The government says it raised diesel prices by 20 taka a litre because Bangladesh Petroleum Corporation is losing money. That is true. But it is only part of the story.
Diesel now costs 135 taka a litre, up from 115 taka, after the government raised petroleum prices on September 21. Officials say that remains far below the roughly 205 taka a litre that diesel would cost if the country's automatic fuel-pricing formula were fully applied.
On that calculation, somebody is absorbing about 70 taka on every litre sold.
BPC, the state monopoly that imports and distributes most of Bangladesh's petroleum products, says it lost 22,876 crore taka between March and August as international fuel and shipping costs rose while domestic prices were kept largely insulated from the increase.
The government says the 20-taka adjustment should reduce BPC's annual losses by roughly 10,000 crore taka. That provides a rationale for raising prices.
It does not, by itself, explain why 20 taka is the right number. Nor does it answer another question…after years in which BPC made large profits when international prices were low, why is there not a larger financial buffer available when the oil cycle moves in the other direction?
BPC is not a chronically loss-making state enterprise. From fiscal 2016 through fiscal 2025, it made a net profit in nine of 10 years. The exception was fiscal 2022, when the global energy shock following Russia's invasion of Ukraine pushed import costs sharply higher while Bangladesh kept domestic prices below those costs.
Before that shock, BPC had accumulated large surpluses.
Finance Ministry data show profits of roughly 9,040 crore taka in fiscal 2016, 8,653 crore in fiscal 2017, 5,644 crore in fiscal 2018, 4,768 crore in fiscal 2019 and more than 5,000 crore in fiscal 2020. It remained profitable in fiscal 2021.
After losing about 2,706 crore taka in fiscal 2022, BPC quickly returned to profit. Published audit figures put profits at about 4,586 crore taka in fiscal 2023, 3,943 crore in fiscal 2024 and 4,316 crore in fiscal 2025.
Across fiscal 2016 through fiscal 2025, BPC generated cumulative net profits of about 48,618 crore taka, according to BPC board papers.
That number requires some care. A decade of accounting profits does not mean BPC should have 48,618 crore taka sitting in a bank account today. Companies use earnings for investment, working capital, debt repayment and other expenses. BPC did precisely that.
It also transferred substantial amounts to the government. It paid about 1,150 crore taka in dividends over the period, while the Treasury withdrew another 11,500 crore taka from its surplus funds between fiscal 2020 and fiscal 2023.
That is 12,650 crore taka transferred to the state, equivalent to about 26% of BPC's decade-long cumulative profit. BPC also used earlier earnings to finance petroleum infrastructure. Pipelines, storage and import facilities are legitimate uses of the money and can lower costs over time.
But they are not liquid reserves. A pipeline cannot settle an import letter of credit when a supplier needs dollars next week. That distinction helps explain how BPC can simultaneously have been highly profitable over a decade and face a genuine cash shortage today.
It does not fully answer why Bangladesh failed to build a larger buffer for exactly this situation.
BPC's governing framework provides for a General Reserve Fund, yet the corporation entered the present oil shock without one of meaningful scale. It proposed only this year to create an initial 5,000-crore-taka reserve to deal with international price volatility and emergencies.
That is the missing link in Bangladesh's fuel-pricing system. When international prices were low, domestic pump prices did not always fall by an equivalent amount. The spread became BPC profit.
When international prices rise above domestic prices, however, BPC incurs the opposite loss. A properly designed stabilisation mechanism could have connected those two periods.
Some of the money collected during unusually profitable years could have been ring-fenced. When international prices spiked, the reserve could have been drawn down, allowing domestic prices to rise more gradually.
Instead, profits flowed in several directions while no sufficiently large dedicated mechanism was built to return part of the upside to consumers when the cycle reversed.
The government tried to solve the underlying problem in March 2024.
Under an automatic pricing mechanism adopted as part of Bangladesh's IMF-backed economic programme, diesel, kerosene, petrol and octane prices were supposed to move regularly with international prices. The IMF said the mechanism was designed to keep structural petroleum subsidies close to zero.
The logic was symmetrical.
Consumers would benefit when global prices fell and pay more when they rose. BPC would no longer generate large windfall profits simply because international prices had fallen while domestic prices remained high. Nor would it accumulate enormous losses because international prices had risen while pump prices remained frozen.
The formula uses the one-month moving average of international fuel prices, including the Mean of Platts Arab Gulf benchmark, and adds transportation and operating expenses, taxes, commissions, development-fund charges and a BPC margin.
