Record subsidy proposed for power, energy

The government has proposed a record increase in subsidies for the power sector in the draft FY24 budget despite raising gas, fuel, and electricity prices frequently in recent months, which experts say is contradictory.

It has estimated an allocation of Tk 33,775 crore for the power and energy sectors in the upcoming national budget, which is Tk 7,700 crore more than FY23.

At the same time, a subsidy of Tk 25,000 crore has been proposed for the power sector, a Tk 6,000 crore increase from the current financial year.

The government has been increasing gas, fuel, and electricity prices frequently in recent months to withdraw subsidies as part of meeting the conditions for the International Monetary Fund’s (IMF) $4.7 billion loan programme.

Experts see the IMF’s subsidy withdrawal condition as positive but said the government’s move to tackle fiscal pressure by increasing energy prices will create a huge burden on consumers.

Professor M Shamsul Alam, senior vice-president of Consumers Association of Bangladesh (CAB), said it is not possible to remove subsidies all at once.

“We have said unnecessary expenditures and corruption in various segments of the power and energy sectors should be stopped,” he said.

He also said expensive rental and quick rental power plants should be phased out while the contracts for the idle power plants, for which capacity payments are being made, will have to be evaluated.

Traders should stop paying commission on fuel oil imports as well, added Shamsul.

An analysis of the budgets of the last few years shows a large portion of the allocation for the power, energy and mineral resources ministry is spent on the Power Division while the allocation for the Energy and Mineral Resources Division is too small.

There is currently an extreme energy shortage in the country. In the current fiscal year, Tk 26,066 crore was allocated for the power and energy sectors. Of this, Tk 1,798 crore was for the Energy and Mineral Resources Division.

In FY22, the allocation was Tk 27,484 crore for the power and energy sectors. Of that, Tk 1,800 crore was allocated for the Energy and Mineral Resources Division.

The allocation for oil and gas exploration is disappointing, former Bangladesh University of Engineering and Technology professor Ijaz Hossain told The Business Post.

“The tendency to not spend on energy exploration is putting us at constant risk. The government should understand that the present crisis is not of electricity but of energy. If energy is guaranteed, electricity will be secured,” he explained.

According to the draft budget for FY24, the Finance Division has proposed an allocation of around Tk 4,000 crore more for food, agriculture, and power than the current financial year.

An official of the Power Division told The Business Post most of the additional subsidy allocation in the upcoming budget will be spent on paying the previous year’s arrears.

Because of the increase in the prices of oil, gas, and coal in the world market, the actual demand in these sectors has increased more than the subsidy target, he said.

Sources in the Finance Division say Tk 105,000 crore has been proposed in subsidy in FY24 to deal with the current economic crisis. This is about Tk 22,255 crore more than the current financial year. Of the total allocation, Tk 25,000 crore is for the power sector.

The Finance Division said Tk 66,825 crore was spent on subsidies in total in FY22. The target expenditure in FY23 was set at Tk 82,745 crore.

But due to the impacts of the Russia-Ukraine war, commodity prices rose abnormally in the global market, resulting in the increase in the total subsidy to Tk 99,557 crore in the revised FY23 budget. Of this, Tk 6,000 crore will go to the power sector.

Power Division and Finance Division officials said while formulating the current budget, the import price of each product was calculated at Tk 87 per USD. But the dollar price later increased to Tk 106 in the money market and Tk 115 in the kerb market. That is why the increase in import costs will have effects on subsidies.