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We are paying for a large capacity without using it – Towfiqul Islam

Originally posted in The Daily Sun on 28 February 2024

Hike in power, gas prices to squeeze household budgets

The government has planned to withdraw subsidies on power and energy within the next three years by hiking their prices in phases, which will put further pressure on the already struggling people, fear consumers as well as experts.

In line with this, the price of gas used for generating power has been hiked by Tk0.75 per unit from this month. The authorities have also decided to increase the electricity price by Tk0.34 to Tk0.70 per unit from March. The government will also adopt the dynamic pricing method to set fuel oil price from that month.

The government has taken the measures to increase energy prices as the International Monetary Fund (IMF) set conditions of cutting subsidies in power and energy sectors for granting loans to the country. However, experts said that subsidies in these sectors could have been reduced by correcting the government’s previous wrong decisions taken for increasing power generation, because people have already been suffering due to inflation.

Currently, the country’s power generation capacity is over 26,000 MW. Around 13,000-15,000 MW electricity is produced in the country in summer, which comes down to 8,000-9,000 MW in winter.

A large part of the country’s power generation capacity remains unused throughout the year. Nevertheless, the government has to pay a huge amount of rent for the idle power plants, which is known as capacity charge.

According to the Centre for Policy Dialogue (CPD), about 41% of the power plants’ capacity was unused last year. In FY23, the government paid over Tk26,000 crore as capacity charges.

The last time the government hiked electricity price was on 28 February 2023, which came into effect from March that year. According to that rate, the electricity charge per unit at the consumer level was hiked by 5% to Tk8.24. The government increased electricity prices three times in the first three months of 2023.

Inflation eased to 8.57% in January this year as prices of most food items remained stable. Overall inflation was 8.71% in December 2023, according to sources.

After amendment of the Bangladesh Energy Regulatory Commission Act in January last year, the government can adjust the price of gas and electricity without a public hearing regarding the matter.

State Minister for Power, Energy and Mineral Resources Nasrul Hamid told reporters at the secretariat on Tuesday that the electricity price will be increased by Tk0.34 per unit at the lowest level and by Tk0.70 per unit at the highest level, which will be effective from March.

Mentioning that, at the later phases, the electricity price will be raised by lower amounts and at a slower pace.

“The electricity price fluctuates depending on the fuel prices in all the countries. So, we have to adjust with that; there is no other way,” said the state minister.

He also said the government has to pay a huge subsidy for electricity and fuel and the pressure of subsidy payment has increased due to the jump in dollar price.

“Our plan is to adjust it (the subsidy) over the next three years and we have taken measures so that the adjustment remains at a tolerable level,” he added.

Meanwhile, the government has published a gazette on Tuesday increasing the price of gas used in power plants by Tk0.75 per cubic metre, which has become effective from this month.

Nasrul Hamid also said that the government is also moving towards a dynamic pricing system for oil from the first week of March with the approval of the finance ministry.

The price of fuel oil in the country will be adjusted in line with the rise and fall of crude oil price in the global market, said the state minister.

He also said that the government will have to give subsidies of Tk43,000 crore on electricity and Tk6,000 crore on fuel this year.

He also mentioned that getting rid of the quick rental system and closing the diesel-based power plants is required for reducing subsidies on electricity.

Earlier, the government revised the price of fuel oil on 30 October 2022. As per that decision, diesel and kerosene are now sold at Tk109, petrol at Tk125 and octane at Tk130 per litre at the consumer level.

Consumers fear rise in inflation

Ghulam Rahman, president of Consumers Association of Bangladesh (CAB), has expressed his fear that the increase in electricity prices will put further pressure on people, who have already been suffering due to price hikes.

He told the Daily Sun that the energy price hike will adversely affect people’s lives as it might increase inflation in the country.

Ghulam Rahman said that, “The government has contributed a lot to the power sector. It has delivered electricity to every house. However, the quick rental increased the cost of power. If the government could redeem the wrong decisions it took earlier, then imposing a burden on the people could have been avoided.

Addressing the government, he said, “Lift subsidies by reducing wastage in the power sector. It is not right for the government to take wrong and opaque decisions and put the responsibility on the people. If all the responsibilities are on the consumer, they will be flattened by the pressure.”

Towfiqul Islam Khan, senior research fellow at the Centre for Policy Dialogue (CPD), told the Daily Sun, “It is disappointing that the government decided to increase the electricity price without any public hearing. Public hearings involve issues of transparency and accountability and provide opportunities for experimentation.

“One of the major reasons behind the increase in electricity prices is that the fiscal space is very weak right now. But there is no discussion about whether the structural problems that are causing high electricity price hikes can be removed. We are paying for a large capacity without using it, but the policy decisions are supposed to come from the ministry level.

“Increasing the electricity price will put pressure on the consumer, because many traders will use this as an excuse to keep the price of goods at a high level. As a result, institutional reforms should now be discussed.”