Energy Subsidies and Profile of Groups Vulnerable to Reform in Bangladesh

The study provides estimates of fossil-fuel subsidies for the financial years 2009-10, 2010-11 and 2011-12; undertakes a mapping exercise to identify key stakeholders (population groups and production sectors) likely to be impacted by subsidy reforms for each fuel type and electricity; and based on the summary analysis, identifies vulnerable groups for further analysis in future. The study thus provides the initial inputs for developing a framework for assessing the economic impacts of fossil-fuel subsidies and their reform at both macro and micro levels in order to identify options for supporting low-income households and vulnerable groups.

In Bangladesh, all petroleum products, including electricity, are sold under an administered price regime which is controlled by the government. As such, energy subsidies in Bangladesh mostly result from setting retail prices for fuel and electricity at lower than their ‘true market prices’.

The estimates of overall energy subsidies (including both on-budget and off budget subsidies) for different energy products show that total energy subsidies increased sharply to Tk. 73.28 billion during 2010-11 from Tk. 9.8 billion in FY 2009-10 and further to Tk. 148.85 billion in 2011-12 which can be explained by rapid increase in the quantity of consumption and import prices of energy products showing rising trends especially in 2011-12.    

Being exploratory in nature, the analysis is limited to identifying the profiles of occupational groups and production sectors which are likely to be more vulnerable to subsidy reforms in the energy sector. The energy consumption of both poor and lower-middle agricultural households is overwhelmingly biased toward kerosene (58 percent for poor and 42 percent for lower middle) and electricity (36 percent and for poor and 40 percent for lower middle of total energy expenditure). Energy consumption of rich and upper-middle non-agricultural households is concentrated more in electricity (53 percent for upper middle and 47 percent for the rich) and natural gas (26 percent for the upper middle and 30 percent for the rich). The study also provides  the energy intensity of top fifteen commodities/activities in terms of share of electricity and petroleum products in total input costs derived from the input-output table. The study concludes with some policy recommendations for subsidy reform in Bangladesh. The study has been conducted by Mustafa K. Mujeri, Tahreen Tahrima Chowdhury and Siban Shahana.