Outages mark budget session as minister highlights power dev

Finance Minister AHM Mustafa Kamal has praised the power and energy sectors’ development during his FY24 budget speech. But the irony is that during the budget session on Thursday afternoon, frequent power cuts were reported in different parts of the country, including the capital.

Providing affordable gas and electricity for industries, commercial units, and households has become the biggest challenge for the government. The authorities are also having a difficult time supplying energy to power plants.

Payra and Rampal, the two largest power stations in the country, have been shut down as the forex crunch has impeded coal imports.

The power and energy sectors are under high fiscal pressure due to private power plants’ bills, liquefied natural gas (LNG) and fuel imports, and gas bill arrears to be paid to international oil companies working in the country.

In this situation, Finance Minister AHM Mustafa Kamal highlighted the power and energy sectors’ development in his budget speech. In addition to setting up more power plants based on imported fuel, he announced plans to import 9,000MW electricity from neighbouring countries by 2041.

“The finance minister said nothing about supplying uninterrupted energy and power at cheap and affordable rates, combatting soaring inflation, and increasing domestic oil and gas exploration,” energy expert Professor M Shamsul Alam told The Business Post.

He said the power and energy budget was not people-oriented, adding the government was on the path of increasing its expenditure, which would only widen the foreign debt net.

The finance minister announced a record allocation of Tk 34,819 crore for power, energy and mineral resources in the budget, which is around Tk 9,000 crore more than the current fiscal year. He said this huge money would be spent on constructing power plants and transmission lines.

Kamal said energy and power prices have been hiked to meet the IMF conditions. “However, to pay the previous dues, huge subsidies will be given in the power sector in the new financial year.”

Specific duty on fuel oil

The biggest change in the FY24 budget concerns the fuel oil import tax. Currently, the government has 32 per cent tax on fuel, which includes 10 per cent customs duty, 15 per cent VAT, 2 per cent advance income tax, and 5 per cent advance tax.

Kamal said by cancelling these taxes, a specific duty of Tk 13.75 per litre has been imposed on 11 types of petroleum products. Besides, a specific duty of Tk 1,117 on per barrel crude oil and Tk 9,108 on per tonne of furnace oil has been imposed.

These 13 types of petroleum products include kerosene, diesel, motor spirit, jet fuel, naphtha, and furnace oil. The finance minister said imposing the specific duty will have a positive impact on the retail prices of fuel oil.

A senior official of Bangladesh Petroleum Corporation told The Business Post it is clear from the finance minister's statement that VAT has been removed at the import level.

“But it is not clear whether VAT has been removed at the distribution level. If VAT is not removed at the consumer level, they will not get any benefit.”

Imran Karim, former president of Bangladesh Independent Power Producers’ Association, said, “We had to pay various taxes of up to 32 per cent for importing furnace oil. Now it has come down to around 20 per cent, which is good.”

RPP capacity payment to be phased out

Kamal announced in his budget speech the phase-out of capacity payment for rental power plants.

He said the government will phase this out by removing the minimum capacity payment clause at the time of contract renewal of the existing rental power plants, adding this will reduce supply costs and increase financial stability in the power sector.

Fuel prices to be adjusted in Sept

According to the IMF conditions, the government wants to remove subsidies from the power and energy sectors.

The finance minister said in the budget speech that as the first initiative, fuel oil prices will be adjusted with the international market from September this year.

He said electricity prices have already been increased to reduce subsidies, adding the work on preparing the roadmap for formula-based permanent price adjustment in the energy sector is underway.

9,000MW power import plan

The finance minister said they are also procuring electricity through regional and sub-regional diplomatic relations.

He said there are plans to import about 9,000MW electricity from neighbouring countries by 2041. “Most of that will be imported from India while some will come from Nepal and Bhutan.”

Besides, Kamal said 33 power plants with a combined capacity of 12,094MW are under construction as part of public-private joint ventures.

“Besides, the contracts for building 17 power plants with a total capacity of 2,416MW are under process. The government has also planned to set up 34 more power plants with a total capacity of 10,443MW.”