From now on, diesel and kerosene will be selling at Tk 40 per litre, which was Tk 33 earlier, while octane will be selling at Tk 67 and petrol at Tk 65 per litre, which were earlier Tk 58 and Tk 56 respectively.

"This is an unpleasant decision, but we had no other option," Energy Adviser Tapan Chowdhury told a press briefing at the secretariat, where he announced the raise in fuel prices. Energy Secretary AMM Nasiruddin and the chairman of Bangladesh Petroleum Corporation (BPC) were also present.

"Due to this hike, the transport fare may go up by 7 paisa per passenger per kilometre at the most. For goods, the transport cost may rise to a maximum of 23 paisa per ton per kilometre," Tapan said adding "for example, a passenger travelling to Chittagong from Dhaka by bus, might have to pay Tk 15 to Tk 20 extra fare."

The government will monitor the transport sector strictly, so that none can raise fares unjustifiably, he pointed out.

"We expect that the transport owners would be understanding and would refrain from unfair hike in transport fares," he said.

On the negative impact of the fuel price hike on the farmers, the energy adviser noted that since the season for Boro cultivation is almost over, this hike would not affect them much.

"But we hope that the next budget will accommodate some form of subsidy for the farmers. Right now, the agriculture and the finance ministries are working on how to offer the farmers this benefit," he said.

Talking to the press separately at his office, Finance Adviser Mirza Azizul Islam said, "We are examining the ways for providing a relief to the poor for the price hike of diesel and kerosene."

Both the advisers expressed hope that the raise in fuel prices would not lead to price hike of essentials and the inflation rate would remain within 7 percent.

The last increase in prices of petroleum products took place in June 2006. Back at that time, the government raised the price of diesel by only Tk 3 per litre to Tk 33, although diesel forms more than 60 percent of the total petroleum consumption. In contrast, the price of octane jumped to Tk 58 per litre from Tk 45 and petrol to Tk 56 from Tk 43, whereas they represent only 10 percent of the total consumption.

The price of diesel was not raised too much as it directly affects the poorer section of the society.

However, the move did not save the government run petroleum sector from landing in a deeper crisis.

The cumulative loss of the BPC has reached a colossal Tk 11,721 crore in January this year. Once a profit-making entity, the corporation is now incurring a monthly loss of Tk 200 crore. It is now unable to pay back loans along with interests worth Tk 10,000 crore from various local banks. The BPC owes another Tk 4000 crore to some international borrowers.

The BPC imports 38 lakh metric tonnes of petroleum oil at a price that is progressively higher than the sale price beginning from 1997-98, prior to which, the BPC was making profits by hundreds of crore annually.

Coupled with annual losses, the BPC is now hard hit with huge non-payment for fuel purchase by Bangladesh Biman. Loss-incurring Biman's arrears with the BPC stood at Tk 1,567 crore in December 2006.

The new diesel price still remains Tk 4 per litre below the break-even point as its production cost is Tk 44 per litre. Even the production cost of kerosene is higher than the selling price, at Tk 45. Therefore, the BPC will continue to incur loss by Tk 4 and Tk 5 by selling these products.

However, this loss would be minimised by the new price of petrol and octane, which had remained a high profit product for the BPC. The new price will put the BPC's profit margin for both petrol and octane to Tk 27 per litre.

"The new prices will not reduce the losses of BPC completely, for it will incur another Tk 90 crore loss till June with this new sale price," the energy secretary said adding that a new petroleum pricing formula will be introduced soon.

A petroleum price review committee would be formed with the BPC chief and members from stakeholders to examine the prices of petroleum products monthly. If the monthly review indicates a variation in the fixed price in excess of 5 percent from that of the earlier month, the tariff will be adjusted at that time before the date fixed for quarterly adjustment.

Back in 2003, the government had decided to introduce a pricing formula, but the decision was not implemented.