The government will spend around $4.2 billion this year on energy import, of which, LNG import alone will take $3.49 billion
The government will be under tremendous financial pressure this year due to high energy import and penalty payment to private power companies for keeping them idle.
For energy import, the government will spend around $4.2 billion this year. Of this, liquefied natural gas (LNG) import alone will take $3.49 billion. The remaining would be required for import of two million tonnes of coal, power from India and furnace oil to run oil-based power plants.
This would put new pressure on the foreign currency reserves and the balance of payments, especially when the country's exports are facing 7.51 percent decline (July-November 2019).
The trade gap in the last fiscal year hovered around $15.53 billion. Given the ongoing large scale infrastructure works, trade gap is unlikely to reduce this year. On top of it, Bangladesh would have to handle the additional pressure of energy imports.
A decade ago, when the government conceived the idea of importing LNG, coal and electricity – the situation was different. There were unbearable power cuts and the gas production forecast was grim. Back then, the government believed that if uninterrupted power and energy can be ensured, the country's exports would increase. This way the import costs would be compensated by higher export earnings.
But the present export and investment scenario is posing a question whether Bangladesh should have gone for importing so much of energy at this time.
"Yes we have not exhausted exploring our local resources. We may find new oil and gas resources in the deep sea," said Aziz Khan, member of the Bangladesh Energy Regulatory Commission (Berc) having more than three decades of experience in the energy sector.
"There are prospects in the Surma Basin and there are some high risk geological prospect areas. But besides them, we don't see any big prospect in Bangladesh today," he added.
He maintained that the energy sector must grow by 10 percent each year in order to keep its contribution to at least 6 percent of GDP. As there were very few sources of primary energy, he believed that the government was in the right track.
Till recent years, the government's spending for diverse energy import was not very significant as the country mostly relied on its own cheap gas. However grim gas production forecast and power shortages a decade back pushed the government to take all out measures to diversify primary energy through imports of LNG, coal, oil and electricity.
Other than natural gas, Bangladesh has a good reserve of coal. But due to environmental concerns, the government has refrained from going for large scale production of coal.
The country started importing larger volumes of furnace oil for fast track power generation a decade back to end load shedding. Last year, the nation imported Tk1,282 crore of furnace oil for power generation.
This is part of total oil import worth Tk30,000 crore.
Bangladesh started importing power from India a few years back and in the last fiscal year, the government spent power worth Tk3,702 crore. Bangladesh imports 1,160MW electricity from India.
Although the country now has surplus power, the government continues to buy electricity from India as it was more cost effective than the locally generated rental power projects. Rental power plants will be phased out soon while electricity import will continue.
The country started importing 500 mmcfd of LNG from the Middle East in late 2018 and mixing it with local gas to keep the nation's gas-based industries and other customers running. Last year, the LNG import increased to 600 mmcfd and this year, its import will go up to 900 mmcfd.
According to a projection of Berc, this year's LNG import will cost Bangladesh $3.49 billion.
The LNG import has helped increase gas-based power generation, a part of which had remained unutilised for years due to lack of gas supply. This has also helped industries that use gas for boilers and captive power generation.
The country's own gas production peaked at 2,700 mmcfd two years ago. However, this production is down to 2,400-2,500 mmcfd now. After mixing the imported LNG from last year, the available gas today stands at 3,100 mmcfd. From April next year, more LNG will be added to the national grid so that 3,500 mmcfd gas is available for consumption.
Finally, Bangladesh has started importing coal to run the 1,320MW coal power plant in Payra from late last year. It is expected that this year, the plant would need around two million tonnes of coal to go into partial and full operation. The cost of coal would accordingly be $120 million.
While Bangladesh is spending so much for import of gas, two decades ago Bangladesh had faced tremendous pressure from oil companies, multilateral donors, and a section of the country's professionals to export local gas.
During the last fiscal year, the power board had to pay almost Tk9,000 crore to 74 private companies as capacity payment. To compensate, the government had to provide subsidy to the power board.
According to the Bangladesh Economic Review 2019, the power board has incurred a cumulative loss of Tk60,370 crore in power purchase and operation since 2007-08. In the last fiscal year, the operating loss of the power board reached its highest at Tk10,000 crore.
It is not yet clear how much capacity payment would be given to the idle private power plants this year as it depends on electricity consumption.