The government has hiked retail gas prices yet again after just six months to Tk 30 per cubic metre (m3), and this staggering increase of up to 178 per cent has blindsided industrialists across the country already grappling with a looming global recession.
Industry leaders are terming the decision a suicidal move as sky-high gas prices would force many factories to shut their doors for good, employment opportunities to fall, exports to decline, domestic inflation to rise, and government revenue to take a serious hit.
The Energy and Mineral Resources Division set the prices through a gazette notification on Wednesday, and it will come into effect from February 1 this year.
Under the new gas rate for retail consumers, the large, medium and small industries will pay Tk 30 per cubic metre (m3) against the previous prices of Tk 11.98 for large, Tk 11.78 for medium, and Tk 10.78 for small, cottage and other industries respectively.
Public and private power plants, including the independent power producers (IPP) and rental power plants, will pay Tk 14 per m3 of gas instead of the previous rate of Tk 5.02. Meanwhile, the captive, small and commercial power plants will pay Tk 30 per m3 instead of Tk 16.
The commercial users of gas – such as hotels and restaurants – will have to pay Tk 30.50 instead of previous Tk 26.64 per unit.
The Energy and Mineral Resources Division utilised the new amendment to the Bangladesh Energy Regulatory Commission (BERC) Act, which empowers the government to set all kinds of energy prices bypassing the regulator’s jurisdictions at any time.
The hike in gas prices came just after six days of retail price hike of electricity. On January 12, the government increased retail power prices by 5 per cent.
Last June, the BERC had raised the average gas prices by 22.78 per cent for retail consumers, except for CNG-run vehicles, in the country with immediate effect.
The energy ministry data shows that the industries used 1,140 MMcf/d gas in February 2022, which was the highest since July last year. Of the figure, captive power plants used 535 MMcf/d and other entities used 605 MMcf/d.
In October last year, industries used 936 MMcf/d gas. Of the figure, captive plants used 455 MMcf/d and other entities consumed 481 MMcf/d.
Speaking to The Business Post, Consumers Association of Bangladesh’s (CAB) Energy Advisor M Shamsul Alam said, “Many involved with the gas supply chain are profiting illegally, but the authorities concerned are yet to take any steps to mitigate this problem.
“This is why the government has been providing a large amount of subsidies in the sector, and the costs are shouldered by the public.”
Alam added, “To implement the International Monetary Fund’s (IMF) recommendations, the government has to put the burden of subsidies on industrialists and the people. The businesses and consumers should strongly protest against the corruption prevalent in this sector.
“If phenomenon of illegal profiteering is curbed, the government will be able to cut current gas prices by half.”
Industrialists blindsided
Expressing his disappointment, Bangladesh Garment Manufacturers and Exporters Association (BGMEA) President Faruque Hassan said, “There is a need to hike prices for ensuring uninterrupted gas supply.
“But retail prices should not be based only on the spot market import price. Gas prices should be decided based on the average rates of long-term liquefied natural gas (LNG) contracts, local gas prices and the spot market.”
He added, “Prices should be rational, and to do this, the government has to stop system losses, illegal connections and corruption. The most important step for the government is to ensure uninterrupted gas, as well as stable electricity supply.”
Echoing the same, BGMEA Vice President Shahidullah Azim said, “This is not the right time to increase gas prices. The government hiked gas and electricity prices at the time when we are facing severe order shortages. It is a suicidal decision.
“Many factories do not have work orders after February and March due to the ongoing global economic crisis. But the government still hiked gas and electricity prices, which will increase our production cost. The government has to understand that our losses mean government losses.”
He added, “As our production costs rise, the number of orders we get will dwindle further. We will think about our next steps after discussing the matter with other BGMEA members.”
Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA) Executive President Mohammad Hatem said, “Taking existing issues into consideration, the government could have fixed gas prices at a maximum Tk 25 per m3.
“The hike is unacceptable and abnormal. We have to struggle just to survive due to this unexpected gas price increase. Many factories will likely shut their doors for good because they will not be able to shoulder this burden.”
Bangladesh Textile Mills Association (BTMA), the apex body of largest industrial gas consumers, Additional Director and Chief Executive Officer (CEO) Monsoor Ahmed told The Business Post, “We will give our feedback after a stakeholders’ meeting.”
Gas supply will not increase in 2023
Before the price hikes, the government held a meeting with stakeholders, including industry leaders, on December 15 last year and proposed Tk 40 per m3 gas, citing high LNG prices in the spot market.
In that meeting, the government pointed out that domestic production of gas will not increase from the existing 2,300 MMcf/d even in 2023. Besides, LNG imports will not increase in the year as well, except in April and July.
This is why gas supply to the national grid will be severely disrupted in 2023. However, the government has taken steps to drill 46 wells, which will continue till 2025. The initiative will help increase gas supply to the national grid gradually.
To meet the existing demand, the government has proposed importing eight cargos of LNG in 2023 from the spot market if industries agree to pay Tk 40 for per m3 gas.
In that case, the government will also be able to make additional profits of Tk 174 crore, while revenue will rise by Tk 29,765 crore.
In response, industry leaders present at that meeting said if the government manages to ensure uninterrupted gas supply, they will pay Tk 22 for per m3 gas. After a month of the meeting, the government finally increased gas prices.
What’s the current supply?
According to Petrobangla, a government-owned oil company, the country currently has 20 operational gas fields with a supply of 2,300 million cubic feet of gas per day (MMcf/d), against the countrywide demand of 3,500 MMcf/d.
To cover this gap, the government signed long-term agreements with Qatar and Oman to import 500 MMcf/d through LNG. Besides, it imported LNG from the spot market on various occasions last year to increase supply.
However, after Russia invaded Ukraine in February 2022, the price of per m3 gas in the spot market rose from $6-$7 to $35, while Bangladesh’s forex reserves declined gradually to an alarming level.
For this reason, the government stopped LNG imports from the spot market in July to save forex reserves.
Besides, the government failed to import 140 MMcf/d gas under agreements with Qatar and Oman due to the failure of notifying them in advance, which is a required step. This series of events triggered a severe gas shortage in the country, hitting industries hard.
According to the power, energy and mineral resources ministry, the government supplied 3,085 MMcf/d gas to the national grid in June last year, including 2,341 MMcf/d of domestic supply and 744 MMcf/d of LNG.
The same month, the government imported six cargoes of LNG as part of the long-term agreements, and another three cargoes from the spot market.
But when it stopped LNG imports from the spot market, gas supply to the national grid declined to 2,747 MMcf/d in July.
Last November, the government supplied 2,501 MMcf/d gas to the national grid where 2,133 MMcf/d came from domestic sources and 368 MMcf/d arrived as part of the agreements. That month, the government imported four cargoes of LNG.
Five cargoes of LNG arrived last December, and the total supply was 2,755 MMcf/d at the end of December 2022, the ministry data shows.
