Gas price for power plants hiked, electricity to follow suit

The government has raised the gas price by 75 paisa per cubic metre for power generation, resulting in a 5.36% increase for government, independent power producers (IPPs), and rental power plants, and a 2.50% increase for captive power plants.

The power, energy, and mineral resources ministry issued a notification on Tuesday (27 February), re-fixing the tariffs, which stated that the new price bill will be effective in February.

This price adjustment will enable Petrobangla, the state-owned oil, gas, and mineral corporation, to earn an additional Tk1,035 crore in revenue annually, according to sources at the Energy Division.

Earlier in the day, the state minister for power, energy, and mineral resources Nasrul Hamid said the electricity price per unit will be increased by 40 to 70 paisa from March.

He also stated that gas prices will not increase for industries and households.

Furthermore, the state minister said the price of oil will be adjusted every month from March, considering the international market.

According to Tuesday's notification, the price of gas per cubic metre has been fixed at Tk14.75 for government, IPPs, and rental power plants.

In January 2023, the gas price was fixed at Tk14. Additionally, the price of gas for captive power generation (captive, small, and commercial power plants) has been set at Tk30.75, up from Tk30 per cubic metre.

"Electricity prices are being raised due to increases in coal and dollar prices. This price adjustment will take effect in the first week of March. Electricity subsidies will be adjusted over the next three years," he said while speaking to journalists at his ministry.

He added that for consumers using up to 50 units, the price will increase by 34 paisa per unit, while those using more than 50 units will see an increase of 34 to 70 paisa according to their consumption slabs.

According to sources at the energy division, increasing the price of gas for power generation will boost Petrobangla's income by Tk86.25 crore per month.

In a separate statement issued later in the day, the Energy Division provided an explanation for the gas price hike, stating that the government has re-fixed the tariffs in the interests of the people.

According to the Energy Division, there are eight categories of gas consumers in the country. Of these, 37% is used in power generation, 23% in industry, 18% in captive power, 10% in households, 7% in fertiliser production, 4% in CNG, and 1% in commercial and tea industries.

Due to the disparity between production, import, supply price, and selling price of natural gas, the government will have to subsidise Tk6,570.54 crore in this sector in the fiscal 2023-24.

As a result of this price adjustment, it may be possible to limit the existing subsidy to Tk6,000 crore considering the current market price of LNG and the dollar exchange rate, they added.

Price adjustments remain unchanged in the industrial, household, fertiliser manufacturing, CNG, commercial, and tea industries.

According to Petrobangla, gas is supplied to 71 power plants in the country, both public and private. The daily demand of these power plants is 2,316 cubic feet. However, due to the shutdown of various power plants, the gas supply does not meet the regular demand. According to Petrobangla's February 27 gas supply report, 861 cubic feet of gas have been supplied to power plants, with 34 power stations closed on that day.

An independent power plant entrepreneur said, on condition of anonymity, that the increase in gas prices will drive up the cost of power generation. Currently, 45% of the total electricity is generated from gas based power plants.

"As a result, if the gas price is increased by more than 5%, the production cost will also increase at the same rate. For this reason, the government should increase the price of electricity quickly," he demanded.

Energy expert and advisor of the Consumers Association of Bangladesh Shamsul Alam told TBS that the electricity shortage is increasing. Again, the price of raw materials for power generation is also increasing. If the price of LNG and coal increases in the future, the adjustment will be made again.

"It will also increase the price of electricity. If this continues, at some point the price of electricity produced in the country will be higher than the price of imported electricity. Later, the import of electricity will also increase," he expressed concern.

Jahangir Alamin, former president of the Bangladesh Textile Mills Association, told TBS that any price increase at any stage leads to an escalation in production costs. An uptick in the price of gas for electricity will subsequently raise the production costs of factories. However, he highlighted a more pressing concern: the lack of a guaranteed uninterrupted gas supply. Consequently, factories may face challenges in producing electricity as required.

"Now that the price has been increased, if the gas supply is not improved, it will further intensify losses, posing a new challenge for businesses. Any future increase in electricity prices will only add to the pressure," he expressed concern.

Petrobangla Chairman Zanendra Nath Sarkar told TBS that currently, both imported LNG and domestically produced gas are supplied together.

He emphasised that the government agency is incurring substantial losses. To mitigate these losses, the price of gas supplied to power generation has been raised. Despite the recent price hike, the losses cannot be fully offset immediately, but adjustments will be made gradually.

Faisal Khan, president of the Bangladesh Independent Power Producers Association, told TBS, "We welcome the adjustment in electricity and gas tariffs to reduce reliance on subsidies."