LNG reliance drags down Bangladesh’s economy

LNG reliance drags down Bangladesh’s economy

Emran Hossain

Bangladesh gets its first-ever liquefied natural gas-based power plants this year.

The mighty capacity charge in Bangladesh’s energy sector

But the timing could not have been worse, said energy experts, adding that more power overcapacity and increasing the need to import fossil fuel will surely deteriorate Bangladesh’s current economic crisis, taking a heavy toll on its people grappling with the worst inflation in decades.

With 100 per cent power overcapacity, imported LNG-based power plants with capacity charge entitlements were the last thing Bangladesh needed amid its steadily depleting dollar reserve.
Still, over the next eight months, four LNG-based base-load power plants are set to come online, adding a generation capacity of 2,685MW.

The power plants coming into operation means the capacity charge burden going up by nearly $295 million. The capacity charge is the fixed cost payable to private power plants regardless of electricity production.

‘LNG power capacity will add to the power overcapacity burden,’ said Shafiqul Alam, lead energy analyst, Institute for Energy Economics and Financial Analysis, a US-based think tank.

Last year, roughly half of Bangladesh’s installed power generation capacity of 25,951MW remained unused, with a 10 per cent increase in the generation capacity over the year. The capacity charge paid last year rose by a fifth, compared with the previous year, to $1,563 million.

Idle power plants because of fuel shortage

While inadequate transmission and distribution networks partly caused under use of power capacity, despite there is a substantial amount of unmet power demand, particularly during summer, the main reason behind dozens of power plants remaining unused last year was fuel shortage.

The fuel shortage was initially caused by the global energy crisis inflating energy prices but its persistence even after energy prices substantially dropped in the international market rather exposed the the lack of viability in Bangladesh’s plan to overwhelmingly rely on imported fossil fuel.

Energy experts saw this crisis coming and issued warnings from time to time, especially when Bangladesh announced its power and energy sector master plans in the past, with all of the plans, prepared by the Japan International Cooperation Agency, overwhelmingly relying on fossil fuels.

Resorting to an indemnity law that blocked the avenue of questioning any power projects, the government kept passing power and energy projects without competitive bidding, leading to an arbitrary expansion in the power and energy sector.

As a result, the installed power generation capacity increased sixfold since 2009 without having a matching expansion in the transmission and distribution networks.

Depleting the dollar reserve

Some energy experts attribute a third of the current economic crisis to the government’s flawed power and energy policy leading to predatory expenses, often completed using the dollars, with far less output than the expenses should have achieved.

Capacity charge, which ensures profit to the power and energy sector’s private investors, and fuel import were among the reasons blamed for depleting the dollar reserve fast.

Bangladesh Working Group on Ecology and Development, citing official data, said that Bangladesh spent $10,720 million in the five years on LNG import that began in 2018.

Imported LNG worsens financial condition

Importing LNG at higher prices will eventually increase electricity expenses, so it is advisable to move away from this path immediately, said Dr. Khondaker Golam Moazzem, the research director at Centre for Policy Dialogue (CPD).

So far imported LNG was mixed in the national grid for piped gas supply. Gas accounts for about 40 per cent of Bangladesh’s primary energy demand. Imported LNG makes up for a fifth of the supplied gas. The rest of the gas supply comes from local gas fields that are running dry fast.

A fourth of the imported LNG comes from the spot market.

Bangladesh also spent $3,410 million on building LNG infrastructures such as floating storage regasification units. Bangladesh currently imports LNG via two FSRUs worth 1100mmcfd. The FSRUs cost $4.5 lakh every day in capacity charge.

The BWGED said that Bangladesh spent $0.72 for a cubic metre of LNG in 2023 but sold it at $0.13.

‘This equation simply does not make any sense. Why adopt a plan that only worsens financial condition while increasing the need for subsidy?’ wondered Hasan Mehedi, member secretary, BWGED.

Bangladesh Power Development Board’s annual loss quadrupled to $1,072 million last year compared with the year before. Since 2009, the year the incumbent Awami League government assumed power, BPDB’s annual loss increased by 14 times.

Losses inflated so fast that they could not be matched even with frequent energy price hikes. The power and gas prices have increased about a dozen times each since 2009.

