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Dhaka Tribune

IMF wants clarification on capacity payments, power subsidy

They also asked the BPDB if they can take loans from commercial banks instead of taking subsidies from the government

Update : 03 Nov 2022, 05:00 PM

Huge capacity payments to independent power producers (IPPs) were discussed by the International Monetary Fund (IMF) in assessing Bangladesh's creditworthiness.

In two separate meetings with the Power Division and Bangladesh Power Development Board (BPDB) Wednesday, the visiting IMF delegation also wanted to know the government's plan to end capacity payment, sources said.

According to the officials, the payments against installed capacity of rental power plants exceeded Tk26,500 crore in FY22.

Also, the visiting team, led by the agency's mission chief for Bangladesh, Rahul Anand, was learnt to have inquired about subsidies in the power sector, the procedure of buying electricity from oil-fired power plants, and future plans for power-sector development.

They also asked the BPDB if they can take loans from commercial banks instead of taking subsidies from the government.

The BPDB officials informed that bank borrowing would not be viable for them since they will have to pay interest as well against the loans.

Power division's officials informed the IMF team that oil-based power plants were set up in the face of huge electricity shortage and the capacity payments are given in line with the agreements.

But now the government has come out from the previous deals and oil-based power plants are paid on a "no-electricity, no-pay" basis.

The IMF team also wanted to know about the prolonged load-shedding and how long the situation could continue.

The officials of the power division replied that lowering load-shedding depends on oil and gas supply by the energy division.

They also said due to the high price of fuel oils and gas the government is importing those in lesser amounts and so load-shedding happens.

Sources said the IMF officials also wanted to know about government efforts for expansion of renewable energy.

The power division's officials informed the IMF team that due to land scarcity the possibility of enhancing renewable-energy generation is very meagre.

Meanwhile, in a separate meeting with the Ministry of Commerce, the IMF team inquired about the country's preparedness for post-LDC-graduation regime and market access of export items to the European Union and the United States when the country will lose various trade preferences.

Commerce Ministry's officials informed the IMF team that presently around 80% of export earnings come from the apparel sector.

But the government is now emphasizing product and market diversification, including electronics, processed food, and leather sectors.

On signing free-trade agreements (FTAs), the ministry said Bangladesh has been trying to strike such deals with various counties keeping in mind the possible tariff-preference losses in the post-LDC era.

Efforts for tariff rationalization also came up for discussion in the meeting.

The delegation was told that Bangladesh Tariff Commission is preparing the country's first tariff policy wherein a target will be set on tariff rationalization.

Meanwhile, Planning Minister MA Mannan said the expected loan from the IMF would build up a cushion against any risk for the Bangladesh economy.

"We need the money. But it does not mean that Bangladesh is in a crisis," he told journalists after a meeting with a team from the International Labour Organization (ILO) at his office in the Planning Commission in Dhaka.

He explains: "I have Tk100 in my pocket. If anybody lends me additional Tk10, of course, it will help me a bit."

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