Interest to be adjusted by increasing electricity price

Rabiul Haque : The government is unable to pay the subsidy due to cash crunch. A huge amount of bills of power plants have become due. Recently the repayment of the liability has been deferred for some time through the issue of special treasury bonds against the subsidy money.
The government is thinking of increasing the price of electricity once more to pay the interest of this bond and the accumulated subsidy. According to related sources, another round of electricity price hike may be decided in the current winter season.
According to sources related to the power department, the government will implement a method of adjusting fuel oil prices to the international market by March this year. Besides, a decision will be made about increasing the price of electricity within this period. The number of subsidies in the sector is increasing day by day.
The government’s financial crisis is also increasing under the pressure of this subsidy. On the one hand, the subsidy money is not being paid, on the other hand, due to the outstanding bills, the power plants and the banks that have given loans to the power sector are in trouble.
In this situation, it has been possible to delay the filing of the government for some time by issuing bonds against the subsidy. But in this case, the government has to pay the interest on the bond. Also, the accumulated subsidy amount has to be paid. All in all, at the moment, the government is looking at no other option than to increase the price of electricity. In this case, the price may be increased by 30 percent. But it will be increased in a few steps without increasing at all, so that the pressure on the customer is reduced.
Experts say that if the price of electricity is increased, it will affect all sectors. The impact on commodity prices in particular will be far-reaching. In the meantime, the pressure of inflation has lifted people’s breath. In this situation, if the price of electricity increases again, it will further fuel inflation.
The government is also concerned about this issue. In this case, the government plans to decide to increase the price of electricity if inflation comes under control.
When asked about this, the senior secretary of the electricity department said. Habibur Rahman told, “There is a plan to increase the price of electricity.” Prices will be raised at favorable times when inflationary pressures are low. Maybe a decision to increase the price may be taken within this winter. But in this case, there is a plan to increase the price step by step without raising it at once.
In the last 14 years, electricity prices have increased nine times in the country. During this time, the price of electricity has increased by 118 percent at the wholesale level. And the customer level has increased by 90 percent. In February 2020, wholesale electricity prices were increased by 8.39 percent. At the same time, prices at the retail level were increased by 5.3 percent, which took effect in March of that year. After that, in December 2022, wholesale electricity prices were increased again. Last year, on January 12 last year, an executive order of the government announced to increase the price of electricity at the consumer level.
In a related notification of the Ministry of Electricity, Energy and Mineral Resources, the electricity price of Lifeline customers who use zero to 50 units at the residential customer level has been increased from Tk 3.75 to Tk 3.94 per unit, and the electricity price of zero to 75 unit users has been increased from Tk 4 to Tk 4.19. Tk 4 for 76 to 200 unit users from Tk 5 to Tk 6.1 for users from 201 to 300 units Tk 6 to Tk 6.30 for 301 to 400 unit users Tk 6.34 to Tk6.66 for 401 to 300 unit users. For 600 units, it has been announced that the electricity bill will be increased from Tk 11.49 to Tk 10.45 to Tk 10.45 and residential customers using electricity above 600 units will be increased to Tk 12.3.
Speaking to reporters yesterday at the Secretariat regarding electricity price adjustment, State Minister for Power, Energy and Mineral Resources Nasrul Hamid said that one of the biggest challenges of the government will be to ensure uninterrupted and affordable electricity and fuel supply. The ministry also has that preparation. In this case, the cooperation of the finance department will be required. Work has to be done to bring inflation under control. He also said that automatic system will be introduced to determine the price of electricity and fuel according to international rules.
The government is also under pressure to meet International Monetary Fund (IMF) conditions to reduce subsidies in the energy and power sector. Under the IMF loan programme, the government of Bangladesh has promised to increase revenue to the organization as well as rationalize expenditure and subsidies. In December last year, the IMF board approved the decision to waive the second tranche of the loan for Bangladesh. According to a report published by the organization at that time, the Bangladesh authorities have planned to withdraw subsidies on all types of energy products and for this a formula-based price adjustment system will be adopted. It will be implemented by March this year. Similarly, Bangladesh has promised the IMF to adjust electricity prices to reduce subsidies to the power sector and not to include capacity charges when renewing power plant contracts.
On January 4, the government issued a special bond of Tk 3,160 crore in favor of state-owned Sonali Bank and private sector IFIC Bank against fertilizer subsidy. Out of this, special treasury bonds of Tk 2,557 crore were issued in favor of Sonali Bank and Tk 459 crore in favor of IFIC Bank. Through this, the government’s bond issue program has started against the subsidy. Further bonds will be issued against subsidy in fertilizer and power sector. The term of this bond has been fixed for 9 years. The interest rate of this bond has been determined according to the policy rate of Bangladesh Bank. Banks will get back the bond money at the end of the term. Through these bonds, banks will also be able to meet their cash deposit (CRR) and statutory deposit (SLR) obligations with the central bank.
Officials of the Ministry of Finance said that currently there is arrears of about Tk 42 thousand crore due to the subsidy of the government in the fertilizer and power sectors. Out of this, initially, the government wants to issue special treasury bonds against subsidy of Tk 25,500 crore for fertilizer and Tk 15 thousand crore for electricity. In this case, the number of related banks is 40. Among them, bonds will be issued in favor of 10 banks for fertilizer subsidy and 30 banks for electricity subsidy. Bonds will have different maturities, so that the government is not burdened with paying too much money at once in a single fiscal year. Debt and liabilities of the government will increase as a result of bond issue. However, due to the financial crisis at the moment, the government has no other option.
Energy expert and BUET professor M Tamim told, “But we don’t know what efforts are being made by the government to reduce the price of electricity.” Cost of production can be reduced by increasing operational efficiency. If there is any loss it can be reduced. It costs more to buy electricity from other energy sources than coal. As a result, it is possible to reduce costs by ensuring maximum utilization of coal-based power plants. Prices may have to increase due to increase in production cost. But to keep this price rise at a bearable level, production costs and expenses must be reduced. If the price of electricity goes beyond people’s affordability, people may want to reduce their consumption to save costs. This will reduce power demand and increase unused capacity. On the other hand, among those who do not reduce consumption, the tendency of electricity theft may increase. There is a need to think about the possible countermeasures if the price of electricity is increased. Excessively high prices will have a major negative impact on the market. The dollar crisis of power producers is not going away through bond issue. Power plants are unable to import furnace oil as required due to lack of dollars. Initiatives should be taken to eliminate this crisis.
According to the Bangladesh Power Development Board (BPDB), the company currently owes about Tk 30,000 crore on power plant bills. Out of this, the private sector IPPs owe about Tk 23,000 crore in bills. The bills of the institutions have been outstanding since April last year. In this situation, the government plans to pay the subsidy from April to September last year through bond issue.
According to the information, in the fiscal year 2022-23, the government has given subsidies of Tk 42,893 crores to the power sector, Tk 6,232 crores to the energy sector, Tk 26,055 crores to the agriculture sector and Tk 25,766 crores to the fertilizer sector. And in the budget of the current fiscal year 2023-24, Tk 1 lakh 10 thousand 987 crores have been allocated for subsidy.