Rescind power subsidy and raise tariff rates

Rescinding power subsidy and upward tariff adjustment are twin strings among other dos binding release of the next tranches of the International Monetary Fund (IMF) loan release, officials say regarding the latest developments.

They said Tuesday the IMF recommended bundling out entire subsidy on power within next fiscal year (FY) 2025-26 for getting next installments of the assured US$4.7 billion worth of loan.

The latest IMF review mission that concluded Bangladesh visit on an extensive reappraisal of the country's economic fundamentals also suggested that the government readjust the electricity price in order to cut the fiscal burden, they added.

Meanwhile, Bangladesh has requested the Washington-based lender to simplify their conditions so that government plan and action on subsidy cuts could work.

"If the government fails to trim the massive electricity subsidy down to zero, the expected 4th and 5th tranches of the IMF loans can be uncertain," said a couple of officials who negotiated with the IMF review team.

They said actually the Bangladesh government is working to reduce the subsidies for the energy and power sector.

"We have plans to make the subsidy into zero, but we also think about its impact on the consumers and on inflation," says a senior Ministry of Finance (MoF) official.

"We do not know whether the entire subsidy would be zero by the next FY2026 but we would try to do that for sustainable power generation and supply management," he adds.

The government has almost doubled the power subsidy in the revised national budget for the current fiscal compared to the original estimation to clear bill arrears to the independent local and foreign power suppliers (IPPs), says another MoF official about what is seen as a major subsidy hiker.

"The lion's share of the overdue bills will be cleared within this fiscal year. But since Bangladesh government resorted to getting power supply from the IPPs, the payment would have to do it," he adds.

A Bangladesh Power Development Board (BPDB) official mentions that as a roadmap for reducing the subsidy, they have already enhanced the electricity generation in the available coal-and gas-fired power plants to cut down the subsidies and fiscal burdens.

"However, the government signed power-purchase agreement (PPA) with some IPPs which have started their power supply into the national grid recently. As the government allowed the private-sector investment, we cannot phase out them within the shortest-possible time," he says.

In that case, they have informed the IMF mission that some of the IPPs could exist and their overdue and other outstanding payments could take some couple of years more to clear.

"In the meantime, the government has appointed an independent expert team to find out the real base price of electricity generation in Bangladesh. Then will we be able to know the current electricity-price situation in production and customer levels."

He says the report would help them adjust the price of electricity in line with the base price, the BPDB official told the FE, adding that they have sought time from the IMF until submission of the report.

"We hope the IMF would consider our request for simplifying the terms and conditions for allowing us to be eligible for the next tranches of the $4.7 billion loan."

Meanwhile, the government already paid off all of the dues to the IPPs and rental power plants till September last year.

The current interim government also has enhanced the total subsidy to Tk 620 billion in the recently revised national budget from Tk 360 billion allocated in the original outlay.

Electricity subsidies have multiplied over the years as the last government allowed many IPPs and rental power plants for costly power production that drew flak from various circles, including consumer-rights groups who say power-tariff hike stokes up the cost of commodity production and consumer prices.

Meanwhile, a high-powered delegation of the interim government is in the US capital to settle the score during the IMF-World Bank annual meet to get the two stalled tranches of the credit taken to buttress the then-depleting foreign-exchange reserves of Bangladesh.

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