Vietnam, a Southeast Asian country, has an electricity production capacity of nearly 81,000 megawatts (MW). Last year, its peak demand was just over 46,000 MW. Although a large portion of its capacity remains unused, Vietnam’s power sector subsidy is close to zero. The tariff per kW (excluding VAT) is equal to BDT 9.08.
Bangladesh's electricity sector's capacity is less than one-third of Vietnam’s. The highest demand during peak hours exceeds 60 percent. The average tariff per kWh is just over BDT 8.5. The per capita subsidy for electricity production is equal to 18.53 dollars, that is BDT 3.99 per kWh. In all aspects, Bangladesh’s electricity subsidy is much higher than Vietnam's, as well as India and Pakistan in South Asia.
Experts say that a major reason for the rising subsidies in Bangladesh’s power sector is the construction of unnecessary infrastructure. Many irregularities and corruption occurred during the previous government's implementation of these projects. Moreover, there was no focus on reducing costs in the power sector over time. The failure to utilize local primary energy sources and reluctance to invest in renewable energy also contributed to the growing state subsidy in the sector. Despite this, electricity usage among the public has not increased, nor have the sector’s unproductive costs been reduced. In fact, these costs have grown over time. Overall, Bangladesh has become one of the most inefficient countries in the power sector across Asia.
Professor AK Enamul Haque, economist and vice-chancellor of UCSI University Bangladesh campus, said, “The increase in costs in the power sector is mainly due to unnecessary spending and poorly planned project implementation. These actions have led to theft and corruption, transferring large amounts of money. Although past contracts may not be cancelable, there is an opportunity to move out of this situation by planning long-term cost-saving measures. The government should create that strategy.”
An analysis by the Bangladesh Independent Power Producers Association (BIPPA) found that in the 2023-24 fiscal year, Bangladesh's electricity capacity was 26,887 MW (from November to April 2024), with a maximum production of 16,477 MW. During this period, the subsidy in the power sector was 321.62 million dollars. The subsidy per kilowatt-hour of electricity produced was BDT 3.99, and the per capita subsidy was 18.53 dollars. India’s per capita subsidy was 14.29 dollars, while Pakistan's and Vietnam’s were 8.71 dollars and only 4 cents, respectively.
Considering electricity demand, India’s electricity production capacity is 441,970 MW. The per capita subsidy in India is 14.29 dollars. The average tariff per kilowatt-hour of electricity is BDT 10.32, and the subsidy per kilowatt-hour of electricity is BDT 1.55.
Until the 2023-24 fiscal year, Pakistan's electricity production capacity was 42,131 MW. The country's electricity subsidy in the last fiscal year was 2.1 billion dollars. The tariff per kilowatt was BDT 12.83, and the subsidy per kilowatt-hour was BDT 2.33. The per capita subsidy was 8.71 dollars.
Pakistan's economic crisis is largely attributed to its power sector. Like Bangladesh, Pakistan's government increased capacity, creating significant financial debt. Due to large-scale production capacity increases, the country has been burdened with mounting debts. In July 2023, Pakistan raised the electricity price by 3 rupees per unit to overcome this. Additionally, the tariffs for at least two dozen private power plants were reviewed, and several contracts were canceled.
However, Bangladesh has not yet made this level of progress. The Bangladesh Power Development Board (BPDB) plans to reduce production costs by 10% without raising electricity prices. The BPDB is trying to maximize gas-based power plants' production to achieve this. Meanwhile, the International Monetary Fund (IMF) has advised that subsidies in the power sector should not exceed the current fiscal year's allocation. The government has set up a six-member committee on January 21 to review the tariffs of private power plants. Additionally, it has started renegotiating contracts for furnace oil-based power plants. On September 5, the government formed a five-member national committee to review power sector contracts. This committee recommended hiring an international legal and investigative agency for contract reviews, but the interim government has yet to appoint any legal agency as per the recommendation.
Experts believe that taking visionary steps and implementing them effectively is essential to eliminating inefficiencies in a country's power sector. They point to Vietnam as an example. In 2023, Vietnam's electricity subsidy was 4.3 million dollars. The tariff per kilowatt-hour was equivalent to BDT 9.08, with subsidies per kilowatt almost zero. The per capita subsidy was just 4 cents.
According to global energy think tank Ember's data, Vietnam has increased its renewable energy share in electricity to 42 percent. Of this, 13 percent comes from solar and wind power, while the rest comes from hydropower. The country is now called the "powerhouse" of renewable electricity. Over the last decade, Vietnam has significantly reduced coal-based power production and increased hydropower use.
According to German online data platform Statista, Vietnam's hydropower capacity was 7,185 MW in 2009. By December 2023, it had increased to 22,639 MW. As reliance on renewable energy grew, the country's electricity production cost significantly decreased. Additionally, Vietnam has managed to reduce its carbon emissions below the global average.
Industry experts say that many countries have implemented five-to-eight-year plans to reduce costs and subsidies in the electricity sector. These plans have helped minimize unnecessary costs while tapping into the most cost-effective energy sources. However, Bangladesh's situation has been the opposite.
BD Rahmatullah, former director general of the Power Cell, an electricity policy and research institution, said to Bonik Barta, "The increase in subsidies is due to incorrect policy decisions. Wrong policies have led to unnecessary expenses and the implementation of financially unbeneficial projects. As a result, the government is paying for these mistakes through electricity subsidies. The government could have worked on reducing capacity charges in the electricity sector. Renewable energy has always held great potential, but nothing has been done. Countries like India, Thailand, and Vietnam have succeeded, and they are now reaping the benefits. Bangladesh, however, remains stuck in contract obligations, paying capacity charges year after year, further worsening the sector."
The government's outstanding dues in the power sector have reached BDT 400 billion. This money will primarily be owed to private and foreign power exporters to Bangladesh for electricity purchases. The government has also allocated BDT 400 billion in subsidies for electricity in the current fiscal year. The average production cost of electricity has been rising repeatedly, and to cover the increasing liabilities, the previous Awami League government raised electricity prices each year. In February of last year, the price increased by 8.5 percent, and in 2023, it went up by 5 percent three times.
When asked about the rising costs in the electricity sector, AJM Ershad Ahsan Habib, the current director general of the Power Cell, refused to comment.
However, a senior official in the electricity department, speaking on condition of anonymity, told Bonik Barta: "The increase in electricity tariffs is mainly due to capacity charges. We can only use half of our capacity; the rest remains idle. These power plants receive payments even when they aren't operating. In many cases, due to a gas shortage in past years, expensive fuel oil was used. The production cost of these plants has reached BDT 40-45 per kilowatt hour, while electricity has been sold at 8 to 10 taka per unit. The remaining cost is covered by subsidies. This is how the costs have increased in the electricity sector."