The power sector subsidy allocation increased by BDT 220 billion to BDT 620 billion for the current fiscal year (FY2024-25). It shows a 77% hike compared to the FY’s original allocation of BDT 400 billion. The Ministry of Finance has finalized the revised budget for the FY with the increased subsidy allocation.
In FY 2023-24, the power sector subsidy was BDT 350 billion. The increase in subsidy was followed by a request by the Power Division to address the financial losses of the Bangladesh Power Development Board (BPDB).
To resolve the financial crisis in the power sector, a meeting between the Ministry of Finance and the Power Division was held recently when the Power Division requested an additional allocation of BDT 305.75 billion for sectoral development and operations, beyond the subsidy. However, the Finance Ministry proposed allocating only BDT 136.58 billion. Discussions in the meeting included determining tariffs for private power plants, reducing unnecessary capacity charges, increasing renewable energy capacity to 10% by 2030, and lowering overall electricity generation costs.
Experts argue that BPDB’s growing debt is the outcome of setting up power plants without considering long-term demand and financial feasibility. According to data from the Power Division, in the past 15 years, the government has paid BDT 1.4 trillion in capacity charges to the power plants.
Additionally, the White Paper, which was unveiled recently, stated that excessive power plant installations beyond actual demand led to an unnecessary subsidy expenditure of BDT 400 billion. Experts believe that increased reliance on imported fuel and rising global energy prices have significantly raised power generation costs in recent years.
In FY 2023-24, the electricity generation cost dropped slightly to BDT 11.84 per unit, compared to BDT 12.03 in the previous year. However, the bulk electricity selling price remains at BDT 7.04 per unit, meaning BPDB incurs a loss of BDT 4.80 per unit sold. Due to continuous financial losses, BPDB is facing an extreme financial crisis.
Over the years, the government has been providing subsidies to keep BPDB operational. As part of this strategy, the subsidy allocation was increased by BDT 50 billion in the initial budget for FY 2024-25. However, the amount was not sufficient to meet the demand, necessitating the enhancement of the budget.
The interim government has taken several measures, including repealing special laws in the power sector, reviewing power plant contracts, and revising tariff structures. Additionally, coal-based power plant generation costs have decreased in the past six months. However, overall expenses in the power sector remain high.
Experts argue that while the government has taken steps to reduce costs, it is yet to implement major reforms, such as canceling controversial contracts. As a result, power sector expenditures have not been significantly reduced.
When asked about the situation, Engineer Mizanur Rahman, a former member of the Bangladesh Energy Regulatory Commission (BERC), stated, “In the past, power plant development did not follow the Power System Master Plan. In addition, several power plants were set up without securing a stable fuel supply. The government had the opportunity to use the cheapest available fuel for power generation, depending on global price fluctuations, but this strategy was not followed.”
Currently, Bangladesh generates power using a mix of fuels, with import dependency approximately at 55%. The cost of fuel per MMBTU (USD) now is coal $6, LNG $14, furnace oil $20 and diesel $27. Despite this, BPDB failed to fully utilize coal-based power generation capacity last year, and reduce generation costs. Due to high fuel import dependency (55%), reducing electricity generation costs remains a major challenge. According to Mizanur Rahman, the government must adopt austerity measures to control power sector costs. He suggested that planned load-shedding may be necessary to manage the expenses effectively.
The government’s ability to balance power subsidies, reduce operational costs, and optimize fuel use will determine the future sustainability of Bangladesh’s power sector.
Policymakers primarily attribute the increase in power sector subsidies to the previous government’s unplanned development and the large outstanding dues left behind. When asked about this, Muhammad Fouzul Kabir Khan, Adviser for the Ministry of Power, Energy, and Mineral Resources, stated: “We are trying to reduce costs in the power sector. The claim that subsidies are increasing is simply a reflection of the outstanding bills inherited from the previous government. In terms of ratio, subsidies have not increased. We have already taken several measures to cut costs. For example, the service charge on fuel imports for private power plants has been reduced from 9% to 5%, and we have initiated tariff negotiations with private power plants. However, these measures will take time to yield results. The benefits of our efforts to curb irregularities and corruption in the power sector will likely become evident in the next fiscal year.”
