Different tactics in power price hike: Lower middle class to face greater pressure

Bangladesh Power Development Board (PDB) has adopted a new tactic in its proposal to increase electricity prices. Alongside raising prices, the agency wants to increase revenue by changing the billing slabs for residential consumers. If the proposal is implemented, a large section of consumers may lose the benefit of using electricity at lower rates. Besides, the PDB also wants electricity prices to be adjusted twice a year.

According to the PDB proposal, this may create additional billing pressure on 35 per cent of electricity consumers. Of them, 23 per cent belong to the lower middle class and use less than 200 units of electricity per month. Such consumers generally use electricity at home to regularly run multiple lights, fans, refrigerators and televisions.

Currently, among residential consumers, those using up to 50 units per month are considered lifeline consumers. This is the slab for the lowest electricity users, who mainly use lights and one fan. Consumers using up to 75 units fall under the first slab. According to the proposal, electricity prices for lifeline and first-slab consumers will not increase. However, consumers using more than 75 units of electricity will have to come under higher pricing.

Currently, consumers using 76 to 200 units fall under the second billing slab. The PDB has proposed changing this slab to cover zero to 200 units. That means consumers will no longer get the lower-rate benefit for the first 75 units. According to PDB calculations, this change may generate an additional Tk 26.57 billion in annual retail revenue. The PDB is also looking for multiple ways to increase revenue from the Bangladesh Rural Electrification Board (REB).

The impact of the PDB proposal can be understood from the bill calculation of a consumer using 200 units of electricity per month. Under the current system, the first 75 units are billed at the first slab rate of Tk 5.26 per unit. This amounts to Tk 394.50. The remaining 125 units are billed at the second slab rate of Tk 7.20 per unit, adding another Tk 900. Altogether, the bill at the current rate stands at Tk 1,294.50.

However, if the PDB proposal is implemented, the entire 200 units will be calculated at the second slab rate. In that case, even without an increase in electricity prices, the consumer’s bill will rise to Tk 1,440. That means the bill will increase by Tk 145.50 solely due to the slab change.

Along with this, the PDB has also proposed increasing the second slab rate. It wants to raise the price from Tk 7.20 per unit to Tk 8.20 per unit. If implemented, the electricity bill for a consumer using 200 units per month will rise to Tk 1,640. That means the monthly bill will increase by Tk 345.50. In addition, demand charges and VAT will be added to the bill.

PDB officials say the government does not want to increase electricity prices for poor people. Therefore, instead of raising prices for the first two categories, a proposal has been made to change the slab starting from the second tier. As a result, those who use more electricity will no longer receive the lower-rate benefit of the first slab.

However, people concerned from the power sector said the PDB should first reduce its own unreasonable expenses. Instead, it is trying to collect extra money from consumers. Slab-based benefits in bills exist specifically for lower electricity users. Similarly, tax rates in income tax are determined according to slabs. Even second-tier taxpayers receive the benefits of the first slab.

According to PDB data, there are more than 43.1 million residential electricity consumers in the country. Of them, 43 per cent are lifeline consumers who use up to 50 units. Another 22 per cent use up to 75 units. However, 10,153,862 consumers use between 76 and 200 units. The remaining four slabs consist of consumers using more than 200 to 600 units of electricity (12 per cent).

PDB Chairman Rezaul Karim told Prothom Alo that due to financial shortages, fuel (oil and coal) cannot be purchased and payments to power plants cannot be made. The deficit cannot be resolved even by reducing costs. The price of the US dollar has increased by nearly 50 per cent over the past few years. Fuel prices are also higher. Therefore, a proposal has been made to adjust electricity prices. The proposal to change residential electricity slabs has also been made to reduce the deficit. The Bangladesh Energy Regulatory Commission (BERC) will review these matters.

On 3 May, the Power Division sent a letter to the BERC for electricity price adjustment. It said that due to the ongoing Middle East situation, the cabinet committee decided on 27 April to adjust wholesale and retail electricity tariffs.

It was decided to increase wholesale prices by 21 per cent (Tk 1.5 per unit) and accordingly raise retail prices and send a proposal with slab changes.

Following this, the PDB submitted its proposal to the BERC on 4 May. It proposed increasing retail prices alongside wholesale rates. Later, five other distribution companies also proposed price adjustments in line with wholesale prices.

On 5 May, the BERC took the matter into consideration and formed a technical committee. The commission has scheduled hearings for 20 and 21 May. The PDB has proposed implementing the increased prices from 1 June.

To regularly adjust electricity prices, the PDB has also proposed fixing electricity prices for the next several years under a multi-year tariff system. This would allow consumers to prepare in advance with prior expectations.

In addition, the PDB has proposed automatically linking fuel costs with wholesale electricity prices. A formula has been proposed for this purpose. If fuel prices increase or decrease, wholesale electricity prices will also rise or fall. The PDB has proposed adjusting this every six months.

BERC Chairman Jalal Ahmed told Prothom Alo that electricity billing slabs were mainly introduced to benefit lower electricity users. Nothing can be said immediately about changing slabs. The technical committee will submit a report, after which the issues will be discussed during hearings. However, the commission will decide on all proposals considering consumer interests.

People concerned from the power sector said there has been little initiative to reduce electricity production costs. During the previous Awami League government, generation capacity was increased to double demand, which also raised capacity charges or rental payments to power plants. Agreements with these power plants were made under the special powers law without tenders.

The previous interim government repealed the law. After that, a national committee was formed to review all contracts made under that law. The national committee submitted its report in January. Last month, the current government formed another committee to review the contracts again.

The national committee’s report said the government is purchasing electricity at abnormally high prices: 40 to 50 per cent higher at furnace oil-based power plants, 45 per cent higher at gas-fired plants, and 70 to 80 per cent higher in the solar power sector. These are not market prices, but the result of contracts. If reforms are not carried out, the country will sink.

Energy adviser of the Consumers Association of Bangladesh (CAB), M Shamsul Alam, told Prothom Alo that the government is allowing opportunities for looting instead of reducing costs, while shifting the burden onto consumers by showing a deficit crisis. The PDB may propose price adjustments, but it cannot prescribe strategies to fill the deficit.

There is no scope to consider the proposal to change electricity bill slabs. This is a matter of government policy, not a hearing issue. These proposals mean putting additional pressure on the lower middle class, he added.