Inflated capacity charges in power sector deals have been costing Bangladesh up to $1.5 billion a year, according to the national committee formed to review unsolicited power contracts signed during the Awami League regime.
The committee also warned that if contracts, with at least 41 power plants under its jurisdiction, are not renegotiated, the country could face about $7.2 billion in excess payments over the remaining life of the deals.
The sector’s potential for excess profits has created strong incentives for collusion, corruption and political influence over contract allocation, said the report titled “Bangladesh’s Power Generation: Trapped Costly Contracts: Governance Failures and the Mechanics of Rent Extraction”.
The now-repealed Quick Enhancement of Electricity and Energy Supply (Special Provisions) Act, enacted in 2010, made procurement processes more opaque and more open to corruption in designing the contracts, the report said.
The act was enacted in response to an acute electricity crisis and granted extraordinary powers to accelerate project approval and procurement.
These powers included exemptions from the Public Procurement Act, limitations on judicial review and broad legal protections for decisions taken under the special provision act.
Although framed as a temporary emergency measure, the act remained in force -- through repeated extensions -- for more than 14 years and became the dominant legal framework governing power-sector contracting, the report said.
By design, the act created a parallel procurement regime operating outside the normal disciplines of competition, regulatory scrutiny and judicial review.
“Over time, this exceptional regime became normalised. The removal of competitive tension weakened the primary mechanism through which costs are disciplined in infrastructure markets,” the report read.
Provisions such as guaranteed capacity payments, take-or-pay clauses, fuel cost pass-through, foreign-currency indexation and sovereign guarantees protected power producers from commercial risk while locking in high costs.
“Individually, some of these provisions are not uncommon in power-sector contracts, particularly in early-stage or high-risk markets. However, under the 2010 act, they were applied cumulatively, without competitive discipline, and often without adequate benchmarking.”
Though the interim government has repealed the act, the true remedy is in surgically dismantling the financial legacy left behind in the form of 20-year contracts.
Solar power purchase agreements (PPAs) failed to adjust to rapidly declining global photovoltaic costs and, in several cases, exceeded reasonable benchmarks by roughly 70–80 percent.
Heavy fuel oil plants exhibited margins of approximately 40–50 percent above benchmark generation costs.
Unsolicited combined-cycle gas projects were consistently above benchmark tariff bands, suggesting standardised negotiated premiums rather than cost-based pricing.
“Excess pricing was therefore not incidental or temporary; it was structural,” the report said.
As the single buyer of electricity, Bangladesh Power Development Board (PDB) absorbed the full impact of excess pricing at the generation level.
“These costs were then transmitted mechanically into PDB’s financial position and, ultimately, into the national budget.”
Between fiscal 2010-11 and fiscal 2023-24, total payments to independent power producers increased more than elevenfold, while electricity generation increased only about fourfold, indicating that financial obligations rose far faster than physical output.
Capacity payments are the primary driver of this divergence, the report said.
The fixed capacity charges have grown disproportionately relative to electricity produced, especially for underutilised plants. In many cases, the payments increase even as generation stagnates or declines.
“This confirms that excess capacity, combined with rigid contract design, converts underutilisation directly into excess payments, independent of fuel costs or operational efficiency.”
As fixed capacity obligations expanded, PDB’s revenues became increasingly insufficient to cover contracted costs, leading to losses exceeding Tk 50,000 crore annually and arrears surpassing Tk 55,000 crore by fiscal 2024-25.
Over the last decade, retail electricity tariffs in Bangladesh have risen significantly across all major consumer categories, reflecting the transmission of generation cost pressures into end-user prices.
Once translated into retail terms, cost-recovery electricity tariffs in Bangladesh would likely exceed industrial tariffs in Vietnam, China and Pakistan, and approach or surpass those in India.
Besides, a number of large baseload plants are infrastructure-constrained -- unable to operate reliably even when demand exists -- due to binding fuel supply limitations and evacuation constraints.
Weak accountability and institutional capture prevented corrective action, the report said.
Legal protections, weakened regulatory oversight, market concentration and the constrained role of the PDB allowed inefficiencies to persist despite growing evidence of financial strain.
The committee warned that delays in reform carry measurable and compounding costs, diverting public funds from transmission upgrades, renewable energy integration, energy efficiency initiatives and social spending.
“These opportunity costs are not abstract. They represent forgone improvements in service quality, affordability and economic competitiveness.”
The committee flagged six power plants as having “egregious anomalies” with potential corruption risks: Adani Power, SS Power, Summit Meghnaghat, Reliance–JERA, Payra Coal Power Plant and Rupsha Power Plant.
It recommended cancelling the Adani Power deal and renegotiating tariffs for several others, citing what it described as “substantial proof” of corruption in the Adani agreement.
Regarding SS Power, the report said two large plants were awarded under a single contract, weakening price discovery and concentrating financial exposure.
Multiple large plants were clustered at one site, including the Summit Meghnaghat facility, approved despite tightening gas supply -- creating vulnerability to underutilisation.
In the case of Reliance–JERA, the committee said capacity that was underutilised in India was transferred to Bangladesh under a long-term contract, shifting utilisation risk to PDB amid domestic fuel constraints.
The Payra Coal Power Plant was built alongside major public investment in port infrastructure that lacks the characteristics of a viable deep-sea coal hub, embedding logistics risk into generation planning.
Rupsha Power Plant was constructed without assured fuel supply or surplus LNG capacity, leaving technically capable assets structurally underutilised.
“These anomalies did not arise by accident. They were the result of collusion designed to generate massive excess profits (rents) shared between parties. Most power purchase agreements guarantee fixed capacity payments regardless of plant utilisation -- turning stranded capacity into a recurring fiscal burden rather than a one-time loss.”
