Arbitrary act gives rise to energy costs

Bangladesh paid over Tk 1 trillion in capacity charge to power plants during the 14 years of rule of the immediate-past and now ousted Awami League government until 2023.

The country also paid nearly $.5 million daily to two floating storage and regasification units since 2019.

While the floating storage and regasification units, built for importing liquefied natural gas, remained roughly 40 per cent unused, barely half of the country’s power generation capacity was utilised.

The power and energy projects were approved under the special act, the Quick Enhancement of Electricity and Energy Supply Act 2010, without bidding and also ignoring warning from local and international energy experts who forecast that the projects were bringing economic downfall.

But the Awami government invested $32 billion in the power sector alone, never assessing how the money got spent amidst allegations of widespread corruption and financial irregularities.

The energy sector expense was as well. Bangladesh spent Tk 1.73 lakh crore in importing Liquefied natural gas until September since the import began in August 2018. Bangladesh now owes Tk 1,787 crore to LNG importers.

A High Court bench on Thursday declared unconstitutional two of the key provisions of the 2010 act. One of the provisions authorised the energy minister to approve power projects without bidding, while the other one provided immunity from prosecution to all actions done under the act.

‘The verdict finally recognises that the past government did immense damage to Bangladesh’s economy going against the interest of the state and the nation,’ said Hasan Mehedi, member secretary, Bangladesh Working Group on Ecology and Development.

Capacity charge is the amount of money payable by the government based on a power plant’s capacity to produce power rather than the power actually produced. The capacity charge is calculated in a way that ensured hefty return on investment by taking care of liabilities such as interests on loans.

In the gas sector, particularly in importing LNG, the term capacity charge does not exist. But there is a fixed regasification charge. Whether or not Bangladesh imports any gas, the charge has to be paid daily.

The Petrobangla is legally bound to pay power company Summit $2,47,757 per day as the regasification charge, which has to be paid a month in advance.

Excelerate Energy, on the other hand, receives more than $2,50,000 every day as the regasification charge.

For one reason or the other, Bangladesh sees its floating storage and regasification units capacity remain unused, though it generates a huge financial burden that is eventually passed onto consumers’ shoulders in increased tariffs.

In September last year, the Awami League government revealed that 114 power plants, including 32 rental plants, received over Tk 1 trillion as capacity charge in the past 14 years.

The capacity charge was paid mostly in dollars. The dollar crisis that plagued Bangladesh for more than two years was to a great extent triggered by the capacity charge expenses.

Individual reports sounded the alarm bell that the capacity charge was actually the means by which public money was going into private pockets.

About a third of the capacity charge was paid to rental power plants.

Introduced initially as an immediate measure to resolve power crisis, the Awami government started building the rental power plants with three to five years terms, promising they would retire with the introduction of baseload power plants.

Rental power plants are categorised into rental and quick rental power plants. Rental power plants are required to come into operation in nine months of their approval, while quick rental ones get only three months to get into operation.

The economic cost is very high for reasons, among others, that the rental power plants get a very short time to begin operation.

In a rental power plant small power generators are brought together to supply rather small amount of power.

At least 13 rental power plants worth 982.5MW are still in operation in the country, some of them existing for 15 years.

Energy experts left outraged by the past government’s increasing these plants’ recommended economic life up to three times, even after rather cheaper power generation capacity became available.

Bangladesh’s current power generation capacity stands at 27,791MW against its best use during summer peak at about 16,500MW. Even some baseload power plants are only partly used—all enjoying capacity charge entitlement.

Even this year in May, less than three months before the Awami government was overthrown through a student-led mass uprising, the agreement with Noapara 40MW furnace oil-based power plant, set up in 2011 jointly by the Summit and United groups, was renewed.

Seven of the rental power plants currently in operation through repeated renewals will remain so until 2026.

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