AKM Asaduzzaman Patwary, Executive Secretary (R&D), DCCI.
The energy sector is the lifeline of many industrial and economic activities in Bangladesh. An incessant supply of energy keeps smooth the economic operation to the large extent. Energy dependence of Bangladesh is primarily characterized by natural gas. More than half of our electricity is being generated from domestic natural gas. Around $11 billion worth is spent for fuel and energy items including LNG, LPG, furnace oil, crude oil every year. The energy sector is largely import-dependent as huge amount of energy is imported from different sources, especially GCC countries. The government’s strong commitment to energy security backed by the incessant power and energy supply has helped to increase the industry contribution to GDP. BPDP purchases electricity from power plants based on agreements and sells it wholesale to distributors. From the FY 2022 onwards, the production cost increased by 29%. Consequently, the power price has been raised by 11 times at the wholesale level and 13 times at the retail level. Despite having high power generation capacity, fuel shortage led to significant load-shedding, causing considerable suffering during the last two fiscal years. Due to import dependence of primary energy, the cost of power production and local supply cost are on rise. The Ukraine and Russia war brought sanctions and price cap on fuel supply in 2023. The fed rate increase has made the USD expensive resulting into USD supply church and energy cost pricier for energy importing countries. Bangladesh immensely depends on KSA for liquid fuel, crude and LPG and on Qatar, Oman for LNG. The international fuel price hike caused huge suffering for energy-importing nations globally. IMF has strongly recommended withdrawing all subsidies on energy sector since this is one of the largest subsidy recipient sectors in Bangladesh from import to distribution range and this sector cost huge foreign exchange outflow. The government traditionally renders subsidized price keeping the consumer level price lower. As a result of new suggestions of IMF, the government adjusted price of all sort of fuels and accordingly price of fuel is being adjusted almost every month. The government has adopted automated pricing mechanism for fuel and has revised electricity prices in stages. Economy of Bangladesh is undergoing deep economic challenges with inflationary stress, fiscal inadequacy and relentless devaluation of Taka against USD with decline of foreign exchange reserve. Energy price is closely associated with both food and non-food inflation therefore, it demands great importance in the major economic planning. Sustained and smooth energy and power sectors have become essential all along throughout the year across the board.
National budget is instrumental in the economy. The indicative budget always fosters interest of all core sectors of the economy. The allocations and policy direction for the power and energy sector are crucial in determining the sector’s ability to reliably and sustainably meet the growing energy demands of Bangladesh’s economy. According to budget plan, the Ministry of Power, Energy, and Mineral Resources (MoPEMR) has initiated proposals on domestic gas exploration and has invited international bidding for oil and gas exploration. This is described in every fiscal year but no implementation is seen. The National Budget for FY2025 allocated TK. 30,317 crore marking a 7% increase from the revised FY24 budget. However, this allocation represents 3.8% of the total FY25 budget though down from 4.6% in the revised FY24 budget.
Bangladesh has achieved 100% access to electricity in 2023 enhancing the power generation capacity to 28000 MW. Bringing all people into the electricity network is a great milestone using IPP, RPPs and imported power backed by mixed fuels. Due to this power generation sufficiency, the budget to power sector deserves to be rationally reduced. The power sector gets sizable budget allocation and Tk 29,230 crore is designated for the power sector. Additionally, Tk. 1,087 crore is allocated to the energy and mineral resources sector.
Government should have assessed the core and pressing need of the entire sector, current state and future of this sector and likely impact. The proven reserve of local gas about 9 TCF is going to end by 2030 on average use of yearly consumption. The growing industrial context and manufacturing demand require relentless gas supply and domestic gas supply remain closed over the last 9 years for compensating industrial and commercial needs. In the given state, the gas supply has become inevitable to sustain the local industrial growth and uninterrupted power supply as they are powerful economic growth enablers. Government has meanwhile designed the Power sector and Gas sector Master plan and both plans are interdependent. Gas sector mater plan will be effective if the power sector master plan becomes well-designed with resource scarcity in Bangladesh. Government is also importing LNG to meet the domestic energy needs due to declining primary energy state. However, Government needs to source primary energy to steer the growing industrial pace of the country and post LDC graduation industrial state would also require massive energy supply as industrial and investment diversification. In this regard, government needs to estimate this demand. The weak energy reserve requires special and strategic planning for energy supply in long run.
Alongside, the renewable energy demand is getting momentum in the given climate change context as sustainable energy and industrial development is critical under the SDG and 2°C temperature or global warming pre-industrial level has been a common agenda endorsed by Bangladesh. Bangladesh does not have enough strength in renewable power. Government has targeted 30000 MW of renewable power by 2030 though this is not very feasible to realise based on the given strength and potentials of renewable energy sourcing. Due to geopolitical reasons and prolonged war, the LNG supply has become volatile and price shock has affected immensely the local energy security. Therefore, considering the importance of local energy supply is essential.
