CPD wants adjustment in capacity charges instead of raising power tariff to reduce subsidy

Centre for Policy Dialogue (CPD), a think-tank, has advised the government to come out of the burden of capacity chargers by making adjustment to into it to reduce the subsidy instead of raising the power tariff repeatedly.

It also observed that the government is trying to shift the onus of the wrong policies and strategies on the shoulder of the consumers.

The wrong policies and strategies have resulted in the current burdens of capacity charges, it said at a press conference in the city on Wednesday.

CPD research director Dr Khondaker Golam Moazzem made the keynote presentation titled: “Recent Electricity Tariff Hike
Isn‍‍`t there a better alternative for subsidy adjustment?” while the study team member Preoty Research Associates Helen Mashiyat and Mashfiq Ahasan Hridoy and Programme Associate Faisal Quaiyyum were present on the occasion.

The CPD said that the government has made an upward adjustment to the electricity tariff as part of rationalising subsidy in the power sector.

The decision aligns with the IMF‍‍`s conditions linked to a $4.7 billion loan, including the implementation of an automated pricing formula for petroleum and raising electricity and gas prices to reduce subsidies in the power sector.

“Through such an adjustment, the burden has fully passed through the consumers of electricity in household, agriculture, industry, businesses, services, and other economic sectors”.

It said the tariff hikes, especially in gas and electricity, are expected to elevate production costs
significantly leading to higher prices for consumer goods.

The government claims that the tariff adjustment is not a hike but a necessary step to align with the increased production costs and global energy pricing practices. At the same time, by passing the Bangladesh Energy Regulatory Commission (BERC) and the lack of public consultation raised concerns over transparency and the impact on consumers.

Dr Golam Moazzem said the rising subsidy for the power sector over the years is directly related with substantial amount of capacity payment provided for unutilised generation capacity of different power plants which is a reflection of faulty planning for power generation in the earlier years.

He said the loss of Bangladesh Power Development Board (BPDB) incurred a loss of Tk 43,539 crore in fiscal 2022-23 necessitating a subsidy of Tk 39,534 crore.

The BPDB’s loss is mainly driven by the cost of
electricity purchase from IPPs, rentals and quick rental power plants.

He noted that despite increasing the electricity tariff for the 4th time in last one year, the subsidy burden is still persistently hovering on the government.

According to the state minister, the tariff hike will reduce the amount of subsidy by Tk3000 crore and about BDT36, 363 crores of subsidy will have to be paid.

Dr Moazzem said the new amendment of BERC ordinance has weakened the institutional framework of electricity pricing by eliminating the process of public hearing and involvement in the price revision
process.

“Such amendment has questioned the transparency and accountability of the regulatory process. As the result, the whole burden has been passed on to the consumer’s shoulder which is neither expected nor appreciated”, he said.

The CPD proposed a blend approach to reduce the subsidised amount paid to the BPDB without significantly increasing electricity prices or shifting the financial burden onto consumers.

This approach includes phasing out fossil fuel-based power plants on time and implementing a "No Electricity, No Payment" policy.

According to CPD‍‍`s calculations, it could eliminate subsidies by 2028 and create a positive surplus for the BPDB and limit the electricity price increase to only 6.8 percent over 5 years to reach a zero-subsidy scenario, in contrast to the IMF‍‍`s estimation of a 12% price increase over 5 years.

“This strategy will significantly reduce the fiscal burden while it is important to initiate competitive bidding process in power purchase agreement (PPA) for which abolishment of ‘emergency
power and energy supply act’ is required.

“This will significantly reduce the purchase price of electricity and 40 percent of renewable energy-based power generation needs to be ensured.”