The government claims that the GDP growth rate would have gone down further if the country’s power generation had not relied on fuel-run rental and quick rental plants in the last four years of the Awami League-led alliance’s rule.
Referring to a yet-to-be-disclosed report of the Bangladesh Institute of Development Studies on rental power and its impact, Tawfiq-E-Elahi Chowdhury, energy adviser to the prime minister, recently said the GDP growth would have reduced to 4% or 3% in the outgoing fiscal year.
The country’s total power generation crossed 9,000MW and the Bangladesh Bureau of Statistics had projected the growth rate at 6.03% in the outgoing fiscal year, he said at a post-budget meeting.
However, contradicting Tawfiq, BIDS Director General Dr Mustafa K Mujeritold the Dhaka Tribune Monday: “Our report does not say the GDP growth rate would have reduced in the outgoing fiscal year if not for the operation of rental power plants in the country.”
“We just estimated the plummeting growth rate in different sectors such as agriculture, service, trade and industry,” he said.
Mujeri said rental power was not a long-term solution, as a result the countrywas trapped in the slow progress of implementing the base-load power stations – both public and private– because of shortage of electricity generation in puts.
“The decision on using coal [for power generation] is still pending,” he said.
This might consequently make electricity in Bangladesh costlier than in Sri Lanka, where a kilowatt-hour of electricity cost up to $0.37 or Tk28.56, Mujeri said, adding that the current cost in Bangladesh was Tk14.
About two-thirds of Sri Lanka’s electricity is generated using coal or oil.
The International Monetary Fund in its review of the second tranche of Extended Credit Facility has revealed that a surge in energy-related subsidy to rental power eroded the growth rate from 0.1% to 1.6% in fiscal years 2011-12 and 2012-13.
On the impact of subsidy on costly rental power plant, the report saysthese plants’ increasing reliance on liquid-fuel has led to a surge in the government’s total energy-related subsidy costs from 0.1% of the GDP in FY2010 to 1.6% in FY2012. The impact occurred through two channels – subsidies in fuel and electricity.
Bangladesh Petroleum Corporation subsidises fuel by selling it domestically at lower than international prices. The sharp rise in the BPC’s fuel subsidy bill from Tk10bn in FY2010 to Tk86bn (0.9% of the GDP) in FY2012 was partly due to growing fuel sales to liquid-fuel-based electricity generators.
On the other hand, the Power Development Board provides several types of subsidy in power. First, the PDB power tariffs charged to consumers are lower than the prices the PDB spends to purchase power from generators. With growing reliance on high-cost oil-based power generation, the subsidy costs have risen significantly.
Second, under contracts between the PDB and the rental power producers (RPPs), the PDB guarantees access to fuel by the RPPs at prices well below the rates charged by the BPC to other consumers; for instance, diesel is sold to RPPs at Tk26 per litre compared to the regular BPC price of Tk68. This price difference is financed by the PDB.
Lastly, the contracts between PDB and RPPs guarantee a minimum fixed payment per month (a “rental”) from the PDB, regardless of whether electricity is generated. The government transfers cover these subsidies, and have risen from Tk9bn in FY2010 to Tk64bn (0.7% of the GDP) in FY2012. Reflecting these various factors, the RPPs account for about 90% of the electricity subsidy bill, compared to their 30% contribution to power generation.
The government has made a commitment to the IMF that if the difference between the international and domestic prices of petroleum goes beyond Tk10 a litre, they will go for price adjustment to cut subsidy, a finance ministry official said.
The government has taken up 16 large power projects having a capacity to generate 5,211MW of electricity. Of them,the 360MW Haripur plant has started test run while the 335MW Meghnaghat plant will go into commercial operation in a couple of months.The progress of the rest is not remarkable as they faced either liquidity crisis or land dispute to implement the projects.
Meanwhile, the government’s spending on subsidy goes down by 24% inthe next fiscal year, compared to the current year’s revised estimate, because of various reforms and price adjustment.
The total allocation for subsidy in the next fiscal year is Tk286.95bn, according to a proposal of the finance ministry. The amount rises by 7% to Tk373.89bn in the current fiscal year’s revised budget from the original allocation of Tk350.45bn.
The PDB now purchases around 1,800MW of electricity from rental and quick rental power projects.
