Rising energy costs threaten to upset Bangladesh’s economic growth

Public gas, power companies recommend a historic rise in tariffs

Emran Hossain

Bangladesh was already exhausted from dealing with excessive gas prices in the international market when the Russian invasion of Ukraine began, causing oil prices in the international market to soar too.

Price Volatility of LNG Market

A rise in gas and electricity tariffs in Bangladesh has now become a matter of time. A series of public hearings have been scheduled on March 21-24 to discuss a potential hike in gas tariff.

Bangladesh endured an almost ceaseless gas crisis ever since the LNG spot price started rising abnormally in late 2020, leading to the rationing of gas to CNG filling stations for nearly half a year now.

The shortfall in Gas Availability

Gas crisis reduced about half the gas-based installed electricity generation capacity, which is the use of about half the overall installed capacity – – depends on the supply of gas, data provided by the state-owned Power Development Board showed.

Against the installed capacity of 22,512MW, excluding off-grid solar and captive systems, the highest demand served by the national grid was 14,792MW on April 16, 2022. A study by the Institute of Energy Economics and Financial Analysis (IEEFA), based on Bangladesh Power Development Board (BPDB) data, substantiated that the country only utilized 40 percent of the power capacity during 2019-20.

In the capital Dhaka many people skipped a meal at home in the day or ate half-cooked meals every now and then because of not getting enough pressure in piped gas supply.

Industrialists, on the other hand, expressed their disgust at the continued gas crisis publicly, afraid of losing international market, after a substantial fall in their production.

With hardly any renewably capacity to use, Bangladesh meets more than half of its energy demand with gas, according to the Hydrocarbon Unit of the Energy and Mineral Resources Division. The domestic gas production has been on the wane for about a decade largely because of the lack of exploration initiative.

Usage of Expensive Oil to Meet Electricity Demand

The daunting gas crisis obviously pushed Bangladesh towards using more oil than had been intended. But the recent hike in oil prices in the international market made matters complicated for Bangladesh.

‘Bangladesh is passing through a very difficult time,’ energy expert Ijaz Hossain said, ‘The gas rationing measure may need to be expanded, the utility tariffs are about to go up and load shedding is set to worsen.’

In the last decade, well aware about own gas reserve depleting, Bangladesh increased its yearly oil import nearly 230 per cent to for the purpose of generating electricity alone, showed PDB’s latest annual report.

But electricity produced using oil is far expensive compared to its production cost in gas-based generation, up to five times depending on conditions.

Power Cell DG claimed that people did not care much about tariff as long as they have access to uninturrupted supply of electricity.

However economists, consumers and business persons had a different opinion about gas and power tariff continuously rising. It strains people’s purchasing capacity, especially the poor and fixed income group, they said, while Bangladesh loses competitiveness in international trade.

Increased Price of Commodity and Energy Purchase

Local media is already filled with report of the poor cutting on their food consumption and other basic needs such as treatment trying to cope up with increasing living cost.

Government subsidized shops selling some essentials are already overwhelmed with crowds of people. The prices of essential are already beyond the purchasing capacity of many. The gas and power tariff increase are directly reflected in commodity prices.

In the last 13 years since the incumbent government assumed power, the gas tariff was increased seven times, the last increase made in July 2019, according to the Bangladesh Energy Regulatory Commission.

The fixed monthly tariff of a double gas burner used in household increased 117 per cent. Industrialists said their tariff was raised by more than 300 per cent.

The power price, on the other hand, was increased 10 times after 2009, the BERC statistics showed, registering an increase of 98 per cent.

Capacity Payment

Paid unused installed capacity together with the rising costs of fuel have piled up a loss of Tk 76,000 crore on the shoulder of the state-owned Power Development Board. Over 40 per cent of the installed capacity, subject to capacity payment, was not used in 2020-21.

The US-based Institute of Energy Economics and Financial Analysis in a report in February warned that power overcapacity could exceed the 60 per cent mark by 2024-25 from lack of growth in electricity demand and the addition of new power plants under construction.

These power plants are mostly based in fossil fuel. Bangladesh plans to add about 6000 MW LNG-based capacity by 2025.

‘Primary energy crisis is the biggest challenge for Bangladesh. But we cannot sit idle because of that,’ said power cell director general Mohammad Hossain.

Increased LNG Tariff

On the Asia LNG spot price reached $59 per Mbtu, a new record in the price. The S&P Global Commodity Insights on March 11 predicted that the LNG spot price was to remain above $25 per Mbtu for the rest of the year. Bangladesh could never use its full capacity of 1,000 mmcfd to import LNG even when the LNG price stood at historic low at $6 per Mbtu in September, 2020.

In the beginning of March, the international oil price hit a barrel, the highest since 2008, as reported in international media. The oil price in the international market dropped slightly but continued to hover above $100 a barrel, up from about $75 a barrel in the beginning of January. On March 15, a barrel sold at $111.

All these developments made yet another round of hike in gas and electricity tariffs inevitable.

Even before the international oil market became high, state-owned gas companies recommended increasing gas tariff by up to 129 per cent. The PDB followed the suit recommending a 66-per-cent tariff rise.

The main reason, the gas companies cited in their application, necessitating such a historic increase in tariff is the import of costly LNG. The gas companies noted that high LNG price is crippling their operational capacity.

The Gas Transmission Company Limited, scheduled for a public hearing, demanded that its transmission charge be raised by 129 per cent in 2021-22 and another 26 per cent in 2022-23.

‘Any further focus on imported volatile fossil fuels is a warning to energy consumers in Bangladesh. Further significant and economically damaging power tariff growth is more than likely,’ Simon Nicholas, energy finance analyst of the IEEFA, said in February.

The Centre for Policy Dialogue, a local think tank, warned in February disastrous fiscal consequences from Bangladesh increasing its LNG-based power capacity any more.

Shifting towards Renewable Energy

The CPD rather advised that Bangladesh turn its power overcapacity into an opportunity by shifting its focus on developing renewable capacity in the next few years. The incumbent government heavily incentivised fossil fuel use over the last decade in an apparent display of indifference toward building renewable capacity, which accounts for less than 2 per cent of the overall installed capacity.

The integrated energy master plan being formulated is expected to lay out a plan more focused on renewable capacity expansion. Policymakers finally seem to be starting to realise the solution to the country’s primary energy crisis lies in renewable energy.

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