Increasing annual loss meant more subsidy needs. The government paid $3,602 million in subsidy last year, up from $2,702 million paid the year before.

The situation is set to worsen with several thousand MW of imported LNG-based power generation capacity with capacity charge entitlement rolling into operation from this year.
Bangladesh is economically not in a position to increase LNG imports. While the dollar crisis caused coal power plants to suspend operation last year, over 30 per cent of the country’s capacity to import 1100 mmcfd of LNG also remained unused.

Half of the gas-based generation capacity sat idle mainly because of the fuel crisis. The dollar crisis also compelled the government to use more oil-based private power plants to delay the dollar reserve depletion. Private power plants were not paid for months.

More infrastructures for LNG import

Amidst all these crises Bangladesh cannot avoid the need to build more infrastructures for LNG import to operate its new power plants to be operated completely with LNG.

Two more FSRUs worth 1100mmcfd are being constructed but they will not be ready to use until two years later, implying that much of the LNG power capacity will remain unused.

The four LNG-based power plants due to join Bangladesh’s power fleet this year are three Meghnaghat power plants – 583MW, 584MW, and 718MW, and the Rupsa power plant worth 800MW. The Meghnaghat power plants are jointly owned and two of them have a common foreign owner – Japan’s JERA. The other owners include power giants such as the US-based General Electric, Summit Power of Bangladesh and Reliance Group in India.

JERA owns 49 per cent of the 718MW and 23 per cent of the 583MW power plants in Meghnaghat.

The involvement of JERA bears testimony to energy experts’ accusation of Japan formulating Bangladesh’s successive power and energy master plans to serve its interest.

JERA accounts for 40 per cent of Japan’s annual imports of LNG – 40 million tons. The company is involved from procurement to production of LNG to gas-fired power generation in many countries.

Economists and energy experts have repeatedly accused the government of using the power and energy sector to transfer public money to the pockets of an international syndicate of influential people to stay in power. The incumbent government recently took over the office for the fourth straight term.

IEPMP is a way to get locked in expensive fossil fuels and false solutions

In the 2016 Power Sector Master Plan the JICA planned setting up 18 coal-based power plants worth about 15,000MW. But in the latest integrated Energy and Power Master Plan, which was approved in July last year, JICA shifted its emphasis to gas, calling it the most environment-friendly fossil fuel.

The Centre for Policy Dialogue, a Bangladesh think tank, described the master plan as faulty for pursuing an impractical economic development goal that would need 60,000MW in 2041.
The master plan says Bangladesh needs to add 15,000MW by 2030, completely relying on fossil fuel.

The master plan estimated that meeting energy demand in 2041 might need 8,142mmcfd. In the in-between scenario, the gas demand would be about 4,545mmcfd.

The CPD was surprised that instead of making a target-oriented plan for developing renewable capacity, the master plan opted for unproved technologies such as hydrogen power for future expansion in the power and energy sector.

While ignoring the need to explore domestic gas resources, the master plan relied on imported energy and lacked a roadmap to reduce power sector system losses or overcapacity or subsidy, said the CPD.

The master plan even drifted away from the government’s position of sourcing 40 per cent of electricity from renewable sources as announced in the Mujib Climate Prosperity Plan in 2041.

Bangladesh’s current installed capacity is 97 per cent dependent on fossil fuel though the Mujib climate prosperity plan hoped to source 30 per cent of its power from renewable sources by 2030.

The master plan rather introduces a concept of clean energy including technologies such as hydrogen technology, ammonia co-firing and carbon capture technology, which energy experts call a false solution.

Energy experts rather called the master plan a document to justify the power sector’s illegitimate and rent-seeking activities at the cost of Bangladesh’s economy. The master plan has plans to build 11 LNG power plants worth 6,665MW in just four years.

‘The problem with building so many base-load power plants on fossil fuel is it leaves no room for accommodating renewable energy in the power mix,’ said Shafiq.

The result is obvious – getting locked in expensive fossil fuels for a long time while renewable energy becomes even more viable and cheaper.

Energy experts have urged Bangladesh to review its IEPMP and align it with the Mujib Climate Prosperity Plan.

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