Bangladesh Power Development Board (BPDB) incurs heavy loss every year as it has to sell electricity cheaper than the production cost. To overcome the deficit, the government provides a huge amount as subsidy. According to the revised budget, the subsidy in power sector for ongoing 2023-24 fiscal year was fixed at Tk 394.06 billion. And, capacity charges or rents of the power stations were estimated at over 320 billion. Based on this calculation, around 81 percent of the power subsidy is spent on payment for renting the power plants.           

This approximation of BPDB is provisional. A reliable source at the organization informs that when this estimate was done, few gas-fired power plants did not start production. As a result, the overall spending could be more or less than the estimated amount.

Two gas-fired large power plants have recently gone into production. The capacity of these two plants of Summit and Unique groups at Meghnaghat stands at 1,167 megawatt. A power plant of Reliance with a capacity of 718 megawatt is waiting to start production in the same area. After the inclusion of this plant, BPDB spending on capacity charges will further go up.         

According to energy experts, a major chunk of the power subsidy is spent every year on capacity charges. On the other hand, the government is planning to withdraw subsidy altogether in next three years by increasing the electricity price four times a year. But, there is a big doubt if BPDB will be able to overcome the financial pressure by hiking the electricity price because the production cost of power is increasing every year. And, the capacity charges are one of the main reasons. Experts also believe that illogical spending, corruption and other factors are propelling the production cost.        

Energy expert and former professor of Bangladesh University of Engineering and Technology Ijaz Hossain described the effort to get out of the subsidy by increasing the price as positive. “The money is being taken from the consumers. And, there should be a clear pathway as to how this money is spent to reduce the loss,” he told Bonik Barta.

“A significant portion of the government subsidy is being gulped by the capacity charges. Huge amount is being paid for power plants that are kept idle. This should not happen. On many occasions, it is seen that power plants cannot run due to unavailability of gas. Then again, liquefied natural gas (LNG) cannot be purchased owing to financial crunch. Power plants based on expensive energy are used. These are not the right ways to reduce corruption in energy sector. These issues need to be looked at properly. Only then, the government spending in this sector will go down significantly,” added the expert.

Sources at the Finance Ministry and BPDB say that a budget of Tk 502.35 billion was approved for power subsidy in 2023-24 fiscal. The amount went down to Tk 394.07 billion in the revised budget mainly due to the issuance of special bond against the power subsidy. So far, special bonds worth Tk 160 billion have been issued.      

In 2022-23 fiscal, more than Tk 395.35 billion was provided as electricity subsidy. About Tk 260 billion or 65.78 percent was spent on subsidy in that fiscal.  

Analyzing data from Finance Ministry, BPDB and a non-government research organization, it has been found that a total of Tk 783.7 billion was paid as capacity charges from 2018-19 fiscal to 2022-23 fiscal. Tk 62.41 billion was paid in 2018-19 fiscal, Tk 89.29 billion in 2019-2020 fiscal, Tk 132 billion in 2020-21 fiscal, Tk 240 billion in 2021-22 fiscal and Tk 260 billion was paid in 2022-23 fiscal year as capacity charges for private and rental power plants.

BPDB has found itself in huge debt for paying the huge sum. Even after taking subsidy from the government, the organization incurred a loss of Tk 117.65 billion in 2022-23 fiscal. In 2021-22, the loss was Tk 32.32 billion. Despite taking different steps, the organization cannot get of the cycle of loss. On the contrary, it is going up.    

As part of the effort to reduce the loss in power sector, the government has taken initiatives to ease the burden of BPDB. Electricity price is being gradually increased to withdraw subsidy. Of course, a visiting delegation from International Monetary Fund (IMF) is considering the effort a positive one. However, members of the delegation have voiced concern over paying capacity charges without using power plants.

The IMF delegation held meeting with the Power Division on Thursday. It was informed on behalf of the Power Division that government will adjust the electricity price four times a year to deal with the subsidy pressure. All kinds of subsidy will be reduced in next three years following this process.   

At present, the electricity production capacity in the country stands at 27,162 megawatt. Of it, up to 13,500 megawatt is used normally. But recently the production of 16,477 megawatt was recorded as demand increased due to heatwave. If the maximum usage is taken into account, power plants with capacity to produce about 11,000 megawatt are sitting idle, which means capacity charges are paid without production.

On September 5, 2023, State Minister for Power, Energy and Mineral Resources Nasrul Hamid informed Parliament that from January, 2009 till June, 2023, the government paid Tk 1.05 trillion to private and rental power plants as capacity charges.

According to Power Division sources, it is moving ahead with ways to come to breakeven by reducing subsidy. Therefore, effort is there to reduce the spending by increasing the price of electricity. Power Cell, the government body that formulates policies on electricity and conducts research, is trying to make BPDB a profitable entity.

Despite repeated attempts, Power Cell Director General Mohammad Hossain could not be reached for comments.

However, he told Bonik Barta earlier in February, “The capacity charges were included as the plan was to develop the power sector protecting the investment. Capacity charges exist in every country. It is said that the capacity charges have increased in last few years. We have also taken this into consideration and decided to buy electricity on ‘no electricity, no payment’ basis from the plants that are going to expire. The government is planning to get rid of the subsidy to make the power sector solvent. Therefore, price is increased in limited way. At one point, the production cost and selling price will be same.”