Power, energy allocation to be set at Tk17,045cr amid push to cut subsidies, phase out inefficient plants

Finance Adviser Amir Khosru Mahmud Chowdhury is set to propose a Tk17,045 crore allocation for the power and energy sector in the budget for FY2026-27, alongside a series of reforms aimed at reducing subsidy burdens, reviewing capacity payments and retiring inefficient power plants.

The proposed allocation is Tk5,475 crore, or 24.3%, lower than the original FY26 allocation of Tk22,520 crore. 

However, it exceeds the revised allocation of Tk16,162 crore for the current fiscal year.

Officials at the Ministry of Power, Energy and Mineral Resources said the reduction from the original allocation reflects lower development expenditure requirements, the gradual retirement of outdated power plants and planned structural reforms in the sector.

Govt to review power purchase deals

According to the budget speech seen by The Business Standard, the government plans to conduct a comprehensive review of power purchase agreements (PPAs) and capacity payments as annual subsidies in the power sector have surpassed Tk40,000 crore.

The budget document criticises the previous administration's energy policies, alleging that unplanned expansion, institutional corruption, financial irregularities and mismanagement significantly increased power generation costs.

It also claims that large sums of public money were paid out through capacity payments, adding to the sector's growing fiscal burden.

Inefficient plants to be retired

To improve efficiency and reduce costs, the government plans to phase out underperforming and expensive power plants while adopting a strict least-cost power generation framework.

The proposal outlines measures to ease the financial pressure created by costly and underutilised generation assets. Instead of maintaining idle plants at significant public expense, the government intends to prioritise electricity generation from the most cost-effective facilities.

The move aims to reduce unnecessary capacity-related expenditures while ensuring a reliable power supply through targeted infrastructure improvements.

Power generation target raised to 35,000MW by 2030

Although Bangladesh's installed power generation capacity has reached 28,919MW, the budget notes that uninterrupted and quality electricity supply remains a challenge.

To address this, the government has adopted medium- and long-term plans to increase generation capacity to 35,000MW by 2030. The strategy includes a target of sourcing 20% of electricity from renewable energy and expanding the national transmission network to 25,000 circuit kilometres.

The budget also states that the first unit of the 2,400MW Rooppur Nuclear Power Plant is expected to add 1,200MW to the national grid by January 2027.

BAPEX to step up gas exploration

In the gas and mineral resources sector, the government plans to intensify domestic exploration efforts to reduce reliance on imported fuel.

Over the next three years, Bangladesh Petroleum Exploration and Production Company Limited (BAPEX) will carry out 270 kilometres of geological surveys, 700 line-kilometres of 2D seismic surveys and 700 square kilometres of 3D seismic surveys.

The programme includes drilling 69 new wells and conducting 31 workover operations to boost production from existing fields.

The budget also highlights plans to attract foreign investment in offshore exploration through an investor-friendly Model Production Sharing Contract (PSC) framework.

LNG, refinery projects move forward

The budget outlines progress on several major energy infrastructure projects, including land acquisition and consultant recruitment for a land-based LNG terminal at Matarbari and a feasibility review for a third floating LNG terminal at Moheshkhali.

Other initiatives include full optimisation of the fuel pipeline network and commissioning of the Single Point Mooring (SPM) system.

In addition, the government plans to develop a new crude oil refinery in phases in Chattogram or nearby coastal industrial zones. The proposed facility will have an annual processing capacity of 5 million tonnes and is aimed at strengthening the country's energy security while reducing dependence on imported refined fuel.