Govt plans gradual power tariff adjustments to reduce subsidy dependency

The government plans to enhance the power tariff once again before presenting the national budget to parliament for the fiscal year 2024-2025. This move is aimed at securing the USD 700 million IMF loan, which constitutes the third installment of the approved USD 4.7 billion for Bangladesh on January 30, 2023. To obtain the loan by May, the Power Division has committed to reducing subsidies in the power sector.

A senior official from the Power Division told the Daily Observer that the visiting IMF delegation held separate meetings with the Energy and Mineral Resources Division, Petrobangla, and Bangladesh Petroleum Corporation (BPC) to discuss subsidy issues in the oil, gas, and power sectors in Bangladesh. The official described the meetings as satisfactory.

"We will adjust power prices four times a year over the next three years to gradually reduce the subsidy without causing a shock," the official stated. "This phased approach will bring power prices closer to production costs over 12 stages. If the government were to reduce the subsidy at once, the per-unit tariff would need to increase to TK 13 from the current average of TK 6.70."

The government increased power tariffs in three phases from January to March last year. However, over the past 15 years, wholesale power prices have risen 12 times, while retail prices have increased 14 times.

The government has introduced an autonomous process for adjusting fuel prices in the country, eliminating the need for subsidies on fuel.

The IMF delegation, which has been in the country since April 24, is scheduled to depart on May 8. The IMF loan, approved in January 2023, came with conditions, including reducing subsidies in the power sector and adhering to international standards for setting fuel oil prices. Bangladesh has already received over USD 1 billion in two installments.

Experts have opined that while subsidies should be reduced, the governments approach places the burden on consumers rather than focusing on reducing production costs by addressing irregularities, corruption, and waste.

Dr M Shamsul Alam, an energy expert from CAB, criticized the Power Divisions plan to install more power plants through "unsolicited" contracts without accurately assessing demand, attributing it to political favoritism. Alam emphasized the need to halt such practices to reduce subsidies, highlighting the lack of attention from development partners.

The IMF team also raised concerns about the capacity charges for non-government power plants, noting that the government must pay these charges according to agreements, regardless of whether the plants generate electricity. Despite 41 percent of power generation capacity remaining unused last year, the government continued to pay capacity charges. In response, the Power Division introduced a new system: "no electricity, no bill."