Costlier power fuels cost of living

People's cost of living rises further as the latest power-tariff hike increased monthly expenditure of a family by around 9.50 per cent as per finding by a leading think-tank.
The Centre for Policy Dialogue (CPD) Wednesday revealed the findings backed up with a breakdown of the hikers. It shows the fuel-rate raise fired up cost by 9.12 per cent for small industries, 9.71 per cent for businesses and offices, 10 per cent for industries and 11.02 per cent for irrigation.
"Commoners are shouldering the burdens with increased expenditures for government's mistakes in policymaking, which is fuelling inflation," the CPD points out in critical appraisal of steps taken on Bangladesh's energy front in particular.
It deplores that the government is raising tariffs instead of going for alternatives.
The CPD came up with the findings on the domino effect of power-price hike in a media briefing titled 'Recent Electricity Price Hike: Isn't There a Better Alternative for Subsidy Adjustment?'
The CPD research director, Dr Khondaker Golam Moazzem, delivered a presentation at the event held at the Centre office in Dhaka, detailing the policy flaws and the right remedies that could be.
He floated the CPD opinion that phasing out fossil fuel-based power plants on time and implementing 'no electricity, no payment' mechanism could help check the soaring power costs.
Replacement of fossil fuel-based power plants with renewable-energy plants by the entire capacity is also deemed necessary.
If the fossil fuel-based power plants are phased out in time and 'no electricity, no payment' could be ensured for all the plants, CPD's calculation estimates that, by 2028-29, not only the subsidy will be zero but also there will be a positive surplus for state-run Bangladesh Power Development Board (BPDB).
The CPD reveals that only a 6.80-percent rise in tariffs over five years is enough to reach a zero-subsidy scenario, which is far below the international Monetary Fund (IMF) estimation of raising it by 12 per cent over the next five years for getting to a zero-subsidy pricing regime.
The policy think-tank also opines that the amendment of Bangladesh Energy Regulatory Commission (BERC) Act has weakened the institutional framework of electricity pricing by way of eliminating the process of public hearing and involvement in the price-revision process.
"This amendment has questioned the transparency and accountability of the regulatory process," says the CPD.
The average expenditure increase for the majority consumer base is more than the overall average increase in the electricity tariffs, it notes.
Mr Moazzem opined that the increase in capacity outpaced the growth in electricity consumption significantly.
Although the capacity has surged by double digits, consumption saw only a single-digit growth, he noted.
"This disparity has been widening since 2018, posing a significant challenge with capacity payments becoming a major concern for the government," he told the energy reporters.
During fiscal year 2022-23, the government provided Tk 395 billion as subsidies for electricity, which is almost similar to the capacity payments of the BPDB to power companies, he added.
The power-generation capacity is being bumped up without taking into account the rise in demand, in CPD's view.
In 2020, the average cost of electricity generation was almost half the current cost of generation.
During 'FY2020, the share of gas in fuel mix was 54 per cent whereas it is now 45.6 per cent.
The generation cost has doubled due to the blend of expensive imported LNG in the fuel mix.
Subsidy rationalization could have been done by reducing generation cost instead of hiking tariffs, it points out.
The excess reserve margin did not change significantly as phasing-out plan was not implemented.
In FY2020 the margin was 35 per cent, whereas in FY2023 the reserve margin increased to 37.5 per cent.
Lack of competitive bidding due to use of Quick Enhancement of Electricity and Energy Supply (Special Provision) (Amendment) Act 2010 is also responsible for higher cost of electivity purchase from the private sector.
Despite increasing electricity prices from January to March last year, the Power Development Board reported a loss of Tk 435.39 billion in fiscal 2022-23, necessitating a subsidy of Tk 395.34 billion.
The CPD arranged the media briefing after a couple of weeks of the latest power-tariff hike.
The hike announcement came on February 29, with retrospective effect from February 1, through which retail-level electricity tariffs went up by around 8.50 per cent or by Tk0.70 per unit (1 kilowatt-hour) on average, while the bulk tariff increased by 5.0 per cent or by Tk 0.34 per unit, on an average.
Under new tariff adjustment average retail-level electricity tariffs increased to Tk 8.95 per unit from previous average rate of Tk 8.25 per unit and bulk-level tariffs increased to Tk 7.04 per unit on average from previous Tk 6.70 per unit.
Least-consuming power consumers are counting on an additional Tk 0.28 per unit, while the maximum-consuming clients will have to pay an additional Tk 1.35 per unit.
Electricity tariff for irrigation saw a hike by Tk 0.43 per unit.

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