The power sector has played a crucial role in making Bangladesh one of the fastest developing economies in the region. The generation capacity has tripled between 2008 to 2017 (from 5,305 MW to 15,379 MW).This has been made possible by concerted policy initiatives of the Government of Bangladesh (GoB) on various fronts like private sector investment and reduction of losses.
Achieving "Power for All" vision of the government to reach electricity to remaining 20 per cent people by 2021 requires large financial resources, both public and private, of about US$ 16 billion across the sector value chain to meet projected generation capacity of 20,000 MW. Further, the financial health of the sector and economic, efficient & quality supply to consumers need focused attention to attain the national goal of becoming a high-income country by 2041.
Budget FY18 provides impetus to the power and energy sectors through a significant 45 per cent increase in allocation to Tk. 211.18 billion (21,118 crores) - Tk 188.94 billion (18,894 crores) and Tk 22,24 billion (2,224 crores) for power and energy sectors respectively. Utilisation of earmarked budget has been an issue in past and it is important that the GoB promote robust planning and project management by sector entities.
The development stage of the Bangladesh power sector requires ensuring economic supply to consumers and incentives to promote investments. The budget has some positive initiatives to promote energy (LNG & LPG) sector. However, the increase in VAT rate on construction services (from 5 per cent to 15 per cent), withdrawal of VAT exemption on electricity generation and levy of Advance Tax of 3.0 per cent across all imports will likely make electricity more expensive and burden consumers and utilities.
However, the zero import duty on photovoltaic cell for solar panel manufacturing and import duty increase on solar panel/module from 5.0 per cent to 10 per cent can promote domestic manufacturing of modules.
Renewable energy has been gaining significant traction worldwide and in recent years has become competitive. Most countries in the region provide incentives to promote this clean energy form, particularly solar. Bangladesh currently provides a 15-year income tax holiday for coal generation but non-coal generation gets a lower 10-year holiday. This could have been streamlined with equitable tax holiday for non-coal generation.
Coal-based generation plants continue to have a significant role in Bangladesh's future plans with large capacities planned by both public and private sector based on imported coals. Given the long-term nature of coal import arrangements, policy clarity from the GoB on the tax regime for coal imports would have helped provide clarity to investors and generation companies.
The writer is Partner, Power & Utilities,