Bangladesh’s power subsidy to hit Tk 200b

Originally posted in The Financial Express on 17 November 2021

State subsidy on power poses to nearly double to Tk 200 billion in the current fiscal year with a push from fuel-price spiral, BPDB fears.

Bangladesh Power Development Board (BPDB), country’s lone buyer of electricity from power producers, assumes that increased consumption of oils in power plants to generate electricity might jack up the subsidy requirement in the FY 2021-22.

Subsidy requirement will, however, be lower than estimation if local gas production increases, BPDB chairman Md Belayet Hossain told the FE Tuesday.

The power board got subsidy worth around Tk 117 billion in FY 21, which was 34.96 per cent higher than previous FY’s Tk 86.09 billion.

The average electricity-generation cost currently hovers around Tk 6.61 per unit (1kilowatt-hour) but the BPDB sells electricity at Tk5.12 per unit, Mr Hossain said about the gap.

Thus, he added, the BPDB requires Tk 1.49 per unit as subsidy.

The board pays fuel cost which changes with the price movement of international market as well as the fixed rate of state-run Bangladesh Petroleum Corporation (BPC).

For privately owned furnace oil-fired power plants, the BPDB pays private sector the fuel price in line with the international market as the owners import furnace oil from the international market.

The BPDB, however, pays fuel price as per the BPC-fixed rates for state-owned furnace oil-fired power plants.

The board, however, pays diesel price as fixed by the BPC for both the private-and public-sector plants as the state-run oil corporation is the lone importer of diesel.

As the furnace oil and diesel prices increased both in local and international markets, BPDB’s spending more in electricity purchases from power plants, said sources.

The BPC increased diesel price by around 23 per cent to Tk 80 per litre, from the previous Tk 65 per litre, on November 4.

It also raised furnace-oil price by 16.98 per cent to Tk 62 per litre with effect from Nov 5.

Increasing coal price on the international market also is pushing up BPDB’s electricity-purchase costs from the country’s largest operational Payra 1320- megawatt coal-fired power plant, which depends on imported coal for electricity generation.

The power board also pays the power plant owners ‘capacity charge’ which is a sort of penalty for its failure to buy a certain portion of electricity readily available with the plants.

According to the BPDB, the board got subsidy worth around Tk 89.29 billion from the ministry of finance in FY ’19.

It got around Tk 62.41 billion during FY ’18, Tk 56 billion during FY ’17, Tk 53.76 billion in FY ’16, Tk 50.43 billion in FY ’15 and Tk 47.14 billion in FY ’14.

The BPDB got Tk 54.90 billion during FY ’13, Tk 50.01 billion during FY ’12, Tk 29.73 billion during FY ’11 and Tk 17.90 billion during FY’10 as subsidy from the government.

Before FY’10 the BPDB did not require significant amount of subsidy as most of the country’s power plants were less-expensive gas-fired ones.

During 2010, the government adopted a plan to mitigate the then nagging electricity crisis through installing dozens of oil-fired rental-and quick-rental power plants.

The subsidy requirement started soaring with the commencement of electricity generation from oil-fired power plants.

Most of the plants were approved against unsolicited offers under the Speedy Supply of Power and Energy (Special Provision) Act 2010.

The law has a provision of immunity to those involved with a quick fix.

The government allowed entrepreneurs duty-free import of furnace oil to run plants with a 9.0-per cent service charge along with import costs as an incentive, said a senior power division official.

Currently the country’s furnace oil-fired power plants have the capacity to generate around 7,000mw electricity and the diesel plants have the capacity to generate around 1,000mw electricity.