New entrepreneurs will 'fall behind' as uneven gas rates threaten industry competition

"The old ones have a greater capacity to withstand pressure, they can also speak out. The new ones have no one, who will protest?"

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Many entrepreneurs and business owners view the interim government's decision to set separate gas prices for new and old industrial customers as “double standards”.

They argue that raising gas prices by 33 percent for new consumers while keeping lower rates for older ones, not only undermines competitiveness but also risks triggering inflation and discouraging fresh investment.

Terming the decision “unjustified” and “without precedent”, critics fear the move will create an uneven playing field in the industrial sector, dampening the enthusiasm of aspiring entrepreneurs.

The Bangladesh Energy Regulatory Commission (BERC) announced a 33 percent hike in the gas price per cubic foot for new industries and captive power plants on Sunday.

According to the BERC's decision, the price of gas used for power generation (captive) has risen from Tk 31.50 to Tk 42.

The gas prices for new industrial connections have been set at Tk 40, up from Tk 30.

It says industries approved after Apr 13 will have to pay the increased rates for gas while existing consumers will continue to buy gas at the old rates for up to 50 percent of their load; the rest will be purchased at the new higher rates.

The government has justified this price hike as part of efforts to reduce subsidies.

Zahid Hussain, former chief economist at the World Bank's Dhaka office, sees no logic in setting separate prices for “new” and “old” customers as a method of subsidy reduction.

Speaking to bdnews24.com, he said: "Even under a microscope, you won't find an explanation for this in the economy; it simply doesn't have one.

“It, however, can be understood from a political-economic standpoint."

The economist pointed to a possible reason. “Large, long-standing businesses were vocal during the public hearing on gas price hikes. The government perhaps didn’t want to provoke them, so it spared them.

“Without raising prices and cutting subsidies, the next [International Monetary Fund] loan tranche might have been in jeopardy,” he added.

bdnews24.com sent a message to Energy Advisor Fouzul Kabir Khan, asking whether the two-tier pricing would cause discrimination and obstruct investment, but received no reply.

Explaining the reason for the price hike to German-based media Deutsche Welle, Fouzul said: "This will not hinder investment; rather, it will strengthen investment."

“We have to remember, our gas reserves are depleting,” he added. “To meet the gap, we are importing LNG at Tk 70 per cubic metre. If we’re supplying gas at Tk 30, we’re giving a subsidy of Tk 40.

“How long can we afford that?” the advisor asked.

Economist Zahid agrees that the price hike might not directly discourage new investors, as gas prices alone are not the sole factor determining investment decisions.

“This isn’t the only parameter influencing investment,” he said. “If other facilities are in place, investors might be able to adjust.

“But the disparity created between old and new consumers—there’s no justification for that.”

He added, “The gas price hike should arguably affect the older players more than the new ones.

“The older companies have a greater capacity to absorb pressure. They can also speak out.”

“But the new ones? They have no representation. Who will speak up for them?”

Some have interpreted the price hike as part of a broader attempt to phase out subsidies in the energy sector.

Mohiuddin Rubel, former director of Bangladesh Garment Manufacturers and Exporters Association (BGMEA) and managing director of Bangladesh Apparel Exchange, believes uninterrupted gas supply is the more critical issue.

“If gas is supplied reliably, costs in captive power generation will drop, allowing for adjustment,” he told bdnews24.com.

“But the government’s message is that, for now, only new consumers will pay more — the older ones will follow. Perhaps the government plans to eliminate all subsidies.”

The Foreign Investors’ Chamber of Commerce and Industry (FICCI), an organisation representing foreign investors in Bangladesh, fears that prices for older consumers may also rise once their contracts are up for renewal.

In a media statement on Tuesday, the organisation described the two-tier pricing as “unacceptable”.

“Separate gas tariffs have been set for new consumers, committed consumers, and existing consumers — this is entirely unacceptable,” the statement reads.

“These price structures will severely hinder new investment and industrial expansion. Such dual pricing not only violates the principle of fair competition but also undermines equal opportunity in a competitive market,” it added.

To attract foreign investment, the Muhammad Yunus-led government hosted a major investment summit last week with investors from 50 countries.

At the event, Bangladesh Bank announced the creation of a special Tk 9 billion fund for new entrepreneurs.

Critics are calling out the contradiction: inviting investment on the one hand while creating barriers through higher energy costs on the other.

“At a time when the government is taking multiple steps to attract investment, imposing higher gas prices on only new industries and investors is a contradictory approach,” said the FICCI.

This policy shift also coincides with a slump in private-sector investment.

According to the central bank, private sector credit growth dropped to 6.82 percent in February—the lowest in over a decade.

Analysts noted that in the Ease of Doing Business index, greater emphasis is placed on offering opportunities to new entrants, including uninterrupted access to energy.

Humayra Ferdous, a specialist in local industrial development and sustainable technology, said the gas hike would push back new entrepreneurs and hamper the emergence of new industries.

“As a result, import dependency will increase,” she warned.

The American International University–Bangladesh (AIUB) professor told bdnews24.com: “Ease of Doing Business means ensuring easy access to energy and other services.

“Raising gas prices for new businesses means they won’t be able to compete with established players. The advantage will go to the bigger ones.”

She explained that older and larger industrial enterprises are more capable of absorbing the cost burden — new ones are not.

Humayra said: “The government could have increased corporate tax rates for large industrial groups to raise revenue. They’re already established — it’s time they shared some benefits with the state,” Humayra said.

“But if energy costs are raised, new companies simply won’t emerge. Then how will employment be generated? Everything would have to be imported,” she concluded.

[Writing in English by Sheikh Fariha Bristy]