The government will adjust power prices four times a year to deal with the pressure of subsidy. Over the next three years, subsidies in the power sector will be reduced in this way. The power prices will be increased to near the production cost in 12 phases during this period.
The Power Division said this in a meeting with the visiting IMF (International Monetary Fund) delegation at the secretariat Thursday. Sources present in the meeting confirmed this to Prothom Alo.
However, the power experts say the government has been providing subsidies in the power sector for a long time. So reducing subsidies through price adjustment means a rise in the prices of power. The government also can adjust the subsidy through cost cutting. The government is not focused on curbing the production cost through preventing irregularities, corruption and waste. Instead, they are further increasing costs in this sector by setting up power plants one after another without any tender, despite not having the demand.
The IMF delegation held separate meetings with the Energy and Mineral Resources Division, Petrobangla and Bangladesh Petroleum Corporation (BPC) yesterday. The sources in the meeting say the Petrobangla and BPC told the IMF delegation that there was no pressure of subsidy for gas and fuel oil.
They told the delegation that the autonomous process of adjusting oil price has been introduced. Oil prices are being adjusted every month. There is no need to subsidise fuel oil any more. Although the prices were reduced a little in the first two phases, it was raised in the final phase. And it has been practised for the last three months.
The IMF approved a loan of USD 4.7 billion for Bangladesh on 30 January 2023. But, it imposed a number of conditions for the loan, including reducing the subsidy in the power sector and following international standards to set the price of fuel oil. Bangladesh has already received more than USD 1 billion in two instalments. The country is supposed to USD 700 million in the third instalment this month. The visiting IMF delegation has been holding meetings with different directorates of the government since 24 April. They will leave the country on 8 May.
Adjusting power price to reduce subsidy
Power secretary led the team from the power division in the meeting. The IMF delegation was headed by Chris Papageorgiou, chief of the Development Macroeconomics Division in the research department of the IMF.
According to sources, the IMF questioned the amount of capacity charged for non-government power plants. Notably, the government has to pay the capacity charge as per the agreement no matter whether the power plant has generated any electricity or not. Some 41 per cent of our power generation capacity remained unused last year. That means the government is paying the capacity charge for not producing any electricity at all.
The Power Division has told the IMF that they must pay the capacity charge as there is an agreement. However, the government has introduced a new system – ‘no electricity, no bill’. There are options to omit the capacity charge during contract renewals anew.
The IMF wanted to know whether the people who use more electricity are being charged at a higher electricity bill rate and whether the rate is lower for marginal people or not. The power division in response said this was already in practice.
The sources further said the issue of generating electricity using atomic power plants was also raised during the meeting. The Power Division representatives told the IMF delegation that the first unit of the Rooppur Atomic Power Plant with a capacity of 2,400 MW will go into experimental and commercial generation by March next year. The IMF asked whether the subsidies in the power sector would increase in that case.
The power secretary said in response that there will be no need for an additional subsidy for Rooppur Power Plant, as the production cost would be much lesser than other power plants.
Prices to be raised in phases
The IMF delegation wanted to know how the subsidy in the power sector could be reduced in the current context. The power division said power prices would be adjusted four times a year.
Speaking to newspersons last February, state minister for power, energy and mineral resources Nasrul Hamid said, “We provide electricity at a rate lower than the production cost. We are adjusting the price to meet the deficit. Prices will be adjusted in phases in the next three years.”
As part of this, the government raised the power prices once in March last.
Sources say the Power Development Board (PDB) incurred a loss of USD 435.39 billion. The government had to provide a subsidy of Tk 395.34 that year.
The price of electricity at wholesale level is Tk 7.04 per unit. However, the price would be more than Tk 12 if the government stops subsidising the sector in compliance with the conditions imposed by the IMF. In that case, the price would be around Tk 15 at retail level, which is Tk 8.95 at the moment.
Earlier, the price of electricity was raised in three phases from January to March last year. Power prices have been raised 12 times at wholesale level and 14 times at retail in the last 15 years.
Supply disruption amid heat wave
Despite repeated price hikes, the people have suffered from severe load-shedding during the last three summers.
The power plants have adequate production capacity, but could not run due to the lack of fuel. The situation deteriorated to a level that the government had to make a public announcement about planned load-shedding in 2022.
There was no announcement in the following year, but load-shedding hiked to 3,000mw a day outside the capital. Retaining the trend, there has been a load-shedding from 2,000 to 3,500mw outside Dhaka this year. People in some villages are passing from 8 to 10 hours a day without electricity.
Khondaker Golam Moazzem, research director at the Centre for Policy Dialogue (CPD), said a price adjustment in the power sector actually means a price hike. There are some power plants that have been built against imaginary high demand and are being paid capacity charges. And, the government is raising the price repeatedly to pay the capacity charges.
The Power Development Board (PDB) spent more than Tk 260 billion to pay the capacity charges in the fiscal year 2022-23. According to the CPD, at least 41 per cent of the total power production capacity remained unused in the year, though the people suffered from load-shedding, and production at industrial factories was disrupted.
Consumers unable to bear more price
Experts have suggested some ways to reduce the government expenses, instead of inflicting extra burden on the consumers.
According to them, non-renewal of agreements with power plants, making deals with new plants on condition of post-supply payment, bringing previous deals under the new conditions, and increasing power production by renewable fuel may provide the authorities with alternatives to increasing power tariff.
The economists consider power and fuel as strategic products that require pricing on the basis of social influence. A hike in power and fuel prices pull up the prices of daily necessities. Hence, multiple hikes in power tariff throughout a year may push the essentials beyond the people’s purchase capacity.
The people who have already been under inflationary pressure cannot bear more pressure. It will be suicidal to adjust the subsidy in the power sector through price adjustment.
In this regard, Mohammad Tamim, former special assistant to chief advisor of caretaker government, said a good alternative to price hike is decreasing production costs at the power plants through improvement in efficiency.
He, however, doesn’t believe that it will be possible to decrease the power sector subsidy fully as per the IMF requirements. It is a good point that there is now no subsidy in oil and gas.
“I would consider the subsidy of Tk 300 to 400 billion in power as excessive in a country like. Still, there must be a subsidy at the village level,” he added.