12 companies putting economic burden on Bangladesh power sector

Top twelve private companies in Bangladesh drawing huge capacity charges, putting significant economic burden on power sector

According to a recent report published by Bangladesh Working Group on External Debt (BWGED), the top 12 companies with installed capacity of over 6500 MW received more than BDT 8,000 crore as capacity charge, which is 66.4% of the total capacity charge paid in FY 2020-2021. Summit Group topped the list followed by United Group, Bangla Trac, China National Machinery Import and Export Corporation (CMC) and Orion Group.

BPDB paid over BDT 13,000 crore capacity charge to 37 private companies in FY 2020-2021. This amount was 21.2% higher than last year. As a result, BPDB’s annual losses reached over BDT 11,000 crore in FY 2020-21 — an increase of 54.5% from BDT 7,450 crore in FY 2019-20, the report reveals.

The existing situation in Bangladesh is very bleak as more than one-third of the country’s power generation capacity is not being used, creating stranded generation assets that are paid to sit idle. Moreover, the government continues to pay capacity payments to the companies, putting a significant economic burden on the power sector.

The BWGED report on excess capacity and capacity charge highlights that if Bangladesh continues spending millions constructing new fossil fuel power plants that are not needed, it will drive power costs up even more and weigh down the Bangladesh economy.

The report suggests that the target plant load factor (PLF) should be established at minimum 70% before any new power plants are allowed to begin or continue construction. The Power Purchase Agreements (PPA) to build fossil fuel plants were based on 80% load factors. Unutilized power generation with current plant load factors of only 41.88% provides no benefit to Bangladesh consumers, only increased costs.

The government had to provide over BDT 11,000 crore as a repayable subsidy to BPDB, which was 58.3% higher than the earlier year. Two consecutive years with annual losses of around BDT 10 thousand crore is an alarming trend that caused BPDB to become a heavy burden on the Bangladesh economy at a time when resources were needed to address the unexpected health care emergency caused by Covid 19 pandemic.

Hasan Mehedi, member secretary of BWGED and one of the authors of the report mentions, “installed capacity reached more than 22,000 MW in FY 2020-21 which was 8.1% higher than the previous year. Still, over 8,000 MW of capacity remains unused this year. On the other hand, electricity generation was also increased to 80,422.54 gWh in FY 2020-21 which was 12.6% higher than FY 2019-20”.

“Bangladesh power plants ran for only 153 days while they sat idle and unutilized for 212 days in FY 2020-21.”

According to the report, the maximum demand of power was 13,792 MW which was 8.3% higher than FY 2019-20. However due to the additional demand of power, the rate of idle power plants decreased only 0.1% from last year — virtually unchanged.

“The tendency is that the power development board is paying higher yearly, which causes higher costs.”

The report states that although paying such huge capacity charges the Government continues to approve an additional 46 power plants with installed capacity of 49,392 MW to be constructed by 2030. Many of these are gas plants even though Petrobangla can supply only 55.3% of the current demand for fossil gas for power generation.

Ismail Ali, another author of the report mentions, “there is no Standard operating procedure to determine capacity charge. A bid was floated in 2012 to install Bibiyana-II power plant. The determined capacity charge of the power plant was excessive as only one company (Summit Group) participated in the bidding process. Now, the Power Division is paying according to that power plant, although installation cost has been reduced almost 50% in the last one decade”.

On the other hand, the spot market price volatility of LNG prompted BPDB to pay substantially higher fuel prices in 2021. This way, LNG has already put an unsustainable strain on the national economy and will generate greenhouse gases as a result.

LNG costs reached record high levels in 2021 forcing BPDB to pay much higher fuel costs. The report highlights that excessive dependency on costly LNG will not only emit increased greenhouse gases but also create unbearable pressure on the national economy.

The report says that as installed capacity supersedes the demand risking huge megawatts of power to become stranded assets by 2025 and 2030, dragging down the Bangladesh economy.

Report predicts that BPDB could face huge losses as high as BDT 26,000 crore in FY 2020-2021 to compensate for the improvident installation plan in the power sector, which further risks increasing price of power at the consumer’s end.

“There is no economic justification for continuation or extension of the tenure for fossil-based plants due to the already existing overcapacity of power. We need to shut down the loss-making power plants to avoid further record-setting losses” emphasises Mehedi.

“Recently, the tenancy of five rental power plants have been extended. This trend will create bad examples in the power sector. So, the renewal of PPA for rental power plants must be stopped. There should not be any capacity charge if BPDB is obliged to extend the tenures”, Ismail Ali suggested.

It is much more sound fiscal management to retire unutilized plants, adopt a No Electricity No Pay policy and stop the costly construction of new fossil fuel plants that are not needed. This will allow electricity usage to catch up to capacity and more efficiently utilise existing assets and stop an ever-increasing weight on the Bangladesh economy caused by the power sector.

Press release

BWGED

Dhaka, March 3, 2022