To reduce subsidies from Tk 56,000 crore to Tk 41,000 crore, the Bangladesh Energy Regulatory Commission (BERC) increased the bulk electricity tariff by 19.85 per cent, or Tk 1.39 per unit, raising it from Tk 7.00 per kWh to Tk 8.39 per kWh. To further reduce subsidies, it is likely that BERC will continue to increase electricity tariffs. Moreover, tariffs have been raised multiple times in the past. For instance, the average retail electricity tariff was increased by 3.2, 5.4, 4.1, and 10.0 per cent in 2015, 2017, 2020, and 2023, respectively. This raises an obvious question: has electricity pricing in Bangladesh entered an endless upward trajectory? More importantly, is there a rational basis to expect that tariffs should instead decline?
According to expert opinion, the government has been highly proactive in justifying price increases by citing rising costs. Unfortunately, it has not demonstrated equal commitment to identifying and implementing measures to reduce costs with the aim of lowering prices. In this context, two critical questions arise: (1) are there realistic opportunities for cost reduction? and (2) how can the government be incentivised to seriously pursue cost reductions for the benefit of consumers? Furthermore, why have electricity prices not followed a downward trajectory, as observed in the telecommunications sector after market-oriented reforms?
In the 1980s, two major utility sectors in Bangladesh-telecommunications and electricity-were state-owned monopolies. It was widely argued that limited scale, constrained government financing capacity, lack of competition, and corruption within state monopolies deprived the country of high-quality utility services at affordable prices. Consequently, the government adopted market-oriented reforms in these sectors.
Despite some initial setbacks, reforms in the telecommunications sector have led to lower consumer prices, improved service quality, and expanded access. Notably, the government now captures more than 50 per cent of the sector's revenue. This success invites an important question: how was this achieved? First, the telecom sector benefits significantly from economies of scale and scope; as demand increases, the per-unit cost of service delivery declines. Second, the sector has experienced dynamic efficiency gains driven by continuous technological advancements. Third, competition has attracted private investment without requiring the government to guarantee demand. Finally, private operators have significantly outperformed state-owned entities such as BTCL and Teletalk. This naturally leads to the question: why has the power sector failed to replicate similar success?
Like telecommunications, the electricity sector-across generation, transmission, and distribution-also benefits from economies of scale and dynamic efficiency. For example, increasing the size of power plants typically reduces per-unit production costs. Similarly, the marginal cost of electricity transmission declines as demand grows, provided capacity limits are not exceeded. Even capacity expansion costs exhibit declining trends. For instance, upgrading conductors-costing only 10 to 15 per cent of the original capital investment-can increase transmission capacity by 30 to 40 per cent. Additional efficiencies can be achieved by installing extra circuits on existing transmission towers. Similar scale advantages exist in distribution networks as well. Furthermore, all segments benefit from technological progress. For example, the energy conversion efficiency of thermal power plants has improved by 40 to 50 per cent over the past 25 years.
Given these characteristics, it is reasonable to expect that electricity tariffs should decrease over time, similar to telecommunications. Indeed, the sector could potentially generate revenue for the government rather than requiring subsidies. However, the reality has been the opposite.
One explanation often cited is the rising cost of imported fuel, which constitutes a significant share of operating expenses. While this factor is relevant, fuel imports are not new and therefore cannot fully explain the persistent upward trend in tariffs. Another issue relates to overcapacity and capacity payments. Why has the government been unable to attract private investment without offering guaranteed capacity payments, as seen in the telecom sector? Does this reflect incompetence, lack of integrity, or both? Similarly, why has the country experienced persistent overcapacity?
It appears that three major cost components shape electricity tariffs in Bangladesh: legitimate operational and capital costs, costs arising from inefficiency, and costs associated with corruption. As a result, instead of benefiting from declining tariffs, consumers face a continuous increase in electricity prices. Alarmingly, this not only burdens households but also exerts a drag on the broader economy. Addressing the rising cost of electricity delivery should therefore be treated as a national priority.
Given the potential for dynamic efficiency and economies of scale, a rational policy goal would be to reduce the cost of electricity production and delivery as demand grows. Achieving this, however, requires significant improvements in institutional competence and the elimination of corrupt practices. This does not imply that private investors should not earn profits. It is worth noting that despite substantial profits earned by some private operators, the telecom sector has successfully delivered higher-quality services at lower prices. Nor should it be assumed that government ownership is inherently superior; if that were the case, state-owned telecom operators would not continue to struggle with poor performance and weak financial health.
As a starting point, BERC should publish a detailed breakdown of electricity costs, clearly identifying the extent to which inefficiency and corruption contribute to overall pricing. Without diagnosing the root causes, meaningful reform is unlikely. In addition, BERC should quantify the gains achieved from efficiency improvements and economies of scale, and establish clear targets for further progress. Furthermore, a strategic plan should be developed to enhance local value addition in power generation, transmission, and distribution through the development of domestic design, engineering, and innovation capabilities.
Rather than viewing tariff increases solely as acts of extraction, it is time to ensure transparency in electricity pricing for the citizens-the ultimate owners of the system-and to articulate a credible roadmap for reducing tariffs by leveraging efficiency gains, economies of scale, and local value creation, while eliminating inefficiency and corruption.
M. Rokonuzzaman, Ph.D, academic, researcher and activist in technology, innovation and policy. zaman.rokon.bd@gmail.com