Bangladesh has 100% electricity coverage and over 50% excess generation capacity. Yet ordinary people are losing their sleep over daily power outages, as total electricity generation lags behind peak demand.
On July 3, the country resorted to 1,500 MW of load shedding when a cut of 1,273 MW was planned. Many experts even disputed these figures provided by the Bangladesh Power Development Board (BPDB) and argued that the load shedding was even higher.
This baffling development requires some explaining, and the crude excuse of higher import prices for liquefied natural gas (LNG) cannot explain the underlying shortcomings of both BPDB and PetroBangla or, more broadly, the Power division itself.
For starters, energy prices – including natural gas – have been rising since February thanks to the Russian invasion of Ukraine; the subsequent sanctions against Russia and retaliation by Russia which created an artificial shortage of natural gas worldwide.
How Natural Gas Prices Affect Electricity Generation in Bangladesh
Electricity generation in Bangladesh has always been heavily dependent on gas. Over the past ten years, BPDB’s share of electricity generation from natural gas has gradually declined from around 78% in fiscal year 2010-11 to around 60% in financial year 2020-21. It should be mentioned that a large part of the electricity generated by natural gas has been replaced by electricity imports from India, which have reached 10% of the total electricity production and are much more expensive. than domestic production.
Therefore, when BPDB was exposed to an exogenous shock such as the Russian invasion of Ukraine which increased the cost of power generation in Bangladesh and India (its only source of imports), it had no no choice but to reduce production, which has led to the load shedding we experience every day.
The GoB had previously committed to achieving 10% electricity generation capacity from renewables by 2020. According to BPDB, as of July 2022, the total installed capacity of renewable power plants (solar and hydro) s rises to 2.05%. The slow development of integrating renewables into the mix has also allowed the current electricity shortage to have such dire ramifications.
Dr Khondaker Golam Moazzem, Research Director at the Center for Policy Dialogue (CPD), said: “The government should have invested heavily in renewable energy sources and phased out inefficient fossil fuel power plants. We would then have been better equipped to handle a gas shortage.”
As Dr. Moazzem mentioned, there are questions about the efficiency of public facilities. Many of these factories were built in the 80s with outdated technologies. Although the efficiency of public facilities has increased from 31% in FY 2010-11 to around 40.7% in FY 2020-21, it remains extremely low and the increase in efficiency is stagnant at best. Experts have long argued that the government should phase out inefficient fossil fuel power plants as soon as possible.
Where do we import LNG from?
BPDB’s overreliance on natural gas is only half the story. The other part concerns Bangladesh Oil, Gas and Mineral Corporation (PetroBangla) and from whom it buys natural gas. PetroBangla is the company that supplies BPDB with natural gas, its main input in the production of electricity.
Now, the price of natural gas on the international market – supplied by gas pipelines at the regional level – does not affect Bangladesh much, because the country is not part of any cross-border gas pipeline like Nord Stream between Germany and Russia. However, 24-26% of its consumed gas is imported from abroad, of which 6% comes from the LNG spot market, and the rest comes from Oman and Qatar under long-term contracts.
There are important distinctions between the two sources of LNG imports. While the cost of importing LNG under long-term contracts is set at a pre-determined price of $11 per million British Thermal Unit (BTU), the price of LNG in the spot LNG market is volatile and can change drastically subject to exogenous shocks such as the Russian-Ukrainian war.
A recent statement from PetroBangla indicates that prices in LNG spot markets have risen to around $35 from below $25 a few months ago. As a result, local gas supply also fell sharply from 3,500 million cubic feet per day (MMcf/d) to just 2,822, causing a shortage of around 700 (MMcf/d).
But experts have long warned of this overreliance on LNG, which is putting the country under significant financial pressure. When PetroBangla decided to import LNG from overseas in 2018, its total operating expenses fell from Tk 68.57 billion in FY 2017-18 to Tk 199.73 billion in the 2018-19 financial year; of which Tk 118.125 billion was spent on importing LNG cargoes and regasification.
The cost of importing LNG increased further in the following fiscal year to Tk 175.03 billion. And for the first time, to cover the large operating loss, PetroBangla received government grants of Tk 25 and 35 billion in the two fiscal years, considerably less than what the state-owned company had requested. It also takes out loans from banks and solicits funds from the Gas Development Fund (GDF). It is not hard to see that PetroBangla’s poor financial performance can be entirely attributed to expensive LNG imports.
Do we need to import LNG from abroad?
Not necessarily. According to most experts, Bangladesh hastily decided to import LNG from abroad before exploring its domestic options. The GoB had done much to win maritime disputes against Myanmar and India in 2012 and 2014, respectively. But the government has not explored the blue sector, nor does there appear to be any significant movement in that direction.
“The government had not exploited all of its domestic production capacity before deciding to import LNG from abroad. Some studies suggest that domestic production would be able to cover electricity production if sufficiently explored” , said Dr. Moazzem.
Asking to remain anonymous, a former chairman of PetroBangla said, “We didn’t prioritize domestic exploration in the past and we are suffering from it now.”
While others argue that it is a misconception that Bangladesh has the resources to be self-sufficient in natural gas production, one can easily argue that the amount of import payments could have been significantly reduced, and we probably wouldn’t have to rely on the volatile LNG spot market.
Why doesn’t the government subsidize LNG imports?
Another question is often raised regarding the government’s ability to subsidize energy payments in these difficult times. Unfortunately, the government is fiscally constrained due to its sadly low tax-to-GDP ratio. On top of that, in the past year alone, it had to repay around Tk 26,000 crore in capacity payments alone. The government also plans to introduce a universal pension scheme in the next fiscal year.
The government had already twice failed to grant PetroBangla the requested subsidies, forcing it to seek loans from banks. In the most recent budget, the government even cut many social security programs while benefits from other programs like old-age allowances remained the same despite inflationary pressures. Given these precedents, it is unlikely to be able to disproportionately subsidize PetroBangla’s higher subsidy demands if it increases its LNG imports to meet peak demand.
So what should we do now?
I sought the insight of Dr. Moazzem to find a solution to this crisis.
“In the short term, the government can take out loans from the IMF, AfDB, World Bank or other development organizations to pay for its electricity generation costs,” Dr Moazzem said.
“In the long term, the government should prioritize domestic natural gas exploration over imported LNG. The use of renewable energy should be prioritized in power generation and inefficient factories, as well as rentals and fast rentals, should be phased out,” he added.
Seikh Rafi Ahmed. Sketch: TBS
Seikh Rafi Ahmed. Sketch: TBS