Electricity tariff hike- a blow to economic transition


AKM Asaduzzaman Patwary

Sr. Research Fellow, R&D & Policy Advocacy, DCCI

electricity-tariff-hikeOur economy has been undergoing the transition due to many crises including pandemic, global war, inflation and transformation. While the economy passes through this crisis, the sudden tariff hike move has become like a bolt from the blue. After the recent gas tariff hike initiative of Government, the electricity bulk tariff hike move has been initiated since the both hikes are interconnected. And, 59% of total electricity production happens using the natural gas. The series of hike moves are very untimely and unwelcome to mass people BPDB, the country’s key electricity regulator, proposes to enhance the wholesale rate of electricity from 5.17 Tk to 8.58 Tk per Kwh by 58% to compensate the widespread and substantial amount of fuel management cost. Currently, the power sector is largely dominated by Private sector power producers in production process almost 45% of electricity produced is shared by private sector followed by 45% by public sector and 10% is from renewable power. With the greater contribution of private sector, the capacity has gone upto 23000 though production remains within maximum 14000MW. The engagement of private sector acted like a savior while power sector plunged into deep crisis but the situation has improved and almost 100 percent people have access to electricity network. The technical team of Bangladesh Energy Regulatory Commission (BERC) has recommended increasing the price of electricity in the country by 57.8% as opposed to the proposal of Power Development Board (BPDB) to increase the price by 65.56%. This hike may have some rationale for Government as imported LPG, LNG and liquid fuel have become very dearer due to shattered supply chain of gas and fuel import. Alongside, local gas production is getting slimmer against growing and cumulative demand leading to wider gap of demand and supply of gas.

Economy has been burdened with various challenges including slow pandemic recovery, inflationary stress and LDC led new economic era. This price hike is likely to hold back the current revival and transitional pace. And, cost of doing business may be unbridled

Government has various master plan like gas sector and power sector aster plans steered by the JICA with the provision of revisions but none of the ambitious master plans worked as these plans have no clear implementation strategies. Due to frequent shift in the policy direction, priority of primary energy and planning changes, the power sector is not heading towards the right track though it meets the demand of mass people at present. Currently, around 10000 MW power production capacity remains idle since energy sourcing and streaming are not well connected and planned in any master plans without immediate usage. This poorly plan with no clear orientation spoiled the valued wealth of Government and enfeebled resource and fiscal subsidy. Now, energy efficiency masterplan has been formulated considering the waste control and rightful use of pricy and finite energy resources. We think the aggregate cost burden, system loss and external geopolitical concerns heavily weakened the power sector with cascading effects on economy. Tariff hike may be an easy and straight forward solution in the eyes of policy maker passing through the added energy bill but this is apparently unreasonable. This sector needs to be holistically seen and assessed for the best interest of all stakeholders in no time. We found that BERC has some extent breached the regulations of BERC as it fails to foster balanced power sector development and the interest of consumers to large extent. Following aspects and strategic solutions and thoughts may help to address the concern of power sector and frequent tariff hike moves.

  • Only energy charge needs consideration in determining bulk tariffs not other operational cost.
  • A hike in bulk power tariff will impact retail electricity prices and eventually prices of commodities that are produced by using power will also rise.
  • Cutting waste of power, systems loss, taxes on fuel and corruption will bring power prices to a tolerable level.
  • Need to discourage the captive power plants and gas supply into these plants since we have sufficiency in power generation.
  • According to the Power purchase agreement, power plants have taken their rental payment (capacity charge) even if they do not generate electricity. The term of high-cost quick rental power plant has been repeatedly extended. The rent of power plants has gone up to more than $10 billion in last 7-8 years. Running low-efficient plants increase the cost of production. The soaring import cost of fuel also adds cost burden
  • Discrepancies in the evaluation report of the technical committee as 22% gas hike has been adjusted though it has not been finalized. The national expert and private sector may be involved in the committee. Import tariff should be waived for subsidized energy import.
  • No further extension of quick rental plants can be considered as it hurts our foreign currency reserve against our continuous decline of Taka.
  • Power sector development fund should be utilized with accountability properly to rationalize cost implication of tariff hike on mass people.
  • Government power plant has to increase efficacy of power transmission and distribution. Assessment is needed if locally sourced power or cross-border power is efficient for us.
  • The Power plants must follow the Merit Order List and report to BERC on monthly basis to check the production efficiency of power Plants.
  • In order to reduce the cost of power generation, the Power Purchase Agreement (PPA) should be amended and the concept of “No Production, No Payment” must be followed in the case of an Independent Power Producer (IPP).
  • Need multiple sources of power sale to make BPDP efficient and competitive.
  • System loss should be reduced through efficient allocation of resources. Without efficient utilization of resources, the cost of power generation and burden is to be borne by end users.

BPDB must follow efficient use of electricity, quality of service, energy management, international standards and strategies. Payment should be made in local currency for capacity payment of power plants to reduce pressure on foreign exchange reserve and non-renewal of contracts with gas-based power plants. Government needs to revise the price of this sector annually according to the global market price. This will safeguard the businesses from unusual price hike and create some market intelligence for precautions and business plans. If the price of electricity goes up, the industries will act accordingly. The agriculture, industry, production, transport and service sectors will be impacted if electricity tariff rises. Low-cost energy is one of the salient features of our trade and foreign investment competitiveness. Foreign investors prefer Bangladesh as the lucrative investment hub for higher profit margin and energy cost escalation may hurt this investment potentials Therefore, low-cost energy is to be sustained considering our economic trend to keep us ahead in the growth race against our regional peers. After all, economic survival is the optimum and much desired choice for all. A predictable and pro private sector energy system with energy portfolio must be designed through an integrated power and energy sector roadmap reflecting all sectoral demands and alternative strategic sourcing mapping towards sustainable energy security of Bangladesh translating our game changing economic transformation.