The burden of capacity payments

The power and energy sector, it seems, is caught up in a cobweb of mismanagement and, to a certain degree, underhand dealing. Otherwise, the current situation in the sector would not have come to such a pass. Questions have been raised since the Bangladesh Petroleum Corporation (BPC) hiked fuel oil prices in the midnight foray. Queries also came earlier from different directions on issues relating to fuel oil prices, hydrocarbon exploration, LNG (liquefied natural gas) imports, capacity payments to private rental and independent power plants, etc. But replies have always been scanty and evasive. The government has been spending a substantial volume and signing deals on projects in the power and energy sector every year, allegedly, in a non-transparent manner.

The ongoing crisis in the power and energy sector started with the suspension of the import of LNG for re-gasification using the floating storage re-gasification units (FSRUs) and the addition of the same to the national grid. State-owned Petrobangla, some months back, had stopped the import of LNG because of its soaring prices in the spot market. The government also wanted to save some amount of foreign exchange. This led to the running of the FSRUs at half their capacity. The gas supply shortage disrupted power generation and industrial production. The unpalatable story, however, does not end there. To add to the difficulties facing the government, the Petrobangla, according to a report published in this paper on Friday last, has been paying over 200,000 US dollars per day to the FSRUs, one owned by a US energy outfit and another by a local private power and energy behemoth, as capacity payment.

Under deals signed with the FSRUs, Petrobangla is bound to make capacity payments for a full or partial suspension of operations of the units for its fault/s. The FSRUs have been operating at 55 per cent of their respective capacities since the government could not arrange LNG. Thus, the Petrobangla has been failing on two counts. Firstly, it is not being able to supply a sufficient volume of gas to the national grid using the services of FSRUs and secondly; it is burdening the government with unforeseen expenditure in the name of capacity payments. Such spending adds to the huge amount of money that the government has been paying to the private rental power plants as capacity payments. In the financial year 2021-22 alone, the capacity payments to private power plants reportedly exceeded Tk. 265 billion.

It is thus natural for many to raise questions about spending a huge sum in the name of capacity payments and the quality of deals signed with the owners of private power plants and FSRUs. Criticism centring on the adoption of a piece of indemnity law in the power and energy sector is also difficult to ignore. The same is true with footdragging in the matter of starting hydrocarbon exploration in the offshore blocks and augmenting production in onshore gas fields. As all sectors of the economy and the people as well are feeling the heat of the severe energy crisis, these questions have only gained strength in recent days. The ongoing situation calls for a renegotiation of the existing deals with the private power plants and FSRUs to cut down the capacity payments to a sustainable level.