BPDB to bear the brunt after recent hike in US Dollar rate

Bangladesh Power Development Board (BPDB) is going to bear the brunt after the recent enhancement of the US Dollar rate as it will have to spend an additional amount of over Tk 7,300 crore to purchase electricity from the private sector.

According to official sources, the BPDB's annual spending was roughly calculated as Tk104,000 crore for purchasing electricity from the independent power producers (IPPs) for the fiscal year 2023-24. The total expense will now go up to about Tk 1,11,300 crore, according to officials familiar with the estimate this week.

But after the increase in the rate of USD by the central bank through the introduction of a crawling peg system, the BPDB has been a great victim of such a decision.

The Bangladesh Bank on May 8 unveiled the crawling peg exchange rate system and allowed banks to buy and sell US dollars freely near Tk117, as well as letting go of its regulatory power of the Smart rate, and hiking the repo rate.

Under this system, a crawling peg mid rate (CPMR) has been set at Tk117 per US dollar with immediate effect.

Scheduled banks may purchase and sell US dollars freely around the CPMR with their customers and in interbank deals, the notice also said.

A crawling peg system is a method of exchange rate adjustments that allow a currency with a fixed exchange rate to fluctuate within a band of rates. It is a hybrid of fixed and floating exchange rate systems.

"The payment mode of the power purchase agreements (PPAs) with the IPPS is in USD. So, we have to incur a huge financial loss when the USD rate goes up", a top official of the BPDB told UNB.

As the issue is very sensitive, preferring anonymity, he said the BPDB's loss will be enormous this year as the dollar rate went up in one go by Tk7 to Tk117 from Tk110.

He said the extra burden of paying Tk 7,300 crore will complicate the situation when the International Monetary Fund (IMF) has been insisting on reducing the government's loss in buying electricity from the private sector.

He noted that The BPDB has to spend over Tk 12 in each unit of power generation while its average selling rate is about Tk 8.95 with incurring over Tk 3 per unit.

"The IMF has repeatedly been putting pressure on the BPDB to raise the electricity tariff to reduce the financial loss. Now, after enhancement of the USD rate, the financial loss will be tough to manage", said another official of the BPDB.

He, however, said despite the pressure from the international lending agency, the BPDB has not taken any decision to raise the tariff shortly.

"The Power Division and the BPDB have been making their own calculations about the impact of the USD rate enhancement. The final decision will come from the government if any decision is taken politically to raise the power tariff", added.

The BPDB annual report reveals that as the single buyer in the power sector, the organisation's operating expense was Tk 93,797.37 in the fiscal year 2023-24.