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Looking forward to higher cost of living
ALL indications point to another spiral in the cost of living.
Such pessimism comes from the fact that one of our largest benefactors, the World Bank has suggested the introduction of royalty on natural gas. From what has recently been published in
the press of late is that the Bangladesh Energy Regulatory Commission (BERC) along with Petrobangla need to come up with a retail-based pricing mechanism that is built on the basis of costs — production, transmission and distribution. If we are to go by the report submitted by the International Development Agency which states "it is proposed that during the following years, the average gas price will be increased every year, by a fixed amount of $0.86 per GJ. By 2016, the average price of gas will reach $6.00 GJ." All these indicators point to a steady raising of primary fuel prices in both bulk and retail categories over the course of the next few years. Needless to say, such price adjustment is unavoidable given ground realities and government energy bodies are busy working out the new pricing regime.
The rationale that is being used for the latest hike package will naturally revolve around unsustainable subsidies the state coughs out each year. Yet, each hike in energy price is accompanied by a jump in retail prices of goods that are many times more than the readjusted energy price hike. This happened the last time prices were raised last quarter. The question is not so much on whether energy prices need to be adjusted but precisely whether the government has any contingencies to stop the business community and service providers from transferring input costs (energy in this case) plus added profits directly onto to consumers without batting an eyelid. To put all this into perspective, the 5% increase of diesel price usually invites a jump in transportation cost that is many more times and such enhancement of tariff knows neither any bounds, follows no conformity and basically defies logic. In a similar vein, businessmen claim that their trucking cost for carrying commodities from wholesale to retail markets have jumped due to fuel price hike. One may easily ask by how much? And how many times can they charge the hapless consumer at retail level?
Looking at Bangladesh's competitiveness in a global setting, we enjoy a comparative advantage
over countries such as China, India and many other countries in the apparel industry. This is primarily due to low input costs, i.e. labour is cheap, as is the price of energy, i.e. gas, oil and electricity. Now with the increased tariff that the state proposes to introduce for energy and power, the garments sector exporter will have to cut costs somehow to stay competitive in this annual $19 billion a year export market from Bangladesh. Those cost cutting measures will come by squeezing the labourers further in terms of finding ways to cut their wages. The very recent labour unrest in Ashulia drove home the
realities of living conditions of factory workers in the RMG sector. Any further squeeze could potentially lead to an explosive situation that could engulf the entire sector.
The realities of "expensive power" have yet to make any impact on industry leaders. Failure to realise that in the very immediate future, industries that include the RMG sector will be facing realistic pricing regimes for gas and electricity (produced mainly by oil-run power plants) is going to end up having catastrophic consequences for industry and country at large. There is still time to improve their competitiveness by bringing about a change in mindset. It calls for changes in lifestyle: forget the yearly holiday on the French Riviera or Tahiti and ditch the BMWs and Jaguars. Invest savings in improving productivity and energy efficiency that will lower energy bills across the board. Sadly, such rethinking is not really on the list of priorities. Rather, putting further squeeze on labour so that it may become cheaper still is very much the viable option. While the industrial police may go on wielding their batons and the newly procured hot water cannon trucks give the labour force a much needed hot bath, such measures will only assist in fermenting labour unrest that will lead to political agitation.
At the end of the day, it is up to the government to justify energy and power prices. Doubling the gas price for captive power generation and hiking the present CNG prices by about 40% will have a chain reaction on retail pricing and that too for reasons explained above. While it may make perfect sense to revise pricing upwardly, it is up to the government to set up effective monitoring mechanisms to stop unscrupulous business entities from taking advantage of state inefficiency, as a regulator, and bleed the consumer dry. A failure to do so is asking for trouble; trouble when it comes may be very difficult to contain.
The writer is Assistant Editor, The Daily Star.