According to the Ministry of Finance, the government aims to clear the accumulated outstanding subsidies in the power sector within the next three years while continuing to allocate regular subsidies annually. As a result, government spending on power sector subsidies increased significantly. In the revised budget for the current fiscal year, the allocation for power subsidies was increased from BDT 40,000 crore to 62,000 crore BDT. The International Monetary Fund (IMF) has advised the government to reduce subsidies gradually and pay off accumulated dues. The government plans to begin reducing subsidies from the 2026 fiscal year onward.
Officials from the Bangladesh Power Development Board (BPDB) stated that the total installed capacity of coal-based power plants is 7,000 MW. However, only 4,000 MW is currently in operation, while 3,000 MW of capacity remains idle.
Since coal plants are underutilized, the government is forced to rely on expensive oil-fired power plants to meet electricity demand. As a result, savings from coal-based power generation are offset by high costs from oil-based power plants. Subsidies remain high despite efforts to cut costs. If coal power plants were fully utilized, generation costs could be significantly reduced.
The government is working on strategies to optimize power generation costs, but effective implementation remains a challenge.
After the interim government came to power, on October 3 last year, a review process was initiated for contracts related to 11 power plants, including those operated by Adani, Summit, and Beximco. To oversee this, the government formed a National Review Committee. The committee analyzed data from these power plants and recommended assigning a legal and investigative agency to assist in reviewing the power generation agreements. Although the committee submitted its recommendations last November, no significant action has been taken so far. Critics argue that the current government is managing the power sector in the same way as the previous administration, which is why costs are not being reduced.
As of June last year, outstanding dues in the power sector had reached approximately BDT 50,000 crore. Over the past two and a half years, the dues have steadily increased. Unable to clear these outstanding electricity bills, the then Awami League government began issuing special bonds last year to manage payments. The current interim government has continued this practice without reassessing the bond issuance process.
According to the Power Division, during the FY 2023-24, a total of BDT 20,133 crore was paid using special bonds. In the first half (July-December) of the FY 2024-25, the interim government has already issued bonds worth BDT 5,563 crore to cover outstanding electricity payments.
Since the government sells electricity to consumers at a lower price than its production cost, a significant amount of public funds is allocated as subsidies every year. In FY 2020-21, it was BDT 8,940 crore, In FY 2021-22 BDT 11,960 crore, in FY 2022-23 BDT 29,511 crore and in FY 2023-24 BDT 35,000 crore.
Dr. Shamsul Alam, Energy Advisor at the Consumers Association of Bangladesh (CAB), stated in an interview with Energy & Power that the level of subsidies in the power sector should have decreased if proper reforms had been undertaken. However, if subsidies are still increasing, it indicates that the previous government’s inefficient and exploitative expenditure practices are continuing. He also pointed out that corruption and theft in the sector remain an ongoing problem. To reduce costs, unnecessary expenses within the tariff structure must be eliminated, and the Bangladesh Energy Regulatory Commission (BERC) must be empowered to enforce regulations effectively.
When asked about the lack of cost control in the power sector, Md. Rezaul Karim, Chairman of the Bangladesh Power Development Board (BPDB), stated that BPDB is following a cost-saving strategy. As part of this approach, the government has undertaken initiatives such as reviewing power plant contracts, revising tariffs, and shutting down inefficient power plants. However, he acknowledged that the financial burden caused by previous policy missteps will not be easy to overcome in the short term.
Professor M. Tamim, Vice Chancellor of Independent University, Bangladesh (IUB), highlighted that the current crisis stems from increased reliance on imported fuel and unplanned expansion of power generation capacity. He warned that unless Bangladesh reduces its dependence on oil-based power generation, production costs will remain high.
He also emphasized the importance of expanding renewable energy generation to reduce oil consumption. However, he noted that tariffs must be carefully considered when implementing renewable energy projects. Ultimately, he stressed that without increased exploration and extraction of domestic coal and gas resources, it will be difficult to control the rising power generation costs.
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