Published :
Updated :
For all latest news, follow The Financial Express Google News channel.
The government is set to halve the power subsidy for the next fiscal year (FY2025-26) to reduce the financial burden on the exchequer.
A substantial payment already made to clear the outstanding bills accumulated over the last couple of years for purchasing electricity from the independent power producers and an efficient power-sector- management plan apparently helped the government to go for the cutback.
Analysts, however, suggested maintaining a balance between the subsidy reduction and electricity tariffs so that the consumers, particularly households, do not have to bear the brunt.
In the national budget for FY 2025-26, scheduled to be placed in parliament on June 2, the allocation for power subsidy would be Tk 350 billion, about 56.5 per cent of Tk 620 billion revised allocation for the outgoing fiscal year, officials said on Tuesday.
The original allocation for power subsidy was Tk 360 billion for FY 2024-25.
The plan to cut Tk 270 billion or nearly 43.5 per cent signals a major shift in the government's approach to managing the financial burden of the power sector, analysts said.
The current fiscal year witnessed a considerable increase in power subsidies due to huge payment obligations of outstanding bills, accumulated over the last couple of years on account of mainly capacity charges and other bills of power producers.
"We have a plan to cut the subsidy in the upcoming FY as we have already paid a major portion of the dues in the current FY," said a senior official at the Ministry of Finance (MoF).
He said the power sector is likely to get an allocation of Tk 350 billion as the subsidy aimed at paying the arrears and bills of the Independent Power Producers (IPPs) like Indian Adani Power, Summit Power, and Aggreko Intl.
Bangladesh needs to provide huge subsidies every year mainly to pay outstanding bills to the IPPs against the purchase of electricity at higher rate from the producers and sell it to the consumers at lower prices.
An MoF official told the FE that they had already released Tk 460 billion out of Tk 620 billion subsidies, kept aside at the revised national budget for FY2025, to pay the arrears.
The remaining amount of subsidies would be released based on the demand by the Bangladesh Power Development Board (BPDB) in the coming days, he added.
The interim government augmented budgetary subsidy to Tk 620 billion in the current FY2025 budget as it wishes to pay the accumulated arrears by the next fiscal year.
The government owed the IPPs and the private-sector rental- power plants nearly Tk 130 billion until last month (April), as per data collected by the FE from the Power Division and the MoF documents on the payment obligations.
Indian Adani Power, Bangladesh-China Power Company Plant (Payra power plant), Meghnaghat 450MW Power Ltd, 210MW Rural Power Co Ltd, 335MW Summit-Meghnaghat Power Ltd and 414MW Sembcorp NWPC Ltd, 145MW Aggreko International Projects, United Power and Doreen Power are the major IPPs working in Bangladesh.
Another MoF official said that they are going to allocate a comparatively lesser amount of funds for the next FY as the power subsidy in the upcoming national budget amid expectations of a potential easing of global fuel prices in the coming fiscal year.
Moreover, the government has been emphasising on efficiency improvements within the power generation and distribution companies to reduce operational costs.
Additionally, there would be a push towards gradual adjustments of electricity tariffs to better reflect the actual cost of generation, the MoF official said, with a reference to the IMF's suggestion to this effect.
While the move towards reducing subsidies is seen by some economists as a positive step towards fiscal consolidation and promoting a more sustainable energy sector, concerns remain about its potential impact on consumers.
Any significant upward adjustment in electricity tariffs could put a strain on household budgets and potentially affect industrial competitiveness.
"The reduction in subsidies is a double-edged sword," said Dr Fahmida Khatun, a leading economist and Executive Director at the Centre for Policy Dialogue (CPD).
"While it's crucial for the long-term financial health, the government must carefully manage the transition to avoid sharp price hikes that could negatively impact the economy and the general public."
Stakeholders in the power sector, including generation companies, distribution entities, and consumer groups, will be closely watching the developments and their potential implications.
The government is expected to outline its strategy for mitigating any adverse impact of reduced subsidies, which could include targeted support for vulnerable populations and industries, as well as continued efforts to improve the efficiency and sustainability of the power sector, said an official at the Bangladesh Power Development Board (BPDB).
The focus will likely be on striking a balance between fiscal responsibilities and ensuring affordable and reliable access to electricity for all, he said.
However, government officials maintained that the subsidy is a necessary measure in the short- to medium-term to ensure energy security and support the nation's development goals.
They emphasize that alongside the subsidies, the government is also actively pursuing strategies to diversify the energy mix, enhance efficiency in power generation and transmission, and explore renewable energy sources to achieve greater energy independence and reduce the financial burden in the long run.
Further details regarding the specific mechanisms for subsidy reduction and potential tariff adjustments are expected to be revealed during the budget presentation and subsequent discussions, officials said.
kabirhumayan10@gmail.com