Electricity tariff hike and challenge of economic transformation in Bangladesh

Our economy has been undergoing the transition due to many crises including pandemic, global war, inflation and economic graduation. While the economy passes through this transition, the tariff hike move always becomes a bolt from the blue. After the recent gas tariff hike initiative, the electricity bulk tariff hike move has initiated since both hikes are largely interconnected. 59% of total electricity production happens using the natural gas. The series of hike is very untimely and unwelcome to mass people. BPDB, the country’s key electricity regulator, proposes to enhance the wholesale rate of electricity from TK. 5.17 to 8.58 Tk per Kwh by 58% to compensate substantial amount of fuel cost.

Currently, the power sector is largely dominated by Private sector power producers in production process almost 45% of electricity produced is shared by private sector followed by 45% by public sector and 10% is from renewable power. With the greater contribution of private sector, the capacity has gone upto 23000MW though production remains within maximum 14000MW. The engagement of private sector acted like a savior while power sector plunged into deep crisis but situation has improved and almost 100 percent people have access to electricity network. The BERC has recommended increasing the price of electricity in the country by 57.8% as opposed to the proposal of Power Development Board (BPDB) to increase the price by 65.56%. This hike may have some rationale for Government as imported LPG, LNG and liquid fuel have become very dearer due to shattered global supply chain of fuel and unstable global energy market. Alongside, local gas production is getting slimmer against growing demand leading to wider gap of demand and supply of gas. Energy sector has various master plans like gas sector and power sector master plans steered by the JICA with the provision of revisions but none of the ambitious master plans worked effectively to align with clear demand in energy sector.

Due to frequent shift in the policy direction, priority of primary energy and planning changes, the power sector is not heading towards the right track though it meets the demand of mass people at present. Currently, around 10000 MW power production capacity remains idle since energy sourcing and streaming are not well connected and planned in any master plans without immediate usage. This short-sighted plan with no clear orientation spoiled the wealth of Government and enfeebled fiscal resource base and enhance cost subsidy.

Now, energy efficiency masterplan has been formulated considering the waste control and rightful use of pricy and finite energy resources. The aggregate cost burden, system loss and external geopolitical concerns heavily weakened the power sector with cascading effects. Tariff hike may be an easy and straight forward solution for policy maker passing through the added energy bill but this is apparently unreasonable. This sector needs to be holistically seen and assessed for the best interest of all stakeholders in no time. The tariff methodology is not widely known among the utilities nor practiced by the regulated entities. The regulatory environment and implementation methods of tariffs have not been well-structured. We found that BERC has some extent breached the regulations of BERC as it fails to foster balanced power sector development and the interest of consumers to large extent. The regulator can underscore the need of futuristic energy mix that has minimum negative economic repercussions.

Following aspects and strategic solutions and thoughts may help to address the concern of power sector and frequent tariff hike moves:

• A hike in bulk power tariff will impact retail electricity prices and eventually prices of commodities that are produced by using power will also rise provoking the cost of living of mass.

• Cutting waste of power, systems loss, taxes on fuel and corruption will bring power prices to a tolerable level.

• Need to discourage the captive power plants and gas supply into these plants since we have sufficiency in power generation.

• According to the Power purchase agreement, power plants have taken their rental payment (capacity charge) even if they do not generate electricity. The term of high-cost quick rental power plant has been repeatedly extended. The rent of power plants has gone up to more than $10 billion in last 7-8 years. Running low-efficient plants increase the cost of production. The soaring import cost of fuel also adds cost burden

• Discrepancies in the evaluation report of the technical committee as 22% gas hike has been adjusted though it has not been finalized. The national expert and private sector may be involved in the committee. Import tariff should be waived for subsidized energy import.

• Power sector development fund should be utilized with accountability to rationalize cost implication of tariff hike on mass people. For fuel import, diverse sourcing countries need to be contacted to reduce sourcing risks.

• Government has to increase efficacy of power transmission and distribution network. Strong and fact-based assessment is needed for the efficient option of locally sourced power and cross-border power. Cross-country learning on cost-efficient utility practice can be useful to follow.

• The Power plants must follow the Merit Order List and report to BERC on monthly basis to check the production efficiency of power Plants.

• To reduce the cost of power generation, the Power Purchase Agreement (PPA) should be amended and the concept of “No Production, No Payment” must be followed in the case of an Independent Power Producer (IPP). No further extension of quick rental plants can be considered.

• Need multiple sources of power sale to make BPDP efficient and competitive.

• System loss should be reduced through efficient allocation of resources. Without efficient utilization of resources, the cost of power generation and burden is to be borne by end users.

• Decision on unutilized coal reserve aligning with national energy trend and future.

BPDB can follow efficient use of electricity, quality of service, energy management, international standards and strategies. Payment can be made in local currency for capacity payment of power plants to reduce pressure on foreign exchange reserve and non-renewal of contracts of gas-based power plants for reducing fiscal subsidy since power sector is always the largest recipient in subsidy budget in each fiscal year. A synchronized power generation, distribution and fuel sourcing plan must be embedded in the energy sector to be followed by all stakeholders. This will safeguard the businesses from unusual price hike and create some market intelligence for precautions and business plans. If the price of electricity goes up, the industries will act accordingly.

The agriculture, industry, production, transport and service sectors will be impacted if electricity tariff rises. Lowcost energy is one of the salient features of our trade and foreign investment competitiveness. Foreign investors prefer Bangladesh as the lucrative investment hub for higher profit margin and energy cost escalation may hurt this investment potentials. Economy has been burdened with various challenges including slow pandemic recovery, inflationary stress and LDC led new economic era.

The upcoming transformation later 2026 requires very sophisticated and focused plans across all sectors of the economy to ensure a smooth economic management. Since many international and local fiscal support measures will be curtailed, we must have some prior strategic and priority course of actions. Energy and electricity link with almost all factors of the economic progression including inflation. This price hike is likely to hold back the current revival and transitional pace. And, cost of doing business may be unbridled to large extent disappointing all businesses across the board.

Therefore, low-cost energy is to be sustained considering our economic trend to keep us ahead in the growth race against our regional peers. After all, economic survival is the optimum and much desired choice for all. Government needs to revise price of this sector annually according to the global market price. There is also a debate of future of clean and green electricity and industrialisation and current industrial trend. Taking into account the urgency of sustainable power sector, several researches can be held on pressing concerns like industry, investment friendly tariff, cost competitiveness of fuel sourcing, cost efficient, green power generation towards power sector development. A predictable and pro private sector energy system with energy portfolio must be designed through an integrated energy sector roadmap reflecting all sectoral demands and alternative strategic sourcing mapping towards sustainable energy security of Bangladesh translating our game-changing economic transformation.

- AKM Asaduzzaman Patwary, Sr. Economic Research Fellow, R&D & DCCI, Bangladesh