The national budget has evident that the power and energy sector was a central focus. The changes and issues specified in the national budget covered minimum value for furnace oil at USD 480 per MT. The customs duty has increased from 3% to 5% for materials used in establishing or operating CNG/LPG stations. Additionally, amendment to the notification related to the import of CNG conversion kits, cylinders, and other machinery for CNG/LPG stations. Imported LNG is supplied to the national grid from two floating LNG terminals at Moheshkhali, with regasification capacity of 500 MCF per day.
Since the imported fuel costs much foreign exchange reserve, this requires massive attention for supporting cost-efficient Additionally, the budget highlighted several significant initiatives aimed at enhancing Bangladesh’s energy infrastructure and security. Over the recent years, the country has increased its fuel oil storage capacity significantly to about 14 lakh metric tons in FY 2022-23, alongside efforts to establish minimum value for synthetic and mineral lubricating oils to align with international market standards. BAPEX plans to drill and develop 48 wells between January 2023 and December 2025 for oil and gas exploration and Offshore Model Production Sharing Contract (PSC) – 2023 aimed at attracting international companies for off-shore exploration. The government aims to expand fuel oil storage capacity to cover 60 days of consumption and increase Eastern Refinery Limited’s refining capacity from 15 lakh metric tons to 45 lakh metric tons to meet growing demand. The installation of 533,023 prepaid meters is planned to modernize the energy distribution system in Dhaka and Chittagong. Subsidies and tariffs include concessionary import duties for capital machinery and equipment crucial for industrial expansion, CNG/LPG stations, and power generation.
Key proposals include enhancing transmission and distribution infrastructure, increasing investment in renewable energy projects, and improving the efficiency of state institutions managing gas and LPG supplies. Despite these measures, the effectiveness of the proposed budget in addressing major challenges remains a critical point of analysis. The draft integrated Power and Energy Master Plan (IEPMP) needs to be adjusted as this does not coincide the current policies of the Government. During FY2024, the power and energy sector encountered several significant challenges. Bangladesh had installed electricity generation capacity of 30,738 MW, with a peak demand of 16,477 MW leading to a substantial reserve margin and financial burden due to capacity payments. Despite sufficient generation capacity, unbearable load-shedding persisted, disrupting economic activities. The transmission and distribution system progress went slow, far below the target to reach 28,000 km by 2030. Additionally, there was minimal focus on expanding renewable energy sources, exacerbating reliance on fossil fuels.
Moreover, the National Budget for FY2025 places considerable emphasis on measures to address ongoing challenges. There is a need for amendments to various notifications to rationalise import duties on raw materials and capital machinery for industrial and energy sectors. Energy security remains a concern, necessitating an increase in fuel oil storage capacity and refined oil production to meet growing energy demands. Additionally, there is a need to update the list of equipment eligible for concessional import duties to include new technologies. To address major challenges, the proposed budgetary measures focus on expediting renewable energy projects, reforming fiscal structures for renewable energy, and extending tax holiday for renewable-based power plants. These measures aim to reduce fossil fuel dependence and promote energy sustainability. However, the adequacy of these measures in overcoming identified challenges, such as overcapacity and financial losses, needs to be scrutinised.
The proposed budget allocation for energy transition emphasizes the need to divert funds from fossil fuel-based power production to renewable energy projects. However, reducing the budget for the gas sector is irrational as domestic gas exploration is crucial for increasing fuel supply and reducing load-shedding. Subsidies are unsustainable, and relying heavily on imported LNG makes Bangladesh vulnerable to global price fluctuations. Instead of boosting LNG imports, funds should be directed towards domestic gas exploration. The budget fails to address critical issues such as phasing out fossil fuel, retiring rental power plants, ending capacity payments, and promoting renewable energy. Despite being modest, the special allocation of Tk. 100 crore for renewable energy development is appreciated. Since cost-efficient financing is a grave challenge in the given fiscal constraints, exploring other secondary sources of energy and renewable energy options such as solar can provide a much-needed secondary option. The pricing of primary fuel, including petroleum, LNG, LPG and CNG, should be reviewed to make it more rational. For the low-cost financing without adding cost burden, diversification of financing sources like commercial syndication, the Islamic Development Bank, Islamic Trade Finance Corporation (ITFC) and syndicated loans for soaring financing need to offset budget burden. The National Budget addresses several critical issues facing the power and energy sector, there are significant areas that require more focused attention and strategic investment but the security is essential considering the current context. There is an uncertainty with this proposed budget. The growing dependence on imported LNG is adding challenge due to our dwindling forex reserve. Exploration in both on and off-shore have been pressing. It is inevitable that predictable energy pricing, strategy along with uninterrupted supply need special consideration in the current economic transition to strengthen the local and export-oriented industrialisation. If needed, the proposed budget state may be judiciously amended.
