Bangladesh Power Development Board Financial Results FY2020-21

The burden of capacity over-expansion based on imported fossil fuels threatens to overwhelm the financial status of the Bangladesh Power Development Board (BPDB). Significant and economically damaging power tariff growth looks increasingly likely.

In January 2022, the BPDB proposed a bulk power tariff increase of up to 64% to the Bangladesh Energy Regulatory Commission (BERC) due to the increasing cost of power generation and purchase based on imported coal, liquefied natural gas (LNG) and oil. The BPDB is reportedly maintaining that it will have a Tk325 billion (US$3.8 billion) shortfall if tariffs are not raised as proposed.

The BPDB’s financial status is being eroded.

Whatever the outcome of these proposals, this won’t be the last time tariffs come under pressure to rise significantly. The BPDB’s financial status is being eroded by overcapacity, rising capacity payments – which reportedly increased again to Tk132 billion (US$1.5 billion) in FY2020- 21 - and growing reliance on price-volatile imported fossil fuels. On the current trajectory, it can be expected that the BPDB’s operating losses will continue to grow, necessitating further government subsidies and tariff increases.

BPDB’s operating loss doubled in FY2020-21, driven by a very significant rise in the cost of electricity purchases from independent power plants (IPPs), which rose 58% over the prior year. The result of BPDB’s very large operating loss was that the necessary government subsidy to bail out BPDB’s losses reached a record Tk117.8 billion (US$1.4 billion), up from Tk74.4 billion in the prior year.

For the first time, the cost of electricity purchased from IPPs now represents more than 50% of BPDB’s total operating expenses. The single largest contributor to the IPP burden was the new Payra coal-fired power plant. The cost of each unit of power purchased from the plant increased in FY2020-21, reaching Tk8.6/kWh – a 36.5% increase from the prior year figure of Tk6.3/kWh. This was driven by capacity payments made to the plant as one of its units stands idle due to a delay in construction of power transmission infrastructure. The BPDB is paying Tk1.3 billion (US$15 million) a month in capacity charges to the Payra power station.

With more large coal IPPs under construction and large capacities of LNG-fired IPPs planned, the BPDB’s IPP cost likely will continue to increase significantly.

According to the BPDB’s FY2020-21 annual report, 12,967 megawatts (MW) of new power capacity is under construction and 19,651MW is planned to be added by the end of FY2024-25. Over the same period, only 3,990MW of old capacity is planned to be retired, according to the BPDB.

Approaching power additions include 600MW of further oil-fired power plants, the 2,400MW Rooppur nuclear plant, the much-delayed Rampal coal plant and the significantly over-budget and over-schedule Matarbari 1 coal plant. In addition, Adani Power’s Godda coal power project in Jharkhand, India, which will export power to Bangladesh, is due for commissioning in 2022 according to the BPDB.

LNG prices soared to record highs in 2021

There is also significant capacity of LNG fired power due to come online by 2025 and much more planned to follow, increasing Bangladesh’s exposure to the volatile LNG market. LNG prices soared to record highs in 2021, surging past US$50/MMBtu. Bangladesh was subsequently forced to pay record spot LNG prices, highlighting the risk in the country becoming increasingly reliant on the imported fuel. This has resulted in gas distributors proposing a more-than doubling of tariffs to BERC.

The result of these large capacity additions in excess of likely power generation growth will be that overall power plant utilisation will drop further by FY2024-25. Even if power generation grows at a very high 12% per annum out to FY2024-25, overall power capacity utilisation may drop to just 38%.

The implication of such low utilisation of new power plants including IPPs is that there will be further growth in capacity payments to these plants while they stand idle much of the time, increasing the BPDB’s expenses and losses.

The record high government subsidy to the BPDB in FY2020-21 cannot be regarded as a peak. With more capacity due to come online – leading to worsening overcapacity and increasing capacity payments – larger and larger government subsidies will likely be required in the future to cover BPDB’s growing losses. The BPDB has predicted that the government subsidy required for FY2021-22 may be Tk200 billion – a 71% increase on the record subsidy in FY2020-21.