Subsidy volume to shrink next fiscal

The government's allocation on account of subsidy to the power and energy sector is set to decline by 30.11 per cent to Tk 94 billion in the next fiscal year (FY) 2014-15 over that of the previous year, a senior energy ministry official said Saturday.
Stable fuel price in the international market coupled with import of furnace oil by the private sector for generating electricity would help reduce substantially the subsidy requirement in the energy sub-sector by 69.81 per cent to Tk 24 billion, he said.
Despite the hike in retail level electricity tariff by average 6.96 per cent from March 1 last, the government's subsidy to the power sector is set to increase by 16.66 per cent to Tk 70 billion in FY 2014-15.
Overall allocation on account of subsidy to power and energy sector might be around 36.08 per cent of the government's total subsidy of Tk 260.53 billion earmarked for FY 2014-15.
In FY 2013-14 the government had allocated Tk 134.50 billion for power and energy sector combined, which was 41.31 per cent of the total subsidy requirement, said the official.
Industry insiders said that the government's mounting dependency on high-cost oil-fired power plants might be the cause of higher subsidy allocation in power sector even after a hike in electricity tariff in the current FY.
The country's average electricity tariff is now around Tk 6.15 per unit (1 kilowatt-hour), said sources.
Installation of oil-fired power plants including those of rental and quick rentals over the past several years has pushed the country's average electricity generation cost to Tk 6.7 per unit during the previous fiscal year (FY) 2013 from Tk 2.62 per unit of the FY 2011.
The government's subsidy requirement to energy sector would decrease as the ministry of finance has cleared all liabilities of state-owned Bangladesh Petroleum Corporation (BPC) to three state-owned commercial banks (SCBs) -- Sonali Bank, Janata Bank and Agrani Bank -- through issuance of special bonds worth Tk 59 billion in July last year.
The three banks do no longer have any outstanding funded loans with the BPC with the issuance of treasury bonds as the government is now committed to clear off its fiscal burden of the BPC.
It was a great relief for the state-run corporation as it was not only paying the principal amounts but also large interest on the same, which used to be cleared regularly from subsidy allocation, said the BPC official.
With the issuance of the government bonds, largely at the insistence of the International Monetary Fund (IMF), the beleaguered state-owned banks have not much outstanding loans in the name of the BPC apart from regular ones, the official said.
A stable oil prices in international market was also helping the government cut subsidy in energy sector, said officials.
BPC usually purchases fuel oils at higher rates from international market and sells at lower rate in domestic market resulting in loss out of its business operation.
Besides, BPC would have to import less fuel for privately owned oil-fired power plants, said a senior BPC official.
He said the government is set to allow import of furnace oil by private sector soon.
Currently BPC has been importing fuel for most of the country's oil-fired power plants.
More than two dozen private oil-fired power plant owners have sought permission from the government to import oil for generating electricity of their own, he said.
These privately owned oil-fired power plants, having the total electricity generation capacity of around 2,000 megawatts (MW), is interested to import furnace oil and diesel of their own or their nominated companies to run their power plants.
When contacted, energy expert Professor Badrul Imam stressed on installing low-cost base load power plant to reduce electricity tariff and cut the burden of subsidy.
He was also critical of the government's increasing dependency on oil-fired power plants to reduce the country's electricity crisis.
Minor part of electricity supplier is taking major portion of government allocation, said Mr Imam, who also teaches in Geography Department in Dhaka University.
"It is unfortunate that we are paying higher but could not come out of electricity load-shedding," he lamented.