The Centre for Policy Dialogue (CPD) has recommended the government gradually get out of the vicious cycle of capacity payment made to independent power producers (IPPs) as well as quick rentals and rentals (QRRs) by signing or renewing agreements under the “no electricity, no pay” system.
Power subsidy increases as extra capacity payments are made to IPPs and QRRs due to the government’s structural weakness while consumers have to bear the brunt as they pay higher electricity tariffs, the think tank said.
In its recommendations for the FY24 budget, it proposed electricity subsidy rationalisation by reducing the burden of capacity payment as part of meeting the International Monetary Fund (IMF) loan conditions. It also proposed not increasing electricity prices for consumers.
The recommendations were unveiled at a programme at the CPD office in the capital on Monday. Addressing the event, CPD Research Director Khondaker Golam Moazzem said electricity subsidy is a matter that the government should deal with.
The government should not impose extra burden on consumers to reduce subsidy, he said.
“As the government is paying extra charges to IPPs and QRRs due to its structural weakness, why should the burden fall on consumers?” he said, adding the government should do away with the capacity payment system.
The CPD also suggested introducing a market-based price-setting mechanism in the power and energy sector under Bangladesh Petroleum Corporation (BPC) where prices can be monitored and adjusted monthly according to the global energy market.
Moazzem said it seems BPC is now making profits as local energy prices have gone up but prices have declined in the global market.
“Market-based pricing has to be introduced, and we should get rid of the mentality of imposing the burden of additional costs on consumers,” he said.
The CPD said the BPC sought a subsidy of Tk 19,358 crore, which was not granted as the government said the corporation is making profits from petroleum products, including diesel, after the recent tariff adjustments at the retail level.
Stressing subsidy rationalisation and the “no electricity, no pay” system, CPD Executive Director Fahmida Khatun said the government should pay attention to gas extraction, which will help reduce energy costs and the subsidy burden.
“Also, this will help us move towards clean energy,” she said.
Fahmida added that cash assistance provided for the export-oriented sector is also a type of subsidy.
“After graduating from the least developed country (LDC) status in 2026, Bangladesh will no longer be able to provide such assistance. That is why it should start reducing the assistance from now.”
The government should also consider whether it can increase incentives for expanding non-garment sectors and reaching new markets as part of promoting export diversification, she said.
The CPD said the government provided Tk 9,000 crore in incentives for the export sector, including jute, in FY22.