Capacity payments along with rental charges will grow further in the upcoming financial year against the almost static subsidy allocation, indicating possible power price hikes, to the benefit of private producers and detriment of the consumers.
A past week assessment of the Bangladesh Energy Regulatory Commission showed that the overall capacity payments and rental charges would reach at Tk 52,608 crore in FY27 from Tk 48,260 crore in the outgoing FY26.
Of the overall projection, capacity charge will grow to Tk 5.46 kilowatt hour in FY27, more than double from Tk 2.38kWh in FY22, because of the maturity of deals signed mainly with private power producers during the autocratic Awami League regime, regardless of whether electricity is actually produced.
As the finance division has planned to keep budgetary allocation on power subsidy at around Tk 37,000 crore for FY27, the Bangladesh Power Development Board will likely to face an operational gap of around Tk 15,000 crore.
BERC officials say there are two options for BPDB to meet the gap – increasing power tariffs, which is the easier option, and cutting power generation costs, which is the difficult one.
Amid the mismatch between the overall generation capacities of around 29,000 Megawatt daily against the average demand of 15,000MW, energy experts say the main reasons for growing capacity payment will shrink fiscal space.
PDB incurred capacity payments worth Tk 45,451 crore in FY25, Tk 36,764 crore in FY24, Tk 24,479 crore in FY23 and Tk 15,893 crore in FY22.
BPDB relies heavily on subsidy from the national budget as scope for reducing power production costs is almost dim, said BERC director (power) Md Rezaul Karim Khan.
Capacity payments and rental charges only for independent power producers and small independent power producer will incur the Bangladesh Power Development Board a payment of Tk 20,588 crore and the controversial Adani Power Plan in India Tk 5,356 crore in FY27, according to the BERC projection.
‘Deals signed with private producers are almost beyond review for legal bindings,’ added the BERC power director.
Experts say the overall costly power structure built during the ousted AL regime has forced the government to increase power tariffs almost every year over the past six years including the three years under a lending deal with the International Monetary Fund, which is in favour of phasing out subsidies.
On Wednesday, the government raised the retail power tariff by Tk 1.52 per kilowatt-hour or 16.68 per cent effective from June 1 to mobilise extra Tk 14,000 crore in the outgoing FY26 and lower subsidy pressure on the national budget.
Despite the hikes the overall subsidy will hit Tk 41,000 crore, said BERC chairman Jalal Ahmed.
The price hikes of power come within three days after the energy division made upward adjustment in prices of petrol, octane and kerosene by Tk 5 per litre on May 31 against the backdrop of the government decision of reviving the stalled lending programme with the IMF.
Former World Bank Dhaka office chief economist Zahid Hussain said that a vicious cycle had gripped the country’s overall power and energy sector.
Amid repeated power price hikes that have kept the inflation at an elevated level over the past three years, the power sector capacity payments put the balance of payment under consistent pressure.
This is because of faulty plans, overpriced deals, and corruption in the power and energy sector, noted Zahid Hussain.
Echoing the same sentiment, Policy Exchange Bangladesh M Masrur Reaz added that signs had been very little to overcome the structural problem of the sector under the newly elected government.
He said the government should enhance focus on renewable energy and also review the deals of the costly and unnecessary power plants to reduce the capacity payment.
