Industries fear severe impacts of fuel price hike

garments worker

The cost of fuels for Plummy Fashions Ltd, the world’s greenest knitwear factory located in Narayanganj, will go up by 25 per cent owing to Saturday’s more than 50 per cent hike in the price of petroleum products.

The latest blow comes at a time when the factory is already struggling because of the slowdown in orders from international buyers, lower prices of finished goods, higher raw materials prices globally, and the need to switch to diesel-run generators amid frequent power cuts.

And Md Fazlul Hoque, managing director of the company, is now calculating how much the overall cost of production will go up since the transport cost for carrying raw materials and export-oriented goods, running diesel-run generators and for other purposes would shoot.

“This might not be the end. The government may raise the electricity tariff soon following the price in petroleum products,” Hoque said.

“I don’t know what the impact will be if the power tariff goes up.”

Like Hoque, every factory owner has been forced to get down to begin calculating the increase in the production cost amid a lower rate of return from the sales of goods and higher inflation globally.

On Friday, the government raised the price of diesel and kerosene by 42.5 per cent and petrol and octane by 51.1 per cent and 51.7 per cent respectively.

The sharpest increase in fuel prices could further derail the recovery of industries and businesses in Bangladesh from the fallout of the dragging coronavirus pandemic after their rebound was hit hard by the Russia-Ukraine war.

Abdul Kader Khan, managing director of Khan Accessories & Packaging Company Ltd, thinks more than a 51 per cent rise in fuel oil means a big jump in expenditure.

“Small and medium-sized factories are the worst-sufferers of such a sharp hike. And it may take two months for international buyers to realise the impact of the fuel cost hike before adjusting the prices of export-oriented goods.”

According to the primary estimate of Mohammad Hatem, executive president of the Bangladesh Knitwear Manufacturers and Exporters Association, the overall cost of production will climb by 12 -15 per cent.

“The impacts will be huge. The rise in transport costs will push up both export and import costs.”

The business leader said he was speechless after knowing about the sudden hike in the prices of fuel.

“Government bodies even did not consult with us,” he said.

He feared that workers might take to the streets to demand wage hike to cope up with the rising inflation.

Average inflation surged to a seven-year high of 6.15 per cent in 2021-22, whereas the wage growth declined to a seven-year low of 6.06 per cent in the last fiscal year.

In order to discuss the fuel price hike’s impact on the production cost, Mohammad Ali Khokon, president of the Bangladesh Textile Mills Association, will soon convene a meeting with spinners, millers and other stakeholders in the primary textile sector.

“Definitely, the cost of production will increase,” he said in his immediate reaction.

In Bangladesh, spinning mills are already facing a lower pressure of gas exacerbated by inadequate supply amid the government’s decision not to buy liquefied natural gas from the international market and inadequate local production.

“In some cases, factories don’t get gas supply at all,” said Khokon, adding that local industries that supply raw materials to the export-oriented industries will bear the brunt of the fuel price hike.

Md Saiful Islam, president of the Metropolitan Chamber of Commerce and Industry, said primarily, the fuel price hike will severely affect the livelihood of people as inflation will go up further.

“The production cost will increase and the prices of goods will move higher in the local markets.”

The export sector, the biggest source of foreign currencies for Bangladesh, will be seriously hit as the cost of production will go up but buyers will not increase the prices of goods immediately, said Islam.

“As a result, exporters will lose their competitiveness in the international markets.”

He urged the government to consider the price hike as a temporary measure, saying the price should be revisited since oil prices are falling in the international markets.

On Thursday, oil prices dropped to their lowest levels since Russia’s invasion of Ukraine in February this year as the possibility of an economic recession globally is growing.

Benchmark Brent crude futures settled down 2.75 per cent at $94.12, the lowest close since February 18, reported Reuters on Friday.

Islam recommended the government give subsidies from the Gas Development Fund and the Energy Development Fund.

Rizwan Rahman, president of the Dhaka Chamber of Commerce and Industry, said the fuel price hike would affect the agricultural sector.

“As a result, food inflation will rise and the food security will be a cause of concern for Bangladesh.”

He suggested producing electricity from coal-based power plants and exploring gas as soon as possible to meet the energy demand.