Power Division wants Tk56,000cr PDB loans turned into subsidy

The Power Division has requested the finance ministry to convert a Tk56,600 crore debt into subsidy, an amount Bangladesh Power Development Board (PDB) incurred from purchasing electricity at high prices from private rental, quick rental, and independent power producers (IPPs).

It argues that the enormous debt, comprising a principal amount of Tk43,160 crore and Tk13,439 crore in interest at a 3% rate, is undermining its credibility with international lenders and stakeholders.

The PDB has historically incurred losses by selling electricity to consumers at a lower price than what it pays for power from these private plants.

From the 2006-07 fiscal year until November 2017, the finance ministry provided the deficit funding to the PDB as a loan, rather than a subsidy, at an interest rate of 3%. The PDB has been unable to repay any of the debt, which by the end of June last year stood at Tk56,599 crore, including accumulated interest.

Officials say the previous Awami League government had categorised it as a loan to PDB under budgetary support to make the ballooning electricity subsidy bill look smaller in amount.

Citing its persistent losses and inability to repay the loan, the Power Division sent a letter to the finance secretary on 1 June, requesting the full conversion of the principal and interest into a subsidy.

Following a directive from the Bangladesh Energy Regulatory Commission (Berc), the finance ministry began providing direct subsidies for the losses incurred from selling electricity purchased from rental, quick rental, and IPPs at lower prices to consumers from December 2017, a practice that continues to date. However, the Finance Division has not recovered the earlier loans provided to cover these losses.

For the upcoming fiscal year, the budget allocates approximately Tk37,000 crore for electricity and energy subsidies. In the current fiscal year's revised budget, the allocation for this sector's subsidies is approximately Tk62,000 crore.

The letter, signed by Deputy Secretary Mohammad Solaiman of the Power Division, addressed to the finance ministry, stated that typically, loans are repaid from the cash flow generated by projects in which the funds are invested. However, this particular loan was not provided for project investment, but rather to cover the total deficit between electricity purchase and sale prices.

Given the current reality, the PDB is a loss-making institution and does not have sufficient revenue to repay this amount of debt, the letter reads.

It further explained that removing this debt information from PDB's financial statements is crucial to enhance its audit report for FY24 and improve its financial statements and debt-to-equity ratio, making them more acceptable to various donor agencies and all stakeholders.

A finance ministry official told TBS that no decision has been made regarding the Power Division's letter. "The budget was announced the day after the letter was received, followed immediately by the Eid holidays, hence no progress has been made on the matter yet."

If the loan given to the PDB is converted into a subsidy, other institutions might use this as a reference case. Therefore, providing this facility to the PDB would not be rational

Mahbub Ahmed, former senior secretary, Finance Division

The official added that there is no opportunity for the finance ministry to recover the loan amount provided to the PDB. "Therefore, the finance ministry could convert this loan into a subsidy without any financial loss to either the ministry or the PDB. This suggests that the Finance Division may view the matter positively."

In September 2023, former state minister for power, energy and mineral resources Nasrul Hamid informed the parliament that Tk1,04,927 crore had been paid as capacity charges and rental payments to the IPP and rental power plants since the Awami League came to power in 2009.

Power Division officials said that the government began approving private sector power plants from FY07 to address electricity shortages. Subsequently, after 2009, the number of IPP, rental, and quick rental power plants increased through the enactment of special laws.

A report by the interim government-formed White Paper Preparation Committee revealed significant financial irregularities in the approval of these power plants and the determination of capacity charges and electricity tariffs.

Towards the end of the Awami League government, new agreements for purchasing electricity from these plants began to be renewed on a "no electricity, no payment" basis as part of efforts to reduce power sector subsidies, a method that the interim government continues to follow.

Furthermore, the government also has initiatives to reduce electricity sector subsidies or losses by renegotiating power purchase agreements to lower tariffs.

Finance Adviser Salehuddin Ahmed, in his budget speech for the upcoming fiscal year, stated that the current electricity sector subsidy, at about 1% of GDP, is very high. A plan has been adopted to gradually reduce this by saving Tk11,000 crore through an overall reduction of power generation costs by 10%.

'Request not rational'

Mahbub Ahmed, former senior secretary of Finance Division, told TBS, "From FY07 until November 2017, subsidies in the power sector were under-reported by providing loans to cover BPDB's losses. Now, if the principal and interest of this loan are converted into a subsidy, the amount of subsidy in this sector will increase."

He further elaborated, "The finance ministry or the government provides loans to many state-owned enterprises, similar to the PDB. Even projects like the Padma Bridge construction and the Metro Rail received funding from the finance ministry as loans.

"Now, if the loan given to the PDB is converted into a subsidy, other institutions might use this as a reference case and refuse to repay their own loans. This would create significant problems for the government. Therefore, providing this facility to the PDB would not be rational."

Mahbub also opposed the idea of trying to enhance the acceptability of the PDB by converting the loan into a subsidy. "The PDB is a service-oriented organisation, and people have an understanding of its credibility. Therefore, trying to enhance its acceptability by converting the loan into a subsidy or waiving it would be futile."

He added, "When the PDB can, it will repay the loan. Even if it cannot, it should still remain as a loan on the balance sheet. It would not be right to give a clean certificate through window dressing."