How will Bangladesh pay for massive upcoming power projects this year?

The country was celebrating its hundred percent electrification in mid-March last year. This remarkable feat was achieved through an investment of more than $28 billion in power generation since 2009.

Little did Bangladesh imagine how the Ukraine war and subsequent sanctions by the USA on Russian oil would crumble that achievement.

Bangladesh's feat in the energy sector was done through aggressively building hundreds of power plants using imported fuel, coal and liquefied natural gas (LNG) – prices of which have marked a significant rise.

To make the matter worse, the USA repeatedly hiked policy interest rates to contain its inflation. The hikes made the dollar costlier for the rest of the world including Bangladesh.

Bangladesh limited its energy imports and opted for planned load shedding to manage the situation. It stopped buying LNG from the expensive spot market. The country started LNG imports in 2019 on a long-term contract with Qatar to cover its gas supply deficit. It additionally bought LNG from the spot market which used to offer cheaper prices occasionally back then.

As a result, gas supply shortage has become severe and chronic for both power generation and industries.

Infographic: TBS

Bangladesh has also stopped importing coal to run its massive power plant in Payra. The test run of the large Rampal plant that started in December has also been stopped due to the dollar crisis.

The government's payments to independent power producers (IPPs) for their power purchase suddenly started to get disrupted from mid-2022. Whereas the government used to pay them within less than two months of billing, it has suspended payments since June last year.

The arrears now stand at more than $2 billion. All the while the IPPs have kept on producing power spending their own money – hoping that the government would soon clear their arrears.

This year, several power plants with 7,800-megawatt capacity are scheduled to commence power generation. For a perspective, when Sheikh Hasina assumed power in late 2008, the country could barely generate 4,000 megawatts.

More than half of these new upcoming power plants would come from coal-fired plants in Rampal, Barishal and Chattogram – plus from Adani's Godda 1,400MW plant in India.

Because of the high price of coal on the international market now, the cost of Adani's power would stand over Tk16 per unit (per kilowatt hour) and Rampal's at Tk15 or so. This cost is double the initial estimate and way higher than gas-based power generation cost.

To run these plants, the government would have to spend a few billion dollars.

The remaining power plants are all gas-based. These include three large ones: the 583MW Summit, the 718MW Reliance and the 584MW Unique.

To run these gas-based power plants, the government will have to either import LNG to increase its gas supplies or keep some old plants shut and divert their gas to these or just not run them at all. In the case of the last option, the government will pay these power plants hefty penalties.

Since coming to power in late 2008, Prime Minister Sheikh Hasina rolled out an aggressive plan to increase power and energy supply. Based on her past experience, she opted for diversifying primary energy sources – from oil to nuclear or coal or LNG or renewables and to even power import – so that the country's energy security level would remain high.

But the government's vision of diversifying energy sources did not foresee the Ukraine war that has triggered price hikes of all kinds of tradable energy – LNG, oil or coal.

The situation would not have become so bleak if Bangladesh increased its own gas production or had sizable coal production. It could have generated at least 1,500MW of power from green sources by now.

But there had not been enough oil and gas exploration on- and off-shore in the last one decade. Bangladesh has reasonably good coal deposits – but the government chose not to tap them to protect agriculture and environment.

There have been some small gas finds and production increases by Bapex and the Russian company Gazprom, but these are not enough to even keep up with the overall annual production decline. The government is continuing these small initiatives so that some relief is found from the existing gas fields.

Oil and gas exploration in the Bay of Bengal has remained stalled for nearly a decade. The last time a big proposition came up was when the American company ConocoPhillips completed a seismic survey in the deep Bay of Bengal there under a 2008 contract and believed it had found a prospect of 5 to 7 trillion cubic feet of gas resource. But ConocoPhillips wanted the government to amend the contract as it argued that the investment required to develop the gas field did not justify the existing contract. The government declined and the company departed.

Since then, the government has taken several initiatives, but has not been able to get any oil company to come to Bangladesh.

In the green energy sector, which is mainly solar power, a decade back the government had set a target of achieving 10% of total power generation from green sources by 2020. As of today, only 3% has been achieved.

The Sustainable and Renewable Energy Development Authority (Sreda) has set a target of generating 5,000MW of onshore and offshore wind power by 2030. This goal could have been set much earlier.

For now, the only way out for Bangladesh is to ensure uninterrupted energy for the industries and services. Times are bleak for even exports – but we still have good exports that would fetch us dollars.