Bangladesh raises fuel prices to cut subsidy

DHAKA (Reuters): Bangladesh raised fuel prices with effect from Friday in its fourth such hike since May, a move that will trim the country’s subsidy burden but add to already high inflation.

Petrol, 95-octane gasoline, diesel, kerosene and fuel oil will now cost an additional 5 taka ($0.06) a litre. The price of petrol has been fixed at 91 taka a litre, 95-octane gasoline at 94 taka, diesel and kerosene at 61 taka and furnace oil at 60 taka.

The government, under pressure from global lending agencies such as the International Monetary Fund to raise heavily-subsidised fuel and power prices, last increased fuel prices in November and electricity tariffs this month.

The hike would likely to give ammunition to opposition political parties looking to dislodge the government before the next election, due by the end of 2013, since the step is likely to boost prices in a country where annual inflation was 11.58 percent in November.

Price pressures are a major concern for the government as more than a third of the country’s 160 million people live on less than $2 a day.

“Certainly there will be a negative impact on people’s spending but we have no other option but to increase oil prices as the previous hike was flat because of a devaluation of the local currency against the dollar,” an energy ministry official said.

State-owned Bangladesh Petroleum Corporation (BPC), the country’s sole oil importer and distributor, incurred losses of around $1 billion on fuel subsidies in the year to June.

Bangladesh’s demand for diesel and fuel oil is growing sharply as a shortfall of natural gas forced it to turn to costly oil-fired power plants to resolve its crippling electricity shortages.

The imports have piled pressure on the country’s balance of payments and subsidy bill. The local currency has also come under pressure from soaring bills for imports, mainly of oil.

The total subsidy for the year to June 2012 is forecast to jump to around 460 billion taka ($6 billion) or 5 percent of gross domestic product, more than double the original estimate of 200 billion taka, and up from 195 billion taka the previous year.

Brent crude is set to end the year up nearly 14 percent and at a record high annual average.