A staggering amount, ranging from Tk 8 to 10 billion, is being spent in extra as the Awami League government had made power purchase contracts with local power companies with dollars as the currency of payment.
The costs rose due to the increased exchange rate of dollars. The greenback, which was priced at Tk 85 at the time of signing the deals, has jumped to Tk 120 in a span of two and a half years.
Thus, the power plant owners appeared to be the sole beneficiary of the contracts, and the Awami League government had passed the cost burden onto the people.
Over the last 15 years, the power tariff has been raised 12 times at the wholesale level and 14 times at the retail level. Even with substantial subsidies from the state treasury, the Bangladesh Power Development Board (BPDB) is struggling to pay the increased prices to the power plants.
On the condition of anonymity, a BPDB official told Prothom Alo it is justified to calculate bills in dollars for the power companies with foreign investments. But companies that are financed through domestic loans have no connection with dollars and exchange rate fluctuations. Here, calculations should be made in taka.
Some of the industry insiders said the businesses are now making extra profits as loans of most of the power plants have already been repaid. Hence, the authorities should calculate their payments in taka rather than dollars. It should be applied uniformly to both local and foreign power plants, without any discrimination. Those who set up new power plants should be given facilities in some other forms.
Special law for power plants
After taking office in 2009, the Awami League government enacted the quick enhancement of electricity and energy supply (special provisions) act, allowing power plants to secure deals without any competitive tender. As the act shielded the power deals from legal scrutiny, it gained familiarity among the masses as an indemnity act.
Still, the government stubbornly extended the provisional act in multiple phases.
After the downfall of the Awami League government on 5 August, an interim government took charge and refrained from making any fresh deals under the controversial act. However, the power plants had already scaled up their power generation capacity, and the government is now bound to pay them capacity charges accordingly, despite taking no service.
The BPDB spent more than Tk 250 billion on these payments in the 2022-23 fiscal year.
Contracts in dollars
The BPDB makes power purchase agreements with both public and private power plants. There are a total of 144 functional plants across the country, where 62 are government-owned, two are joint ventures, and the remaining 80 are private.
According to the BPDB sources, more than 90 per cent of payments to private power plants are made in US dollars. When the dollar exchange rate rises, power plant owners pocket extra profits and the government costs soar.
The Awami League government justified the dollar-based agreements, saying it was a policy to attract investments as per standard global practice. For a power plant, around 70 per cent of total costs are spent on imports.
However, it is apparently contradictory with the mode of contract as the deals were made without open tender and there were no issues of competition or attracting investments. Most of the power plants are owned by local businessmen. Also, there is no scope to inflate the costs later as all machinery is imported during installation of the plants.
A power plant bill consists of two parts – fixed costs and maintenance costs. The fixed costs include land price, loan interests and principals, while the maintenance costs comprises repair charges, operation expenditures, specialist charges, insurance, and others.
There is no scope for the fixed costs to fluctuate, but the maintenance costs may change to some extent. According to the BPDB officials, if the fixed cost of domestically-owned power plants is calculated in taka instead of dollars, the government can save Tk 80 to 10 billion per year.
Now, the local businessmen are purchasing lands in taka, installing power plants with loans in taka, but are receiving payments from the government in dollars.
Solar power contracts
All contracts for solar power plants are also made in dollars. The number of solar plants, which require more land to be installed, is set to rise under the new master plan. Experts said there is no point in determining the electricity price as per dollar-based pricing of land.
BPDB chairman Rezaul Karim told Prothom Alo on 7 October that they are reviewing everything to save costs as cost-cutting is a top priority now. There are different conditions under the contract, and a government committee is reviewing those.
The interim government formed a committee to review all agreements signed under the special act during the previous regime. They initially collected information from 11 power plants and later sought data from the rest.
No justification for dollar payments
The country was struggling with an acute power crisis when the Awami League came to power in 2009. To deal with the situation, the government permitted power plants under the special act, while pro-government businessmen and Awami League leaders were given contracts.
According to experts, the government cashed the crisis and made deals that favored businessmen at the expense of national interests. They pushed the power sector into a vulnerable state, and it eventually put the entire economy in a tight corner. The government is providing an annual subsidy of Tk 400 billion to the sector, but the people are still suffering from load shedding due to fuel shortage.
Khondaker Golam Moazzem, research director of the Center for Policy Dialogue (CPD), said there is no reason for dollar-based pricing when costs are not related to the dollar.
Regarding the existing contracts, he said the businessmen were given benefits by making weak deals without any tender. In the aftermath, the BPDB suffered financially, and its losses mounted due to the high dollar price.
The interim government should review these discriminatory contracts and save the BPDB from financial losses, he added.