Power and energy experts have categorically asked people in Bangladesh to brace for even worse days with even bigger energy bills and longer power outages. Bangladesh, currently embroiled in a crippling dollar crisis, largely triggered by wrong energy choice and policy, the experts said, has continued to ignore sustainable energy transition, favoring aggressive expansion of fossil fuel based on imports.
The new budget, announced for the financial year of 2023-24, has exposed the incumbent government’s real face, they said, blocking almost every possible opportunity for renewable energy transition and making reasonable energy choices.
Bangladesh’s energy policy will continue to drain the country’s foreign currency reserve, potentially increasing inflation and the living cost many folds than it is now and harming industries. Despite investing $39 billion in the power sector between 2009 and 2022, almost all of it in fossil fuel, Bangladesh faced acute power outages for over one year now, 10 hours a day or even more, amidst prolonged heat waves and record temperatures.
Bangladesh cannot use half of its installed power generation capacity of 24,143MW most of the time largely because of energy shortages and poor transmission and distribution systems.
The huge power overcapacity cost Bangladesh massive amounts in capacity payment, about $9 billion since the incumbent government assumed power in 2009 and started implementing unsolicited fossil fuel projects, protected by an indemnity law.
Bangladesh, accepting a $4.7 billion loan from the International Monetary Fund, is currently struggling with a debt of over $2.5 billion in the power sector alone, frequently shutting down major power plants or operating them at their half capacity.
The already unbearable power sector operating loss is likely to mount, energy experts said, requiring even greater subsidy – which is set to account for a third of the overall subsidy needed in 2023-24.
“With huge excess reserve (about 50%), the power sector will further struggle in handling with capacity payment, subsidy requirement and its financial position would get worse – as if the BPDB slowly moved towards becoming a ‘white elephant,’” concluded the Centre for Policy Dialogue, an independent think tank, in an analysis released on June 22.
“Can we survive doing business as usual?” asked Khondaker Golam Moazzem, research director, CPD, while sharing the analysis in a dialogue in the capital Dhaka.
Bangladesh spent an additional amount of Tk 27,000 crore between 2019 and 2022 on importing furnace and crude oils alone, the CPD said, estimating that generating 15,000MW would cost $10 billion annually, or $833 million a month.
The bad news is fossil fuel would get costlier from July 1, with Saudi Arabia announcing to decrease its supplies by 1 million barrels a day from the day amidst predictions of the international energy market remaining high through early 2024.
The biggest problem would be compensating for the loss of dollars in meeting the expense of the overwhelmingly import-dependent power and energy sector, the CPD said, pointing out that frequent energy price hikes might increase profit in the local currency but would not solve the dollar crisis.
The burden of power overcapacity will stay in 2025 with the installed generation capacity reaching 27,300MW against an officially estimated demand of 19,000MW, CPD said.
“The capacity charge required in 2025 represents an unbelievable amount which I am scared of disclosing,” said Moazzem at the dialogue.
The capacity charge is a mandatory payment by the government to private power investors, whether or not power is produced, guaranteeing their profit.
The CPD said that the capacity charge rose from Tk 5,376 crore in 2016–17 to Tk 28,000 crore in 2022–23, the change in the capacity payment corresponding to the power sector subsidy given by the government over the same period.
The government’s subsidy to the power sector increased from Tk 4,000 crore in 2017 to Tk 23,000 crore in 2023. Bangladesh Power Development Board’s operating loss, on the other hand, increased from Tk 6,200 crore in 2018 to Tk 27,477 crore in 2022.
“It is clear that capacity payment is responsible for mounting PDB losses and creating the need for huge government subsidies,” said Moazzem.
While proposing the budget for 2023-24 on June 1, the finance minister AHM Mustafa Kamal announced his plan of withdrawing the capacity charge, without giving any detail of how he planned to do it.
In his budget speech, the minister talked at length about the government’s commitment to ensuring power and energy security, revealing that his government would continue relying on fossil fuels such as coal and liquefied natural gas.
The finance minister also said that 33 power plants with a total capacity of 12,094 MW are under construction while his government has plans for setting up another 51 power plants with an overall capacity of 12,859MW. The minister hoped to take the installed power generation capacity to 40,000MW by 2030 and 60,000MW by 2041, mostly based on imported fossil fuels.
The new budget has no particular renewable energy plan, rather discourages renewable energy investments and encourages the import of liquefied natural gas and domestic coal extraction. Renewable energy holds only a four per cent share of Bangladesh’s current installed generation capacity that increased by about five times since 2009.
The finance minister, in a prompt response to requests of fossil fuel businessmen, proposed in the budget to withdraw 15 per cent vat and 5 per cent advance tax on the import of petroleum products and furnace oil, potentially increasing profits of fossil fuel investors and consumers’ energy expenses. The tax on the import of renewable accessories, however, remained unchanged.
