Volatile exchange rate of dollar hits LPG business

Originally posted in The Business Standard on 12 June 2022

Operators face loss of Tk65 in each 12kg cylinder

The Bangladesh Energy Regulatory Commission (BERC), the price regulator of power, electricity and petroleum, has considered fixing the exchange rate of dollar for importing raw materials (propane and butane) of Liquefied Petroleum Gas(LPG) at Tk89.15 for fixing the retail price of the product for the month of June.

But the official rate on Thursday reached Tk92, while the market rate hovers between Tk95 and above.

Because of these differing rates of currency, LPG operators in the country face a loss of Tk65 while retailing per 12kg cylinder in the market.

Industry insiders say that they are taking a loss of Tk5-Tk6 in selling per kg LPG at the BERC fixed tariff.

If this scenario continues, some operators would have to shut the business as they have been operating the business with unhealthy competition because of over investment in the sector.

Therefore, private LPG operators have sought the regulatory commission to revise the pricing policy for setting the retail tariff.

BERC Chairman Md Abdul Jalil on June 2, at the press briefing organised for LPG tariff order, said following the application the commission wrote to the central bank asking about the exchange rate.

“Bangladesh Bank suggested to consider the published rate of dollar in setting the LPG tariff. But, we can hold a hearing on the proposal,” said Md Abdul Jalil.

In the application to the BERC, LPG operators also said that apart from exchange related loss, businesses also counted extra cost due to fright cost hike and the cumulative effect of the gas price hike.

Azam J Chowdhury, director at Omera Petroleum Limited, said due to losses in multiple areas of operation, they are not even able to meet their operating costs.

He said, “The LPG business has already become a survival game. Some operators were selling the products at a loss. On top of that, the local currency’s recent depreciation against the dollar, operation cost and other variable costs has made the industry more vulnerable.”

Prior to April last year, private operators were at liberty to set their prices on their own.

But following a high-court order, the BERC took the charge for setting the petroleum price each month.

Jakaria Jalal, head of division of Bashundhara LP Gas Ltd, told The Business Standard that BERC’s pricing formula was hurting them.

“BERC fixed the rate considering the dollar exchange rate at Tk89.15 which is now Tk92 officially while the market rate is above Tk95. Due to the difference between the official rate and the market rate, private LPG operators are incurring losses of Tk65 in each 12kg cylinder,” he said.

Sources in the industry said that for some operators, LC settlement happened at Tk98 per dollar also due to shortage of dollars in the market.

At the same time, demand for LPG is now downward due to higher price of LPG. Consumers are not purchasing LPG cylinders due to the price of all daily essentials.

“Therefore, a large volume of LPG has remained unsold in the recent past month,” said Engineer. Anup Kumar Sen, senior vice president at Orion Gas Limited.

Bangladesh LPG Operators Association of Bangladesh (LOAB) data says that the total left over stock of LPG at the end of May ’22 was around 85,000 tonnes which is more than double the usual carry forward quantity and about 35% of total monthly sales quantity.

Keeping a large quantity of LPG left over, operators have to bring more LPG as maximum companies are in a term contract with the international traders that bind them to bring monthly quantity otherwise the traders penalise the operators.

Currently, the country consumes around 12 lakh tonnes of LPG each year as the usage ranges from cooking to refuelling vehicles. Some 27 private operators are fulfilling around 98% of the total demand.