Power sector crisis will deepen without urgent reforms: Task force report

Bangladesh's power sector has long remained dependent on a few companies, as weak government policies have allowed certain firms to repeatedly win power project tenders without competition, according to a report by the Task Force on Economic Reforms.

The report states that the terms of power sector terminal construction and LNG regasification contracts have often been determined through the intervention of high-level individuals.

Submitted to Chief Adviser Muhammad Yunus on 30 January, the report warns that excessive reliance on certain companies has put energy security at risk, forcing the government to accept any technological failures.

The report highlights that irregularities and corruption in the power sector have not only caused financial losses but also imposed additional costs on consumers. It warns that if the government fails to implement effective reforms, the country's power crisis will deepen in the coming days.

According to the Task Force on Economic Reforms, nearly 100 power plants were approved without tenders under special provisions over the past 14 years, leading to excessive project costs and prolonged deadlines.

It also alleges that the Bangladesh Power Development Board (BPDB) and related agencies were involved in corruption in purchasing substandard equipment and the land acquisition process.

The task force found evidence of political influence in top-level appointments within the power sector. It noted that key positions were given to individuals close to former prime minister Sheikh Hasina, where political loyalty was prioritised over merit.

Before the task force was formed, experts in the country stated that those who have ruined the power sector have also destabilised the financial sector.

The task force report notes that while the Quick Enhancement of Electricity and Energy Supply (Special Provision) Act 2010 was introduced to rapidly increase power generation, it bypassed standard procurement rules. As a result, the government was able to sign contracts with specific companies without competition, undermining transparency and accountability.

In 2023, amendments to the Bangladesh Energy Regulatory Commission (BERC) Act allowed the government to take direct control over setting electricity and energy tariffs.

As of June 2023, 82 independent power producers and 32 rental power plants had received nearly Tk1 trillion in capacity charges, despite many projects failing to deliver. Among the top 23 power companies, the biggest beneficiaries were Summit Group (Tk176.1 billion), Aggreko International (Tk83.1 billion), and United Group (Tk77.6 billion).

BPDB's massive losses and financial crisis

The task force report says lack of transparency in power contracts, inefficient management, and corruption have pushed the Bangladesh Power Development Board (BPDB) into severe financial distress. BPDB's operating losses stood at Tk6,208 crore in FY2017-18, which surged to Tk44,291 crore in FY2022-23, marking a 60.85% increase in just five years.

Current state of the power sector

The task force report acknowledges that Bangladesh's power sector has seen significant growth over the past few decades. In FY2023-24, the country's total installed power generation capacity reached 26,844 MW, reflecting a 7.76% increase from the previous year.

Currently, the primary fuel source for electricity generation is natural gas (47.8%), followed by furnace oil (26.5%), coal (14.2%), and diesel (3.9%), while 4.8% of electricity is imported. Renewable energy contributes 1.9%, and hydropower accounts for 0.9%.

Despite the increase in generation capacity, many power plants remain underutilised, leaving 11,680 MW of excess capacity unused.

Key challenges in the power sector

The report highlights several challenges facing Bangladesh's power sector. One of the primary concerns is excess capacity – despite an increase in generation capacity, a significant portion remains unused due to fuel shortages and inefficiencies.

Another major challenge is weak management. The Bangladesh Power Development Board (BPDB) has been incurring substantial operating losses every year. In FY2022-23, BPDB's losses reached Tk4,429.1 billion, a 60.85% increase from the previous year. The task force attributes this primarily to management inefficiencies.

The report also identifies the slow adoption of renewable energy as a critical issue. While the government has set a target for 40% of total energy to come from renewables by 2041, as of 2024, renewables contribute only 4.44%.

Another pressing concern is the high cost of electricity production and imports. The cost of importing electricity from India surged by 97.4% in FY2022-23, further straining the sector's finances.

Task force recommendations for overcoming challenges

To address these challenges, the task force recommends energy diversification, emphasising the need to reduce dependence on natural gas and expand the use of renewable energy, particularly solar and wind power. It suggests implementing long-term plans to increase the share of renewables, supported by low-interest loans and government subsidies.

Improving efficiency in power generation and distribution is also crucial. Enhancing the transmission and distribution system will help reduce waste. Currently, system losses stand at 8.9%, which needs to be further minimised. To achieve this, the report suggests partnerships with developed countries and international organisations to integrate advanced technologies.

Additionally, the task force highlights the need to strengthen regulatory oversight to curb corruption and enhance efficiency in the power sector. It recommends empowering the Bangladesh Energy Regulatory Commission (BERC) and the Sustainable and Renewable Energy Development Authority (SREDA) to ensure better governance and accountability.