Subsidies to be given to BPC after 7 years

Failing to cope with a volatile international energy market, the state-owned oil and petroleum company Bangladesh Petroleum Corporation (BPC) is back to receiving government subsidies after seven years.

The government is going to start paying the subsidy money to BPC starting next month, according to a senior official of the finance ministry.

This government bailout is likely to create pressure on the budget deficit for the fiscal 2022-23, the official warned.

However, the official said, once global inflation eases in the international market, it will be reflected in the domestic market as well.

BPC Chairman ABM Azad told the Business Insider Bangladesh that the price of refined and crude oil is currently very high in the international market. “We have to sell oil at losses in the domestic market and make adjustments from earlier profits.”

Therefore, to prevent further loss, BPC had asked the government for a subsidy, Azad said, confirming that the finance ministry has also agreed to the request.

Officials said the current price fixed in Bangladesh was decided when the price of crude oil in the international market was $72 per barrel. At present, its price is around $113 per barrel.

According to BPC’s profit and loss data, the company counted a loss of over Tk 2,321 lakh crore on fuel oil sales in FY14.

Since then, BPC did not have to count any more losses and the flow of subsidies also stopped the following fiscal year. In that year, BPC made Tk 4,126 crore in profit.

The government, on the other hand, paid Tk 4,000 crore in subsidy in FY11. Subsidy pay-out for BP had become regular until FY15, which reached a peak in FY13 at Tk 13,558 crore. By then, the government had paid a total of Tk 29,186 crore in five years.  

Since FY16, as BPC began to see profits regularly the government did not have to provide any subsidy.

The officials said due to the increase in the price of fuel oil in the international market, BPC is incurring a loss of Tk 44.42 for a litre of diesel and Tk 34 for octane.

The situation is at a break-even point for petrol and jet fuel sales. Jet fuel is being sold at Tk 106 per litre for domestic flights and Tk 1.09 for international routes.

As per the rates on June 3, BPC is paying a daily loss of over Tk 89.57 lakh crore.

According to a BPC official, the price of refined diesel rose to $167.17 a barrel on June 3 this month. With a premium cost of $2.61, its price stands at $169.98. This brings the import cost to $97.82 per litre.

When tax, transport and other expenses are included, the total cost amounts to Tk 118.56 per litre.

On top of that, the vendor’s VAT, sales and distribution margin, retailer’s commission, BPC’s margin and other expenses are added, the net price per litre stands at Tk 130.35.

However, diesel is now being sold at Tk 80. This calculates to Tk 44.42 loss for BPC, even when excluding its own margin.