IMF presses for gas price hike

DAILY STAR
The International Monetary Fund (IMF) has suggested that the government increase the price of natural gas before adjusting the prices of electricity, fertiliser and petroleum products.

"Higher gas prices will imply a need for further adjustment in electricity and fertiliser prices but reform of energy sector policy will be incomplete and distortionary unless adjustment of gas prices is included," an IMF report placed to the government recently said.

Finance ministry sources said the government's recent move to increase natural gas prices is in line with the IMF recommendations. "The government will raise the natural gas prices and then adjust prices of fertiliser, electricity and different petroleum products," a ministry official said.

Asked about IMF's influence on the move, he said, "Yes, there are some suggestions from the IMF. But, our concern is to minimise huge losses of the state-owned enterprises."

Energy Adviser Tapan Chowdhury told newsmen on Monday that the government has no alternative but to increase the prices of gas and petroleum. "We are yet to chalk out any plan for adjusting petroleum prices, but a proposal regarding the prices of natural gas has been sent to the chief adviser for approval," he said.

Zaid Bakht, research director of Bangladesh Institute of Development Studies, said it is very difficult for the government to bear such a huge amount of subsidy for the state-owned enterprises (SOE) for an unlimited time.

Referring to the increasing trend of inflation rate Bakht said rise of prices of natural gas, electricity, fertiliser and other petroleum products may have a negative impact on the macro economy.

The IMF report said pricing of natural gas in Bangladesh is considerably below the international levels, resulting in the forfeiture of a significant source of government revenue. It also creates substantial market distortions by encouraging conversion to CNG as a source of fuel.

The report said price adjustments and financial restructuring of loss-incurring SOEs are also needed.

"BPC [Bangladesh Petroleum Corporation] alone accounts for about two-thirds of accumulated SOE losses, with the state airline, fertiliser, and power companies accounting for the remainder," the IMF report said.

The IMF also suggested that the government continue the process of privatising the loss-making SOEs.

Earlier, the advisory committee on economic affairs in separate meetings sent back proposals for increasing prices of electricity and fertiliser asking the ministries concerned for more reviews in the proposals.

The present caretaker government, which took office in January, has increased the price of power the decision of which was taken by the BNP-led coalition government.

Prices of petroleum products were also increased in April and Finance Adviser Mirza Azizul Islam in his budget speech announced that the government would introduce pricing formula for the petroleum products from the current fiscal year.

A committee headed by the BPC chairman will sit shortly to fix how much price increase of petroleum products is needed to minimise losses.

Sources said the government's move to adjust prices of fuel, electricity and fertiliser are in line with the reform agenda of the IMF and World Bank. "The government is expecting new poverty reduction growth facility [PRGF] loans from the IMF and budgetary support from the World Bank," a government official said.

"Adjustment of fuel prices as well as fertiliser and power are part of the donors' conditions," he added.

Zaid Bakht criticised the IMF's economic policy saying donors are concerned only about the impact of huge subsidy on the budget. "But we have to keep it in mind that there will be an adverse effect on the agriculture while inflation may increase further if the government withdraws the subsidies," he observed.

Bakht suggested that the government cut Annual Development Programme to continue subsidy.