Plan to raise gas, power tariff to meet IMF terms

The Ministry of Power, Energy, and Mineral Resources plans to increase electricity and gas tariffs through an executive order soon to fulfill a condition set by the International Monetary Fund (IMF) for disbursing the USD 4.5 billion loan before the National Budget is finalized.

"We intend to adjust energy prices immediately," State Minister for Power, Energy, and Mineral Resources Nasrul Hamid told reporters. "The price of electricity for consumers will be increased slightly, but large consumers will face a significant price hike as we no longer intend to subsidize their consumption."

For the past week, the Ministry has been analyzing the potential economic, political, and social impacts of a tariff hike, considering the recent surge in essential goods prices and double-digit inflation, which have significantly impacted the lives of ordinary citizens.

To achieve the goal of a "zero-subsidy" power sector, a key condition for securing the USD 4.5 billion IMF loan, the Power Division requested the Bangladesh Power Development Board (BPDB) to submit a new proposal on the issue. The Power Division convened on Wednesday to discuss the proposal before forwarding it to the Prime Minister, the relevant minister, for approval.

The State Minister clarified that the price of gas for residential consumers would not be increased. However, power producers would face the price hike.

As per the IMF condition, the government already raised the bulk power tariff by approximately 19.92 pc to Tk 6.70 per kilowatt-hour (unit) from Tk 5.17 in December 2022. Despite this increase, the BPDB continues to incur significant losses.

A recent report by the Implementation Monitoring and Evaluation Division predicts that the BPDBs total losses for fiscal years 2022-23 and 2023-24 could reach Tk 1,13,532 crore.

"The BPDB would need to charge Tk 12 per unit if the prices of gas, coal, and HFO remain unchanged or close to current levels," a BPDB official stated. "However, we are currently selling it at Tk 6.70 per unit."

"The Power Division has instructed the BPDB to present different scenarios for tariff hike proposals to achieve the zero-subsidy target," a Power Division source revealed. "These scenarios include options for an 80.75 per cent hike (zero subsidy), 15 per cent, 10 per cent, and 5 per cent increases at the bulk level, respectively, along with a separate proposal for raising retail tariffs."BPDB sources said that it needs Tk 40, 000 crore as subsidy from the Power Division to pay their arrears and to procure electricity from different sources.

There is a chapter named "cash loan" in subsidy management, but it effectively functions as a subsidy.

Different organizations, including the Bangladesh Petroleum Corporation and Bangladesh Power Development Board (BPDB), receive these cash loans but do not repay them, the Power Division has said.

According to a source involved in the meeting, the government provides loans to the BPDB to buy electricity from the private sector at a higher price and sell it to the public at a lower price. This constitutes a subsidy as the government does not recover the loaned funds.

The IMF delegation suggested reforms in this regard, urging the realization of these loans and the adoption of cautionary measures to avoid their recurrence in order to secure future loans.

In its earlier proposal (submitted in December 2023), the BPDB stated that to implement the "Zero Subsidy" formula, it needs to increase the bulk tariff from Tk 6.70 to Tk 12.11 and the retail tariff from Tk 8.25 to Tk 14.68. This significant increase aims to address transmission losses, operational costs of power distribution agencies, and the higher purchase price of electricity from private companies.

"The IMF has asked the government to reform its subsidy schemes in gas, power, and fertilizer. It has sought a specific timeframe for implementing these desired reforms. Additionally, it inquired about the governments plan for potentially privatizing loss-making companies currently sustained by subsidies," Power Division Senior Secretary Habibur Rahman earlier told the Daily Observer.

"Last year, the BERC increased the power tariff, and the per-unit electricity purchase price from both the public and private sectors has also increased. In the case of the public sector, the purchase price has risen from Tk 4.52 kWh in 2018 to Tk 4.75 kWh in 2023. On the other hand, in the private sector, the purchase price has jumped from Tk 5.72 kWh in 2018 to a staggering Tk 11.55 kWh in 2022," a BPDB official said.

Despite the rise in power tariff, the BPDB continues to incur significant losses. The IMF has been insisting on further raising the tariff, but Dr Shamsul Alam, energy advisor of CAB, raised concerns that rising prices are not solely driven by changes in energy costs.

He highlighted the significant increase in capacity payments made to private, rental, and quick rental power plants, which have risen from Tk 5,376 crore in FY 2017 to an estimated Tk 28,000 crore in FY 2023. This represents a staggering 420 per cent increase over the past six years.

Furthermore, Prof Shamsul Alam questioned the financial transparency of BPDB, citing instances where the organization incurred losses while simultaneously transferring cash to the exchequer, paying dividends, and investing in fixed assets. He believes that addressing these financial anomalies could potentially eliminate the need for subsidies and tariff hikes in the power sector.

Presenting the current financial situation of BPDB, the report states that the operating loss has risen from Tk 6,200 crore in FY 2018 to Tk 27,477 crore in FY 2022, a significant increase of 217.1 per cent over four years.