The government has reduced Heavy Fuel Oil (HFO) import incentives for Independent Power Producers (IPPs) from 9 percent to 5 percent.
This move aims to save Tk470 crore annually while generating 5,500MW of electricity in the private sector as part of its austerity measures.
On 14 February, the Bangladesh Power Development Board (BPDB) issued a letter regarding the decision, which was sent to 48 HFO-based private power plants on Sunday, official sources confirmed.
According to the letter signed by BPDB Secretary Md Rashedul Hoque, “It is hereby informed that the service charge for fuel oil (HFO) importation by HFO-based power companies importing under their own arrangement has been fixed at 5 percent instead of the previous 9 percent.”
Reason for the BPDB’s Decision
BPDB officials stated that the government has already committed to the International Monetary Fund (IMF) to cut electricity generation costs by 10 percent overall.
David Hasnat, President of the Bangladesh Independent Power Producers Association (BIPPA), told Just Energy News, “It is impossible to reduce the government’s cost on fuel imports merely by curtailing the service charge, as the state-owned Bangladesh Petroleum Corporation (BPC) will incur more than 9 percent charges in importing fuel.”
“We (private power producers) will seek fuel from BPC instead of importing it ourselves,” he added.
So far, United Power Generation and Distribution Company Ltd and Orion Power have sought approval for HFO imports for their electricity generation needs.
The private power sector will require around four million metric tonnes of fuel to produce 5,500MW of electricity daily.
Private power producers will be able to import fuel with a 6 percent service charge if they receive payment within 45 days.
The government has issued this directive to discourage private power generation due to delays in payments, sources said.
However, the BIPPA president has demanded a service charge increase to between 9 and 12 percent under the power purchase agreement, citing economic changes and delayed payments.
In a letter dated 11 February 2025, David Hasnat stated, “IPPs are facing an unsustainable financial model. The increased costs associated with letters of credit (LCs) alone account for a significant portion of the gap between current operational costs and the 9 percent service charge.” He warned that independent power producers could no longer absorb these additional expenses, which threaten financial stability and operational reliability.
Experts have cautioned that liquid fuel-based electricity generation may face delays due to disruptions in HFO imports via the public sector.
BPDB Chairman Issued Show-Cause Notice
On Sunday, Power and Energy Adviser Muhammad Fouzul Kabir Khan ordered a show-cause notice against BPDB Chairman Engr Rezaul Karim, who had taken full charge as chairman just a day earlier. The notice was issued due to delays in implementing the official order to reduce incentives for private fuel importers, official sources confirmed.
The Power Ministry had instructed the introduction of the new service charge on 29 January 2025.
The ministry issued the order based on the recommendations of the newly formed IPP review committee.
