What makes Bangladesh's power sector bleed billions
The National Review Committee (NRC) recently estimated annual losses in the power sector at around $1.5 billion, largely attributing the damage to unfavourable power purchase agreements
Highlights:
- Annual $1.5 billion losses from structural inefficiencies
- Excess capacity and idle plants raise capacity payments
- Import dependence exposes sector to global price shocks
- Taka depreciation sharply inflates dollar-denominated energy costs
- Generation costs doubled, retail tariffs lag behind
- Governance failures, corruption, and waste worsen financial crisis
Bangladesh's power sector is haemorrhaging billions of dollars each year not because of a single policy failure, but due to a toxic combination of excess capacity, one-sided contracts, heavy import dependence, weak governance and a sharp depreciation of the taka, sector insiders and analysts say.
The National Review Committee (NRC) recently estimated annual losses in the power sector at around $1.5 billion, largely attributing the damage to unfavourable power purchase agreements.
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But many energy experts argue that this headline figure oversimplifies a much deeper, long-running structural crisis. Those closely tracking the sector say the losses do not fully reflect historical realities and cannot be understood without examining how policy priorities shifted after 2015.
Until around 2015, Bangladesh struggled with frequent power outages and inadequate generation. Since then, the problem has flipped.
The crisis today is no longer about scarcity but surplus: too much installed capacity, slower-than-expected demand growth and policies that failed to adapt to changing economic realities.
According to an analysis by the Institute for Energy Economics and Financial Analysis (IEEFA), Bangladesh's power sector import dependence rose to about 65% between FY2018-19 and FY2024-25, driven largely by fossil fuel imports.
This import-heavy model has left the sector highly exposed to global price swings and, more importantly, to sharp depreciation of the taka. High system losses in both the power and gas sectors have further worsened the situation, effectively wasting costly imported fuel without delivering usable energy.
Independent observers estimate system loss in the energy sector at around 12-13%, although Petrobangla officially reports losses closer to 7.5%. Even by Petrobangla's own figures, some 2,036 million cubic metres of gas were lost during distribution, costing around Tk37.89 billion at current prices.
Power, Energy and Mineral Resources Adviser Fouzul Kabir Khan has acknowledged that the sector's losses are not solely the result of "bad deals."
"The massive loss in the power sector is entwined with many other factors such as waste, fraud and abuse," he said, pointing to governance failures across institutions.
Questions have also been raised about the NRC's calculation of losses linked to power purchase agreements.
Energy expert Prof M Tamim said: "I don't know how the NRC calculated those numbers.
"All deals in the power sector were not done for financial transactions. Some were approved for political favours as well. Deals were made for government-funded public projects too," said M Tamim who oversaw the power and energy ministry when he was a special assistant to the 2007 caretaker government chief.
Along with corruption, poor governance and the depreciation of the taka has created a heavy burden on the public exchequer, he said.
The massive loss in the power sector is entwined with many other factors such as waste, fraud and abuse
Currency depreciation: the silent multiplier
Currency depreciation has emerged as one of the most damaging, yet often overlooked, drivers of the power sector's cost explosion.
Bangladesh's power system is overwhelmingly dollar-dependent: LNG, coal and oil imports, capacity payments to independent power producers (IPPs) and obligations to foreign sponsors are all settled in US dollars.
When the taka began weakening sharply against the dollar from 2020 onward, power production costs soared even without any increase in fuel consumption or global prices.
In 2019, the exchange rate stood at around Tk84 per dollar. By 2025, it had fallen to about Tk123, meaning the dollar appreciated by roughly 46.4%.
In practical terms, every dollar-denominated obligation now costs nearly one-and-a-half times more in local currency than it did six years ago. A $1 billion fuel bill that once required Tk8,400 crore now costs about Tk12,300 crore solely because of exchange rate movements.
Over the same period, the taka lost around 31.7% of its purchasing power, significantly eroding the country's ability to pay for imported energy.
Generation costs surge past tariffs
The impact of depreciation, combined with structural inefficiencies, is starkly visible in generation costs. According to Bangladesh Power Development Board (BPDB) data, the average cost of generating electricity rose from Tk5.95 per unit in FY2018-19 to around Tk12 per unit in 2025 – an increase of about 118.5% in seven years.
This surge far outpaced inflation and tariff adjustments. Analysts point to several drivers, including greater reliance on imported fuels, currency depreciation, rising capacity payments to idle plants and higher financing costs for foreign-funded projects.
Retail tariffs, however, have lagged far behind. While generation costs now stand at around Tk12 per unit, the average retail price is about Tk8.95. The gap of more than Tk3 per unit has led to ballooning subsidies, mounting BPDB losses and persistent payment arrears, with taxpayers and consumers ultimately bearing the cost.
Adviser Fouzul has also blamed mismanagement and corrupt decision-making. "Without properly assessing real demand, generation capacity was increased despite knowing that many plants would remain idle and the government would still have to pay capacity charges. By approving such deals, many people benefited," he said.
System loss: progress, but not enough
Bangladesh has made undeniable progress in reducing system loss, but the gains have not been enough to offset rising costs elsewhere. System loss peaked at 24.5% in 2001, driven by weak grids, theft and poor billing.
By 2008-09, losses in parts of the network had fallen to 6.58%, while overall transmission and distribution losses stood at 14.73% in 2010-11. Reforms accelerated after 2020 through grid upgrades and prepaid metering, bringing average losses below 10% in many areas.
In FY2022-23 and FY2023-24, transmission and distribution losses stabilised at 10.06%. By mid-2024, total system loss had declined further to about 7.25%, a major improvement compared with two decades earlier.
Even so, analysts note that single-digit losses still translate into large financial waste when energy is imported at high dollar prices.
Costly contracts, excess capacity
Shafiqul Alam, lead energy analyst for Bangladesh at IEEFA South Asia, said the country's high reserve margin amid slower-than-expected demand growth has resulted in massive capacity payments. "This has significantly increased the financial burden," he said.
The continued use of expensive oil-based generation and limited success in scaling up renewable energy have further inflated costs. "By reducing oil-based power generation to 5% from 10.73%, supported by solar power, Bangladesh could have reduced the subsidy burden by 23.3%," Alam said.
BPDB's growing dependence on IPPs has also driven up costs. Between FY2023-24 and FY2024-25, BPDB's spending on power purchases from IPPs rose by 25.61%. "For sustainability, Bangladesh must assess future demand more prudently, expand renewable energy, increase BPDB's own generation and limit capacity payments," he added.
Tariff distortions, idle plants
The NRC's tariff review highlights further inefficiencies. Electricity from heavy fuel oil-based plants is priced 40-50% higher than reasonable benchmarks, while gas-based projects are about 45% more expensive due to high fixed charges and inefficient contracts.
Solar power fares even worse, with tariffs estimated to be 70-80% above normal levels, according to the committee.
Within gas-based generation, older plants such as Haripur and Meghnaghat sit at the lower end of the cost curve because their capital costs are largely amortised. Newer Meghnaghat plants, however, carry heavy fixed charges and remain underutilised, sharply raising average system costs.
The NRC has warned that full cost-recovery tariffs would push industrial electricity prices in Bangladesh 80-90% higher than in China, India or Vietnam, posing serious risks of deindustrialisation. According to the committee, between 7,700MW and 9,500MW of installed capacity is either unnecessary or unusable due to fuel and infrastructure constraints.
