Cost of over-reliance on imported fuels and ways out to ensure sustainable energy security

The July 2024 mass uprising represented a significant political inflection point in Bangladesh, revealing entrenched societal dissatisfaction with persistent governance deficiencies, macroeconomic mismanagement, and the erosion of institutional accountability. In the post-uprising context, the establishment of an interim government opened a critical policy window for long-deferred structural reforms. This period has been characterised by a series of institutional, regulatory, and legislative initiatives intended to enhance transparency, restore public confidence in state institutions, and address long-standing structural distortions across key sectors of the economy.

The reform initiatives undertaken by the interim government since late 2024 represent a notable departure from the policy trajectory of the previous decade, particularly in addressing governance failures, fiscal leakages, and regulatory capture within the energy sector. For instance, repeal of the Quick Enhancement of Electricity and Energy Supply (Special Provision) Act 2010, amendments restoring the Bangladesh Energy Regulatory Commission's (BERC) independence in tariff setting, revision of Independent Power Producer (IPP) contracts, particularly the elimination of "capacity payment" clauses (in process), introducing Merchant Power Policy (MPP) for allowing market-based mechanisms by allowing private producers to sell electricity directly to buyers rather than exclusively to the Bangladesh Power Development Board (BPDB), and cancellation of 31 LOls (Letter of Intent) unsolicited proposals for purchasing renewable energy.

While these reforms are appreciable, they seem to largely address symptoms of past policy failures rather than transforming the underlying structure of the sector. The strategic reform agenda should have extended beyond contract renegotiation and regulatory adjustments. For instance, opening a doorway for towards indigenous fuel diversification (such as natural gas, solar, wind, bioenergy, etc.) and moving away from imported fossil fuels for electricity generation.

It is worth mentioning that Bangladesh's economic growth, industrialisation, and urbanisation over the last two decades have driven a steep rise in national electricity demand. Meeting this demand has required extensive expansion of electricity generation capacity and energy supply. However, instead of relying on diversified domestic energy resources, Bangladesh has become increasingly dependent on imported fuels, particularly petroleum, liquefied natural gas (LNG), and coal. 

Projections under the Power Sector Master Plan (PSMP) 2016 and the Integrated Energy and Power Master Plan (IEPMP) 2022 indicate that by 2041 Bangladesh may depend on imported fuels for nearly 90% of its energy needs, potentially driving the annual energy import bill to at least $40 billion. 

The fiscal implications of Bangladesh's heavy reliance on imported fuels are substantial. For instance, in recent years, the cost burden associated with LNG imports has risen markedly. Government expenditure on LNG imports increased to Tk54,954 crore, reflecting a year-on-year growth of 28.9%. To sustain elevated import volumes, the government has consistently allocated significant subsidy resources. Subsidies for LNG alone amounted to Tk8,900 crore in the most recent fiscal year, up from Tk6,000 crore in FY 2023–24. More broadly, total subsidy allocations for the power and energy sector reached Tk37,000 crore. While such subsidies mitigate short-term domestic price volatility, they impose considerable fiscal pressure and are widely regarded as economically inefficient, as they tend to obscure underlying structural deficiencies within the power sector and postpone essential reforms.

Moreover, the cost of imported energy also adds inflationary pressure. The recent depreciation of the Bangladeshi Taka has worsened the situation further. Despite reductions in energy prices, the international energy market remains highly volatile, with geopolitical turmoil's continuing to pose supply chain disruptions for Bangladesh. Dependence on maritime supply routes exposes the country to fluctuations in freight costs, geopolitical risks, and supply disruptions at key exporting hubs. The global LNG crisis of 2021–2022 highlighted the extent of these vulnerabilities. As Russia curtailed gas exports to Europe and subsequently invaded Ukraine, LNG prices in Asian markets escalated sharply. Average LNG prices rose up to $54.17/ MMBtu in 2022, compared with around $18.6/MMBtu in the preceding year. Bangladesh was further affected by reduced deliveries from long-term suppliers, including Qatar, which exacerbated supply constraints. As a result, the cost of electricity generation increased significantly (around 47-49% rise in generation costs between FY2020-21 and 2022).

As the tenure of the interim government approaches its conclusion, it is imperative that the incoming government ensures a continuity by building upon the reforms undertaken by the predecessor. In this regard, particular emphasis on the following priority areas will be essential to ensure energy security in Bangladesh.

Expanding Natural Gas Exploration and Domestic Capacity

The government should intensify exploration and development of natural gas to reverse the declining reserves in Bangladesh. The country possesses 48 gas blocks—26 offshore and 22 onshore—that hold significant potential for supplying natural gas to power generation and other priority sectors. Strengthening the technical, financial, and institutional capacity of Bangladesh Petroleum Exploration and Production Company (BAPEX) must be treated as a top national priority to ensure efficient and sustainable resource development.

