A policy think-tank suggests annulling the energy-sector indemnity law and capacity-payment clause as default capacity payments and fuel-import bills in dollar add to Bangladesh’s forex dearth.
The frugality call comes from a meet held Thursday by the Centre for Policy Dialogue (CPD), based on its research findings that showed that total unpaid capacity payments to Independent Power Producers (IPPs) soared to around Tk 350 billion, equivalent to US$3.50 billion, until last September.
And over the last 12 years, the government has paid around Tk 1.04 trillion as capacity payments to 82 IPPs and 32 rental power plants, the CPD said during the launch of a quarterly brief, titled ‘Currents of Change: Quarterly Brief of the Power & Energy Sector of Bangladesh,’ at its office in Dhaka.
Under the existing contract terms between the government and power plants, even if capacity payment is in domestic currency, it must align with the dollar rate, which the CPD has identified as a major burden of the capacity payment.
Besides, the government opts for using the payment-time exchange rate of the dollar for settling the cost of furnace oil imported by IPPs, instead of the purchase-time rate, which the CPD says is another capacity-payment hurdle.
To get out of ‘capacity-payment trap,’ the CPD suggests that the government skip capacity-payment term in all the future agreements on implementing power plants.
It also suggests the government to “phase out the expensive power plants immediate after expiry of their contract tenures instead of their extensions”.
Capacity payment is a sort of penalty for state-run Bangladesh Power Development Board (BPDB) that pays to plant owners if the government fails to buy a certain portion of power readily available with them.
As per power-purchase agreements, this penalty is calculated on the basis of around 40-percent plant factor of the power plants, including that of the oil-fired rental and quick-rental power plant.
Most of the privately owned power plants, including oil-fired rental-and quick-rental ones, were awarded based on unsolicited offers under the Speedy Supply of Power and Energy (Special Provision) Act 2010.
The law has a provision of immunity to those involved with the quick fix.
The government allowed private entrepreneurs duty-free import of furnace oil to run plants with a 9.0-percent service charge along with import costs as an incentive, which has also been a mounting burden for the BPDB.
The CPD demanded annulling the special law to ensure competitive bidding and establish open market-based services in power and energy sectors.
During its first quarterly brief, the CPD said that the country’s power and energy sector is currently undergoing a crisis period.
State-run Petrobangla and Bangladesh Petroleum Corporation have been facing challenges in paying fuel-import bills, it said.
Petrobangla’s outstanding overdue payments liquefied natural gas (LNG) suppliers have accumulated to approximately US$300 million, it said.
BPC’s overdue payments to international oil suppliers increased to US$ 670 million as of September 30, 2023, it said.
Out of the BPC’s total unpaid overdue payments US$ 260 million goes to the International Islamic Trade Finance Corporation (ITFC), and US$ 410 million to other suppliers, the CPD noted.
The CPD Power and Energy Study has published the first quarterly brief for the first quarter of FY2024 (July-September 2023), and it will be published on a regular quarterly basis, it said.
The quarterly will highlight issues related to the overall sectoral performance from the lens of energy transition in Bangladesh.
During the Q1 of FY2024, more fossil fuel-based generation capacity has been added to the grid despite the power sector being overburdened with an over-generation capacity of as high as 52 per cent, as of 30 September 2023, said CPD.
Transmission and distribution failure was also a contributing factor to power outages during July-September of FY2024 along with energy shortage.
“Although the government has been working on expanding renewable energy generation, the progress on the completion of power plants scheduled to operate commercially in 2023 is not promising,” says the CPD about energy-transition laxity.
By September 2023, at least 260 megawatts would have been added to the national grid if the renewable power plants had started timely operations.
CPD’s Research team comprised research director Dr Khondaker Golam Moazzem, research associate Helen Mashiyat Preoty, programme associate Jebunnesa and research intern Faisal Quaiyyum.