Who benefits from “white elephants” in the energy sector?

Power outages or blackouts are increasing across the country. Rural areas are more likely to experience power outages than urban centers. Industrial areas also suffer from power shortage.

The daily electricity demand in Bangladesh ranges from 13,000 megawatts (MW) to a maximum of 17,000 MW. Overall, the country produces between 13,000 MW and 15,000 MW depending on needs. Currently, the country’s total generating capacity, according to the government report, is 27,515 MW.

Interestingly, the country experienced a power shortage of over 3,000 MW on April 29, when demand reached 17,000 MW. Throughout the last week of April, rising temperatures resulted in a gradual increase in electricity demand. Supply could be adjusted to meet this demand. However, during the period from April 23 to 29, we saw a continuous increase in load shedding due to supply shortages.

To address the electricity and gas crisis, the Quick Enhancement of Electricity and Energy Supply (Special Provisions) Act, 2010 was enacted for an initial period of two years. It was then extended in 2012 for two years, in 2014 for four years, in 2018 for three years and most recently in 2021 for five years. After four extensions, the validity of the act was extended until 2026.

This law effectively protects almost all aspects of the energy sector from legal scrutiny. The law allows the purchase of power plants for rent, the import of liquefied natural gas (LNG), and the construction or purchase of any type of infrastructure in connection with the operation and distribution of gas and electricity without following normal procedures. Government officials engaged in any electricity improvement activity—purchase, production, transmission, distribution, and fuel transactions related to electricity—are afforded legal impunity under the provisions of this law.

The purpose and purpose of this Act was to ensure uninterrupted supply of electricity throughout the country at reasonable prices. However, the Impunity Law provided the authorities with unlimited laterality.

Despite the existence of power plants capable of producing at least 10,000 MW more than the current maximum demand, load shedding is imposed if there is a slight increase in demand from normal. This additional production capacity is either not used or is unusable for some reason.

Research shows that a significant proportion of these private power plants never produced electricity or produced only minimal amounts, in some cases one or two percent of their capacity.

Between 2018 and 2022, some power plants did not produce any electricity, but the government covered all the costs of their operation.

By fiscal 2021-22, the country had 151 power plants. Of these, 42 state-owned power plants and 26 private plants were operating at 10 percent or less of their generating capacity in the last five fiscal years. Despite this low production, they charged government capacity fees on a full capacity basis.

Currently, the Bangladesh Power Development Board (BPDB) is suffering huge financial losses as it sells electricity at much lower costs than the production costs.

A subsidy reserve is maintained to cover the deficit in the state budget. In this regard, the state treasury has allocated an amount of Tk 39,406 crore for the financial year 2023-24.

However, it was observed that during the period, an estimated Tk 32,000 crore was paid as capacity charges for idle power plants. This amount is about 81 per cent of the total subsidy.

In other words, a major portion (81 percent) of the amount provided as a BPDB loss mitigation grant goes towards paying capacity charges or renting private power plants. This means that almost the entire amount of BPDB’s losses are due to payments made to privately rented power plants in exchange for capacity fees.

From 2009 to FY 2023-24, an amount of Tk 1,37,000 crore has been paid towards capacity payments or rent without utilisation.

Two large gas-fired power plants have recently come on stream in Meghnaghat. These plants, operated by Summit and Unique Group, have a combined capacity of 1,167 MW. Additionally, a 718 MW Reliance power plant in the same area is ready for production.

The inclusion of these plants will significantly increase BPDB’s total production capacity. Due to lack of demand, these plants or other plants in their place will remain unused, resulting in additional capacity charges. Therefore, the total cost of capacity charges will continue to increase.

In short, the generation capacity is being increased despite insufficient demand. As a result, many of these plants are sitting idle and not producing electricity. Since there is no production, there is no way to earn revenue from selling the electricity generated by these plants. However, under the contracts, large amounts of money still have to be paid in capacity fees.

While the burden of the subsidy is currently passed on to customers in the form of charged electricity prices, most of the additional revenue goes to paying rent for these private power plants.

Therefore, the capacity fee is the main reason for the increase in electricity prices. If there were no such power plants or there were fewer of them, electricity prices would not have to increase as much.

Since 2010, the price of electricity has increased 13 times, rising from an average of Tk 3.73 per unit to Tk 8.70. Under the conditions set by the IMF, this growth trend is expected to continue chronically. Therefore, it is difficult to say that electricity is or will be supplied at a reasonable price.

It may be mentioned here that hiring private power plants, having provisions for payment of rent or capacity charge is not the problem. The main problem is creating excess capacity in relation to demand and then keeping them idle and paying capacity charge or rent. Any money paid to such power plants unilaterally adds to the deficit. In short, these power plants have now become white elephants.

It is also difficult to understand why generating capacity exceeding 27,000 MW was built at a time when our electricity demand typically ranges from 13,000 MW to a maximum of 17,000 MW.

Moreover, this trend of capacity expansion appears to be continuing, incurring significant costs and increasing both domestic and foreign debt. Interestingly, 19.46 percent of foreign borrowing is allocated to the energy sector. However, the expected economic growth needed to justify the increase in electricity consumption remains elusive.

Private power plants are domestically owned but paid for in foreign currency. Under our banking laws, no bank can lend more than 25 percent of its capital to any company. This limit is not enforced in the energy sector for private plant owners. It is difficult to find a logic behind these extraordinary facilities that are supposed to be made available to them.

Despite the provision of various types of services in the electricity sector, uninterrupted supplies of electricity are not ensured. Instead of providing electricity at a fair price, power plants were created resembling white elephants and the ever-increasing, high costs of maintaining them were placed on people’s shoulders.

Ghulam Muhammed Quader is a member of parliament and leader of the opposition, parliament of Bangladesh.

The views expressed in this article are those of the author.

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