Why should the general public bear the burden of capability costs?

The federal government has determined to extend electrical energy costs 4 instances a yr over the following three years to withdraw all subsidies from the ability sector. At current, the wholesale worth of electrical energy is Tk 7.04 per unit on common. If the subsidies are withdrawn, this charge must be raised to greater than Tk 12. In that case, the typical electrical energy worth on the client degree, which is Tk 8.95 now, will nearly double to Tk 15.

This choice has come at a time when individuals are already underneath lots of strain as a result of elevated costs of each day commodities. Final yr, fuel costs had been elevated by a mean of 82 % in January and electrical energy costs had been elevated by a mean of 5 % in three phases between January and March, contributing to inflation. In March this yr, electrical energy costs had been once more raised by Tk 0.34 to Tk 0.70 per unit.

If this choice is carried out, this may certainly add to client spending, extra so due to the elevated manufacturing prices of all the pieces that requires electrical energy for manufacturing. As well as, these worth hikes will have an effect on electrical energy payments in residential areas, irrigation, industries, training, spiritual establishments and healthcare amenities, amongst others. An increase in irrigation prices will impression agriculture as greater manufacturing prices will in flip increase the costs of all agricultural merchandise, together with rice. This may have a ripple impact on the financial system, and consequently, the lives of low and fixed-income individuals will probably be much more adversely impacted.

It’s being argued that the worth hike is required to cut back subsidies within the energy and vitality sectors to adjust to IMF conditionalities. The query is: why do the subsidies need to be paid within the first place, and the place does the subsidy cash go? Furthermore, rising costs is just not the one option to cut back subsidies—they may also be lowered via cost-cutting. Why is the federal government then solely considering rising costs, slightly than decreasing prices by stopping irregularities, corruption and waste?

To begin with, subsidies are required as a result of Bangladesh Energy Improvement Board (BPDB) has to purchase energy at excessive costs from privately owned energy vegetation run by imported and costly liquid gasoline. The buying price from the non-public sector is far greater than the price of producing energy from the general public sector. When energy technology within the non-public sector will increase, the typical price of energy technology within the nation will increase. In keeping with BPDB annual stories, the typical price of energy technology per unit was Tk 6.61 in 2020-2021, Tk 8.84 in 2021-2022, and Tk 11.33 in 2022-2023. In 2022-23, the technology price of BPDB’s personal energy plant was Tk 7.63 per unit, and the price of different state-owned energy vegetation was Tk 6.85. Alternatively, the typical technology price was Tk 14.62 for unbiased energy producers (IPPs) and Tk 12.53 for rental energy vegetation. Only a yr earlier, IPP and rental electrical energy technology price was Tk 11.55 and Tk 9.80, respectively (BPDB Annual Report 2021-22, web page 96; PDB Annual Report, 2022-23, web page 98). Consequently, the BPDB is incurring losses by buying energy from IPPs and rental energy vegetation, and the federal government has to cowl these losses with subsidies.

In keeping with a report in Bonik Barta, the revised finances for the 2023-24 fiscal yr estimated the ability sector subsidies to be Tk 39,406 crore. Alternatively, the capability cost cost has been estimated at greater than Tk 32,000 crore—round 81 % of the subsidies given to the ability sector. In FY2022-23, capability costs had been paid to the tune of Tk 26,000 crore, which was 65.76 % of the full subsidies given to the ability sector.

Now, we all know that a big a part of the ability technology capability stays unused all year long. However even when the ability is just not bought, as per the settlement, BPDB as the only real purchaser of energy has to pay the capability costs to the ability vegetation. Final yr, capability costs of greater than Tk 26,000 crore had been paid when 41 % of capability remained unused. Capability costs have price Bangladesh greater than Tk 1 lakh crore within the final 14 years. Yearly, with the rise in energy technology capability within the non-public sector, the quantity of capability costs maintain rising and the losses incurred by the BPDB rise in tandem. To scale back these losses, electrical energy costs have been elevated 12 instances on the wholesale degree and 14 instances on the retail degree during the last decade and a half. But, the losses and subsidies haven’t decreased; slightly, strain has been created to extend the costs of electrical energy repeatedly.

In the meantime, regardless of the underutilisation of the present energy technology capability, new capability addition has not stopped. For instance, whereas the capability of the present gas-based energy vegetation can’t be utilised totally as a consequence of lack of fuel, new gas-based energy vegetation are being constructed. Lately, two gas-based energy vegetation of Summit and Distinctive teams began working in Meghnaghat, Narayanganj with a complete capability of 1,167 MW. Apart from this, there’s a 718 MW Reliance energy plant ready to start out working. All these will enhance BPDB’s prices much more.

The actual drawback in Bangladesh’s energy and vitality sectors is the implementation of energy and vitality tasks one after one other, with out aggressive bidding, underneath the umbrella of the Fast Enhancement of Electrical energy and Power Provide (Particular Provision) Act, 2010, for the good thing about numerous home and international traders—with none accountability. Consequently, on the one hand, energy vegetation with extra capability have been constructed with the availability of capability cost. Alternatively, energy technology has turn out to be extra depending on imported main fuels like LNG, oil and coal. In the meantime, due significance has not been given to the exploration and extraction of home fuel reserves, in addition to renewables. With out addressing the basis causes, irrespective of how a lot the worth of electrical energy is elevated, the disaster within the energy and vitality sectors won’t be solved. Moderately, the nation’s financial disaster will deepen and folks will endure much more.

Kallol Mustafa is an engineer and author who focuses on energy, vitality, atmosphere and growth economics. He might be reached at kallol_mustafa@yahoo.com.

Views expressed within the article are the creator’s personal

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