For an oil importing country with state controlled fuel prices, Bangladesh requires significant fuel subsidies to bridge the gap between price and supply cost. Bangladesh Petroleum Corporation (BPC), the state owned fuel company has had to borrow from state owned commercial banks to cover other deficits. These loans were around Taka 197 billion (US$2.5 billion) as of June 2013.  Not only is this a huge burden on national budget but it also limits Government’s ability to spend on social and developmental matters of national interest.

With international oil prices spiking, it presents Government with an opportunity to address this matter as for the first time in years, the oil import bill has reduced resulting in a surplus for BPC of around Taka 200 billion (US $2.6 billion). There is now a window of opportunity for considering sustainable reforms to the national oil subsidies in Bangladesh and improve energy efficiency in Bangladesh.

DFID Bangladesh and CDKN worked with Policy Research Institute (PRI) in Bangladesh to analyse fuel subsidy options available in Bangladesh on oil market deregulation and oil pricing.

Objectives

The project aimed to:

• Improve the evidence-based analysis available to Government on the potential for sustained fuel subsidy reform by setting up a market-based domestic oil price mechanism
• Identify and analyse what potential reform options might work considering the deregulation of the domestic oil market and allowing private supply of fuel oil
• Engage government officials in informed debate and conversation about the potential for oil market deregulation and associated subsidy reform
• Influence decision makers to consider implementing the deregulation of the domestic oil market with associated fuel subsidy reforms

Outcomes

The comprehensive and robust analysis for available fuel subsidy options is captured in a paper on oil market deregulation, impact on oil pricing and subsidies and their costs and benefits for Bangladesh.

Two policy workshops and one dialogue were organised with key stakeholders in Dhaka, Bangladesh, including policy makers, technical experts, private sector companies and development partners, to present the evidence base and to initiate a national discussion on fuel subsidy reforms using this consolidated report.

Project Funding: £80,000

Project partners: Policy Research Institute (PRI)

DFID Lead Adviser: Stuart Davies