Whopping Tk 33,775cr subsidy for power sector in FY24

The government has proposed a record increase in subsidies for the power sector in the draft FY24 budget although it has increased the price of gas, fuel, and electricity by 15 per cent and 137 per cent respectively in recent time.

It has estimated an allocation of Tk 33,775 crore for the power and energy sectors in the upcoming national budget, which is Tk 7,700 crore more than FY23.

At the same time, a subsidy of Tk 25,000 crore has been proposed for the power sector, a Tk 6,000 crore increase from the current financial year, according to the Ministry of Finance and Ministry of Power, Energy and Mineral Resources.

"Earlier, the loss in the sector was estimated much higher at over Tk 70,000 crore due to the excessive price hike of gas, coal and petroleum fuel following the war in Ukraine that began in February 2022. But after the enhancement of fuel prices on the domestic market, the losses came down and subsequently the requirement for subsidy was also reduced to around Tk 25,000 crore," said officials at the Ministry of Power, Energy and Mineral Resources.

An official of the Power Division said most of the additional subsidy allocation in the upcoming budget will be spent on paying the previous year's arrears.

Because of the increase in the prices of oil, gas, and coal in the world market, the actual demand in these sectors has increased more than the subsidy target, he said.

However, Bangladesh Power Development Board (BPDB) estimated that it needs Tk 30,000 to Tk 35,000 crore as subsidy from the government for the fiscal year 20223-24 due to costly power generation.

But the Power, Energy and Mineral Resources Ministry's estimate, in the current fiscal 2022-23, the power and energy sector will require over Tk 23,000 in subsidies to cover its losses.

 Of this, the power sector will require Tk 18,000 crore while around Tk 6000 crore would go on primary fuels.

"We are witnessing a volatile fuel market, following the Russia-Ukraine war, we are not getting a stable fuel market...it is unpredictable, so this time we fix a range which would be in between Tk 30,000 to Tk 35,000 crore to continue smooth generation as our 30 per cent production has come from the liquid fuel base plants," a senior official of BPDB told the Daily Observer.

Officials said that the costly coal and LNG along with 34 per cent VAT on imported furnace oil make the production cost more volatile.

"We shared the issue with the Power Division that 34 per cent VAT on imported furnace oil and the heated international energy market may push the subsidy about 20 to 18 per cent more than the previous year," he said.

To reduce the tax burden, the Power Division several times requested the Finance Ministry to cut down the VAT and other duties on imported fuels as the cost affects the power tariff but they (Finance Ministry) did not respond.

BPDB data book said HFO-based power projects contribute around 30 per cent or 6,000 MW of generation capacity against the country's total production of around 22,000 MW.

"Still we are giving Tk 6 on an average from our side for producing one unit of electricity, as our production cost is Tk 11 plus selling price is Tk 5 plus on an average," BPDB official said.

State Minister for Power, Energy and Mineral Resources Nasrul Hamid told the Jatiya Sangsad that the average cost of generating per unit of electricity for both public and private sectors is Tk 13 to Tk 14 (furnace oil based), Tk 25 to Tk 30 (diesel based) and Tk 2.5 to Tk 3 (gas based).

The government has been increasing gas, fuel, and electricity prices frequently in recent months to withdraw subsidies as part of meeting the conditions for the International Monetary Fund's (IMF) US$4.7 billion loan programme.

Experts see the IMF's subsidy withdrawal condition as positive but said the government's move to tackle fiscal pressure by increasing energy prices will create a huge burden on consumers.

"We have said unnecessary expenditures and corruption in various segments of the power and energy sectors should be stopped," Prof M Shamsul Alam, Senior Vice-President of Consumers Association of Bangladesh (CAB) said.

An analysis of the budgets of the last few years shows a large portion of the allocation for the Power, Energy and Mineral Resources Ministry is spent on the Power Division while the allocation for the Energy and Mineral Resources Division is insignificant, especially for the development of the gas sector.

There is currently an extreme energy shortage in the country. In the current fiscal year, Tk 26,066 crore was allocated for the power and energy sectors. Of this, Tk 1,798 crore was for the Energy and Mineral Resources Division.

In FY22, the allocation was Tk 27,484 crore for the power and energy sectors. Of that, Tk 1,800 crore was allocated for the Energy and Mineral Resources Division.

Sources in the Finance Division say Tk 105,000 crore has been proposed in subsidy in FY24 to deal with the current economic crisis. This is about Tk 22,255 crore more than the current financial year. Of the total allocation, Tk 25,000 crore is for the power sector.

Finance Division sources said around Tk 173 billion is estimated to allocate for import of LNG, payment of interest subsidy on incentive packages.

Besides, the devaluation of the taka against the US dollar, increases in global interest rates, and rise in interest rates on treasury bonds and other related factors are expected to lead to a 27 per cent rise in the interest payment burden next fiscal year, according to a Finance Ministry estimate, of which energy stood first.