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Inflation is resurging once again after a brief respite, raising serious concern among people in lower-income brackets about the cost of living. Prices of almost all essential commodities have gone up, and all modes of transportation have become costlier since the government increased fuel prices last month. Now, in a move that is bound to aggravate inflationary pressure, the Bangladesh Power Development Board (PDB) and other transmission and distribution utilities are reportedly pushing for electricity price increases between 17 and 21 per cent.
The Bangladesh Energy Regulatory Commission (BERC) is scheduled to hold two separate public hearings on bulk and retail electricity prices on May 20 and May 21, respectively. If past experience is anything to go by, such public hearings are mere formalities before going for the hike.
Raising power tariffs once or even twice a year was routine during the Awami League government. The interim government didn't increase the tariff during its 18-month tenure. Then, the energy minister of the incumbent BNP government also assured the public in February that the government would prioritise reducing system losses, curbing irregularities, and cutting unnecessary expenditure instead of burdening consumers with higher tariffs. The current move to raise electricity prices therefore appears surprising and contradictory to the government's earlier commitments.
True, Bangladesh's heavy dependence on imported primary fuels for electricity generation such as furnace oil, LNG, and coal makes domestic pricing highly vulnerable to international shocks. Global energy market volatility following the Middle East conflict has further increased the cost of power production. There is also pressure from the IMF to reduce subsidies. The government's subsidy burden in the power sector is on track to reach about Tk 430 billion in the current fiscal year. Against this backdrop, the government may consider raising the tariff. But an increase in electricity prices does not mean only higher monthly utility bills for households. It will also raise production costs for industries, increase irrigation expenses for farmers, and push up costs in transportation and cold storage operations. The ripple effects will inevitably spread throughout the economy, driving up the prices of goods and services.
Energy sector experts therefore are of the view that the government should focus on reducing production cost by addressing the flawed policies of the Awami League government. In January this year, a national committee, formed by the interim government to review unsolicited power contracts signed during the Awami League regime, found that inflated capacity charges had been costing Bangladesh up to $1.5 billion annually. The committee warned that unless contracts with the private power plants are renegotiated, the country could face about $7.2 billion in excess payments over the remaining lifespan of the deals.
It is therefore hoped that the government will conduct a comprehensive review of all existing power purchase agreements (PPAs) and assess their fairness and economic viability, while gradually phasing out capacity payments. It is also crucial to examine why over 40 per cent excess power generation capacity was created and who has been benefiting from it. Any move to increase power tariffs without correcting the past policy missteps would amount to facilitating plundering of state resources, while passing the burden onto consumers.
At the same time, increasing power generation from local energy sources such as gas, coal, and solar is crucial to reduce dependence on costly imports. Exploration of new gas fields, along with the extraction of coal from existing reserve, should be given priority to ensure long-term energy security and price stability. A sustainable power generation strategy based on domestic resources is essential not only for reducing production costs, but also for long term stability of the power sector.