Fuel crisis cuts electricity in Bangladesh, sparking energy debate

Robiul Islam, 29, sits in the dark at his home in the Kalurghat neighbourhood of Chattogram city, suffering through yet another power cut, as Bangladesh struggles with costly and inadequate natural gas imports amid a global hike in energy prices.

“Over the last two months, we are seeing power outages that we have not seen in quite a few years,” Islam told the Thomson Reuters Foundation by phone.

The South Asian nation boasts an electrification rate of 97 per cent - meaning nearly all of its population has access to electric power - and has increased its total power generation capacity to 25,700 megawatts (MW), against peak demand of about 15,000 MW.

But since June, the country has seen a return of frequent power outages, or “load-shedding”, as the government tries to keep down rising fuel costs.

Nasrul Hamid, state minister for power, energy and mineral resources, wrote in a Facebook post that with energy prices soaring on the world market due to the ongoing conflict between Russia and Ukraine, Bangladesh is experiencing a shortage in its gas supply that is hampering electricity generation.

But observers say the roots of the crisis go back way before Russia’s invasion of Ukraine led to an oil and gas squeeze.

Bangladesh’s power sector has increasingly relied on imports of fossil fuels, including Liquefied Natural Gas (LNG) which is a “very volatile commodity” that risks becoming too expensive for poorer importing countries, said Simon Nicholas, a researcher at the U.S.-based Institute for Energy Economics and Financial Analysis (IEEFA).

The share of Bangladesh’s power generated from natural gas stands at about 60 per cent, with a quarter of that gas imported.

Experts have called for more exploration and expansion of gas production at home to reduce reliance on imported fuels.

The Bangladesh Power Development Board (PDB) has also faced financial pressure because of the over-capacity it created through costly support for independent power producers (IPP) in the private sector.

They receive capacity payments from the government - a set fee based on the amount of power that plants can generate - even when they remain idle.

Nicholas said that in the fiscal year 2020-21, the cost of electricity purchased from IPPs represented over half the PDB’s total operating expenses for the first time.

In that year, the government also made capacity payments of 132 billion taka ($1.40 billion) to the IPPs and paid out an equivalent amount of subsidies to state-owned power utilities.

The government launched austerity measures two weeks ago, including scheduled load-shedding, controls on air-conditioning use and reduced working hours to ease pressure on fuel imports.

But power outages and energy price hikes will nonetheless drive up business costs, said Rizwan Rahman, president of the Dhaka Chamber of Commerce and Industry.

Electricity and other energy, including diesel and gas, accounts for 15-20 per cent of production costs across the main energy-intensive industries, especially textiles, cement, steel, leather and plastic products, he added.

Electricity prices went up both in 2019 and 2020, he noted, while gas tariffs recently rose by nearly 23 per cent - which will in turn drive up power costs further.

“The frequent and unpredictable tariff hikes undermine industrial efficiency and production,” he said, adding that this deters foreign and local investment.

In addition, production processes are delayed by power cuts, making it harder to meet manufacturing deadlines for exports, hampering shipments and reducing competitiveness, he said.

So far, however, the power crisis has yet to result in any significant corporate shutdowns or unemployment, he added.

But on the ground, small business owners like Shishir Karim, who runs a restaurant in a shopping mall in downtown Dhaka, are already feeling the effects.

The mall now shuts at 8pm to comply with the government’s energy-saving directive, and while restaurants are exempt, Karim says most of his evening customers are staying away.

“I am losing a large chunk of my business,” he said. “The financial stress is quite severe for me.”