Independent power producers (IPPs) are facing serious financial concerns after the Power Development Board (PDB) cut the service charge on heavy fuel oil (HFO) imports from 9.04% to 5%. The move, implemented without prior consultation, has raised fears of increased power shortages ahead of the summer months.
As of October 2024, IPPs are already struggling with overdue payments totaling at least Tk3,662 crore. The latest change, they warn, could hinder their ability to import fuel, leaving power plants idle and causing further load shedding.
KM Rezaul Hasanat, president of the Bangladesh Independent Power Producers’ Association (BIPPA), described the decision as “whimsical” and stressed that it was made without considering the broader impacts on power production, industry, and agriculture. The PDB announced the new service charge in a letter on February 14, claiming it would help control rising power sector costs and save about Tk350 crore. However, many private producers are already grappling with financial difficulties, including delayed payments, currency depreciation, and increased taxes.
IPPs currently operate power plants with a combined capacity of 6,442 megawatts, providing around 2,500 megawatts to the national grid. Experts warn that without the ability to import fuel, the country could face even more severe electricity shortages in the coming months.
“If the service charge remains as revised, we will not import fuel but instead rely on the Bangladesh Petroleum Corporation (BPC) for heavy fuel oil,” Hasanat said.
Power Division Secretary Farzana Mamtaz told The Business Standard (TBS) on March 1 that the BPC would step in to supply fuel if IPPs choose not to import it under the new terms.
Meanwhile, the PDB anticipates a surge in electricity demand during Ramadan, potentially pushing peak demand to 16,000 MW, up from the current 11,808 MW. This will further strain the power sector if fuel imports are disrupted.
Service Charge Breakdown
The PDB had previously charged a 9.04% service fee on 11 components related to the total import value of fuel oil for power plants set up after 2016. These charges include fees for LC opening, customs duties, storage, transportation, and overheads.
A PDB committee reviewed the service charge structure and recommended reducing the fee to 5%, citing that many of the components were no longer applicable.
PDB’s Justification
PDB Chairman Md Rezaul Karim explained that the government has been providing substantial subsidies to the power sector and is trying to reduce costs to minimize these subsidies. “We are working to create more fiscal space by cutting expenditures, and the service charge reduction is part of this effort,” he said in a February 27 interview.
Karim also pointed out that some IPPs open letters of credit but do not proceed with fuel imports, instead sourcing fuel from BPC without paying the service charge. This, he explained, justified the review of the service charge policy.
Plans for HFO Supply via BPC
The government is exploring the possibility of using the BPC to supply HFO if IPPs reject the new service charges. On March 1, Power Division Secretary Mamtaz confirmed that the BPC would provide fuel if IPPs stop importing it under the revised terms. BPC has assured the government it can meet the fuel demand, though it may face logistical challenges due to limited storage capacity and congestion at fuel handling facilities.
BPC Chairman Md Amin Ul Ahsan acknowledged the constraints in storage and jetty capacity but assured that they are making efforts to align fuel imports with the available infrastructure.
Fuel Demand and BPC’s Capacity
During the summer months, demand for HFO increases as power plants with high fuel consumption come online. In total, approximately 6-7 lakh tonnes of HFO are needed from March to September. BPC has already secured 70,000 tonnes for March and plans to bring in another 75,000 tonnes, though congestion at handling facilities may delay deliveries.
Outstanding Dues in the Power Sector
The power sector has been facing delayed payments since the onset of the Russia-Ukraine war in 2022, which led to a sharp decline in foreign exchange reserves. As of October 2024, the Ministry of Power, Energy, and Mineral Resources reported outstanding payments totaling Tk19,479.74 crore across different types of power plants. Of this, Tk3,662.87 crore is owed to HFO-based plants, which are among the hardest hit by the service charge reduction.
PDB Chairman Md Rezaul Karim confirmed that the government has allocated Tk8,000 crore for power plant payments in March, which will be distributed equally among various sectors.
The government’s attempt to reduce service charges, while addressing budget constraints, has raised alarms among IPPs. If fuel imports become even more difficult, the nation could be facing a power crisis at a critical time of the year.
Related Topics:
- Pemex Reports 44% Decline in Oil Exports
- BP Increases Oil and Gas Investment to $10 Billion Annually in Strategic Shift
- Kazakhstan’s Caspian Oil Pipeline Exports Are On Track