Oil-fired power plants receive capacity charge without production

Although the oil-fired power plants are usually run during the high demand of electricity, the private furnace oil-plants have refrained from complying with the government's guidelines for the last 27 months.

This has led to frequent load shedding across the country. Still, the plants have not faced any penalties as per rules. Instead, they are receiving capacity charges regularly despite being out of production for two and a half years.

According to contracts, a power plant is permitted to remain shut for repairs and maintenance for 10 per cent time of the year. It means a 100 megawatt plant may remain shut for up to 836 hours or nearly 36.5 days in a year with regular capacity charges.. 

If the closure period exceeds the maximum threshold, a plant has to face fines. But the Bangladesh Power Development Board (BPDB) is not taking the issue into its account, though the plants have been shut for over two and a half years. 

The BPDB officials said a proper calculation would save at least 40 per cent of the cost that the board spent on capacity charge annually. According to them, the private plants were refusing to run due to outstanding bills. 

In the face of their demand, the BPDB has been paying bills since July 2022 without adjusting for the shutdown periods. Its former chairman, Mahbubur Rahman, approved the decision without necessary approval from the power division.

The government floated bonds to pay the dues, and the amount has now come down significantly. However, the private oil-run plants are still benefiting from the practice. 

Two BPDB officials said the board cannot make such decisions without approval from the power division. It is illegal. The former chairman had negotiations with private sector power plant owners, and he facilitated their benefits. 

Regarding the allegation, Mahbubur Rahman told Prothom Alo that the BPDB was struggling to pay outstanding bills. This is why outage payments were suspended, rather than cancellation. Otherwise, they would not have been able to run the plants. 

He claimed the decision was made on the advice of the power division and the updates were communicated to them later.

However, he did not clarify whether the BPDB is allowed to suspend contract terms without written approval from the power division.

According to the BPDB sources, the plants would not generate electricity despite official directions. It caused severe load shedding from July 2022. 

Rezaul Karim, current chairman of the BPDB, said they are working to resolve these issues gradually and restore outage payments by settling the outstanding bills.

Currently, there are 40 furnace oil-fired private power plants operating in the country, with a combined capacity of slightly over 4,100 MW. According to BPDB sources, the annual capacity charge for these plants exceeds $590 million (over Tk 70 billion). The PDB could save over Tk 28 billion annually had the shutdown period been adjusted. 

An entrepreneur involved with an oil-fired power plant said while bills were supposed to be paid within 45 days, there were delays of 140 to 150 days, disrupting operations. 

Blaming the BPDB for the situation, the entrepreneur said there is scope to calculate plant outages. They will supply the required electricity if bills are paid regularly. 

According to insiders, under the existing agreements, all power plants receive a capacity charge, funded by the government. On the flip side, there are penalties for plants that fail to meet BPDB's electricity demands. 

In the fiscal year 2022-23, the BPDB spent over Tk 25 billion on capacity charge, and it is projected to cross Tk 40 billion in the next fiscal year.

Shamsul Alam, energy adviser of the Consumers Association of Bangladesh (CAB), alleged power plants deliberately stopped power production, inflicted sufferings on the people, but received capacity charges. 

Power plants cannot suspend production this way. It is a clear violation of contract. Their contracts should be canceled, and they should be fined. Also, the extra payments should be adjusted with the outstanding bills, he added.