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Stop capacity payments to IPPs 

| Updated: November 08, 2022 10:42:45


- Representational image - Representational image

It is hardly surprising that the visiting team from the International Monetary Fund (IMF) has raised the question of the government paying huge sums of money to independent power producers (IPPs) that is creating massive pressure on the national exchequer every year. The contracts for such deals have been facing increasing criticism as they lack oversight and fall under the aegis of the 'Speedy Supply of Power and Energy (Special Provision) Act 2010. Although authorities now say that they have come out of the deals that were signed before, the fact remains that IPPs say that they are owed more than Tk200 billion in arrears. The facts speak for themselves. A report by the Bangladesh Working Group on External Debt tells us that the government had to pay Tk132 billion as capacity payment to idle private plants and that the national exchequer has paid up to Tk72.5 billion as capacity charge since 2010-11.  

During the last fiscal year, payments against installed capacity of rental power plants exceeded Tk265 billion. At a time when the country is in no financial position to produce the power it needs, the question is why we remain dependent on oil-based power plants. And because of this continued burden, the country keeps wasting precious foreign exchange to buy fossil fuel supplies from the international market. The volatility of prices has resulted in fewer shipments of energy supply imports and the continued passing on of added costs to end consumers, both at bulk and retail level.  

The same situation exists with the floating storage re-gasification units (FSRUs) that involve LNG. The deals that Petrobangla has inked bind the government to make capacity payments for these units in case of failure to utilise the capacity. Given the ongoing failure to import requisite LNG, the government is paying US$200,000 a day as capacity payment. The massive financial outlays in the name of capacity payments bring to the fore the very nature of deals that have been signed with IPPs. The fact that they fall under an Act that indemnifies all parties concerned is considered by many to be a perfect instrument for unaccountability.  

It is beyond understanding that the government has been dragging its feet to start serious exploration of hydrocarbons in the country over the last decade. The country has a full-blown energy crisis that threatens to halve industrial production over the next fiscal year. The associated problems that will come with such a scenario will be plant closures, increased unemployment, nose-dive in foreign exchange earnings from declining export and a recession. The time has come for a full-fledged re-examination of the deals that exist with private power plants and FSRUs and find a new formula that is both realistic and acceptable. Furthermore, the government can think about issuing a sovereign bond to subsidise the power sector instead of throwing away precious billions that can be spent more judiciously to support other productive sectors in the economy. 

 

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