PDB bleeds as power deals signed in USD

The power development board (PDB), on behalf of the government, has signed the power purchase deals with public and private companies and counted the price in the US dollar.

But the exchange rate of the greenback against the local currency remained at an unprecedented high throughout the last one year.

It has put the PDB in a tight corner as the government agency is counting an additional amount of Tk 120 billion per year due to the increased dollar price. Despite the fact, the new power purchase deals are being signed considering the USD as the only means of payment.

At least two PDB officials, on the condition of anonymity, told Prothom Alo that the board pays all power plants in local currency, Taka. But it has to calculate the bills as per the current exchange rate of USD. The dollar, which was at Tk 85 a year ago, is now changing hands for around Tk 105.

The additional amount of Tk 120 billion would not have been spent had the government deals incorporated a term for payment in the local currency. The government, however, passed the burden of additional expense onto the public and is hiking the power tariff repeatedly to ease up the pressure on the exchequer.

The electricity price was hiked 10 per cent in two phases in January. In a desperate attempt to cut its expense, the government raised the bulk power tariff in 11 rounds while the retail power tariff in 12 rounds throughout the last 14 years. In the latest move on Tuesday, it has raised the retail-level price of electricity by another 5 per cent with effect from 1 March.

M Shamsul Alam, senior vice president of Consumers Association of Bangladesh (CAB) and also a power sector expert, said the government is doing whatever it wants in the power sector through the quick enhancement of electricity and energy supply (special provision) act. Why will the public suffer now due to the dollar price hike? They not only looted, but also ruined the power sector through their inefficiency and incompetence.

After assuming power in 2009, the Awami League government highly encouraged power generation in the private plants. It was followed by an investment boom in the sector. The total power generation capacity in the country now stands at 23,482 megawatt, though the demand is less than 15,000 megawatt.

In the aftermath, a section of private power plants sit idle, but the government pays rents as per its deal with the power generating companies. The rent, which is familiar as capacity charge, amounts to Tk 200 billion per year.

The capacity charge is fixed in USD and the payment rises with the rise in dollar exchange rate.

The PDB and a quarter related to the power sector said the contracts were made in USD to attract investments and it is an international practice. At a power plant, around 70 per cent of total installation cost is spent on imports while some plants have foreign loans. This is why all the bills in power plants are calculated in USD.

Two PDB officials said a power plant bill consists of two parts – permanent cost (capacity charge) and fuel and operation cost (it fluctuates with the market rate). The capacity charge can be divided into two parts. The foreign loans and import costs of machinery can be paid in USD while the authorities may pay the cost of land acquisition and other local expenses in the local currency.

The bills of all PDB plants are calculated this way, but around 90 per cent bills of private sector plants are being calculated in USD.

Meanwhile, the authorities are signing all deals of solar power plants in USD. The number of solar power plants, as per the new master plan, will continue to rise in the coming days. The land acquisition cost is comparatively higher for solar power plants as they require vast swathes of land to operate. Individuals concerned said there is no logic to pay the huge land acquisition costs in USD.

According to the PDB, there are 154 power plants in operation across the country – 58 government plants, 2 of joint ventures and the remaining 94 under the private sector. The PDB is engaging new plants in power generation every year. Its latest power purchase deal was signed on 9 January this year, with a 68-megawatt solar power plant.

According to sources, the PDB is now spending around Tk 11 per unit to generate electricity and is selling at Tk 6.70 per unit at the bulk-level. It created a huge deficit on the balance sheet, which the PDB failed to make up even after getting hundreds of billions of Tk from the state exchequer as subsidy. The current budget has also allocated Tk 170 billion in subsidies for the power sector.

The deficit may total at Tk 350 to 360 billion at the end of the year.

Mohammad Hossain, director general of Power Cell, a technical arm of the power division, said the issue is being discussed. Electricity bill consists of two parts – import and domestic consumption. The authorities are considering settlement of the domestic consumption bill in Tk. It may be implemented in the future contracts with new power plants.

Ahsan H Mansur, executive director of Policy Research Institute (PRI), said the power purchase deals in countries like Bangladesh are normally made in USD as the foreign investors do not want to embrace the risk of currency exchange rate fluctuation. But some sections of the purchase agreements might be in local currency.

Whether there was any policy failure behind the rise in dollar price by 24 per cent in one year, the noted economist said, “Of course. The dollar price was held up to overstate the GDP size in USD. Now it has to deal with the shock.”