It has also been suggested that the government had to finally succumb to the pressure of the donor community after the latest enhancement of fuel prices in India.

Pricing of fuel has become very sensitive not only in Bangladesh but all over the world. Energy itself has become the most important geostrategic and geoeconomic challenge of our time.

One thing is clear. The age of cheap oil is over. Global demand is soaring and oil producers are struggling to keep up. In fact, according to analysts, world demand for oil is likely to grow by 50 percent by 2025. Some experts also believe in this context that global oil production may reach a peak in the near future (anytime after 2018). Subsequently, it is expected to decline, due to depletion.

Consequently, a debate is raging on whether the development of new oil resources will be able to keep pace with world energy requirements. It may be mentioned here that China's oil demand per day has grown from 4.4 million barrels in 2002 to just under 7 million barrels in 2006 necessitating massive regular imports. This is in stark contrast with the situation where, as recently as the early 1990s, China was a net oil exporter. Similarly, India currently consumes 2.5 million barrels of oil a day, having to import close to 70 percent of this figure.

This complex scenario has been further compounded by the fact that while there may still be plenty of oil, much of the remaining reserves are in hard-to-reach reservoirs, or are difficult to refine. The US Geological Survey has underlined this point recently in a report where they have pointed out that, in the last five years, we have consumed 27 billion barrels of oil a year, but the oil industry has discovered only three billion barrels a year. So, in effect, one barrel was replaced for every nine we have used.

Like many other countries, fuel continues to be a source of anxiety also for Bangladesh. Our thirst for oil has increased with the growth in our economy. However, our problem has been the availability of sufficient funding to meet increased expenditure in this regard.

It would be useful at this point to compare the pricing of petroleum products in this region. Till the submission of the budget proposal on 8 June, a litre of octane was almost Taka 100 equivalent in India, about Taka 74 equivalent in Pakistan and Taka 69 equivalent in Sri Lanka. In Bangladesh, it had remained at Taka 45. This story of comparative prices was the same with regard to petrol and diesel. Pricing, was a victim to politics and the need to maintain domestic popularity at any cost, literally and figuratively.

Bangladesh today, imports annually about US dollar 700 million worth of crude oil and US dollar 1.4 billion worth of different kinds of refined petroleum products. This has been exerting negative pressure on our foreign exchange reserves and also gradually depreciating the value of the Taka against the US dollar.

We all know that financing of oil import for this year was facilitated through arrangements agreed to with the Islamic Development Bank and the other financial institutions. This raised about US dollar 1.2 billion, leaving a deficit of about US dollar 900 million. The government then tried to meet this gap through further borrowing from local and foreign banks. Unfortunately, this really has not worked.

Instead of trying to resolve the dilemma in a sustainable manner, the government exacerbated the situation by continuing to play the politics of subsidy, much to the unhappiness of its agent -- the Bangladesh Petroleum Corporation (BPC). Responsible for the import and distribution of this scarce commodity, BPC has now, most unfortunately, become the focal point for criticism and a scape-goat of sorts.

In the meantime, analysts have brought out some interesting elements within the whole equation. Apparently ninety percent of the imported fuel is used by the airlines, transport and industry sector. Only ten percent is used by the agricultural sector and that too, is limited to irrigation of crops during the December to end-March period when sufficient rainfall is absent. It would appear that some economists and politicians have been exploiting this ten percent need, as the pretext for supporting the government decision to subsidise all petroleum products.

It was quite evident by the end of May that Bangladeshi decision makers and policy formulators were caught between a rock and a hard place. The prime minister went to Kuwait and to the UAE. The Emir of Kuwait was received in Dhaka. Towards the beginning of this month, the chairman of the BPC also visited Kuwait. The BPC usually imports products worth about US dollar 100 million through cash and deferred payment from the Kuwait Petroleum Corporation every month. All these efforts were obviously directed towards finding solutions with regard to payment on deferred credit.

One can only surmise that the pressure must have become quite difficult for the government to have forced it to capitulate. The last straw must have been the World Bank and its insistence in tagging the fifth disbursement of the Development Support Credit to FY 2007-08, to a fuel price hike. It may be mentioned here that Poverty Reduction Growth Facility and Development Support Credit loans are still major sources of foreign finance. To this was added the World Bank Representative's recent comment in Dhaka that the BPC was incurring US dollar 100 million in losses every month and that other prolonged 'unadjusted' expenditures on petroleum products (as pointed out by the Asian Development Bank) were taking a heavy toll directly and indirectly on the Bangladesh micro-economy.

It was also suggested by the World Bank that if the government disagreed to make energy price adjustments, then it should at least make necessary allocation of additional funds for the BPC and the Bangladesh Power Development Board in a transparent manner in the national budget for 2006-07. This, they felt, would help fund losses from the low price of fuel oil and electricity and avert the risks of further draining of funds from the nationalised domestic banks.

As I see it, all these factors coalesced and forced the government to raise fuel prices. Due to this cosmetic step, octane has now moved up to Taka 58 from Taka 45, petrol to Taka 56 from Taka 42 and diesel and kerosene to Taka 33 from Taka 30. This has been the ninth time the four-party alliance government has raised fuel prices since taking office in October 2001. The exercise however appears to be futile as far as the BPC is concerned.

It has been claimed by the Energy Adviser and the Finance Ministry that this latest step will generate an extra Taka 100 crore for the exchequer every year. This figure will nevertheless be just a drop in the ocean, considering that the BPC is losing almost four times that figure every month. Making kerosene more expensive for the poor will not, most unfortunately, remove the serious situation in which the BPC continues to find itself. It is like treating the patient with one aspirin at a time when he is lapsing into coma from a stroke.

The scenario becomes more complex when one takes into consideration the other factor that will raise the stakes in the coming months -- the arrival of the caretaker administration. I feel this government has not been bold enough to resolve this problem. It has most unfairly left an issue that will cause serious difficulty for the coming caretaker regime which does not have the constitutional mandate to take policy decisions.

Our finance minister should have had the courage to introduce a special fuel tax for all income tax payers and industrialists. This could have been graded whereby anyone falling into a designated bracket would have to pay another 5 percent of his estimated income tax as fuel tax. Similar steps could have also initiated in levying tax on interest earned from fixed deposits. Fuel tax could also be levied as an extra surcharge on registration of land property or during purchase of transport vehicles -- trucks, buses, cars and even auto rickshaws. These steps would have made the BNP less popular but it would definitely have provided the exchequer with more than just Taka 100 crore. It would also have not affected the poor.

The government could have also convened a meeting of the LDC Group in Vienna for discussion with the OPEC members and sought concessionary pricing for a percentage of their annual import.

What is required is a bi-partisan approach. For a change, the government should act responsibly and immediately set up a Special Parliamentary Group for this purpose. It could be constituted with representatives from all parties. Let this committee analyse the existing situation and come to an agreed decision about the future road-map pertaining to this issue. They could also take steps like issue of oil bonds. Rationing of fuel products could also be decided upon.

We must understand that this is as serious as it gets. We have to act, and do so quickly.

Muhammad Zamir is a former Secretary and Ambassador and can be reached at mzamir@dhaka.net