Staff Reporter :
In a significant policy shift, the Power Division has directed the Bangladesh Power Development Board (BPDB) and relevant stakeholders to take immediate steps to rationalise electricity tariffs paid to Independent Power Producers (IPPs), in a move aimed at alleviating the mounting financial pressures within the energy sector.
According to a directive issued on Tuesday (Memo No: 27.00.0000.014.29.034.24.38), the government instructed authorities to reassess and adjust tariff structures by excluding notional returns on equity and recalculating capital costs, operational and maintenance (O&M) expenses, and heat rates based on actual, justifiable expenditure. The letter, signed by Senior Assistant Secretary Mohammad Hossain Patwari, calls for comprehensive renegotiation of power purchase agreements (PPAs) to better reflect economic realities.
The directive follows increasing concern over the unsustainable cost burden posed by Bangladesh’s existing power generation model. Although the country now has over 26,000 MW of installed capacity, actual peak demand rarely exceeds 15,000 MW-resulting in significant overcapacity.
This disparity stems largely from over a decade of project approvals, many conducted without competitive tendering under the Quick Enhancement of Electricity and Energy Supply (Special Provision) Act, 2010. The legislation has been criticised for enabling the award of lucrative contracts to politically connected entities, often guaranteeing profits irrespective of whether power is actually supplied.
These arrangements have led to capacity payments – fixed sums paid to private producers even when their plants are idle – costing the government over $1.5 billion in the last fiscal year alone. Total energy subsidies exceeded $2.5 billion, straining the national budget, contributing to currency depreciation, and undermining foreign exchange reserves.
Despite the apparent surplus in generation capacity, industries continue to suffer from load-shedding and energy shortages, particularly in key economic zones. Transmission bottlenecks and grid inefficiencies have exacerbated the problem, while rural electrification and power affordability remain persistent challenges.
Although the government continues to subsidise power to maintain low retail prices – currently between Tk 7 and Tk 9 per kilowatt-hour – many plants, particularly those reliant on expensive furnace oil or diesel, cost as much as Tk 25 per unit to operate. The difference is borne by the state, further deepening the fiscal burden.
The July 1st order represents a rare public acknowledgment that the current energy procurement model is fiscally unsustainable. However, experts remain cautious about the likelihood of meaningful renegotiation. Many existing PPAs are backed by sovereign guarantees, and private operators may resist alterations to contract terms that could reduce their profitability.
Analysts also warn that unless the 2010 Special Provision Act is repealed and future procurement is conducted transparently through open bidding, the structural flaws that led to the current crisis may persist.
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While the Power Division’s directive is seen as a positive step, sector experts believe it must be followed by wider structural reforms. These should include ending discretionary contract awards, cancelling or revising unnecessary agreements, prioritising investment in renewable energy, and modernising the national grid.
The long-standing culture of opaque decision-making and political patronage in the power sector has not only drained public finances but also eroded public trust. Energy specialists argue that the future of Bangladesh’s electricity supply must be built on principles of transparency, efficiency, and sustainability.
As the government begins this overdue review, stakeholders across the sector are watching closely to see whether this signals the beginning of genuine reform – or merely a temporary cost-cutting measure.
