VAT, tax withdrawal on renewable energy tech a must

VAT and tax on renewable energy technologies should be withdrawn in the next budget, Dean of the Faculty of Chemical and Materials Engineering at Bangladesh University of Engineering and Technology (BUET) Mohammad Tamim tells The Business Post’s Ashraful Islam Raana in an exclusive interview.

Despite record energy and power price hikes, the government has planned record subsidies for these sectors in the FY24 budget. How do you see this?

The upcoming national budget is also the election-year budget, and the government needs a lot of money. As the people are struggling a lot due to high inflation, the government will try to bring some relief through subsidies.

The International Monetary Fund (IMF) is not in favour of withdrawing subsidies entirely. It has recommended withdrawing universal subsidies but said specific subsidies can be given where needed.

Developed countries like Germany, France, England, and Japan also provide subsidies to give their people a sense of relief. However, the government should ensure that prices do not increase after giving subsidies.

In every budget, the Power Division gets a big allocation while that remains small for the Energy Division. What is behind this disparity?

The government is carrying out extensive development in the power sector from a political and populist point of view. Bangladesh Power Development Board (BPDB) and Power Grid Company of Bangladesh (PGCB) are doing a lot of construction in this sector. On the other hand, the institutions under the Energy Division are not working as much.

Petrobangla could do nothing compared to BPDB. Although the state-run agency was founded for oil, gas, and mineral resource exploration, it could not achieve success. Petrobangla’s subsidiary organisation Bapex is also in trouble. Neither of the organisations knows what to do if there is a massive energy crisis in the country. If Petrobangla and Bapex did their job properly, they would have needed more money than the power sector.

Apart from domestic oil and gas exploration, Petrobangla currently has opted for imports as an easy way out, and that is why the Energy Division does not seek big budgetary allocations. If Petrobangla does not want money, why will the government give them? Moreover, Petrobangla is profiting from gas. Maybe that is why it does not need money.

The power crisis could not be solved despite big budgetary allocations. Why is that?

In a word, the import-dependent policy is responsible for our current energy crisis. The crisis started with the Power System Master Plan 2010. The Power System Master Plan 2016 modelled an almost entirely primary fuel import-dependent power sector.

Then there was a public outcry. We said $20 billion or more is needed to import energy every year and questioned where we will get the money. The government then said our reserves are more than $47 billion. It also said export earnings will exceed $100 billion in the next decade and hence there will be no problem. After that, the construction of coal-, liquefied natural gas- (LNG), and furnace oil-based power plants increased keeping in mind primary energy imports.

A few days ago, the government said power generation is being interrupted due to high energy prices in the global market. Now LNG prices have dropped to $10 per MMBtu, and coal prices are back to the previous levels. But we are not able to meet the energy import costs yet.

There is a shortage of 2,000-3,000MW electricity per day. This means we do not have foreign currency (USD) reserves. So our economy has failed here, and the Energy Division too. The government thought this would not happen.

Does the failure of the Energy Division signal a crisis?

There is no doubt that we have import-dependent, energy-based power plants, but how we will supply fuel to those has not been considered. If power plants are installed again, billions of dollars in capacity payment will have to be spent. This means there is a crisis regardless of what we do – run the plants or keep them idle. The best way would be to increase our own energy exploration and production. But there is zero energy exploration initiative currently.

Over 1,000 million cubic feet of gas were added to the national grid in the last decade. Of this, Petrobangla added 300 million cubic feet while the remaining 700 million cubic feet were added by international oil companies.

The days ahead are tougher as gas production from domestic fields continues to decline. If handled efficiently, it would have been possible to increase gas production from domestic fields by 300-400 million cubic feet. But Petrobangla and Bapex failed in this regard.

What should we do now?

To solve the energy crisis, we must first think beyond Bapex. We are not saying that Bapex should not be given any exploration work. But the company was not built as efficiently as it should have been. Despite the government’s Bapex-oriented policy, the company could not do anything in the last two decades.

As a result, we have to approach international oil companies (IOCs). There should be extensive exploration both offshore and onshore. There is no need for a separate allocation in the budget for this.

The government recently allowed US energy giant ExxonMobil to work in the deep sea. What do you think about this?

This is definitely a good sign. For a long time, we have not found good IOCs for offshore oil and gas exploration. ExxonMobil has sound experience, but it remains to be seen how the deal will be done. Also, another American company Chevron is doing some more work onshore, which may be a glimmer of hope.

What should be in the next budget for renewable energy expansion?

The world is now racing towards renewable energy expansion. By burning fossil fuels, we have threatened the existence of the earth. So we must switch to renewable energy to save our planet.

For this, we need to work faster and more efficiently. In the upcoming budget, VAT and tax on renewable energy technologies should be withdrawn. This will result in a rapid expansion of renewable energy, and that will strengthen our future.

What about the new projects in the power sector?

The old projects should be completed first. Maximum caution should be exercised while taking up new projects. It is better not to undertake new projects now.