Budget Allocation for Bangladesh Power Sector for FY25 | Power receives one third of the subsidy of 108,240 kr

More than one third of the subsidies allocated in the new budget are intended for the energy sector, which is due to – according to experts – huge expenses on capacity fees.

The large amount of subsidy is surprising because the government has increased electricity prices several times since January last year.

Currently, the energy production capacity is approximately 26,000 megawatts, and the highest power was generated on April 30 this year. at the level of 16,477 MW.

Finance Minister AH Mahmood Ali in his budget speech said that 27 power plants with a total capacity of 9,144 MW are under construction.

The total subsidy allocation for all sectors for FY 2024-25 is Tk 1,08,240 crore, of which the power sector will receive Tk 40,000 crore or 37 percent of the total.

In the current financial year, the power sector received Tk 35,000 crore out of the total Tk 1,06,897 crore.

For many years before 2021-22, subsidies to this sector were in the range of Tk 7,000 crore to Tk 9,000 crore.

According to a study last year by the Center for Policy Dialogue (CPD), most of the subsidy money was spent to cover capacity fees, i.e. fees for private power plants, regardless of whether they produce electricity or not.

Mining capacity charges reached Tk 28,000 crore in 2022-23, a big jump from Tk 5,600 crore in 2017-18, the study said.

According to Bangladesh Power Development Board (PDB) officials, it was Tk 32,000 crore in the current fiscal year.

Contacted, Mohammad Hossain, CEO of Power Cell, said, “It is not true that subsidy money is being spent on capacity charges. PDB buys electricity from independent power producers at a higher rate than we sell (at a lower rate) to distributors and consumers. What we receive in grants is used to replenish supplies.

WPB pays for the gas and fuel used by power plants, he said. “Unstable fuel prices on the global market and the devaluation of the fuel against the dollar increase the costs of energy generation.

“We have only slightly increased energy prices and we have plans to increase them even further. But we still spend more for each unit of electricity.”

Khondaker Golam Moazzem, research director at CPD, said capacity payments and higher energy prices on the international market make the 2024-2025 subsidy necessary.

Even after raising power prices several times, the government will still have to subsidize the sector because power plants under construction will soon require capacity charges, he said.

By retiring inefficient and old plants and getting rid of capacity fees when a plant isn’t producing electricity, the government can reduce the load, he said, but that’s not the focus.

The government plans to raise electricity tariffs three to four times a year to cut subsidies over the next three years.

In February this year, the price of electricity increased by 8.5%, and last year three times by 5%.

A finance ministry official, requesting anonymity, said: “Energy prices are rising slowly, while the costs of power generation are rising rapidly.”

Professor Mohammad Tamim, a former adviser to the caretaker government, said: “If subsidies are withdrawn, energy costs will increase, which will cause inflation.”

In the new budget, the government has allocated Tk 7,000 crore for import of liquefied natural gas (LNG), up from Tk 6,000 crore in the current financial year.

OTHER GRANTS

Considering the rising cost of living, the food subsidy has been increased to Tk 7,250 crore from Tk 6,916 crore in the current year.

Ahasanul Islam Titu, Minister of State at the Ministry of Commerce, told a press conference yesterday that more people would receive subsidized food.

“We plan to open stores in designated places under the Open Market Sale program,” he said.

The agriculture sector was allocated Tk 17,533 crore last year in the proposed budget, but in the revised budget, the amount has reached Tk 25,644 crore. In the new budget, the amount is Tk 17,261 crore.

The government will provide Tk 9,025 crore in incentives to the export sector.