Unpaid subsidies, dollar shortage stalk energy producers

The overall payment deficits in the energy sector, which stemmed from crude and gas market volatility induced by the Russia-Ukraine war, worsened over the last one and a half years, with the state-owned energy entities owing local power producers and international oil and gas suppliers in billions – both in local currency and dollar.

Electricity subsidy arrears have accumulated to Tk43,093 crore till October this year, according to an energy ministry letter sent to the finance ministry, failing the Bangladesh Power Development Board (BPDB) to pay to private and state-owned power producers.

The problem is different for state-owned fuel oil and gas monopolies – the Bangladesh Petroleum Corporation (BPC) and Petrobangla – as they are struggling to meet payment deadlines to international suppliers due to a lack of dollars from the Bangladesh Bank and state-owned banks.

Moreover, Petrobangla and the BPC have an outstanding amount of about $650 million to foreign and local energy suppliers of gas and petroleum, according to the latest available data.

The PDB sells electricity to consumers at a lower price than its purchase rates and the gap is met by the government's subsidy.

Electricity subsidy soared to a whopping Tk42,893 crore in the previous fiscal year, as import costs of fuel oil and liquid gas – source of half of the country's power generation – skyrocketed after the Ukraine war broke out in February 2022. Of the amount, Tk30,334 crore has been carried over to this fiscal year, which has been added by a fresh Tk12,759 crore in arrears till October.

The Energy Division has requested the Finance Division to release the subsidy arrears to help it pay for the electricity purchased from independent power producers. 

The dues to private power producers amounted to Tk25,000 crore, said Faisal Khan, president of the  Bangladesh Independent Power Producers' Association. 

"The government is working on various solutions to pay the huge receivables. IPPs are in trouble due to the huge receivables. Local banks are also unable to support IPPs because of their liquidity shortage. We welcome the government's attempt to find a solution," said Faisal. 

Persisting dollar shortage has complicated the payment to international oil and gas companies. BPC's due to global suppliers amounted to $296 million until 12 December and the payments were scheduled in September, October and November. Two of the suppliers have warned that they would not make further supplies until dues are cleared, the Energy Division said in its letter to the Finance Division in October.

BPC says it needs $500m-$600m every month for external payments, but gets much less.

Bangladesh Bank provided it with only $20m in the first 12 months of December.

State Minister for Power, Energy and Mineral Resources Nasrul Hamid also admitted the severity of the payment crisis, according to a UNB report on Sunday.

"Actually the crisis is not of local currency. Somehow we can manage it. But the main crisis is the dollar. We're not getting dollars from the Bangladesh Bank as per our needs," he told UNB.

He noted that the power and energy sectors need at least $1 billion a month to meet payment obligations.

"But we're just getting less than half of that," he told the news agency, adding, "As a result, cumulative outstanding is rising every month."

The central bank's spokesperson Md Mezbaul Haque, however, told TBS that Bangladesh Bank provides the government's priority sectors with foreign currencies they require.

Petrobangla owes global suppliers Tk1998 crore in LNG (liquified natural gas) import bills, while its arrears to foreign gas companies operating in Bangladesh, including Chevron, totalled Tk1887 crore. The total dues for LNG and gas, payable in dollars, would be equivalent to over $350 million at the current exchange rate.

The two state-owned oil and gas agencies will need more foreign currency if they import more fuels for the next year as approved by the cabinet earlier this month.

A senior PDB official, requesting anonymity, told The Business Standard that they have been in repeated discussions with the finance division to release the subsidy amount. 

"The division has assured that the entire outstanding subsidy for FY23 will be released in the current financial year. In the next fiscal year, the government plans to clear the entire amount," said the official, who wished not to be named.  

He further said there is currently no plan to raise electricity prices. "However, there are talks that the government might reduce electricity subsidies due to various factors, including IMF conditions. If the subsidy decreases in the future, it will be easier for the government to pay off the arrears."

Currently there are 55 government and 78 private power plants in the country. Many power plants have curtailed production due to lack of money to buy fuel and decline in demand due to the winter season.

The demand for electricity, which now averages between 8,500MW and 9,500MW, is expected to increase from the second half of January with the beginning of the irrigation season.

At present, as the demand for electricity in the country is low, the demand is being met from LNG and coal-based power plants, solar power and imported power. 

BPC supplies furnace oil to PDB 'on credit'

State-owned entities are also locked in unsettled payments. 

BPC is in trouble to realise the bills for furnace oil it purchased for the PDB. Now, BPC's oil depots are filled with undelivered furnace oil PDB is refusing to receive as demand from oil-based power plants fell due to winter-induced decline in electricity demand. 

The PDB's cash crunch is forcing it to refrain from buying furnace oil from BPC despite issuing demand orders, according to the minutes of the November meeting of the Energy Division. 

As a result, the corporation has accumulated 1.15 lakh tonnes of furnace oil as on 17 December, which is equal to 125-day demand.

"Now, PDB is being supplied furnace oil on one month's credit," BPC director (marketing) Anupam Barua told TBS. 

According to the BPC sources, the company had a balance of approximately Tk32,000 crore at the end of November. However, a shortage of necessary dollars is hindering timely payments for the imported fuel.