BPDB for lifting VAT, duties

Reducing power generation cost

Industry Desk: Bangladesh Power Development Board (BPDB) has sought to withdraw import duties and Value Added Tax (VAT) on imported furnace oil for electricity generation.
This aims to lower the energy tariff due to volatility in High-Speed Furnace Oil (HFO) prices in the international market over Russia-Ukraine war.
HFO tariff increased to $750 per tonne now, which was around $200 per tonne in January 2020, said an importer of a private power generation company.
He added the cost of per kilowatt electricity generation rose to Tk 16-18 due to the rise of HFO market prices.
“Introduction of 34 percent of VAT on imported HFO in February 14, 2020 made the power tariff costlier despite the fact that BPDB paid the fuel bills for electricity production,” the producer said on the condition of anonymity.
He said the overdue bills four to five months made the import of HFO more complicated as the private sector incurred losses due to the bank interest rate.
“We depend on banks for fuel import. But volatility in HFO import as well as the cash payment of 34 percent VAT to NBR makes it even more complicated,” he said.
Talking over the issue, State Minister for Power and Energy Nasrul Hamid said the NBR set the VAT on HFO import when the market price was stable. “But, it creates more pressure on liquid fuel-based power generation. It should be addressed right now,” he said.
According to BPDB, Bangladesh’s electricity generation capacity is now 21,484MW. Of it, HFO-based power projects contribute 27.39 percent or 5884MW. BPDB depends more on HFO-based electricity generation due to gas crisis and volatility in the international market.
According to the BPDB data, it produced maximum 5004MW of electricity against the total production of 14,782MW of electricity in April 16, 2022. It means 33.85 percent of electricity comes from HFO one.
In the particular day, the BPDB produces 33.85 percent of electricity against the production of 303.69 million units of electricity.
Despite the fact that the public and private power producers had enjoyed the VAT cut till February 13, 2020, which had been implemented since February 14, 2011 to reduce pressure on power tariff.
“I just tell you that I have not opened any new LC’s as over the due payment as well as the volatile HFO market,” said a private sector sponsor.

He added that per tonne of furnace oil tariff is at $750 now.

“So, the cost of per tonne HFO will exceed $1000, including VAT and duties,” the importer said.

“We have overdue bills of power generation tariff for around five months. In addition, the volatile market of HFO makes our production even costlier,” he said.
Due to the non-payment of bills, the bank interest rate also soared, according to him.
Recently, the private power producers proposed to withdraw the VAT and other import duties to bring the import cost down and lower the production cost.
The BPDB requested the Power Division to withdraw the VAT and other duties through reintroducing the Custom Act, 1969 (Act 1V of 1969) under section 19 facilities.
“The withdrawal of VAT and duties will help the BPDB bring down the government subsidy as well as reduce the investment on customs clearance for import of furnace oil,” BPDB secretary Mohammed Selim Reza told Power Division through an official letter on April 25, 2022.
BPDB spends around Tk 35 billion every month on purchase of electricity from the private producers.