Cumulative government debt to private power producers rented by the past regime balloons as the contentious capacity charge amounted to Tk 360.74 billion by the last fiscal yearend.
This hefty back pay on account of electricity generation under special arrangements for a quick fix to power shortages adds up to dollar crunch and to multidimensional pressures facing the problem-ridden energy and power sector of Bangladesh, officials and experts say.
The huge capacity charge-largely against installed overcapacity compared to actual electricity generation-to be paid to the Independent Power Producers (IPPs) and rental-plant owners has become a big burden for the exchequer reeling from depleted foreign-exchange reserves and rising external debts.
Banks are unable to provide dollars for paying dues to the foreign companies in the power and energy sector. Bangladesh had a stock of reserves of over US$48 billion two years back, which has plummeted below $20 billion in recent days.
Economists suggest that the interim government scrap the deals or revise the power-purchase agreements immediately in view of the present economic crisis in the country.
The government can even use the "force majeure clause" for revising the contracts with the IPPs and rental plants, they say.
The government needs to pay the capacity charge to the IPPs under a guarantee clause in the deals on their investment and operations in Bangladesh-even if power is not generated in the plants.
According to Ministry of Finance (MoF) data, the total amount of capacity charge to be paid by the government to the IPPs stood at Tk 409.37 billion as of June this year for the period since July 2023.
Out of the liabilities, the government in June, July and August paid a total of Tk 38.08 billion to local and foreign private-sector power producers in Bangladesh.
Meanwhile, the government has allocated some Tk 400 billion as power subsidy in the current FY2025 national budget--a third of the total subsidies this fiscal year. Most of the allocation will be spent on paying the capacity charges.
The deposed Sheikh Hasina government allowed many private-sector power producers to set up electricity-generation plants most of which are costly in terms of electricity pricing, resulting in rising government liabilities.
Usually, Bangladesh Power Development Board (BPDB) sells electricity to consumers at rates lower than it purchases from the IPPs-and the gap needs to be made up with state subsidies.
Meanwhile, the government had paid a total of Tk 280 billion as the capacity charge in FY2023 to the favoured power producers.
Statistics compiled by BPDB, finance ministry and a private think-tank show that the government paid a king's ransom of Tk 783.70 billion in capacity charges between FY2019 and FY2023.
The Sheikh Hasina administration in its three consecutive terms had paid a total of Tk 1.05 trillion to 82 independent power producers (IPPs) and 32 rental-power plants in capacity charges or rental payments, the then State Minister for Power, Energy and Mineral Resources, Nasrul Hamid, said in September 2023.
The amount was paid in the 15 years since 2009, when the Awami League government came to power in election held after the end of the 1/11 regime.
A senior MoF official told the FE that the government allocated Tk 400 billion as power subsidy in the budget. "We will repay the outstanding to the IPPs and rental-power-plant owners from the allocation in the current fiscal budget."
The big gap between electricity-production costs and consumer prices has compelled the government to allocate substantial subsidies in recent budgets.
The capacity charge goes to IPPs and rental-power plants that include Bangladesh-China Power Company Plant (Payra power plant, Meghnaghat 450MW Power Ltd, 210MW Rural Power Co Ltd, 335MW Summit-Meghnaghat Power Ltd and 414MW Sembcorp NWPC Ltd, 145MW Aggreko International Projects.
Meanwhile, the government issues special bonds in recent months to clear capacity-charge payments to the IPP and rental plants.
"As the US dollar price has increased a lot over the years and there are some previous pending payments on capacity charges to the private-sector local and IPPs, we need an increased amount of payment in the current fiscal," says another senior finance ministry official.
The state-run BPDB requires additional funds to settle outstanding dues to IPPs and power producers for purchased electricity.
According to Power Division, the government in FY23 purchased electricity worth Tk 590.22 billion from IPPs and Tk 37.44 billion from rental power plants and spent Tk 92.23 billion on import of power from India.
Centre for Policy Dialogue (CPD) Researcher Dr KG Moazzem suggests that the government should revise or even can scrap the power-purchase agreement with the IPPs and rental-power plants immediately.
"Since Bangladesh's economy is passing a rough weather, the government can even apply the 'Force majeure clause' clause for revising or scrapping some agreements," he told the FE.
The government is already paying the dues by borrowing from external sources which had already affected the development works and other necessary and priority activates of the government. Dr Moazzem notes.
"It is also hiking the debt burden of the government," he adds.
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