Finance ministry wants electricity price hike

Electricity SupplyIllustration

The finance division of the finance ministry sent a letter to the Power Development Board (PDB) on Sunday, to hike the price of electricity and reduce the capacity charge of unused power plants.

The division sent the letter in light of increased losses of the PDB in power generation, which the finance ministry has to subsidise.

In the letter, the finance division included seven conditions, adjusting the price of electricity and taking steps to reasonably reduce the capacity charge were the two main conditions.

Those involved said adjustment would mean an inevitable rise in price of electricity. So, the finance division has effectively told PDB to hike the price if they want subsidy.

The finance division asked for a rise in price at a time when the people are struggling to purchase the daily necessities.

The exchange rate for one US dollar has risen from Tk 86 to Tk 107, significantly increasing import costs.

To reduce subsidy, in August, the energy division increased the price of diesel, kerosene, petrol and octane Tk 34-46 a litre. After widespread backlash, the price was slashed by Tk five a litre.

Bangladesh Energy Regulatory Commission (BERC) has already held a public hearing on a proposal from the PDB to increase the price of electricity. Due to fears of a ‘negative reaction’, they are yet to declare the new rate.

If the rent of the power plants and the profits of the companies involved with the power sector are brought down to an acceptable level, price adjustment won’t be required
CAB’s senior joint president M Shamsul Alam

In this situation, the finance division has given a condition to increase the price of electricity. When asked, secretary of power division Habibur Rahman told Prothom Alo, till Tuesday, the letter of the finance division hasn’t reached him, so he can’t comment on the matter at the moment.

Seven conditions of the finance division

According to PDB, in the 2021-22 financial year, it sold electricity at Tk 5.09 per unit whereas it cost them nearly Tk nine to generate a unit of electricity. The finance division subsidised the money, to keep the cost of electricity down and reduce the cost of living.

On Sunday, the finance division sent a letter to the PDB, approving the subsidy for the months of January and February. Close to Tk 41.46 billion of subsidy was provided for the first two months of this year.

The finance division also included seven conditions. Other than the price adjustment and reducing capacity charge, the conditions included sending a monthly financial losses report of power plants to the finance division by the first week of the following month, taking measures for the swift implementation of establishing a software to connect the departments under the PDB and power plants for the sake of fair management of subsidy.

There is also a condition in place to send the proposal of renewing contracts with a power plants or constructing a new power plant to the finance division for their consideration to maintain financial discipline and managing the national budget.

Currently, Bangladesh has the capacity to generate 21,072 megawatts of electricity, which is more than the national demand. Around 12,000 megawatts of electricity is currently being generated in the country. The government still has to pay the rent or capacity charge for the power plants that are sitting idle.

The power division in July informed the parliamentary committee that in the nine months until March, the government has paid nearly Tk 167.85 billion as capacity charge. In the previous fiscal year, the government paid a little over Tk 189.77 billion.

Establishing power plants without proper planning and high rates of capacity charge have been pointed out as the main reasons behind such excessive costs. Buying diesel, furnace oil at high prices to use them in electricity production is also inflating the power generation costs, say experts.

The reaction to BERC price hike

PDB proposed raising bulk electricity price by 66 per cent on average. BERC held a public hearing on the matter on 18 May. In the hearing, Consumers Association of Bangladesh (CAB) and business representatives objected the price hike.

BERC has nearly completed the process of hiking the electricity price. After bulk electricity, the electricity price at the consumer level will increase.

BERC is bound by law to call for a hearing within 90 working days. On 13 October, the 90-day period will end. A source at the BERC said, to know about the government subsidy in the power sector, they have twice sent a letter to the power division.

Recently, the power division informed that close to Tk 170 billion in subsidy has been allotted to the power sector in the budget. According to that information, the BERC thinks the electricity price needs to be hiked by 20 per cent.

The source said that the BERC is waiting for the signal from the government high-ups before proceeding to hike the price.

Frequent price hike

Due to the price hike of fuel in the global market, the government is now using planned load-shedding to conserve costs. The people are suffering due to the power cuts but the government is still paying exuberant money in capacity charge of those unused power plants.

On 13 July, CAB sent a letter to BERC, protesting the plans to hike electricity price when the overall production of electricity is less due to countrywide load shedding. In the letter, CAB demanded to keep the electricity prices unchanged without holding anymore hearings.

CAB said, gas price was hiked by 23 per cent in June. In August, the price of fuel increased. Now, if the price of electricity is increased, then the cost of necessities and services will once again increase.

CAB’s senior joint president M Shamsul Alam told Prothom Alo, by asking for price adjustment, the finance division has indirectly told them to hike the price of electricity. This will not adjust PDB’s deficit. With the letter, the finance division has accepted that due to the high rate of rent of the power plants, the deficit in the power sector is increasing.

He said, if the rent of the power plants and the profits of the companies involved with the power sector are brought down to an acceptable level, price adjustment won’t be required.

* This report appeared in the print and online edition of Prothom Alo and has been rewritten for the English edition by Ashfaq-Ul-Alam Niloy