A fresh US$3.0-billion IMF loan is bound with strings of reforms that necessitate Bangladesh to hike power tariffs in the process of building a non-subsidy economy, officials said.
A visiting team of the International Monetary Fund (IMF) in a meeting with the Bangladesh Power Development Board (BPDB) and the Ministry of Finance (MoF) suggested that Bangladesh raise the electricity tariffs and cut subsidies for becoming a self-reliant country, the officials said Tuesday.
The third review mission of the IMF started discussions with the interim government of Bangladesh regarding the assured fresh $3.0-billion loan in addition to its already-granted $4.7 billion in a credit package.
The IMF mission, whose primary task is to assess the country's progress in meeting its criteria for releasing the 4th tranche of the confirmed $4.7-billion loan, will continue the consultations until December 17.
"The IMF mission sat with us on Sunday. It mainly wants to know about our strategy to become a non-subsidy economy. We informed them our policy. Then the mission has suggested us for increasing the electricity tariffs, especially for industrial uses," said a BPDB official.
"We have informed the IMF on our policy regarding the trimming down of the subsidy gradually," he added.
The IMF, however, suggests enhancing the electricity price to the consumers or to the industrial users in addition to government policies for cutting down the perennial subsidy and become a sustainable economy, he said.
The government has allocated some Tk 360 billion as electricity subsidy in the national budget for the current FY2025. Almost all of the funds are being spent for paying accumulated dues to independent power producers (IPPs) and rental power plants contracted by the past regime on generous terms.
The MoF official said the IMF actually wanted to know the path to a subsidy-less annual financial management.
"They (IMF) told us that if they provide the proposed $3.0 billion fresh loan to Bangladesh government, then how the country would transit to a subsidy-less sustainable economy," he said.
The power board has shared its policy on gradual phasing out of the fund-sapping rentals and IPPs and reducing subsidy on the energy sector.
The deposed 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, the 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.
Most of the IPPs and rental power plants are HFO- or diesel-based station which is costly for generating electricity.
The BPDB's purchases the electricity from the private plants at costs that vary from Tk 14 to Tk 26 per kilowatt hour (kwh) for supplying into the national grid.
On the other hand, the average retail price of electricity in Bangladesh is Tk 8.95 per unit. The average bulk electricity price is Tk 7.04 per unit.
Meanwhile, the government had paid a total of Tk 280 billion in capacity charges in FY2023 to the favoured power producers.
Meanwhile, it has issued special bonds in recent months to clear capacity charge to IPPs and rental plants.
The MoF has a plan to raise the subsidy on the power sector in the upcoming revised national budget to pay the outstanding bills, as much as possible, to the private-sector IPPs and rental power plants in a bid to become an economy with strong financial footprint.
Another MoF official says the IMF also met the Bangladesh Energy Regulatory Commission (BERC) and the Power Adviser on Monday to discuss the subsidy and energy-sector policy issues and their strategy.
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