The government is set to hike electricity and energy prices from the first week of March in its efforts to reduce subsidy bills from the state coffer, State Minister for Power, Energy and Mineral Resources Nasrul Hamid said midweek, on February 27.

Electricity prices will go up by 34 paisa per unit, he said responding to reporters at his office at the Secretariat. The power producers that are using gas to generate electricity are also going to see higher prices of gas from next month, according to the minister.

He said prices are going to be increased as the government has to bear a good amount of subsidy to import fuel. This is because of the higher cost of the US dollar as the taka weakens. When coal power plants were introduced, the US dollar traded at Tk 80. Now the cost of dollar is over Tk 110 and more, said Nasrul Hamid.

He said nearly 1.40 crore customers pay Tk 4 for per unit of electricity usage. Customers who use higher units are required to pay Tk 7 per unit of electricity. But, he said, the average generation cost of electricity is Tk 12 per unit.

The government has to bear the rest of the cost from the public exchequer, he said, adding that the amount of subsidy for electricity would be around Tk 43,000 crore in the current fiscal year 2023-24.

In the case of petroleum, total subsidy requirement would be nearly Tk 6,500 crore.

The government is also going to introduce an automatic fuel pricing mechanism in March in order to comply with one of the conditions of the $4.7 billion loans given by the International Monetary Fund (IMF).

The Washington-based multilateral lender suggests the adoption of the automatic pricing of fuel to curb subsidies enjoyed by people irrespective of their incomes and ensure targeted support for the poor.

This is expected to dramatically lessen the subsidy burden and pave the way for enhanced social spending.

Under dynamic fuel pricing, which is followed by most countries, local prices are synced with international ones, reflecting the fluctuations in the global market. If the prices go up in the international market, they will automatically increase in the local market and vice versa. At the briefing on Tuesday, Hamid said Bangladesh Petroleum Corporation will implement the automatic pricing of petroleum products.

When the state minister's revelation was gazetted on Thursday, it came in worse for consumers: After announcing a bulk tariff hike by 5 percent, the government issued the gazette notification to raise power tariff at retail level.

As per the gazette notification, at the retail level, per unit of electricity (each kilowatt hour) will increase by an average Tk 0.70 (8.50%) to Tk 8.95 per unit from existing Tk 8.25.

On the other hand, the life line subscribers will see a hike by Tk 0.28 per unit from Tk 4.35 to Tk 4.63.

To make things worse, the new tariff will be effective retroactively from February 1.

There are 1.65 crore "lifeline consumers", said the Ministry of Power, Energy and Mineral Resources giving a clarification to the latest tariff hike for the retail consumers.

Earlier, the government announced the new power tariff for bulk consumers raising it by 5 percent from existing Tk 6.70 per unit to Tk 7.04 meaning a rise of Tk 0.34 per unit (each kilowatt hour) with effect from February 1.

The bulk consumers are mainly the distribution entities and large industries that receive electricity at 33 kV, 132 kV and 230 kV transmission lines directly from the single buyer and principal organisation in the power sector, the Bangladesh Power Development Board (BPDB).

There are six distribution entities-Bangladesh Rural Electrification Board (BREB), Dhaka Power Distribution Company Limited (DPDC), Dhaka Electric Supply Company Limited (Desco), Northern Electricity Supply Company PLS (Nesco), West Zone Power Distribution Company Limited (WZPDCL) and also BPDB, which is itself involved in power distribution.

As per the gazette notification, the distribution entities will purchase electricity from BPDB at Tk 8.44 per unit electricity at 230 kV, Tk 8.47 at 132 kV and Tk 7.62 at 33 kV level.

Besides, a separate gazette notification was also issued raising the transmission charge as well for the entities.

Earlier, State Minister for Power, Energy and Mineral Resources Nasrul Hamid at a press briefing said that the power tariff will be increased from February 1 instead of March 1, on Thursday (February 29, 2024) - meaning the new rates will come into effect retroactively, to cover February bills as well.

However, two days before, he had said the new tariff would come into effect from March 1.

Development and its discontents

Anticipating the hike, which had been sounded out at different levels for weeks, energy experts and economists voiced strong opposition against the government's proposal to further increase electricity tariffs in Bangladesh. They urged a re-evaluation of the power sector's financial management, specifically pointing out excessive and questionable spending as a more viable solution to the sector's financial woes.

They observed that currently there is 42 percent surplus electricity that can be attributed to government's deals to set up costly power plants.

"Rampant, unjust expenses - from state-owned company board remunerations to large-scale power purchase deals - underscore the need for financial rectification over tariff hikes," eminent energy expert Prof SM Shamsul Alam said.

In a recent statement, State Minister for Power, Energy, and Mineral Resources, Nasrul Hamid, hinted at an increase in electricity tariffs, starting from March, to counter the widening gap between production costs and sales revenues.

The move aims to alleviate financial pressures on the Bangladesh Power Development Board and the national economy.

"We have to adjust power tariff at both the retail and bulk level to cover the production cost. However, gas prices may be adjusted only for the power plants," Hamid declared, assuring that the impact on retail consumers would be kept to a minimum.

Sources within the government revealed plans to implement a 5 percent hike in bulk electricity prices and a 3 percent increase at the retail level through an administrative order, bypassing traditional regulatory hearings.

According to Annual Report 2022-23 of the Bangladesh Power Development Board (BPDB), per unit production cost was Tk 11.33, while electricity was sold at Tk 6.7 per unit - incurring a loss of about Tk 4.63 per unit.

This imbalance has led to a staggering loss of Tk 47,788 crore for the fiscal year, as the government grapples with purchasing electricity from private and international sources at significantly higher rates.

The government has been facing great trouble as it has to purchase electricity worth Tk 82,778 crore from private sector power producers, while it generates electricity worth Tk 13,307 crore from its own plants.

