Desco suffers Tk1,046cr loss in 2 years, fails to pay dividends for first time

Infographic: TBS

The Dhaka Electric Supply Company (Desco) has suffered significant losses for the last two consecutive fiscal years due to disproportionate hikes in bulk and retail electricity tariffs, as well as dollar rate volatility.

Once a fundamentally strong and profitable electricity supplier to retail customers, the state-owned company incurred losses of Tk541 crore in FY23 and Tk505 crore in FY24.

As a result, its retained earnings have turned negative, and for the first time since listing, the firm has been unable to pay any dividends to its shareholders – 67.66% stake held by the government and the rest 32.34% by general investors.

Shareholders reacted sharply, leading to a 5.91% decline in its share price on Tuesday, closing at Tk22.30 each on the Dhaka Stock Exchange (DSE).

According to data provided by Desco's finance department to The Business Standard, electricity prices increased by 29.69% at the wholesale level and by 15.76% at the retail level in the fiscal 2022-23. 

The company posted a net loss of Tk543 crore in FY23, primarily due to a foreign exchange loss of Tk428 crore, which was driven by the disproportionate increase in electricity prices at both wholesale and retail levels and the appreciation of the dollar.

In FY24, with an additional price increase of 5% at the wholesale level and 8% at the retail level, the total price hike reached 36.17% at the wholesale level and 25.02% at the retail level. Furthermore, due to a Tk9.26 appreciation of the dollar, the loss for FY24 amounted to Tk505 crore, including a foreign exchange loss of Tk243 crore.

An official from Desco's finance department, speaking on condition of anonymity, stated that the primary reason for the significant losses was the disproportionate increase in bulk electricity tariffs compared to the prices at the consumer level. Additionally, as the dollar appreciated, the company incurred substantial losses from foreign debt repayments.

"Electricity is sold at a lower price than the rate at which it is purchased in bulk from the Power Development Board, resulting in a loss of Tk0.56 per unit of electricity sold," the official explained.

Desco's data shows that the total cost per unit, including distribution and other charges, is Tk10.85, while the selling price per unit is Tk10.29, resulting in a loss of Tk0.56 per unit sold.

Regarding the electricity price hikes, the company noted that after a 20.08% increase in bulk prices in December 2022, bulk prices were further raised by 8% in January 2023. At the retail level, a total price increase of 15.76% was introduced progressively in January, February, and March 2023, with a 5% hike each time.

A senior Desco official commented, "The financial condition of the company is weakening due to government policy decisions. Since its listing in 2006, the company has not been able to pay any dividends last year for the first time. If the government does not take new measures in the interest of common investors, the scale of losses will continue to grow."

He added, "In consideration of the company's investors in the capital market, the previous government had promised to either adjust electricity prices at the consumer level or reduce bulk electricity prices. However, with the change in government, that initiative has stalled."

According to its annual audited reports for FY24, Desco's electricity supply revenue (net of VAT) stood at Tk6,625 crore, compared to Tk5,372 crore a year ago. After paying for electricity purchases, its distribution revenue was Tk365 crore, up from Tk268 crore the previous year.

Desco earned Tk179 crore from other operating revenue, resulting in a 27% increase in total operating revenue, bringing it to Tk534 crore. The reports also noted that the cost of energy sales declined by 3.62% to Tk325 crore in FY24.

For FY24, Desco reported a net loss of Tk505 crore, attributing the majority of this loss to the depreciation of the taka against the dollar, as the company holds Tk2,748 crore in foreign loans. It incurred a foreign currency fluctuation loss of Tk243 crore, compared to Tk428 crore in the previous fiscal year.

Desco supplies electricity to most parts of the Dhaka North City Corporation. After incurring losses from the fiscal 1998-99 to the fiscal 2001-02, the company posted profits for 20 consecutive years until FY22.

As of 30 June 2024, Desco's customer base had increased to 12.79 lakh, up from 12.40 lakh a year earlier on 30 June 2023. Additionally, Desco's system loss declined to 5.58% as of June 2024, down from 5.72% in the previous fiscal year.