Energy crunch behind Bangladesh's industrial slowdown
Shrinking gas supplies and rising fuel imports are forcing factories to operate below capacity, slowing economic momentum. The crisis reveals how deeply Bangladesh’s growth prospects are now tied to energy security decisions made years ago
Since the beginning of the Ukraine-Russia war, energy experts have been warning policymakers that within a few years Bangladesh's fuel supply shortage will reach a crisis point. They pointed out that the root cause of that is the increasing import dependency of supplied fuels. Bangladesh always had to import petroleum for its transport, irrigation and cooking sectors.
Since Bangladesh decided not to mine coal from environmental consideration, there was no alternative to importing huge quantities of coal to run approximately 6000 MW of coal fired power plants. However, no one ever imagined that gas would have to be imported so soon. From 2018, import of natural gas in the form of LNG to meet the shortage has started. At one time domestic natural gas supplied 80% of our total commercial energy needs; now it is less than 40%. This dramatic change in our energy demand-supply balance implies that a huge amount of foreign currency is being drained to import energy.
As can be seen from the Figure below how quickly Bangladesh's energy import dependency is increasing. In 2015, the import burden was a reasonable 20%, but within seven years this dependency has more than doubled to 44%; in 2024, it has exceeded 56%. If gas reserves are not discovered and the renewable energy penetration proceeds at the slow existing pace, then, at 2030, it will exceed 90%, implying that or natural gas reserves are nearly depleted.
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The impact on foreign currency reserves by the energy sector is not limited to fuels and electricity import. There is the payment to IOCs mainly Chevron of approximately $500 Million for the gas they supply to the national gas grid. Then is the huge payment for capacity charges for all the power plants (minus the Adani Plant) which amounts to approximately $4 Billion. The gas, oil and power sectors for distribution, transmission, storage and new infrastructural developments have to make large investments every year mostly in foreign currency. The repayment for these investments adds several billion dollars to the foreign currency outflow. If all foreign currency expenses and obligations of the oil, gas and power sectors are added up it will exceed $20 Billion.
It must be appreciated that Petrobangla cannot meet the country's full gas demand; neither can BPDB meet the full electricity demand. If full gas and electricity demands were met by importing more LNG and furnace oil, the total foreign currency needs of the energy sector will exceed $24 Billion (author's estimation) annually or $2 Billion per month.
The Table below summarizes some important economic parameters of Bangladesh along with the cost to supply energy and electricity for the financial year 2023-24. The noteworthy item is the huge trade imbalance; Bangladesh exported about $41 Billion while it imported about $63 Billion resulting in a trade imbalance of $22 Billion. Such a large negative trade balance would have caused breakdown of all financial systems in the country had it not been for the workers' remittances that we receive every year. In the financial year 2024, Bangladesh received approximately $24 Billion; $2 Billion monthly. Therefore nearly all remittance earning is consumed by the energy sector. The few billion dollars surplus is not sufficient for paying all foreign currency payments including foreign loan repayment of all the other sectors (except energy and power) of the economy and to bolster up the foreign currency reserve and dollar to Taka exchange rate. For that, Bangladesh has to use foreign aid and other foreign investments. As can be see the foreign aid is around $8 Billion. Had it not been for direct foreign investments and grants from different bilateral and multilateral organizations, Bangladesh would face great difficulties in managing the economy. It is adequately clear that the need to spend $20 Billion (increasing every year) in foreign currency for the energy and electricity sectors is a huge burden for the country.
Since increased energy supply to the economy directly translates to more economic activity, energy shortage will lead to lowered economic growth. This downtrend of the economy is readily evident. No sector is more affected than the industrial sector. The RMG and Textiles sector estimates nearly 10% of the factories have shut down and most are operating at 30-40% lower capacity. Since supplying less energy is not an option, the only option along with greater efficiency of energy utilization is to reduce dependency on imported fuels.
To reduce import of fuels the following two main options are available –
- Increase production of domestic natural gas
- Harness more renewable energy mainly SOLAR
Most experts agree that the sheer neglect of exploration activities have resulted in the present crisis. This situation is best alleviated by increasing gas exploration to the highest level possible. The 50- and 100-well program of Petrobangla is praiseworthy but the implementation plan must be seriously and sincerely executed to get results. Adequate and timely funding must be provided without bureaucratic tangles, and experts including foreign ones must be engaged for onshore exploration. As soon as possible deep offshore exploration must be initiated. We have lost an inordinate amount of time.
In the last fifteen years along with neglecting gas exploration, renewable energy development has been perfunctorily pursued. With a renewable energy penetration of less than 2%, Bangladesh ranks in the bottom 10% of countries. Such slow uptake of renewable energy mainly solar PV electricity which had reached grid parity in most countries at least five years back, indicates gross neglect in achieving energy self-sufficiency. All types of incentives including land provision, easy access to low interest financing and less bureaucracy in setting up on-grid and off-grid renewable energy projects are a key to fast penetration of renewable energy in Bangladesh.
In the grim situation that Bangladesh finds itself, all types of energy wastage must be strictly controlled. First, all users must be encouraged, in some cases forced, to practice conservation, and second, the use of energy efficient devices and processes must be ensured. Both these must be ingrained as a culture in society. This can be achieved by awareness campaigns and correct pricing of fuels and electricity. The other important dimension of this energy crisis is that industrialists must face the fact that some types of industries can't be set up in Bangladesh; energy intensive industries need to be avoided, and as far as feasible concentrate on labour intensive industries.
Dr. Ijaz Hossain is a Professor and Dean of Engineering, Buet.