Reducing Governance Inefficiencies and Promoting Strategic Partnerships

Widespread inefficiencies in natural gas exploration, policy implementation, and administrative governance must be addressed systematically. To meet long-term energy needs, the government should invest in enhancing BAPEX's capabilities nationwide. Where technical or financial constraints exist, Joint Ventures or Strategic Partnerships with foreign companies should be pursued through well-designed Production Sharing Contracts (PSCs) with International Oil Companies (IOCs). These contracts must be supported by comprehensive geological surveys and proper evaluation of exploration areas to improve their attractiveness. Given the time- and resource-intensive nature of exploration, this should be viewed as a long-term solution.

Creating an Enabling Environment for Renewable Energy Manufacturing

Currently, Bangladesh has limited scope for renewable energy equipment manufacturing due to high cost barriers. To overcome this challenge, the government should promote local entrepreneurship by introducing appropriate policies, fiscal incentives, and financial support mechanisms, alongside strong institutional backing.

Strengthening Research and Innovation in Renewable Energy

Research and innovation are vital for advancing renewable energy development in Bangladesh. Establishing a dedicated renewable energy laboratory focused on technology development and infrastructure will help the country keep pace with global advancements while fostering indigenous solutions tailored to local conditions.

Enhancing Energy Sector R&D and Energy Storage Solutions

Energy technology choices significantly influence economic growth, environmental quality, and national security, making research and development a critical public policy instrument. The government should increase R&D expenditure in the energy sector, including financial support for initiatives such as an Energy Storage Laboratory. Such investments would accelerate the commercialization of storage technologies and channel resources into wind, solar, bioenergy, and geothermal energy development.

Upgrading Transmission and Distribution Infrastructure

To meet growing electricity demand and increased generation capacity, Bangladesh must expand high-capacity transmission lines and modernize its distribution network. Ensuring reliable and resilient energy delivery requires sustained investment in transmission and distribution infrastructure. The government should facilitate large-scale local and foreign investments and incorporate these priorities into future energy sector master plans.

Promoting Energy Efficiency and Demand-Side Management

Energy efficiency initiatives are essential for strengthening energy security. The government should introduce tax rebates and financial incentives for energy-efficient technologies and appliances, complemented by public awareness campaigns to encourage energy-saving behaviour. Producers should receive fiscal and regulatory incentives to adopt energy-efficient manufacturing processes, while higher tariffs on inefficient, energy-intensive products can encourage consumers to shift toward greener alternatives. Peak and off-peak tariff structures should also be used to reduce peak demand.

Reducing System Losses and Improving Sector Governance

High system losses must be addressed through infrastructure replacement and technological upgrades, particularly to reduce gas leakage in distribution networks. Improving governance and management quality is essential to enhance efficiency and curb corruption. Measures should include disconnecting illegal connections, recovering unpaid bills, and identifying leakages. Estimates suggest that eliminating illegal connections alone could save 200–300 million cubic feet of natural gas annually.

Improving Electricity Demand Forecasting and Data Accuracy

Electricity demand patterns vary across regions due to economic, geographic, and demographic differences. Region-specific demand forecasting is therefore essential to rationalize investment decisions and reduce environmental risks. Improved data collection and analysis will reduce reliance on population-based estimates and enable more accurate projections of household and industrial demand, helping determine appropriate installed capacity, generation levels, and fuel mix.

Ensuring Policy Alignment and Transparent Decision-Making

National energy policies, master plans, and legal frameworks must be regularly reviewed and updated to ensure long-term energy security. Policy decisions should be made transparently through broad stakeholder consultations. Incorporating independent scrutiny and expert assessments—particularly from regional energy specialists—will help identify policy gaps early and improve overall policy effectiveness.

Accelerating Renewable Energy Deployment and Storage Integration

Energy policies should clearly emphasize the potential of renewable energy by accelerating project development through public and private investment, addressing market barriers, and encouraging microfinance institutions to support solar energy adoption in remote and off-grid areas. However, without adequate battery storage systems, renewables cannot be scaled rapidly, as existing grid infrastructure can accommodate only limited transmission. Significant investment and time are required to develop storage capacity to make renewables a viable large-scale solution.

Strengthening Private Sector Participation through Clear Guidelines

Energy infrastructure development is highly capital-intensive, and public investment alone cannot meet financing requirements. The private sector has already played a vital role in Bangladesh's energy sector and should be further encouraged. However, private participation must be governed by clear guidelines that safeguard national interests. The government should adopt a dedicated "Private Sector Refinement Policy" to regulate private involvement, ensuring transparency, accountability, and alignment with long-term national energy objectives.

Sketch: TBS

Dr Sakib Bin Amin, Professor, North South University