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Bangladesh - May 11, 2023

IMF concerned overpower overcapacity

Industry Desk: The International Monetary Fund (IMF) has expressed concerns over the overcapacity of power generation in Bangladesh, highlighting that the country’s capacity is at 22,566MW while the actual demand is only around 16,000MW.
This overcapacity could lead to increased costs for the Bangladesh Power Development Board (BPDB) and necessitate further government subsidies.
During a recent visit, the IMF team stated that if there is an overcapacity of 1,000MW gas or liquid fuel power plants, BPDB’s fixed expenditure would rise by $120-$144 million per year.
If the overcapacity is from coal-fired power plants, the fixed costs would increase by $240 million-$300 million, leading to a loss for BPDB and requiring additional government subsidies. The government’s subsidy in the power sector is projected to reach a record high of Tk 270 billion this fiscal year, Tk 44.13 billion higher than the previous fiscal year and Tk 100 billion more than the current fiscal’s initial budget allocation.
According to the IMF, the installed capacity of gas-based power plants is 11,522MW, but actual generation is not more than 6,200MW, resulting in a 5,000MW shortfall.
Jayendu De, the IMF resident representative to Bangladesh and Bhutan, pointed out these issues during a visit to the Power Division on April 30.
“Under the power purchase agreement, gas and liquid fuel-based power plants are permitted a 10 percent outage, while a 15 percent outage is allowed,” they said.
However, the IMF pointed out that plant capacity worth 1,420MW was shut down due to fuel shortage, and 2,858MW has been undergoing maintenance.
The government has already increased the bulk power tariff and average retail power tariff from December 1, 2022.
Considering the gap in bulk power tariff, BPDB officials projected a tariff deficit of Tk 462.75 billion in the current fiscal year, which is expected to decrease to Tk 386.89 billion in the next fiscal year.
The BPDB claims to have only a 20 percent ‘reserve margin’ of electricity. Energy experts reported that 50 percent of electricity generation capacity was utilized in 2020, which increased to 70 percent against the derated capacity.
Due to fund constraints, the BPDB has not paid around Tk 40 billion to the private sector, and public sector power plants are also experiencing a fund shortage.
Shafiqul Alam, an energy economist at Institute for Energy Economics and Financial Analysis (IEEFA), noted that fuel shortages are affecting the power system, forcing some plants to shut down or operate at lower capacities.
He suggested phasing out inefficient and old power plants to reduce the tariff burden and overcapacity.
Alam also emphasized the need for Bangladesh to focus on renewable energy, which could provide multiple benefits, including reduced power system costs, increased energy security, less dependence on imported fossil fuels, and the creation of green jobs. Consumer Association of Bangladesh (CAB) energy adviser Prof Dr. Shamsul Alam said that the IMF may not suggest increasing power and energy tariffs but instead recommends reforming the power and energy sector to prevent pilferage.
According to CAB’s calculations, pilferage in power transmission, generation, and distribution networks is worth Tk 300 billion-350 billion.
Prof. Shamsul Alam also expressed disappointment with the IMF’s focus on overcapacity, stating that the additional transmission and distribution costs were overlooked, and the actual cost of 1,000MW overcapacity could be much higher.
He warned that importing electricity and commencing mega projects such as Rampal, Pyara, and other private power projects would increase the overcapacity burden on the public exchequer.

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