Bangladesh fuel subsidy likely to rise despite price hike

DHAKA, Jan 4 (Reuters) - An oil price hike by Bangladesh aimed at curbing its spending on fuel subsidies has sparked a call by opposition parties for a nationwide strike on Sunday yet officials say the country is still likely to face a higher subsidy bill this year.

The government raised oil prices effective from Thursday midnight in its latest move to trim the subsidy burden.

"We have no option but to raise oil prices, albeit there will be a negative impact on people's spending," a senior energy ministry official said.

Bangladesh Petroleum Corporation (BPC), the country's sole oil importer and distributor, buys oil products on global markets at higher prices than those set on the domestic market, forcing the government to pay hefty subsidies to cover the difference.

BPC Chairman Mohammad Eunusur Rahman said the fuel subsidy bill could rise to 110 billion taka (${esc.dollar}1.4 billion) in the current year, up 10 percent from last year, on high global oil prices and rising import volumes.

"Even after the latest hike, the BPC will incur losses of 11.77 taka per litre on gasoil and 12.15 taka on kerosene," he said.

Brent crude prices rose for a fourth consecutive year in 2012, gaining 3.5 percent after a rise of 13.3 percent in 2011.

Bangladesh's main opposition allies, led by Begum Khaleda Zia, have backed several violent strikes and blockades in recent months to press for restoration of an independent body to oversee polls due late this year.

Raising prices is politically sensitive in a country where a third of the population live on less than ${esc.dollar}2 a day.

An agricultural expert said there could be a negative impact on rice production in the upcoming season when gasoil is widely used for irrigation.

"It will further raise the production cost of rice," said Mahabub Hossain, executive director at Brac, a non-governmental organisation, noting domestic rice prices have been below production costs for a year and a half.

The government of Sheikh Hasina has been under pressure from the International Monetary Fund to raise heavily-subsidised fuel and power prices. The government last raised oil prices in December 2011, marking the fourth hike since May that year.

Bangladesh's demand for fuel is growing sharply as a shortfall of natural gas has forced it to turn to costly oil-fired power plants to resolve crippling electricity shortages.

The government is also set to raise electricity tariffs after several hikes in the last year.

(${esc.dollar}1 = 79.75 taka) (Reporting by Ruma Paul; editing by Anis Ahmed and Jason Neely)