Expensive rental power looks set to stay as an enormous drain on the exchequer as little or no progress on long-term electricity generation projects is forcing the government to rely on the stopgap measures for some more years.
Power officials say contracts with rental and quick rental plants might be extended until 2020 when major electricity projects like Rooppur nuclear power plant are expected to go into commercial production.
“We will place a proposal to the Prime Minister’s Office within a few days seeking the PM’s consent for extending the tenures of the power plants for different periods,” said an official of the Power Division.
The Power Division will propose an extension until 2020 as it hopes that most of the long-term base-load power projects, including a series of coal-and gas-fired plants, as well as the nuclear power plant at Rooppur will be in a position to generate electricity by then.
Earlier, the division had proposed two options for extending the tenures of rental and quick-rental power projects—one is ‘no electricity, no payment’ and another ‘revision of tariffs.’ Power plant owners must agree on either of the options if they want to continue their business, officials concerned said.
The state-owned Power Development Board generally purchases power from rental power plants at high costs and sells it to consumers at considerably lower prices. This has forced the government to cover up the gap by giving huge subsidy.
Quick rental plants, which were set up on emergency basis to overcome the nagging outages, are the most expensive, followed by rental power plants—all run by private entrepreneurs on short-term contracts.
PDB owes quick-rental power plants around Tk16.88bn, while unpaid bills for rental power plants amounted to around Tk1.25 bn, raising the total dues to Tk18.13 bn for the last quarter (April-June) of the previous fiscal year.
The government generally does not pay any subsidy to the IPPs because these low cost power plants are powered by natural gas and have in fact made around Tk1.69bn profit during the last quarter.
“Most of the subsidy is spent in payment for quick-rental power,” said an official of the Finance Division, which on Monday disbursed Tk 15.86 bn as subsidy to pay dues of quick rental and rental power plants.
He said the country’s budget deficit may widen if the rental power arrangements continue.
The total budgetary allocation for power sector subsidy in the immediate past fiscal year was Tk22bn.
To ease the subsidy pressure, the International Monetary Fund has repeatedly advised the government to hike power tariffs– a step the government always takes cautiously fearing political backlash. Although power tariff has been increased several times at consumer level, it is still far away from meeting the gap between the cost of production and the price consumers are paying.
The international lender said the government must stop giving subsidies in order to eliminate financial losses of power companies and public enterprises which burdens the public finances and pose a threat to macroeconomic stability.
On an average, PDB purchased around 1500MW of electricity every day from rental and quick rental power plants during the last fiscal year, board officials said.
At present the government purchases electricity from 12 rental and 15 quick rental power plants, powered either by furnace oil or diesel, and six IPPs.
Last week, Power Division met the sponsors of five rental power projects including the 55MW Ashuganj gas-fired plant of Precession Energy Limited, 55MW Shikalbaha HFO-fired plant of Energies Power Company, 50MW Pagla diesel-fired quick-rental plant of DPA, 50MW Thakurgaon diesel-fired power of RZ Power Limited and the 55MW Khulna power plant. Of the power rental projects, the government earlier scrapped deal with the 55MW Sikalbaha power project for discharging ash that causes damage to the public-sector power plant at Sikalbaha. Earlier, committee formed by the division proposed not to extend the tenure of the old rental plants which are causing technical glitches to national grid. But the division decided to continue negotiations with all the rental and quick-rental power sponsors, officials concerned sources said.