Power, Energy Sector: Arrears, subsidies weighing down govt

The interim government is struggling to pay the power bill arrears that were caused largely by “unfair” contracts signed between the previous administration and power producers, and rising international fuel prices.
It may become difficult to keep the commitment to reduce arrears by this fiscal year — a condition set by the International Monetary Fund’s $4.7 billion loan programme.
In May, during the second review of the loan programme, the IMF pressed the Awami League government to lower bill arrears.
The government then committed to paying the bills so that arrears slightly come down by the end of 2023-2024 fiscal and unpaid bills do not pile up in the current 2024-2025 fiscal.
“We plan to gradually clear arrears and return subsidy spending to a level consistent with our fiscal programme targets,” the government was quoted as saying in an IMF report released in June.
The previous government also planned to “gradually clear these arrears through transparent transfers from the budget over the next five years”.
According to the report, the total arrears for power, fertiliser and energy sectors was around Tk 60,000 crore at the end of June.

Of the sum, the power sector alone accounted for Tk 40,000 crore, said a finance ministry official.
To clear arrears in the power sector, the AL government issued Tk 20,133 crore in special bonds in the last fiscal year and the interim government issued Tk 5,000 crore early this month.
Yet, unpaid bills in the power sector are now Tk 37,000 crore and the amount is likely to rise in each coming month, officials said.
In the current fiscal year, the sector is supposed to get Tk 36,000 crore in subsidies. Of this, Tk 7,000 crore has been paid so far, said officials of the finance and power ministries.
The Power Division needs Tk 3,000 crore – Tk 3,500 crore each month, but gets around Tk 2,000 crore.
When the interim government took charge, the total arrears in only foreign liabilities in the power and energy sector was $2.5 billion.
After taking office in early August, the interim government requested development partners for help in paying bills in the sector.
Finance Adviser Salehuddin Ahmed last week said some bills have been paid without touching the foreign currency reserves.
The government significantly reduced the money owed to Adani Group, he said. 
Power ministry officials said Bangladesh owed the Indian conglomerate $900 million, and part of it has been paid.
Power Adviser Muhammad Fauzul Kabir Khan last week told reporters that foreign liabilities had fallen to $1.5 billion.
Bangladesh Petroleum Corporation has no foreign liabilities at present, a finance ministry official said.
However, several LNG companies are owed $250 million, the official said.
UNFAIR CONTRACTS

The national committee to review the power sector contracts has found that more subsidies were needed as the previous government kept raising power generation capacity in an unplanned manner.
Power generation capacity was raised without ensuring a source of fuel, said a member of the community.
In 2023-2024, the subsidy allocation for the power sector was Tk 34,000 crore, which was between Tk 3,000 crore and Tk 9,000 crore from 2018-2022.
The capacity charge the previous government paid to the power plant companies was estimated at Tk 32,000 crore last fiscal year, up from around Tk 10,000 crore in 2020.
A committee member said contracts with different independent power companies including Adani were not signed keeping national interest in mind.
Bangladesh has to purchase overpriced power from them, he said.
Under the contracts, the government has to pay independent power companies a 9 percent service charge to purchase fuel, which is nothing but corruption, he added.
Another committee member said a modern power plant was built in Rupsha, Khulna, with an objective that natural gas extracted in Bhola would be its fuel. But the plant has yet to start production because the pipeline from Bhola is not there.
Besides, a coal-fired power plant has been built in Payra, but the cost of supplying coal there using the Payra sea port is high because large vessels cannot anchor there, he added.
Zahid Hussain, former lead economist at World Bank’s Dhaka office, said power-related contracts were unfair to Bangladesh, giving producers the leverage to overcharge.
“Some of the ways these arrangements have been made look like daylight robbery,” he said. “We have to pay them whether we purchase power or not. The fuel costs are also overbilled, either by playing with prices or with fuel grades and types.”
Zahid, also a member of the national committee to review the power sector contracts, said the previous government used to blame the international fuel prices for the increasing costs of power, a narrative created to hide their corruption.
The previous government bragged about increasing the power generation capacity to 27,000 megawatts. “How many of those megawatts are available for use?”
Regarding bill arrears, he said, “It’s a recurring issue, the bills keep ticking. We have accelerated the payments. The burden is huge, but the bottom line is, the arrears are reducing, and we have to go towards zero.”