The government may make upward adjustment of power tariff at Tk 0.30-0.70 per kilowatt hour (KWh) and natural gas tariff at Tk 0.70 per unit, said a top policymaker.
The new tariff may be effective on March 1, 2024.
“We want to reach break-even point within three years in supply and supply sides of power and energy through adjustment of tariffs,” said state minister for power and energy Nasrul Hamid on Thursday after a view exchange meeting with newly elected executive committee of the Forum for Energy Reporters Bangladesh (FERB) at Bangladesh Secretariat. FERB chairman Md Shamim Jahangir and other members attended at the meeting.
He added the ministry will issue gazette anytime of the current month in this regard.
“The production cost of power and energy increased significantly due to dollar rate fluctuation….so we are going to adjust the power and energy tariffs,” he said.
The minister said the government has fixed the power and natural gas tariffs considering US dollar rate at Tk 80. But, the dollar rate shoots up Tk 120 in the curb market despite fixed price at Tk 110, he said.
“We have no enough money to purchase coal, LNG or petroleum fuels to feed power plants…so we go for tariff adjustment,” he justified about the upcoming power and energy tariff hikes.
Besides, the government will also introduce automated fuel pricing considering the international oil prices, according to him. The tariff will be reviewed each month, he said.
The International Monetary Fund (IMF) is creating pressure to withdraw subsidy in power, energy and natural gas prices, according to the minister. So, the government has a plan to withdraw subsidy in power sector, he added.
According to Bangladesh Power Development Board (BPDB), the government will require to hike power tariff to 78 percent within three years to withdraw subsidy. Per unit retail tariff is now at Tk 8.25.
Now, per unit (per thousand cubic meters) tariff for electricity generation is at Tk 14 against imported LNG cost Tk 24. The government plans to increase the tariff Tk 0.70 per unit, according the minister. The captive power to feed industries will be same rate, he said.
Besides, the rate of per litre of diesel and kerosene are at Tk 109, octane at Tk 130 and petrol at 125. The tariff is also be adjusted if the government will consider invoice prices instead of tariff value prices.
The government increased the gas prices in February, 2023. Then, the government increased the natural gas prices for power generation, industries, and commercial consumers up to 179 percent.
Earlier on 12 January, the government had raised electricity prices by 5 percent to Tk7.48 per kilowatt hour at the retail level.
“Initially, the bulk power tariff will be hiked by 5 percent. Then the retail power tariff will be increased for above 400 unit users before Ramadan,” said a top official on the condition of anonymity.
He added that the government may increase the power tariff again in the second phase after Ramadan.
But, the minister clarified the tariff will be increased at lifeline slab also.
Bangladesh Independent Power Producers Association (BIPPA) president Faisal Karim said they have so far received Tk 110 billion outstanding arrears after issuing bonds.
“But, the arrears stand at Tk 150 billion so far,” he said, expressing frustration.
Faisal Karim added the power producers still procure loans at Tk 120 against each dollar. “So, the income in electricity generation has declined significantly.”
He said, “I have got a profit of Tk 700 crore from Summit Power Ltd (SPL) previously, which comes down to Tk 150 crore now due to dollar rate fluctuation.”
Shafiqul Alam, Lead Energy Analyst of Institute for Energy Economics and Financial Analysis (IEEFA), given the level of revenue shortages in the power sector and the payment backlogs for which the government had to opt for bonds, there is almost no alternative to raise power tariffs.
“The increase should be gradual instead of a sudden steep rise,” he stressed.
“However, power tariffs for the poor and low-income segments of the country should not be increased because they are already burdened with different challenges including high prices of commodities,” he suggested.
The analyst feared that there is one caveat – high electricity tariffs may further affect the electricity demand growth rate in the industrial sector similar to a sluggish demand growth rate in the last 2 to 3 years.
“High electricity prices will severely impact industrial production. Unless the industry sector drives electricity demand growth, we will eventually have a significant idle capacity, leading to capacity payments.”
He said, “Two positive aspects – industries will try to frontload efforts to enhance energy efficiency and deploy rooftop solar systems. Households will also try to minimize wasteful energy use.”
A hike in gas prices will further make electricity generation costly, he pointed out.
Shafiqul Alam said, “This is similar to last year when both electricity and gas prices were raised. However, we could not ensure uninterrupted power and gas supply last year.”
“On automated fuel pricing, we need to consider that a significant amount of oil is consumed in the transport sector. Then, how will the fare of transport be adjusted?”
As the power and energy sectors continue to suffer from imported fossil fuel dependence, it is of utmost importance to minimize system cost and inefficiency, he suggested, adding, “Only tariff adjustments will not help.”
