***The recent advice of the World Bank to rationalise the increased prices of the petroleum products in the light of stable and reasonable international prices showing a downward trend should be carefully accepted and acted upon.***

THE sudden cabinet decision of August 18 last to raise the prices of petroleum products, which came in force on August 19. took the nation by surprise as there was neither any expectation nor any prior announcement through the presa/media. This Increase in price led to increase tn fares or buses, trucks and other public transport and operating expense of cars and other vehicles. It also led to substantial rise in the prices of vegetables and other goods generally carried by trucks. The sixth session of the Parliament began on August 30 and there were protests and walkout by the members of the main opposition party to protest the increase in price of petroleum products. They observed a strike on August 24 and organized demonstrations in Dhaka city as well as divisional and district headquarters. They also brought out a procession on August 31 marching towards the Parliament to register their protest against the petroleum price hike.

The explanation put forward by the government for the increase in the price of petroleum products was the necessity to cover the anticipated loss of about Taka 450 crore of the state-owned Bangladesh Petroleum Corporation (BPC) in 1996-97. the rise in international price of crude oil and the decreasing value of Taka due to successive devaluation in terms of US dollar. It was said that the BPC earned a profit of Taka 75 crore in 1995-96. From the government fact sheet, it ap-Kars that the BPC earned prof-successively from 1990-91 to 1995-96 of Taka 104 crore. Taka 789 crore. Taka 759 crore. Taka 919 crore. Taka 241 crore and Taka 133 crore respectively. The argument about a break even point for the BPC is not tenable, as it means the point of intersection of the total cost curve with its sales curve. The pretext of higher international price of crude oil as a justification in support of the price hike of petroleum products is also*not tenable. During the period from May 29. 1994 to August 18, 1997. the highest Srice of petroleum was US $ 4.10 per barrel on December 8, 1996. i.e. 15 cents per litre or Taka 6.70 per litre (Brent. London). On August 18. 1997 — the date on which the decision to raise the petroleum prices was taken — the international price was US 8 18.50 per barrel i.e. 11 cents or Taka 5.00 per litre. If another Taka 5 is added on account of duty and VAT, the price per litre comes to Taka 10.00 only. A former Finance Minister suspected that the

price hike was actually to cover the failure in revenue collection and that the government may even have to go for deficit financing to Implement the new pay scales (The Daily Star. September 5, 1997).

The matter of successive devaluation of the Taka is a proof of weakness of our economy. The BGMEA and a few persons engaged in the export business have been, as appears from a Reuters report, are exerting pressure for a further devaluation of the Taka by 15 per cent. It may be noted that one US dollar was equivalent to Taka 7.30 in 1971-72. and is now equivalent to Taka 45.21 (October 26. 1997). This means that a Taka of today is approximately equivalent to only 16 paisa of 1971-72 and the value of US dollar has increased 6.20 times with respect to the Taka during the last 25 years. It has made our imports costly, destroyed our industrial base and hit the poor people of this country hard. The state-owned BPC and some unscrupulous dealers in petroleum products might have influenced the government to strike a hard blow to the consumers of petroleum products.

By imposing duties and VAT on the C&F value of petroleum products, the government got a sum of about Taka 1.800 crore from the BPC in 1994-95 and they are likely to have been getting even higher amounts thereafter. However, the government could get higher revenue through fiscal measures rather than by administering prices of petroleum products. By arbitrary Introduction of a slab-system in the price, the government has hurt the middle class, particularly the users of petrol and octane, very hard.

The increase in prices of petroleum products per litre in Bangladesh, as approved by the fovernment decision of August

8. 1997 are as follows :

(1) Diesel and Kerosene Taka 0.25 (from Taka 12.70 to Taka 12.95). I.e. +2.0%

(it) Petrol Taka 7.30 (from Taka 13.70 to Taka 21.0), i.e.+53%

(ill) Octane Taka 8.35 (from Taka 14.65 to Taka 23.0). i.e.+57%

(iv) LPG (liquefied gas) : Taka 74.75 (from Taka 185.25 to Taka 250.0) per cylinder, i.e.+35%

(v) JPO (fuel for aircraft) : Taka 1.20 (from Taka 15.80 to

Taka 17.0), l.e.+0.07%

As may be seen from the above, the rise of the price was distributively unequal and harsh. The burden of the price hike has very Inequitably been 6laced heavily on the users of 2 ikh ton of petrol and 1 lakh ton of octane though ft is relatively less harsh for the users of 16 lakh ton of diesel and 4.5 lakh ton of kerosene in the country. A flat levy of Taka 1 00 per litre on all petroleum products would bring Taka 159 per barrel (one barrel ■ 159 litre) in revenue to the government and. at the same time, would have been distributively equitable and transparent

It may be recalled that prices of petrol and octane were reduced on January 1. 1990. to bring them in line with kerosene and diesel. The prices of petrol, octane, kerosene and diesel were fixed around Taka 14 per litre on October 4, 1990 from the then existing rate of around Taka 7 per litre. It may be mentioned tnat In the developed countries and In many developing countries, petrol, octane and diesel oil are priced almost at par.

