Why Does Bangladesh’s Fuel Price Move Only One Way?

There is something unusual about the way fuel prices behave in Bangladesh. When crude oil becomes expensive in the international market, the increase eventually reaches the consumer.

When international prices fall, however, the relief often seems to travel much more slowly.

Sometimes it arrives months later, sometimes only partially, and sometimes it appears to disappear somewhere between the international market and the local filling station.

This has created a persistent public suspicion that the fuel-pricing mechanism is designed to transmit international increases more efficiently than international decreases.

That suspicion cannot simply be dismissed as public misunderstanding.

The history of fuel pricing in Bangladesh provides enough examples to justify questions about how prices are calculated, when they are adjusted and who ultimately bears the cost.

At the same time, the government’s latest explanation reveals that the situation is more complicated than the simple claim that Bangladesh always ignores falling global oil prices.

The latest increase illustrates this contradiction. Fuel prices were raised by Tk 20 per litre across the board on September 20, taking effect the following day. This pushed domestic fuel prices to their highest level in the country’s history.

The timing was particularly striking because the international crude oil price had fallen by around eight dollars per barrel to roughly $101.

For consumers already struggling with high living costs, the obvious question was not merely why fuel had become more expensive, but why an international decline had not produced a corresponding decline at home.

The answer begins with a basic misunderstanding about what consumers actually pay for.

The price of crude oil in the international market is only one component of the final retail price in Bangladesh.

Once petroleum is purchased, the country has to pay for transportation, insurance, refining, storage, distribution and other operational expenses.

Import duties, VAT, BPC’s costs and margins, dealers’ commissions and several other charges are added before the fuel reaches a consumer.

That means a fall in the international price of crude does not automatically translate into an equivalent fall at a Bangladeshi filling station.

Exchange rates can change. Freight costs can rise. Domestic operating costs can increase. Taxes and duties may remain unchanged.

A government may also decide to absorb part of the international increase rather than passing the entire cost to consumers.

The arithmetic is therefore considerably more complicated than simply comparing the price of a barrel abroad with the price of a litre at home.
But complexity should not become a substitute for transparency.

The central problem with Bangladesh’s fuel market is that ordinary consumers rarely have access to a clear, easily understandable calculation showing how the final price has been reached.

People hear that international prices have risen, and therefore domestic prices must rise.

They hear that the government is making losses and therefore prices have to be adjusted. But when international prices fall, they are often left wondering when that reduction will appear in their daily expenses.

A genuinely automatic pricing system should work in both directions. If prices rise according to a formula, they should fall according to the same formula.

If there are legitimate reasons for delaying an adjustment, those reasons should be clearly explained.

Otherwise, the word “automatic” begins to lose its meaning.
Bangladesh’s experience since 2022 demonstrates the consequences of an unpredictable system.

In August that year, fuel prices were increased dramatically, with diesel and kerosene rising by Tk 34 per litre, petrol by Tk 44 and octane by Tk 46.

The increase followed a period of extreme volatility in global energy markets. Yet after only a few weeks, domestic prices were reduced by just Tk 5 per litre.

Subsequent declines in international oil prices did not result in equivalent reductions in domestic fuel prices.

There were institutional reasons for this change as well. Bangladesh moved away from the older system under which the Bangladesh Energy Regulatory Commission played a central role in determining fuel prices through a regulatory process.

The government later introduced an automatic pricing mechanism, influenced in part by the country’s commitments under its International Monetary Fund programme.

The new system was intended to make prices more responsive to international market conditions.

Yet the latest increase did not fully follow that mechanism. The government has explained that applying the formula completely would have required an even larger increase because of accumulated losses.

This is an important point.

According to government figures, Bangladesh Petroleum Corporation incurred losses of approximately Tk 22,876 crore between March and August because domestic fuel prices remained below international market-linked costs.

The government has also argued that keeping prices artificially low for an extended period creates opportunities for fuel smuggling to neighbouring countries.

From this perspective, the latest increase is not simply an attempt to make consumers pay more.

It is also an effort to prevent the financial burden on BPC from becoming unsustainable.

That explanation deserves consideration. But it also exposes the weakness of the current arrangement.

If the government deliberately keeps fuel prices below the market price for months, someone has to pay the difference.

If BPC bears the loss, the loss ultimately belongs to a state-owned corporation whose finances are connected to the public purse.

If the government later raises prices sharply to recover those losses, consumers pay through higher transportation, food and production costs. Either way, society pays.

The more fundamental question, therefore, is why the system repeatedly allows such large gaps to accumulate in the first place.

A well-designed pricing mechanism should reduce the need for sudden shocks.

Small, regular adjustments are generally easier for households and businesses to absorb than dramatic increases after months of suppressed prices.

If international prices are rising, a transparent formula could gradually adjust domestic prices. If international prices are falling, the same mechanism could gradually reduce them.

The objective should not be to guarantee cheap fuel. It should be to make fuel pricing predictable.

If BPC makes profits, citizens should know where those profits go. If it makes losses, they should know precisely why.

If taxes and VAT constitute a significant part of the price, that should be disclosed. If the government is subsidising fuel, the size of that subsidy should be visible.

If consumers are effectively paying additional costs to compensate for inefficiencies, those costs should be identified and addressed.

There is little justification for asking consumers to accept the final price without showing them the arithmetic behind it.

Fuel pricing also cannot be treated merely as a technical issue. In Bangladesh, diesel is woven into the entire economy.

It powers irrigation, transports agricultural products, moves industrial goods and keeps buses and trucks operating. A higher fuel price therefore does not stop at the filling station.

It enters the cost of food, transportation, construction, manufacturing and virtually every commodity that has to be moved from one place to another.

This is why fuel price adjustments have distributional consequences. A wealthy household may absorb a higher petrol bill by reducing discretionary travel. A low-income family cannot similarly opt out of higher transport and food costs.

The farmer cannot simply stop using diesel-powered irrigation. The small trader cannot avoid transportation expenses. A fuel price increase therefore becomes a broader cost-of-living increase.

That makes transparency even more important.
Bangladesh does not necessarily need the lowest fuel prices in the region. Nor can it permanently insulate consumers from global energy shocks.

What it needs is a pricing system in which the rules are clear before the price changes, rather than explanations being produced after the price has already increased.

(Writer: An Academic, Journalist, and Political Analyst based in Dhaka, Bangladesh. Currently he teaches at IUBAT. He can be reached at  nazmulalam.rijohn@gmail.com)