Power Sector, Power: Arrears, subsidies hamper govt

The interim government is struggling to pay the arrears of electricity bills and subsidies that were caused by unfair contracts signed by the previous administration and the rise in international fuel prices.

It may become difficult to meet the pledge to reduce arrears by this fiscal year — a condition set by the International Monetary Fund’s $4.7 billion loan program.

In May, during the second review of the loan program, the IMF pressed the Awami League government to reduce arrears on bills.

The government then committed to paying the bills so that the arrears fall slightly by the end of the 2023-24 fiscal year and unpaid bills do not accumulate in the current 2024-25 fiscal year.

“We plan to gradually eliminate arrears and return subsidy spending to a level consistent with the objectives of our fiscal program,” the government said in an IMF report published in June.

The previous government also planned to “phase out these arrears through transparent transfers from the budget over the next five years”.

According to the report, the total arrears for power, fertilizer and power sectors stood at around Tk 60,000 crore at the end of June.

Of this amount, the energy sector alone accounted for 40,000 crore lei, a finance ministry official said.

To clear arrears in the power sector, the AL government issued Tk 20,133 crore in special bonds in the last fiscal year and the caretaker government issued Tk 5,000 crore. at the beginning of this month.

However, unpaid bills in the power sector now stand at Tk 37,000 crore and the amount is likely to increase in every coming month, officials said.

In the current fiscal year, the sector should receive subsidies of 36,000 crore lei. Of this, Tk 7,000 crore has been disbursed so far, officials of the finance and power ministries said.

The power division needs Tk 3,000 crore – Tk 3,500 crore every month but gets around Tk 2,000 crore.

When the caretaker government took over, the total arrears in external liabilities in the power and energy sector alone were $2.5 billion.

After taking office in early August, the caretaker government asked development partners for help paying bills in the sector.

Financial adviser Salehuddin Ahmed said last week that some bills were paid without touching foreign reserves.

The government has significantly reduced the money owed to the Adani Group, he said.

Officials at the Ministry of Energy said Bangladesh owed the Indian conglomerate $900 million, and some of it had been paid.

Power Councilor Muhammad Fauzul Kabir Khan told reporters last week that foreign liabilities had fallen to $1.5 billion.

Bangladesh Petroleum Corporation has no external liabilities at present, a finance ministry official said.

However, several LNG companies are owed $250 million, the official said.

UNFAIR CONTRACTS

The National Power Sector Contracts Review Committee found that more subsidies were needed because the previous government continued to increase power generation capacity in an unplanned manner.

Power generation capacity has been increased without securing a fuel source, a community member said.

In 2023-24, the subsidy allocation for the power sector was Tk 34,000 crore, which was between Tk 3,000 crore and Tk 9,000 crore in 2018-22.

The capacity tax the previous government paid to power plant companies was estimated at Tk 32,000 crore last fiscal year, up from about Tk 10,000 crore in 2020.

A member of the committee said that contracts with various independent electricity companies, including Adani, were not signed keeping in mind the national interest.

Bangladesh has to buy overpriced electricity from them, he said.

According to the contracts, the government has to pay the independent power companies a service charge of 9% to buy fuel, which is nothing but corruption, he added.

Another member of the committee said that a modern power station has been built in Rupsha, Khulna, with the aim of extracting natural gas from Bhola to be used as fuel in the plant.

But the pipeline from Bhola is not there. As a result, the factory has yet to start production, he said.

In addition, a coal-fired power plant has been built in Payra, but the cost of supplying coal there using the Payra seaport is high as large ships cannot dock there, he added.

Zahid Hussain, a former senior economist at the World Bank’s Dhaka office, said: “Some of the ways these arrangements were made look like daylight robbery.”

On the unpaid invoices, he said: “It is a recurring problem, the invoices keep ticking. We have accelerated the payments. The burden is huge, but the bottom line is that the arrears are reducing and we have to go to zero.”