Pvt power producers fear financial strain, outages as fuel import incentive cut

Infograph: TBS

Summary:

• PDB reduced the HFO service charge from 9.04% to 5%
• IPPs fear financial strain and worsening summer power shortages
• Power producers struggle with unpaid dues of Tk3,662 crore
• Government aims to cut subsidies and reduce power sector costs
• BPC may supply HFO, but storage and jetty capacity are limited

The Power Development Board's (PDB) abrupt decision to slash the service charge on heavy fuel oil (HFO) imports—from 9.04% to 5%—has sent independent power producers (IPPs) fearing not only financial strain but a deepening power crisis ahead of summer.

Already burdened by unpaid dues amounting to at least Tk3,662 crore as of October 2024, the power producers warn that this latest move could cripple their ability to import fuel, leaving plants idle and triggering intensified load shedding.

"A major decision was made without consultation—without considering the ripple effects on power production, the manufacturing sector, and even irrigation," said KM Rezaul Hasanat, president of the Bangladesh Independent Power Producers' Association (Bippa), calling the cut "whimsical."

The PDB, in a letter dated 14 February, notified all 48 heavy fuel oil-based power plants about the new service charge, terming it as a necessary step to rein in ballooning power sector costs. PDB estimates the measure will save around Tk350 crore.

But for private power producers, the timing couldn't be worse. Many are already grappling with a combination of financial woes—delayed payments, a depreciating taka and higher taxes.

The power plants, with an installed capacity of 6,442 megawatts, currently supply around 2,500 megawatts to the national grid. If they fail to keep up fuel imports, industry insiders warn, the country could be looking at an even darker summer.

"If the service charge remains as revised, we will not import fuel but will instead resort to the Bangladesh Petroleum Corporation for heavy fuel oil," Hasanat said.

On 1 March, Power Division Secretary Farzana Mamtaz told TBS that the Bangladesh Petroleum Corporation (BPC) will supply if the independent power producers do not import fuel.

According to the PDB, power consumption is expected to surge by over 4,000 MW in Ramadan alone, pushing peak-time electricity demand to around 16,000 MW from the current generation level of 11,808 MW.

The power sector has been mired in delayed payments since the outbreak of the Russia-Ukraine war in 2022. In response to plummeting forex reserves, the Ministry of Power, Energy, and Mineral Resources reduced payments to power plant owners across the board. As of October last year, Tk19,479.74 crore remains outstanding

Service charge breakdown

The PDB was providing a 9.04% service charge across 11 matrices on the total import value of the fuel oil. The facility was offered to HFO-based power plants set up during 2016-17 onward to import fuel.

The 11 matrices include LC opening commission with VAT (0.58%), LC acceptance commission with VAT (1.15%), confirmation charge (1.36%), discounting charge from suppliers if payments are made within 75 days (0.96%), interest on customs duty (1.24%), storage rent (1.43%), ocean loss (0.50%), handling loss including inland transportation loss (0.20%), throughput charge (0.04%), BIWTA landing charge (0.04%), demurrage (0.79%), and overhead (0.75%).

The PDB formed a five-member technical committee, headed by its member (finance) Anjana Khan Mojlish, to review the service charge. The committee recommended reducing the service charge from 9.04% to 5%, as it found that many of the charges included in the earlier service charge were not applicable.

What PDB chairman says

In the project proposal agreement, there is a provision for a service charge for the independent power producers that the government can review from time to time if it wishes.

According to the PDB, the power producers have been enjoying these facilities for the past 10 years. Given the country's economic condition, the government wants to review this provision to create more fiscal space.

"We are giving massive subsidies in the power sector. To minimise the subsidy, the government is trying to cut expenditure in various areas, and the service charge is one of them," PDB Chairman Md Rezaul Karim told TBS on 27 February.

He also said the independent power producers sometimes open LCs but do not end up importing fuel, instead sourcing it from BPC. In such cases, they are not eligible for any service charge.

Govt plans HFO supply via BPC

In conversations with the secretary of the Power Division, the chairman of the PDB, and the chairman of the BPC, TBS learned that the government is working to ensure HFO supply through the BPC if IPPs refuse to import fuel in protest of the service charge reduction.

On 1 March, the Power Division Secretary said the BPC has assured the division it will supply fuel to the IPPs if they are unwilling to import fuel under the newly set service charge.

In response to a question about whether BPC has sufficient storage facilities to accommodate the additional fuel required by IPPs, she said, "Yes, BPC does. They have an import line, and if there is demand from IPPs, the BPC can develop a plan to supply the fuel."

PDB Chairman Md Rezaul Karim said instructions have been given to the BPC to increase HFO imports so that IPPs can source fuel from them.

Is BPC capable enough to feed IPPs?

The BPC has a storage capacity ranging from 1.10 lakh to 1.7 lakh tonnes of fuel. However, due to a shortage of jetties, the maximum capacity for handling fuel-laden cargoes in a month is four, each with a 25,000-tonne capacity. Currently, 3-4 jetties are being used to unload fuel, but BPC says this is insufficient, causing congestion.

BPC Chairman Md Amin Ul Ahsan said, "Our storage capacity is limited. We are trying to align our fuel imports with the available storage capacity. We can't support all IPPs at once given our current storage."

He added, "We face congestion at the jetty. We use 3-4 jetties, which are mostly occupied with handling finished products – petrol, diesel, octane, and crude.

"Even though we are willing to bring in additional HFO-laden cargo, congestion at the jetty often disrupts this. Considering both jetty and storage capacities, we can manage to bring in three to a maximum four cargoes, but no more," he said.

The demand for HFO

HFO-based power plants do not operate year-round due to their high cost. During the winter, most HFO-based plants remain idle because of lower electricity demand.

These plants are mainly used from March to September, during the summer months, when the country experiences its highest electricity demand. Around 6-7 lakh tonnes of fuel are needed for HFO-based power plants, with the PDB estimating a requirement of 90,000 tonnes for March.

"We currently have 70,000 tonnes of fuel in stock and have lined up an additional 75,000 tonnes for March consumption," said the BPC chairman, adding, "Our initial plan was to bring two cargoes, but we are now bringing one extra cargo as requested by the PDB."

Total outstanding dues in power sector

The power sector has been mired in delayed payments since the outbreak of the Russia-Ukraine war in 2022. In response to plummeting forex reserves, the Ministry of Power, Energy, and Mineral Resources reduced payments to power plant owners across the board. As of October last year, Tk19,479.74 crore remains outstanding.

Of this amount, Tk3,662.87 crore is owed to HFO-based power plants, Tk6,456.94 crore to gas-based power plants (IPPs), Tk2,544.48 crore to coal-based power plants, Tk5,318.86 crore to Adani Power Ltd, Tk1,093.69 crore to power imports from India (excluding Adani), and Tk402.90 crore to solar-based power plants.

When asked about payments to the IPPs, PDB Chairman Md Rezaul Karim said, "The government has earmarked Tk8,000 crore for March. We will distribute this amount equally among the power plants."