Power subsidies are expected to increase by 83% this fiscal year

Subsidies for the power sector are projected to surge by 83% this fiscal year as the interim government plans to settle outstanding arrears owed to private power producers. The finance ministry’s initial plans suggest an additional Tk 25,000–Tk 30,000 crore will be allocated in the revised budget to address these arrears, increasing the total subsidy allocation to approximately Tk 66,000 crore by the end of FY25, compared to the original budgetary provision of Tk 36,000 crore.  

The revised budget for FY25 is expected to finalize the increased allocation by March, finance ministry officials stated. However, due to shortfalls in revenue collection, the government may divert funds from the Annual Development Plan (ADP) budget, which had an initial allocation of Tk 265,000 crore but is likely to be reduced by around Tk 50,000 crore in the revised budget.  

"If we can allocate the required amount to the power sector, the arrears will be cleared within this fiscal year, easing the subsidy burden in the next fiscal," a senior finance ministry official remarked. The government has also initiated efforts to lower power production costs to prevent future arrears and create more financial flexibility.  

The International Monetary Fund (IMF), in December, urged the government to clear power sector arrears by June 2025 and recommended raising electricity prices to curb subsidy spending. However, the government has resisted price hikes, forming committees to explore ways to cut costs instead.  

Muhammad Fouzul Kabir Khan, adviser to the Ministry of Power, Energy and Mineral Resources, acknowledged the pressure to increase electricity and gas prices, stating that while prices have remained unchanged during the interim government’s tenure, the situation might not be sustainable. "The pressure of accumulating arrears feels like a gun to our head," Khan said.  

Currently, the Bangladesh Power Development Board (PDB) has arrears of Tk 21,000 crore, including Tk 9,000 crore owed to the Bangladesh Independent Power Producers' Association, whose members warn they may halt production by summer if arrears remain unpaid. Additionally, India’s Adani power plant is pressing for arrears of approximately $850 million, while local coal-fired power plants face challenges in importing coal due to funding shortages.  

To address these issues, the interim government has formed committees to identify loopholes in power contracts signed during the previous Awami League government and to renegotiate power purchase prices that have increased subsidy burdens.  

Zahid Hussain, a former lead economist at the World Bank’s Dhaka office, emphasized the need to reduce power production costs. "The immediate solution is to phase out inefficient power plants and renegotiate contracts with unfair terms that allow producers to overcharge," he said.