“This was really surprising, especially after the government made so many promises about promoting renewable energy,” said Bright Green Foundation chairperson, Dipal Chandra Barua, a renewable energy investor.
The import of an inverter, a key element in solar projects, requires a 37 per cent duty if it is to be used in small projects, while a 58.6 per cent duty is payable for importing the aluminum frame used in solar projects and a 15.26 per cent import duty is payable on the import of walkway, a solar project accessory.
About 89 per cent tax is payable on the import of lithium-ion batteries, over 26 per cent on the import of solar panels and nearly 59 per cent on UV-resistant DC cable, renewable energy investors said.
“High expense discourages renewable energy projects,” said Dipal, fearing that renewable energy growth would remain slow. But renewable energy investment could have paid dividends.
Renewable energy experts estimated replacing diesel with solar energy in irrigation pumps could have saved the use of 3.5 million tonnes of diesel yearly, equivalent to $1 billion.
The US-based Institute of Energy Economics and Financial Analysis in a report said that Bangladesh can easily generate 1,700MW to 3,400MW of solar power during the day, and 2,500MW to 4,000MW of wind power to reduce the use of costly oil-based electricity.
By investing $1.71 billion annually, which was lower than the power sector subsidy amounting to $2.82 billion in the financial year 2021-22, Bangladesh can generate 40 per cent of its electricity in 2041 from renewable sources, said the IEEFA report. But the incumbent government does not seem to have much interest in renewable energy potentials.
For instance, the Integrated Energy and Power Master Plan, being drafted, targets generating only 5,280MW from renewable energy in 2041.
The IEPMP rather introduces expensive cleaner energy – hydrogen energy, carbon capture and ammonia technologies. Energy experts called cleaner energy a bluff saying that they are not proven technologies and emit carbon dioxide.
“One can go on forever describing the government’s wrong energy policy,” said energy expert Ijaz Hossain, who taught chemical engineering at Bangladesh University of Engineering Technology. “I wonder how the government plans to use 60,000MW capacity in 2041, mostly based on imported fossil fuel,” said Ijaz.
In the budget of Tk 7.61 lakh crore, the government proposed to set aside Tk 34,819 crore for the power and energy sector. About 93 per cent of the power and energy sector allocation in the budget has been earmarked for the power division, mostly for increasing generation capacity. Only seven per cent of the allocation is meant to be used in the energy and mineral division, which actually saw its development budget drop by 51 per cent compared with 2019.
The poor energy and mineral division allocation reflects the government’s negligence toward domestic gas resources. Domestic gas exploration has remained rather stuck since 2009 with the drilling of only 19 wells though the government has the capacity to dig at least 3 wells every year.
The Tk 140 billion Gas Development Fund, mobilized through gas tariff for the purpose of domestic gas exploration, sat idle. The government rather used Tk 20 billion from the gas development fund for the import of liquified natural gas.
Bangladesh is believed to be sitting on a substantial gas reserve, with international estimates putting it between 32tcf and 34 tcf. Domestic gas currently accounts for 75 per cent of total gas use. But discovered domestic gas reserve is fast depleting.
“The energy crisis will deepen under current circumstances,” said energy expert Badrul Imam, who taught geology at Dhaka University. “The energy crisis was inevitable even if there were no Covid pandemic or Russia-Ukraine war,” he said, calling the crisis man-made and intentionally created for the benefit of the fossil fuel business. “Fossil fuel deals mean large commissions,” he said.
Badrul Imam was perhaps not exaggerating for Bangladesh barely cared for increasing its domestic gas supply even after the acute energy shortage hit more than a year ago, hitting life and business hard. Bangladesh’s major domestic gas wells still produce a tenth of what international oil companies produce in similar wells in the country.
A study identified the adjustments needed for increasing domestic gas well production in 2011. But the adjustments were never made, not even after imported energy tripled electricity prices since 2009, leading to the worst inflation in a decade.
The government instead amended the BERC law for fixing energy prices through executive order, bypassing public hearings, and extended the indemnity law of the quick enhancement of electricity and energy supply several times for implementing fossil fuel projects without bidding.
The government also arranged for lands on a priority basis for fossil fuel projects, often evicting poor communities, sometimes using police and without proper compensation. The government also provided sovereign guarantees for massive loans taken for fossil fuel projects.
“The situation is such that Bangladesh cannot reduce energy prices even if their international market prices dropped,” said M Shamsul Alam, energy adviser, Consumers Association of Bangladesh.
“The government announced its plan of withdrawing subsidy meaning the burden of energy expense will further increase on ordinary people,” he said.
“The situation could have been different had the government checked its predatory expenses, inefficiencies and corruption and pursued sustainable energy transition,” said Shamsul Alam.