The annual report also shows that BPDB's average per unit production cost from its own plants is Tk 7.63, while it is Tk 14.62 at the independent power producers or IPPs (private sector). At rental plants, the cost is Tk 12.53, at public plants Tk 6.85, and power imported from India cost Tk 8.77 per unit.

Sources in the BPDB said that in the last decade and a half, electricity prices have been increased on 11 occasions at the wholesale level and on 13 occasions at the consumer level.

In the current fiscal 2023-24, the gap between production cost and selling rate has further widened, and now average production cost of each unit is about Tk 12 while it's selling at Tk 6.7 per unit.

Prof Shamsul Alam, also senior vice president of the Consumers Association of Bangladesh (CAB), said the unjust expenses in the state-owned power and energy entities have been established in the hearings of the Bangladesh Energy Regulatory Commission (BERC).

"But no steps were taken by the Power and Energy Ministry to address those issues. Rather, the regulatory body's authority was taken away and it was turned non-functional by amending the relevant law," the energy expert told our sister newsagency UNB.

He said that in every case the government was found reluctant to take action to reduce the unjust expenses in the power and energy sector.

He also observed that the Rapid Increase of Power and Energy Supply (Special) Act has been key in creating the unbearable situation for which the government has to provide a huge capacity charge to the private power plant operators and subsidy to state entities.

"Now, the reality is that despite having 42 percent surplus electricity, the country has to endure significant load shedding, even during winter," he said.

He said that it's "ridiculous" that despite such surplus electricity and an obligation of capacity charge putting pressure on the economy, the government has announced a plan to import 9,000 MW of electricity from abroad.

Economist and Research Director at Centre for Policy Dialogue, Khondaker Golam Moazzem, in a recent seminar showed through a study report that all political parties in Bangladesh, except the ruling Awami League, want to get rid of capacity payments in the power sector.

He said that the reduction of over-generated power capacity was missing in the Awami League's election manifesto announced before the January 7 national election.

He also recommended shutting down the costly rental power plants immediately to reduce the overall cost.

M. Tamim, special assistant to the chief advisor of the former caretaker government, said that without reducing the cost, the onus of the increased production cost is being imposed on the consumer.

"This way, the government subsidies can be reduced by increasing the electricity tariff. But it will neither address the dollar crisis, nor resolve the fuel import problem. So, load shedding cannot be prevented by increasing the power tariff," he said.

In sync with the world?

Global prices for gas, electricity, oil and other fuels started to increase from summer 2021 when economies began opening up after pandemic related-lockdowns. This underlying increase was magnified by reduced supply of fuels from some producers and increased tensions between Russia and Ukraine. Prices increased further in late 2021/early 2022 and spiked after Russia launched a full-scale invasion of Ukraine on 24 February 2022. Energy prices in Europe remained very high for much of 2022 with continued concerns around disruption to supply, particularly from Russia.

Wholesale prices for gas and electricity reached new record highs in the UK, Europe and elsewhere during this 'energy crisis' and have not returned to their earlier levels, according to a House of Commons (UK) research paper that came out in the last week of February.

The government in Bangladesh implemented four rounds of hikes in electricity rates in 2022 and 2023.

According to the International Energy Agency, falling electricity consumption in advanced economies restrained growth in global power demand in 2023. The world's demand for electricity grew by 2.2% in 2023, less than the 2.4% growth observed in 2022. While China, India and numerous countries in Southeast Asia experienced robust growth in electricity demand in 2023, advanced economies posted substantial declines due to a lacklustre macroeconomic environment and high inflation, which reduced manufacturing and industrial output.

Global electricity demand is expected to rise at a faster rate over the next three years, growing by an average of 3.4% annually through 2026. The gains will be driven by an improving economic outlook, which will contribute to faster electricity demand growth both in advanced and emerging economies. Particularly in advanced economies and China, electricity demand will be supported by the ongoing electrification of the residential and transport sectors, as well as a notable expansion of the data centre sector. The share of electricity in final energy consumption is estimated to have reached 20% in 2023, up from 18% in 2015, said the IEA in its latest update.

Meanwhile electricity consumption from data centres, artificial intelligence (AI) and the cryptocurrency sector could double by 2026. Data centres are significant drivers of growth in electricity demand in many regions. After globally consuming an estimated 460 terawatt-hours (TWh) in 2022, data centres' total electricity consumption could reach more than 1 000 TWh in 2026. This demand is roughly equivalent to the electricity consumption of Japan.

The IEA further said that about 85% of additional electricity demand through 2026 is set to come from outside advanced economies, which would include Bangladesh of course.

Record-breaking electricity generation from low-emissions sources - which includes nuclear and renewables such as solar, wind and hydro - is set to cover all global demand growth over the next three years. Low-emissions sources, which will reduce the role of fossil fuels in producing electricity globally, are forecast to account for almost half of the world's electricity generation by 2026, up from 39% in 2023. Over the next three years, low-emissions generation is set to rise at twice the annual growth rate between 2018 and 2023 - a consequential change, given that the power sector contributes the most to global carbon dioxide (CO2) emissions today.

Natural gas-fired generation is expected to rise slightly over the outlook period. In 2023, sharp declines in gas-fired power generation in the European Union were more than offset by massive gains in the United States, where natural gas, which has increasingly replaced coal, recorded its highest-ever share in power generation.

By 2025, global nuclear generation is forecast to exceed its previous record set in 2021. Even as some countries phase out nuclear power or retire plants early, nuclear generation is forecast to grow by close to 3% per year on average through 2026, the IEA said. Bangladesh's own nuclear power plant, built by the Russians in Rooppur, i expected to come on board by then as well.

Additional reporting by Sadrul Hasan