The interim government has approved an allocation of BDT 620 billion in the revised budget for subsidies in the power sector for the current fiscal year. Earlier, the previous government had allocated BDT 400 billion for the 2024-25 fiscal year, while the subsidy for the 2023-24 fiscal year was BDT 350 billion. This means the revised budget has increased the subsidy by BDT 220 billion, marking a 55 percent rise. Compared to the previous fiscal year, the allocation has surged by 77 percent.
The interim government has also taken several initiatives, including repealing special laws in the power sector, reviewing power plant contracts, and revising the tariff structure. Over the past six months, the production costs of coal-based power plants have been cut in half. However, overall expenses in the power sector remain high.
Experts believe that despite efforts to reduce costs, the government has yet to cancel controversial contracts or implement impactful reforms to significantly lower expenses. They also noted that there are no visible signs that the situation will improve anytime soon.
Meanwhile, the power division has stated that due to financial constraints, the allocated subsidies are often not disbursed on time, resulting in accumulated dues. Clearing these backlogs has contributed to the increased subsidy requirement for the current fiscal year.
Policy-makers in the power sector largely attribute the rise in subsidies to the previous government’s large unpaid dues. When asked, Muhammad Fouzul Kabir Khan, Adviser for Power, Energy, and Mineral Resources, told Bonik Barta on Wednesday (March 12), “We’re trying to reduce costs in the power sector. The increase in subsidies is mainly due to the backlog left by the previous government. If you consider the ratio, the subsidy hasn’t actually increased. We’ve already taken various initiatives to cut costs. For instance, we’ve reduced the service charge on fuel imports for private power plants from 9 percent to 5 percent. We’re also negotiating tariffs. However, these efforts won’t yield immediate results. The financial impact of initiatives to curb irregularities and corruption in the power sector may become evident in the next fiscal year.”
Officials from the finance ministry said the government plans to clear the accumulated subsidy dues within the next three years while ensuring timely disbursement of annual subsidies. This approach will likely increase government spending on subsidies. In the current revised budget, the subsidy for the power sector has been raised from BDT 400 billion to BDT 620 billion. Subsidies for fertilizers have also been increased from BDT 250 billion to BDT 280 billion. The power division is now working on plans to gradually reduce the subsidy burden. Additionally, the International Monetary Fund (IMF) has recommended reducing the subsidy amounts besides settling the outstanding dues.
Production costs in coal-based power plants have significantly declined this fiscal year. Falling coal prices in the international market have been a key factor, with costs consistently dropping since July 2023. By June 2024, the average fuel cost for producing one unit of electricity at coal-based plants was around BDT 8. Currently, with global coal prices near $105 per ton, production costs have fallen to about BDT 5.5 per unit. According to industry sources, reducing production costs by BDT 2.5 per unit should result in significant savings. However, this is not happening.
Officials from the Bangladesh Power Development Board (BPDB) explained that while the total capacity of coal-based thermal plants is 7,000 megawatts, only 4,000 megawatts are operational. The remaining 3,000 megawatts of capacity remain idle, forcing the use of expensive oil-based plants to meet demand. As a result, the savings from coal-based plants are being offset by higher expenses in oil-based generation. This is why reduced coal costs have not translated into lower subsidy requirements.
In an effort to reduce power sector expenses, the government initiated a tariff review for private power plants under a special provision introduced during the Awami League’s tenure. A committee was formed in January this year to oversee this process. However, no substantial progress has been made in reviewing the tariffs, meaning the initiative has yet to impact overall costs.
After the interim government assumed office, it initiated a review of agreements for 11 power plants, including those operated by Adani, Summit, and Beximco, on October 3 last year. To facilitate this, a national review committee was formed. The committee analyzed data related to these power plants and recommended appointing a legal and investigative body to assist in reviewing the power generation agreements. Although the committee submitted its recommendations in November, no concrete actions have been taken yet. Sources suggest that, like the previous administration, the current government is following the same approach in managing the power sector, which is why costs are not being reduced.
The previous government left behind significant outstanding payments in the power sector. By June last year, these arrears had reached around BDT 500 billion, increasing steadily over the past two and a half years. Struggling to clear these dues, the Awami League government started issuing special bonds last year to settle the payments. The interim government has also continued this approach without reassessing the bond issuance strategy.
According to the Power Division, BDT 201.33 billion was paid through special bonds in the 2023-24 fiscal year to settle power sector arrears. Additionally, from July to December of the current 2024-25 fiscal year, the interim government issued special bonds worth BDT 55.63 billion for the same purpose.
The government incurs massive costs every year by selling electricity to consumers at prices lower than production costs. In the 2020-21 fiscal year, subsidies for the power sector amounted to BDT 89.4 billion. This rose to BDT 119.6 billion in 2021-22 FY, BDT 295.11 billion in 2022-23 FY, and BDT 350 billion in 2023-24 FY.
Officials and experts related to the power and energy sectors noted that the subsidy allocation in the revised budget for the current fiscal year has reached an all-time high. They believe that due to persistent corruption and the absence of major structural reforms, the government has been unable to reduce expenses, forcing an increase in subsidies.
Energy expert and adviser to the Consumers Association of Bangladesh (CAB), Professor Dr. Shamsul Alam, told Bonik Barta, “If the previous government’s expenditures were illegal and exploitative, reforming the sector should have reduced subsidies. But if subsidies are still increasing, it indicates that the previous corrupt practices are continuing. To reduce costs, irrational expenses in the tariff structure must be addressed. This requires empowering the regulatory body, BERC, to work with stakeholders to find ways to reduce unnecessary expenses and subsidies. Unfortunately, it seems the government is only escalating costs rather than reducing them.”
Top officials at the Bangladesh Power Development Board (BPDB) attribute the rising subsidy costs to accumulated arrears, interest on loans, and other related expenses. They believe that reforms are essential to overcome these debts.
When asked about why expenses in the power sector remain uncontrolled, BPDB Chairman Engineer Md Rezaul Karim told Bonik Barta a few days ago, “BPDB has adopted a cost-saving policy. As part of this, we are reviewing power plant agreements, adjusting tariffs, and phasing out inefficient power plants. However, the primary reason for the increased expenses is the arrears carried over from previous periods.”