When the mechanism began operating in March 2024, diesel fell to 108.25 taka a litre.
BPC's selling price to the three state oil distributors was 99.98 taka. The distributors received a margin of 0.80 taka a litre, dealers and agents 2.97 taka, while BPC collected 0.25 taka a litre for its development fund.
The mechanism initially worked. The IMF said earlier this year that automatic fuel-price adjustment had helped BPC generate profits and clear external arrears. It recommended that Bangladesh apply the mechanism consistently to maintain BPC's financial position.
Then international conditions changed.
The Middle East conflict drove up petroleum prices and shipping costs. Instead of passing the full increase through to consumers, the government held domestic prices below the level produced by the formula.
BPC therefore continued buying increasingly expensive fuel abroad and selling it more cheaply at home. That was a policy choice. It protected consumers from the full international shock, but it also transferred that shock onto BPC's balance sheet.
By September 6, BPC calculated that it had about 12,368 crore taka of usable working capital. It said it needed another 15,000 crore to 20,000 crore taka to maintain working capital equivalent to roughly two months of imports.
That is a genuine financing problem. The scale of the current shock should not be understated either. BPC says its March-August loss reached 22,876 crore taka. That is equivalent to roughly 47% of the corporation's entire cumulative net profit over the previous decade.
No realistic reserve could allow Bangladesh indefinitely to sell imported petroleum far below its replacement cost. The government's own figures demonstrate why.
If raising fuel prices by 20 taka improves BPC's finances by roughly 10,000 crore taka annually, the calculation implies about 500 crore litres of affected annual fuel sales. At that volume, every 10 taka of price support costs roughly 5,000 crore taka a year.
A 5,000-crore-taka reserve would therefore provide only about 10 taka a litre of support for one year at that implied volume. A sustained 70-taka gap would require roughly 35,000 crore taka annually on the same simple calculation.
A reserve can absorb a shock. It cannot permanently repeal international energy prices. But that is not an argument against having one. It is the reason to build one during profitable years.
The immediate problem is therefore not whether BPC is losing money. It is. The harder question is how much of that loss should immediately be transferred to consumers, how much should be absorbed temporarily by BPC, and how much should ultimately be borne by the Treasury.
The latest price decision does not provide a clear answer.
Earlier this month, BPC proposed setting diesel at 187 taka a litre under its calculation. The Energy and Mineral Resources Division rejected that proposal and kept diesel at 115 taka.
Less than three weeks later, officials said full application of the pricing mechanism would put diesel at approximately 205 taka.
That is an 18-taka increase in the claimed formula price in a matter of weeks. There may be an explanation. International refined-product prices, freight rates, supplier premiums and exchange rates can move rapidly during a regional conflict.
But a formula is useful precisely because it should make that explanation reproducible.
The government could publish the international benchmark and averaging period, exchange rate, supplier premium, freight and insurance charges, taxes and VAT, financing costs, operational expenses, BPC margin, development-fund charge, domestic transport costs, marketing-company margin and dealer commission.
Without that breakdown, 205 taka remains an official calculation that outsiders cannot independently reproduce. The same problem applies to the 20-taka increase. The government did not raise diesel to the 187 taka BPC proposed. It did not raise it to the roughly 205 taka officials now say the formula produces. It raised it to 135 taka.
The increase therefore does not appear to be the mechanical output of the automatic pricing mechanism. It is a partial adjustment and that may be economically defensible.
Moving diesel immediately from 115 taka to anything approaching 187 or 205 taka would transmit a large shock through an economy in which diesel powers trucks, buses, irrigation pumps, generators and industrial machinery.
Transport costs would rise. Agricultural production would become more expensive. Factory costs would increase. Inflationary pressure would intensify. The government is instead splitting the cost.
Consumers are paying another 20 taka. BPC, and potentially taxpayers, are carrying the remainder.
There are other arguments for narrowing the gap. Bangladesh imports most of its petroleum, meaning artificially cheap fuel increases pressure on scarce foreign exchange. The government also argues that large price differences with neighbouring countries encourage smuggling.
But those arguments establish a case for reducing the gap. They do not establish 20 taka as a number derived from the automatic formula. There is also a problem with describing the entire difference between 135 taka and 205 taka simply as a government subsidy.
If the Treasury reimburses BPC for selling below cost, the fiscal subsidy is explicit.
If BPC absorbs some of the loss through retained earnings and working capital accumulated during earlier profitable years, the economic cost remains, but the accounting route is different.
That distinction matters because BPC's profits were themselves partly created by the reverse situation.
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