The government is going to allocate Tk 350 billion as a subsidy for the power sector in the upcoming national budget to settle capacity charges and other bills owed to private electricity producers, officials said.
The rising debt burden to private electricity producers, including Independent Power Producers (IPPs), requires this huge budgetary allocation, according to the officials.
The Ministry of Finance has finalised the national budget for the next fiscal year (FY) 2024-25, due for announcement on June 6, an official said.
The power subsidy will mainly be used to clear outstanding bills owed to IPPs that supply electricity to the national grid every month.
A senior finance ministry official said Tk 350 billion has been earmarked in the upcoming budget to pay the outstanding electricity bills owed to power producers.
Capacity charges for private sector power producers are likely to exceed Tk 300 billion in the upcoming FY 2025, the official added.
The revised budget for the current FY 2024 earmarked Tk 360 billion in subsidies for the power sector.
The big gap between electricity production costs and consumer prices has compelled the government to allocate substantial subsidies in recent budgets.
"Since the electricity rates will be adjusted from time to time, the subsidy will be reduced in the coming years. So, we have proposed less subsidy in the next national budget than the outgoing fiscal's one," said another official.
The government has also been issuing special bonds in recent months to clear outstanding IPP bills, the official added.
The subsidy provided to the Bangladesh Power Development Board (BPDB) began to rise steeply after FY 2020, when it stood at Tk 74.39 billion.
Finance ministry and BPDB data show a sharp increase in power sector subsidies, rising from Tk 89.45 billion in FY 2021 to Tk 170 billion in FY 2022, Tk 230 billion in FY 2023, and reaching Tk 360 billion in the current FY 2024.
Statistics compiled by BPDB, finance ministry and a private sector think-tank show that the government paid Tk 783.70 billion in capacity charges between FY 2019 and FY 2023.
Capacity charge spending rose from Tk 79.66 billion in FY 2019 to Tk 280 billion in FY 2023, according to the data.
"As the US dollar price has increased a lot over the year and there are some previous pending payments on capacity charges to the private-sector local and IPPs, we need an increased amount of power subsidy in the next fiscal," another senior finance ministry official said.
He adds that the state-run BPDB requires additional funds to settle outstanding dues to IPPs and power producers for purchased electricity.
According to the Power Division, the government in FY23 purchased electricity worth Tk 590.22 billion from IPPs, Tk 92.23 billion worth of imported power from India and Tk 37.44 billion from rental power plants.
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