Power Div plans 10pc production cost cut to save Tk 11,444 crore

The Power Division is set to save as much as Tk 11,444 crore in the current fiscal year by reducing production costs by 10 percent.

Power generation in Bangladesh is significantly costlier than in other countries in South Asia, unfortunately, power subsidy will rise by 55 percent or Taka 62,000 crore in the current fiscal year.

"Bangladesh aims to shift from oil-based to gas-based electricity generation, a move expected to cut production costs and reduce dependency on subsidies in the long run," a senior official of the power Division told the Daily Observer on Sunday.

Finance Ministry has identified that fertilizer and power are the most subsidized sector so far. This year the government's subsidy burden for power and fertiliser is set to increase by 57.9 percent to Tk 90,000 crore in the revised budget for this fiscal year. Fertiliser subsidy will increase to Tk 28,000 crore in the revised budget, up by 64.7 percent from the original. 

However, power subsidy will rise by 55 percent to Tk 62,000 crore. The subsidy for liquefied natural gas (LNG) will remain unchanged at Tk 6,000 crore.

According to the Finance Ministry, the subsidy burden has grown heavier this year as the government refrained from raising power prices.

Under such circumstances, the Power Division aggressively pushes reforms in the power sector, to save approximately Tk 11,444 crore in the 2024-25 fiscal year. The move comes ahead of the International Monetary Fund's (IMF) next mission to Bangladesh next month.

"We have already identified nine key areas where we can achieve a 10 per cent cost reduction, amounting to Tk 11,444 crore," an official from the Power Division stated.

As part of these measures, the government plans to increase gas supply to power plants from the current 913mmcfd to 1,100mmcfd. The Power Division has also reached an agreement with the Energy and Mineral Resources Division to supply an additional four LNG cargoes for power generation, costing Tk 2,400 crore.

Additionally, maximising coal-fired electricity generation is expected to save Tk 5,957 crore. Power Division officials confirmed that most coal-fired power plants, including another unit of Adani, have resumed operations following maintenance.

For the 1,320MW Rampal and 1,200MW Matarbari coal-fired power plants, the government will require $350 million to import coal between March and June this fiscal year. 

The Bangladesh Power Development Board (BPDB) has increased coal import payments and opened new letters of credit to ensure uninterrupted operations.

Secondly, the government plans to settle at least 50 per cent of overdue payments for 1,000MW of imported electricity, which currently amounts to $631 million.

The Power Division has also instructed BPDB to reduce internal costs by Tk 370 crore to meet the government's savings target. As part of this effort, BPDB is exploring options to rent out its infrastructure to generate additional revenue.

The government has decided to terminate contracts with several rental, quick rental, and independent power plants with a combined capacity of 682MW. 

Additionally, the government plans to pay the bills for 1,000MW of imported electricity within 30 days of invoice submission to secure a 1per cent rebate, which could save Tk 65 crore.

The Power Division has taken steps to reduce costs associated with heavy fuel oil (HFO) imports. 

They include discouraging third-party HFO imports, which will save 7 per cent in import duty, amounting to Tk 335 crore, shifting to larger transport vessels (20,000 tonnes instead of 15,000 tonnes), saving Tk 354 crore, and reducing HFO import incentives from 9 per cent to 5 per cent to save Tk 470 crore.

Muhammad Fauzul Kabir Khan, Power and Energy Adviser, stated that the government is committed to reducing the subsidy burden through internal management and sectoral reforms.

"It is possible to save Tk 11,444 crore through cost-cutting measures initiated by the Ministry of Power, Energy, and Mineral Resources," he said, adding that the savings would ultimately ease the financial burden on the public.