The country’s power and energy sectors are facing financial crisis because of around five billion dollars in dues to both foreign and domestic entities as well as operational challenges.
Data, findings, and expert opinions from recent times indicate that Bangladesh's power and energy sectors are experiencing unprecedented financial turmoil.
According to official source, the government faces considerable challenges, with debt as outstanding bills totaling about $5 billion (Tk 548,300,000,000), with $4 billion (Tk 438,640,000,000) in the power sector and $1 billion (Tk109,660,000,000) in the energy sector.
State Minister for Power, Energy, and Mineral Resources Nasrul Hamid acknowledged the severity of the crisis, citing a dire need for at least $1 billion per month to meet payment obligations. He highlighted the scarcity of dollars from Bangladesh Bank as a primary concern while assuring several initiatives are underway to ease the situation.
As per decision on 13 January, the sovereign bond will be issued to 42 commercial banks that will make payment to the IPPs. Sources said, already 32 banks and branches are assigned to settle the payouts.
The government introduced special bonds through Bangladesh Bank, initially bonds worth Tk12,000 crore.
The process started with prominent private banks such as City Bank and Pubali Bank, and secured Tk20.62 billion (Tk2062,00,00,000) to clear outstanding liabilities to private power plants on 25 January this year. So now the outstanding bills stand at Tk422,300,000,000.
Meanwhile, according to recent estimates, the Power Development Board (PDB) owes/dues to private power plants around Tk 25,000 crore, which caused power producers' bank debt at around Tk15,000 crore. Apart from this, the PDB is in further debt itself, having to pay Bangladesh Oil, Gas, and Mineral Resources Corporation (Petrobangla) about Tk 8,000 crore in gas bills.
Significant amounts to pay to foreign companies, including the Indian business Adani, which charged approximately $500 million in electricity bills.
In addition, foreign suppliers like Chevron and Bangladesh Petroleum Corporation (BPC) are waiting for payments of $200 million and $470 million, respectively, for their services.
Meanwhile, the Awami League government has paid a total of Tk 1.04 trillion to 82 independent power producers (IPP) and 32 rental power plants as capacity charge or rental payment during the last 15 years.
Industry insiders said the impact of these mounting debts is far-reaching. Energy suppliers are losing confidence, leading to reluctance in long-term supply contracts and fuel provision, exacerbating the already prevalent fuel shortage, leading to operational issues at power plants during peak periods, resulting in load shedding and public inconvenience.
Import dependence and a dollar crisis pose additional challenges. With the energy sector requiring foreign exchange equivalent to $12 billion annually, acquiring such amounts remains a daunting task. Furthermore, operational challenges persist, with foreign suppliers struggling to receive payments and secure letters of credit for fuel imports due to a lack of dollars.
As the government navigates these challenges, stakeholders remain cautiously optimistic about the sector's future. However, concerted efforts and comprehensive reforms will be essential to mitigate risks, stabilize finances, and secure the energy needs of the nation in the long term.
Sources said that the two main state-owned organisations' energy sector – Petrobangla and Bangladesh Petroleum Corporations have to spend huge amounts to import primary fuels like crude and refined petroleum and liquefied natural gas (LNG) from abroad.
Meanwhile, the state-owned Bangladesh Power Development Board (BPDB) has to purchase electricity from independent power producers (IPPs) in dollars, according to the initial agreement. But the rise of the price of dollars makes the situation more intense.
Sources said that the government wants to pay the outstanding bills to the private power producers in local currency equivalent to the previous price of the USD. But the producers are refusing to accept the payment, they demand the payment should be the equivalent of the current USD price.
Sources familiar with the situation said that under the existing arrangement, the BPDB pays some large IPPs like SS Power, Payra, Rampal and Adani in foreign currency while the other IPPs are paid in local currency, but they are allowed to convert the payment in foreign currency as deals' obligation.
According to a top official of the BPDB, "Each day we need at least 40 million US dollars from Bangladesh Bank to meet our payment obligation. But we're getting 5-7 million dollars a day".
The authority claims that electricity is sold by the government for less than what it costs to produce. The remaining sum is provided as a subsidy by the finance ministry's finance division. The finance division is unable to deliver it on time since sufficient revenue is not being collected.
In the last fiscal year (FY 2022-23), the total government subsidy to the power sector was Tk 428.93 billion.
The BPDB's Annual Report for the fiscal year 2022-23 reveals significant financial challenges within Bangladesh's power sector. The report indicates that as a single buyer, BPDB generated 87,024 million kilowatt hours of electricity, incurring a total cost of Tk 98,646.42 crore.
However, its per unit production cost stood at Tk 11.33, while it sold electricity at Tk 6.7 per unit, resulting in a substantial loss of about Tk 4.63 per unit.
The bulk tariff was last raised by 8.06 percent to Tk 6.70 per unit on January 31, effective from February 2023. Despite revenues amounting to Tk 50,858.25 crore, BPDB incurred a staggering loss of Tk 47,788.17 crore, as per the report.
Experts recommend various measures to address the crisis, including updating fuel demand estimates, paying fuel prices in local currency, conducting competitive tenders for power plants, reducing taxes on solar products, and maximizing the utilization of biogas. However, a final decision on the course of action remains pending amidst ongoing deliberations.
Imran Karim, a former president of the Bangladesh Independent Power Producers Association, asserted that the government should have been commended for using bonds to cover the entire amount owed, before.
The think tank Center for Policy Dialogue (CPD) has suggested that by December 2025, short-term rentals and inefficient power plants be phased out or shut down.
When contacted, BPDB Secretary (Central Secretariat) Mohammad Salim Reza declined to share related information in this regard. BPDB’s source of the Office of Private Generation (IPP/PPP) said that the special bonds will clear the IPPs bank loans regarding their working capital expenditure.
Finance Division’s Additional Secretary (Budget & Expenditure Management) Shirajun Noor Chowdhury told Bangladesh Post the process of issuance of special bonds to IPPs is in progress.
