The government would have to face a mounting pressure of fuel oil subsidy in the current fiscal year in the wake of looming fear for supply chain disruption, following the fresh tension in the war-torn Iraq.
Analysts apprehended the fuel oil price would increase that may even cross US$130 per barrel from around $114 to $115, if the situation in Iraq continues.
The concern emerged at a time when visiting IMF Deputy Managing Director Naoyuki Shinohara urged the government to reduce energy subsidy to divert the fund to protect the poor and improve social indicators.
If the escalating tension spills over the energy markets for long time, the government will definitely have to increase subsidy allocated for this fiscal year, said an official of finance division.
He also noted the price hike of fuel oil is unquestionably a political decision and the Prime Minister usually turns down any proposal by Bangladesh Energy Regularity Commission to increase the price of fuel oil in the domestic market.
For the current fiscal year, the government has allocated Tk2,400 crore in the budget to meet the fuel oil subsidy, which is more than 67% lower than around Tk7,350 crore spent during the just out fiscal year.
In the wake of the international tension, the finance division disbursed Tk1,224 crore in only last two weeks to facilitate importing fuel oil, which officials termed to be unprecedented.
In the budget, the government has increased the import duty on crude and refined petroleum products in FY2014-15, which might lead to a hike in petroleum prices and power tariff, according to finance division officials.
BPC is counting a loss of Tk8.12 per litre of diesel and Tk7.62 per liter of kerosene, according to BPC.
BPC Chairman Eunusur Rahman said fuel oil price increase in the global market would not have any negative impact on the country's market as the import contracts were done earlier.
He, however, apprehended an adverse impact in cases of new contracts if the tension continues.
“We hope the Iraq crisis will come to an end before we are going for signing new agreements with the supplying companies.”
The BPC will require $2364.50m to import 27.20 lakh tonnes of petroleum fuels required for the next six months, said Eunus.
