Govt to watch global energy prices for 3 months before price revision
The finance ministry has instructed the Energy and Mineral Resources Division to prepare a price adjustment proposal following the three-month observation period.
Highlights:
- Government will monitor global energy prices for three months
- Fuel price revisions will follow the three-month market assessment
- Rising global prices are sharply increasing Bangladesh's energy subsidies
- LNG subsidies have already exceeded this year's budget allocation
- Electricity subsidies and IPP dues are also mounting rapidly
- Proposed gas hikes face opposition over higher electricity costs
The government will monitor international energy markets for three months before deciding on domestic fuel price revisions, seeking to manage mounting subsidy pressures driven by surging global fuel costs.
The finance ministry has instructed the Energy and Mineral Resources Division to prepare a price adjustment proposal following the three-month observation period. Finance Secretary Md Khairuzzaman Mozumder issued the directive during a high-level meeting on power and energy subsidies on 9 July.
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To facilitate the process, the ministry formed a six-member committee headed by Additional Secretary (Budget and Law) Md Hasanul Matin. Tasked with rationalising and forecasting energy subsidies, the panel will review global price trends, assess outstanding payments owed to independent power producers (IPPs), and project liabilities from newly commissioned power plants.
The intervention follows escalating global fuel prices that have inflated the government's subsidy burden, particularly for liquefied natural gas (LNG) imports. While the Energy Division recently proposed raising gas tariffs for CNG stations and power generation to offset Petrobangla's costs, the Power Division opposed the hike, warning it would drive up generation costs and ultimately inflate electricity subsidies.
Former finance secretary Mahbub Ahmed noted the government faces a tough dilemma: "If gas and electricity prices are not raised, the resulting subsidy burden will be extremely difficult to manage. However, policymakers must also weigh the political and economic impact of raising prices while citizens struggle with high inflation."
Subsidy pressure
Finance officials said the government has not subsidised fuel oil for nearly a decade and made no allocation for it in the current fiscal year.
However, despite more than Tk40,000 crore in cumulative profits, the BPC incurred Tk7,610 crore in losses in April and May as global prices surged following the Iran war.
LNG imports
Meanwhile, although Tk6,000 crore was allocated for LNG subsidies in the current fiscal year's budget, the government had to provide around Tk7,000 crore in subsidies to the LNG sector, including outstanding payments for June and subsidies incurred up to 15 August.
In the previous fiscal year, against an initial allocation of Tk6,000 crore, the government ultimately paid around Tk15,000 crore in LNG subsidies.
Power sector dues
The previous fiscal year's initial budget allocated Tk37,000 crore for electricity subsidies, which was raised to Tk62,000 crore in the revised budget.
Besides, the government still owes independent power producers around Tk14,000 crore, despite paying Tk10,000 crore in subsidies over the past two months.
Before the Iran war, the government paid Tk2,500-3,000 crore in electricity subsidies each month. The subsidy burden has increased since the war.
Energy Division's proposal to raise gas prices
Amid the subsidy pressure, the Energy Division proposed raising gas prices for CNG filling stations and gas power plants, saying the hike would save Petrobangla Tk1,500-1,600 crore.
It also said raising gas prices for power plants would increase revenue and significantly reduce the need for subsidies if global market conditions returned to normal.
However, the Power Development Board chairman opposed the proposal, saying higher gas prices for power plants would raise generation costs and increase electricity subsidies.
He said government-owned power plants currently receive no subsidies. If gas prices are raised, however, these plants would also need to be brought under the subsidy scheme.
According to Petrobangla, Bangladesh plans to import 115 LNG cargoes in FY27. Disruptions to long-term LNG supplies due to the Iran war have forced the country to procure more from the spot market at higher prices, creating a need for significant subsidies.
To reduce the subsidy burden, finance officials recommended effectively following the least-cost method in power generation and procurement in line with merit-order dispatch.
They also recommended reassessing capacity and energy prices under power purchase agreements, recalibrating power plants' availability factors to align them with plant factors, and ensuring greater transparency and accountability in determining dependable capacity.
Finance Secretary Khairuzzaman at the meeting on 9 July stressed the need for accurate, updated subsidy records based on power plants' commercial operation dates.
He called for determining outstanding payments to subsidised IPPs and jointly owned plants and estimating the current fiscal year's subsidy needs.
He also urged authorities to submit monthly fuel subsidy requirements promptly to ensure uninterrupted supplies and suppliers' cash flow.
