Tk 32,000 cr allocated for capacity charge

Power sector subsidy for FY 2025

Mahfuja Mukul: Bangladesh Power Development Board (BPDB) has to face a huge financial deficit every year due to selling electricity at a lower price than the cost of production. To meet this deficit, the government is giving a large amount of money as subsidy to the organization every year. In the revised budget for the current fiscal year 2023-24, the subsidy in the power sector has been estimated at Tk 39,406.79 crores. On the other hand, the cost of power plant rent (capacity charge) has been estimated at more than Tk 32 thousand crore. Analyzing it, it can be seen that 81 percent of the subsidy given to the power sector is being spent on capacity charges.
This estimate of the capacity charge of the power plant is, however, a provisional calculation by PDB. A reliable source of PDB said that when this estimate was made, several gas-based power plants were not in production. As a result, at the end of the financial year, the expenditure may be more or less than the estimated amount.
Two large gas-based power plants have recently come into production in the country. The capacity of these two centers of Summit and Unique Group at Meghnaghat in Narayanganj is 1,167 MW. Reliance is also waiting for a power plant in the area. The capacity of the center is 718 MW, which will further increase BPDB’s cost of center rent.
Energy experts say that a large part of the amount allocated every year as electricity subsidy is spent on the central capacity charge. On the other hand, the government plans to raise the price of electricity four times a year and remove the subsidy for this sector within the next three years. However, there is great doubt whether PDB will be able to handle the financial pressure by increasing the prices. Because the cost of electricity production in the country is increasing every year. The capacity charge of the center is one of the reasons behind this. Besides, experts believe that the cost is increasing due to various reasons including unreasonable expenditure, corruption in this sector.
In this regard, energy expert and former professor of BUET Ijaz Hossain said, “The effort to get out of subsidy by increasing the price of electricity is positive. This money is being taken from the customer. But there needs to be a clear way of how this money is being spent to reduce losses in the power sector. The government subsidizes the power sector every year, a large part of which goes towards capacity charges. Many power plants are carrying huge sums of money by sitting. This can’t be. In many cases, it is seen that the power plant can’t be run due to lack of gas. Again, due to lack of fund, Liquefied Natural Gas (LNG) can’t be purchased. Expensive fuel-based power plants are being used. These are not the right way to reduce corruption and irregularities in the power sector. As a result, they have to be fixed. Only then will it be seen that the government’s expenditure in this sector has reduced a lot.
According to the Ministry of Finance and PDB sources, the budget approved as subsidy in the power sector in the financial year 2023-24 was Tk 50,235.27 crore. However, it was reduced to Tk 3,940.68 crore in the revised budget. It has decreased mainly due to special bond issued in electricity against subsidy. A total of Tk 16,000 crore special bonds have been issued in electricity so far.
Before this, in the fiscal year 2022-23, more than Tk 39,535 crores of electricity subsidy was given. At that time, Tk 26,000 crore were paid for power plant rent or capacity charges, which is 65.76 percent of the total subsidy given in that financial year.
According to the analysis of the accounts of the Ministry of Finance, PDB and a private research organization, a total of Tk 78,370 crore has been paid for the capacity charges of power plants from 2018-19 to 2022-23 financial year. Of this, Tk 6,241 crores in 2018-19, Tk 8,929 crores in 2019-20, Tk 13,200 crores in 2020-21, Tk 24,000 crores in 2021-22 and 2022-23 capacity charges to private and rental power plants Tk 26 thousand crore have to be done.
PDB went into debt to pay this huge amount. In the financial year 2022-23, despite the subsidy received from the government, the company made a financial loss of Tk 11,765 crore, which was Tk 3,232 crore in the previous financial year. Despite taking various steps to get out of this huge loss every year, the expenditure is not being reduced, rather it is increasing.
As part of reducing financial losses in the power sector, the government has taken initiatives to reduce the debt burden of PDB. As a part of this, the price of electricity is gradually increased to get out of subsidy. However, the International Monetary Fund (IMF) delegation visiting Dhaka sees this effort positively. However, the representatives of the organization have expressed concern about the payment of the capacity charge of the power plant.
The IMF delegation held a meeting with the power department last Thursday. It was informed by the electricity department that the government will adjust the price of electricity four times a year to handle the subsidy pressure. In this process, all types of subsidies in the power sector will be reduced in the next three years.
Currently, the power generation capacity in the country is 27,162 megawatts. Of this, electricity is used up to 13,500 megawatts during normal times. However, due to the increase in demand due to the recent intense heat wave, the maximum power generation was recorded at 16,477 MW. Even if the power consumption of the maximum capacity is taken, the center of capacity of about 11 thousand megawatts is sitting. These centers are receiving capacity charges even without generating electricity. State Minister for Power, Energy and Mineral Resources Nasrul Hamid said in a question and answer session in Parliament.
According to the source of the electricity department, the electricity department is proceeding with the method of equalizing the income and expenses by reducing the subsidy. As part of this, efforts are being made to reduce costs by increasing electricity prices. Efforts are being made to turn PDB into a financially viable entity, said power policy and research firm PowerCell.
The director general of the Cell, Engineer Mohammad Hossain told a few days ago, “Capacity charge has been included in the power plant from the plan that the power sector will improve by ensuring investment protection.” It is present in the power sector of every country. The issue is being talked about as capacity charges have increased in the past years. Prioritizing the matter, the term of the power plant is expiring, I have decided not to extend their term. But in the case of the power plants that need it, the power purchase agreement is being renewed on “No Electricity No Payment” basis. Not only that, the government plans to move out of subsidies to make the power sector financially viable. Due to which the price of electricity is being increased in a limited way. It will at some point be equalized with the production cost of electricity and revenue collection of this sector.