Renegotiation with private power plants on cards 

Government plans to re-negotiate tariffs with private power-plant owners and state owned companies, aiming to save Tk 2,630.31 crore annually, as the present amount is considered "excessive" or "increased additional cost", a government committee report has said.

In December 2024 the Power Division formed the committee headed by Additional Power Secretary AKM Ali Reza to scrutinize the PPAs signed with publicly and jointly owned power generation companies and to identify opportunities for cost reduction. The committee was also requested to make the report on "Excel-Based Financial Models" related to PPA tariffs and five-year audited financials.

 "The committee identified inconsistencies in the PPAs, proposed a revised tariff structure," a senior official of the Power Division told the Daily observer quoting the draft report, which is going to be published soon.

Meanwhile, the interim government has directed three joint venture coal-fired power plants-Bangladesh-India Friendship Power Company, Bangladesh-China Power Company, and RPCL-Norinco Power Plant-to review inconsistencies in their Power Purchase Agreements (PPAs), as part of a broader initiative to enhance transparency and accountability in the power sector.

The committee has found that the power companies are earning excessive profits due to the high return on equity (RoE), overstated operation and maintenance (O&M) costs, and inflated heat rate through making them corrupt people's allies in the power sector.

State-run Bangladesh Power Development Board (BPDB) has picked the 718MW JERA Meghnaghat plant as the first one to initiate tariff re-negotiations, industry insiders said.

 "The RoE was set at 12 per cent in most tariff agreements-unusually high for government-owned companies while the O&M rate in the agreements is significantly higher than actual expenses and the heat rate used in tariff calculations exceeds the actual performance of the plants. But RoE could be reduced from 12 per cent to 6 per cent," the report said.

Additionally, 23 publicly owned power units under the North-West Power Generation Company Ltd. (NWPGCL), Ashuganj Power Station Company Ltd. (APSCL), Electricity Generation Company of Bangladesh (EGCB), Rural Power Company Ltd. (RPCL), and B-R Powergen Ltd. (BRPL) have also been directed to assess their PPAs.

The report also include a summary of potential savings, which include NWPGCL (6 plants) Tk 139.90 crore,  APSCL (5 plants): Tk 75.75 crore, EGCB (3 plants) Tk 32.86 crore, RPCL (4 plants) Tk 43.41 crore, and BRPL (2 plants) Tk 27.79 crore. APSCL's 50MW Engine Plant already has a 4 per cent RoE.

However, key saving measures include Tk 319.73 crore from reducing the RoE of public companies, Tk 432.41 crore by cutting Fixed O&M charges-foreign escalable rates trimmed to $1.40/kW/month and local escalable rates to Tk 50/kW/month, Tk 55.85 crore by capping payments to a maximum of 50 per cent of the revised Fixed O&M for plants operating below a 10 per cent plant factor, and Tk 684.55 crore through cancelling RoE payments during the project construction period for joint venture companies.

They also include Tk 462.14 crore by revising the RoE rate downward to 12 per cent from the previous 16 per cent or 18 per cent, Tk 539.96 crore by reducing the heat rate by 100 kCal/kWh, thereby improving fuel efficiency, and Tk 165.67 crore by rationalising or fixing O&M tariffs at the real rate for the Bangladesh-China Power Company Limited (BCPCL), excluding the Bangladesh-India Friendship Power Company Limited (BIFPCL). 

Interest on working capital is currently set at 8.40 per cent for most companies. However, BR Powergen's Kadda plant charges 15 per cent. Standardizing this to 8.40 per cent could save Tk 150-200 crore annually.

Disparities were found in both foreign and local escalable fixed O&M charges. Rates range from 1.25 to 2.43 USD/kW-month (foreign) and 20.82 to 97.65 Tk/kW-month (local). The committee recommends capping these at US$ 1.40 and Tk 50 respectively, saving about Tk 1,444.88 crore annually.

Also, the tariff should reflect actual heat rate, potentially leading to significant savings. Tariffs should align with the actual O&M costs, especially for publicly owned power plants excluding older units of APSCL and EGCB, the report said.

"A vested interest group is projecting inflated electricity demand on money-spinning motives. This resulted in the installation of power plants having more capacity than the requirement and entailing huge capacity payments," Former energy adviser Dr. M. Tamim said.

For joint venture plants, BCPCL, BIFPCL, and RPCL-Norinco, reducing RoE to 12 per cent adjusting heat rate by 100 Kcal/KWh, and aligning O&M costs with actuals could result in combined annual savings of Tk 104-115 crore.

For BIFPCL, all expenses, including O&M, should be jointly managed by officials from BPDB and NTPC (India) to improve transparency, it reads.