is imported by privately-owned power plants.
Private sector imports around 32 million tonnes annually to generate around 5,500 megawatts of electricity. They get 9.0-percent service charge as incentives to import furnace oil of their own.