During the Gulf War in 1990 when Iraq Invaded Kuwait, kerosene, diesel and crude oil prices of kerosene and diesel In the international market shot up to US 8 65. US 855 and US835 per barrel respectively. At the then prevailing exchange rate of US 8) equal to Taka 32. the prices of kerosene and

diesel would be taka 13.08 and Taka 11.07 per litre respectively

The present international market price of both the finished (readily usable) products and crude oil Is more or less reasonable and stable. In fact, it Is showing a downward trend. Import price of petrol is about Taka 7.60 per litre and duty and VAT amount to Taka 6,70; C&F Import price of kerosene is Taka 7.56 per litre and duty and VAT amount to Taka 5.90; C&F value of diesel Is Taka 7.84 and duty and VAT amount to Taka 6.70; value of JPO is Taka 7.57 and duty and VAT amount to Taka 7.52 per litre.

Taxes make up a significant portion of petrol prices and account for much of their variation across countries. Excluding taxes, the price per liter of premium unloaded for 18 developed countries (Norway. Netherlands. Sweden, Italy. France, Denmark. Belgium. Austria, Britain, Germany Switzerland, Spain, Greece. Czech Republic. Luxembourg. Australia. Canada and the USA), varied between 22 cents (In Canada) and 38 cents (in Austria), depending on factors such as the cost of transporting fuel. The variation In petrol prices increase, dramatically once taxation is taken Into account In Norway, where petrol taxes are the highest (at 93 cents per liter), the final cost of each liter of petrol Is US 81 27. This Is more than three times

as much as Americans pay for their petrol. At only 10 cents per litre, the USA has the lowest rate of petrol taxation in the countries listed above (Source : IEA ; Economist. July 26. 1997).

Globa) oil consumption rose by 2.4% in 1996. almost twice as fast as in 1995. Cold winter weather in North America and Europe lay behind much of this rise. On the other hand, the world’s proven reserves of oil rose by 2.0% in 1996, slightly less than the growth in global demand. Saudi Arabia, which holds 25% of global oil reserves, produced 12.8% of the world's oil output in 1996. At the current rate of pumping, Saudi Arabia s reserves should last for 83 years.

Reserves In the USA. the world's second biggest oil producer. are expectea to last only ten years If output continues at the current rate. However, new discoveries and improvements In extraction technologies mean that figures for proven reserves underestimate tne actual quantity of earth s reserves. The percentage of reserves by region for end of 1996 were : Middle-East 65%. Latin America 12%. Europe 9%. Africa 6%. Asia Pacific 4% and North America 4% (Economist. August 2. 1997, Source B.P.).

Pakistan announced a 3% rise In oil price from October 16. The price of a litre of petrol has risen to Rupees 17.75 from Rupees 17.23. The price hike has been stated to be a consequence of 8% devaluation of the Pakistani Rupee against the US Dollar fixing it at USS 1.00 equivalent to Rupees 44.05 from Rupees 40.52 on October 14.

In India, the matter of raising oil prices was discussed In a cabinet meeting on August 23, 1997. The State controlled companies of India buy petroleum products at fixed prices and the government provides a huge subsidy of around US8500 million on sale of those products to consumers. The recent oil subsidy rose to Rupee 1,500 billion (Economist. March 8, 1997). Finance Minister. Mr Chidambaram failed to slash the huge subsidy on oil. In last March, he liberalized foreign investment in oil. When Deve Gowda, then India's Prime Minister was fighting for his political survival, his government on April 10. 1997 capitulated to a strike by truckers.

who were enraged by the government a attempt to levy new taxes and increase their insurance payment. The present coalition government of Mr Gu-Jral raised prices of petroleum firoducts excepting kerosene rom September 1, 1997 and the resulting increase has been estimated at Rupees 9.700 crore (US 82.7 billion). The increase in the price of diesel has been 22%. in the price of gasoline 6% and in the price of liquefied petroleum 13%. The exchange rate of India is Rupees 36.20/25 per US Dollar. The price differences may now cause a flow of diesel from Bangladesh to India.

Thailand recently imposed oil tax but it was rescinded on October 18 only three days after its imposition because the government was forced to yield to public outrage and pressure. The increase was expected to generate 24 billion Baht (US 8 666 million) in revenue.

The prices of petroleum products in Bangladesh as per term contract of the BPC for the period of January-June 1997 is understood to be US 825.38 per barrel C&F Chittagong port. This means that petrol costs Taka 7.18 per litre up to Chittagong and kerosene costs US 8 34 52per barrel C&F Chittagong I.e. Taka 9.78 per litre up to Chittagong port and diesel costs US 833.37 per barrel C&F Chittagong. The figures suggest that the price hike of petroleum products in Bangladesh was not warranted . It was a visionless act to raise revenue of the government by hurting the users of petroleum products. As mentioned earlier, the pretext of Increased international prices for petroleum products is in no way tenable and the slab-wise increase for different petroleum products consumed In varying values was highly irrational.

Reuters reported from Sin-(apore on October 15 that ovember cargoes of North Sea Brent crude, an international benchmark, closed in London overnight at US 819.57 per barrel Tor a loss of 56 cents on the day. Crude oil prices have come down to the relief of the beleaguered developing countries of Asia. Therefore, the recent advice of the World Bank to rationalize the increased prices of the petroleum products in the light of stable and reasonable International prices showing a downward trend should be carefully accepted and acted upon.

The writer, a former MP and Minister of State for Establishment Is retired Comptroller & Auditor General and Secretary, Ministries of Defence and finance.