Power Sector Subsidy: Low revenue collection limits disbursement
Though the government has allocated a large amount of subsidy to the power sector, it is unable to disburse the amount as per demand due to narrow fiscal space.
Since May, the power division has demanded Tk 20,900 crore from its subsidy allocation to settle dues for the period of July-November 2022.
The finance division has been able to release less than one-fifth of the sum: in June, Tk 2,800 crore was made available and in July, only Tk 1,200 crore, according to officials informed with the proceedings.
The finance ministry officials said that they are unable to pay the amount sought by the power division due to low revenue collection in July. Revenue collection is typically slow in the first quarter of a fiscal year.
"So it is tough to disburse huge amounts of money to one ministry. We need to think about all the ministries -- they all have demand. Disbursement will increase when the collection picks up later in the fiscal year," said one of the finance ministry officials on the condition of anonymity to speak candidly on the issue.
Earlier, the power division's subsidy demand used to be Tk 700-800 crore a month. Since last fiscal year, it is in the neighbourhood of Tk 4,000 crore thanks to capacity charges and the Ukraine war-induced fuel price shock, finance ministry officials said.
"This is a burden for the government," said one of the finance ministry officials.
Were the revenue collection more buoyant, the finance ministry would have been able to make the funds available.
Last fiscal year, the National Board of Revenue collected Tk 325,272 crore, falling short of the target by Tk 44,728 crore. In the first nine months of the fiscal year, non-NBR tax collection was Tk 6,014 crore, which is just one-third of the year's target.
In the absence of expected revenue collection, the government makes do with its fund requirements by borrowing from the banking system and issuing national savings certificates.
It cannot borrow from commercial banks as those are facing a liquidity crunch of their own.
And given the elevated inflation level, the government has changed tack this fiscal year and is not borrowing from the central bank. As of July 18, the government did not borrow from the central bank but returned Tk 7,000 crore, shows data from the Bangladesh Bank.
This raises the question of how the subsidy demand for December last year would be met, which is more than Tk 4,000 crore.
"The whole world is passing through a crisis period. In such a period, the government is trying to fulfil all the sectors' demands at once. The power sector is getting less, but it's not a big deal -- we are trying to cope with the situation," Mohammad Hossain, director general of Power Cell, told The Daily Star.
Given the limited subsidy disbursement, Bangladesh Power Development Board (PDB) is unable to pay the private power plants' dues.
Subsequently, it is unable to put pressure on the power producers to increase power generation, The Daily Star has learnt from PDB officials with knowledge of the matter.
As a result, PDB has no other option but to go for load-shedding, they said.
Currently, Bangladesh has the capacity to produce 24,911 megawatts (MW) of electricity in a day. But about 14,000MW to 14,500MW is being generated.
As a single buyer, PDB has an arrangement with power plants that they would get a fixed payment called the capacity charge even if they do not produce electricity. PDB has to pay the capacity charge against the 24,911MW, which is increasing day by day.
In fiscal 2021-22, the power plants' capacity payments amounted to Tk 23,000 crore, which is expected to be upwards of Tk 25,000 crore in fiscal 2022-23.
The Centre for Policy Dialogue thinks the capacity charges are cannibalising the power sector's subsidies.
"As much as one-fourth of the subsidy allocations go to the power sector. But the capacity charges of the private power plants are skyrocketing, which is difficult to accommodate even with subsidies, and PDB is becoming a white elephant," said Khondaker Golam Moazzem, research director of the CPD.
PDB has been increasing the power generation capacity only without any proper forecast of demand.
By 2025, overcapacity will reach 50 percent, which means PDB will have to pay more capacity payments for the extra capacity, he told The Daily Star.
In this fiscal year, the government has allocated Tk 32,500 crore as subsidy for the power sector.
From January onwards, the subsidy demand would be lower given the three electricity tariff hikes by 5 percent each time in the first quarter of 2023, according to power division officials.