The Power Division under the Ministry of Power, Energy, and Mineral Resources has rejected the International Monetary Fund’s (IMF) proposal to raise electricity tariffs.
This decision was communicated during a meeting in Dhaka on Wednesday with the visiting IMF mission, led by Chris Papageorgiou, head of the IMF’s Development Microeconomics Division.
The IMF delegation is in Bangladesh to review nine key areas, including a plan to align electricity tariffs with actual supply costs as part of a strategy to eliminate subsidies in the power sector within three years. However, Power Division Secretary Farzana Momtaz firmly opposed the proposal, describing it as “adamant.”
The IMF pointed out a Tk 13,000 crore shortfall in the power sector, asserting that tariff adjustments could help address overdue bills. In response, the Power Division argued that the IMF’s assessment relied on outdated coal price data from the peak of the Ukraine war.
“Coal prices have significantly dropped since then,” officials informed the mission. They further noted that the government plans to phase out costly oil-based power plants, which generate electricity at Tk 25 per unit, and shift to coal-fired plants, which produce power at a much lower cost of Tk 10 per unit.
Officials highlighted ongoing efforts to reduce dependency on high-cost liquid fuel plants, a move expected to gradually bridge the tariff gap. These reforms aim to ensure financial stability while minimizing the burden on consumers.
The IMF mission urged the Power Division to submit a comprehensive proposal addressing the sector’s financial challenges. Adjusting power tariffs remains a crucial requirement for the release of the next two installments under the IMF’s $4.7 billion loan program.
Speaking to Just Energy News, Power Division officials reiterated the government’s commitment to balancing economic reforms with consumer affordability while maintaining the sector’s long-term sustainability.
IMF Pushes For Tariff Hike Amid Rising Inflation
The International Monetary Fund (IMF) has urged Bangladesh to increase electricity tariffs, a move tied to the disbursement of the next two installments of its $4.7 billion loan program.
This recommendation comes as the country grapples with soaring inflation and economic challenges following severe floods earlier this year.
Bangladesh’s annual inflation surged to 10.87% in October 2024, up from 9.92% the previous month. The spike coincides with the aftermath of devastating floods in August, which caused damages estimated at Tk 14,421.46 crore and intensified financial hardships for a significant portion of the population.
The IMF’s agenda includes reviewing nine critical areas, with a focus on aligning power tariffs with actual supply costs as part of a plan to phase out subsidies in the power sector within three years.
Despite these conditions, official sources indicate that the Power Division has likely rejected the IMF’s suggestion to increase tariffs at this time, citing the economic strain on consumers and concerns over inflationary pressures. A final decision is expected to be discussed further in upcoming meetings.
BPDB’s Performance
The IMF team will evaluate the operational and financial performance of the Bangladesh Power Development Board (BPDB) for fiscal year 2024 and projections for FY2025 and FY2026.
Despite receiving full subsidies, the BPDB is projected to incur a net loss of Tk 4,809 million in FY2024-25, a significant improvement compared to the massive Tk 89,979 million loss under the current tariff structure.
Government subsidies primarily cover costs associated with Independent Power Producers (IPPs), rental power plants, and electricity purchases from Adani. The subsidy for FY2024-25 is projected at Tk 374,691 million, with a slight reduction to Tk 361,322 million anticipated for FY2025-26.
Unpaid Electricity Bills and Power Contracts
Unpaid electricity bills have reached Tk 459,148 million, including Tk 85,327 million for power imported from India. Strategies to address these arrears and bridge the gap between electricity tariffs and cost-recovery rates will be discussed at an upcoming meeting on December 4.
The meeting will also review several power project contracts overseen by the national committee after the fall of the Awami League government. Key projects include: 1600 MW coal-fired power plant at Godda, Jharkhand, India, 1320 MW coal-fired power plant at Payra, 335 MW dual-fuel power plant in Meghnaghat, 195 MW gas-fired power plant at Ashuganj, 612 MW coal-fired power plant at Banshkhali. 583 MW gas-fired power plant in Meghnaghat.
Currently, the bulk power tariff stands at Tk 7.04 per kilowatt-hour, following an adjustment in February to address a Tk 5.11 per kilowatt-hour supply cost gap.
The retail power tariff is Tk 8.95 per kilowatt-hour, reflecting a 20% price hike. However, officials have highlighted challenges in implementing further tariff adjustments due to government policies aimed at controlling inflation.
Government’s Cost Reduction Measures for FY2024-25
The government has adopted a series of cost-cutting measures aimed at reducing expenditures by Tk 10,548 crore, equivalent to a 10% decrease, for FY2024-25. These measures focus on streamlining operations and optimizing resources in the power sector.
Key strategies include optimizing the fuel mix in electricity generation, aiming to save Tk 9,110 crore, and cutting late payment surcharges by Tk 543 crore contingent upon settling 50 per cent of outstanding electricity import arrears.
BPDB is also working to reduce internal costs by Tk 370 crore and plans to discontinue power purchase agreements (PPAs) with rental and quick rental power plants to save Tk 525 crore for FY2024-25.
