Another electric shock for households, businesses

Infographic: TBS

The government hiked power tariff by 5% to Tk8.25 per unit, sending people into another round of disarray amid soaring prices. This is the third time this year the government increased power prices.

Residential consumers, especially low-income earners, alongside commercial and industrial units will both feel an even harder squeeze at a time when belt-tightening practices are already in place.

After the third price hike in the last two months, electricity bills for household users who consume up to 200 units will rise by Tk182 per month.

Those who consume 201 to 300 units will see a hike by Tk285 in their monthly bills.

The price rise, however, will net the government an additional revenue of Tk9,200 crore annually, according to an estimate.

Before January, the average retail price of per kilo-watt hour electricity was Tk7.13, which has now reached Tk8.25/kWh.

The new rate will be effective from today, reads a gazette notification by the Power Division of the Ministry of Power Energy and Mineral Resources issued on Tuesday.

Earlier on 12 and 30 January, the government hiked electricity prices by 5% each time at the retail level.

The increases coincided with the International Monetary Fund's approval of a $4.7 billion loan early in February.

An economist said low-income households often have limited financial resources, and a power tariff hike can increase their monthly electricity bill significantly, making it difficult for them to afford basic necessities. 

In many cases, these households have to prioritise their spending, and they may have to cut back on other expenses, such as food, healthcare, or education, to pay their electricity bills.

The power price hike is going to be a double whammy for farmers as well, which would soon be visible, experts believe.

Agriculture economist Dr Jahangir Alam Khan told The Business Standard that this was the Boro crop cultivation season, which covers around 54% of our rice demand. The electricity price hike means the production cost will rise as the cultivation is completely irrigation-based.

"Diesel prices had also increased earlier. All these fuel price hikes will put the farmers in hot water, which would push them to lower irrigation. Reducing this will mean that paddy production is hampered," said Dr Jahangir Alam Khan.

At this point, the government should incentivise farmers by providing cash subsidies for power and electricity so that paddy production remains at the expected level, he recommended.

The crucial readymade garments sector is also scrambling to brace for the impact of yet another hike.

Jasim Uddin, president of the Federation of the Bangladesh Chambers of Commerce and Industry, said, "The prices of all raw materials have spiked over the past year. Electricity prices are also being increased over and over again. As a result, we are losing capacity and competitiveness in the international market."

Although businesses will suffer, the brunt will be felt by consumers, already under strain amid high inflation.

Mostofa Azad Chowdhury Babu, senior vice-president of the Federation of Bangladesh Chambers of Commerce and Industry (FBCCI), said, "The burden of the increase in electricity prices will be on the consumers.

"The government is telling us [businessmen] not to increase the price of goods. But electricity prices are increasing. How will we survive without adjusting for the price increase?"

Kamruzzaman Kamal, director (marketing) of Pran-RFL Group, said industries' profit margin has already been impacted by the energy price hike.

"Ultimately, consumers will have to bear the brunt of this hike," Kamal told The Business Standard.

Contacted, Dhaka Chamber of Commerce and Industry (DCCI) President Md Sameer Sattar said, "Due to the high price of primary energy in the international market and the disruption in the existing global energy supply chain, the government is being forced to adjust [hike] power prices every month. 

"However, if prices are to rise every month, it will have adverse effects on businesses and trade. Production costs and the cost of doing business will also go up while our capacity to export will be hampered. Inflation will also rise."

"This situation will reduce our industrial and business investment competitiveness. We now have to find short-term solutions to deal with the pressures of subsidies.

Finding alternative energy sources, further reducing system losses, capacity building of government power plants and production cost reduction should be considered," he added.

Although many were caught off-guard, the hike should come as no surprise. 

On 9 January, at a media briefing at the Bidyut Bhaban in the capital, the state minister of Power Energy and Mineral Resource said the government is going to adjust oil, gas and power prices each month and were preparing a guideline to this end.

Businesses term move very unpredictable

Abdullah Al Mamun, vice president of the Bangladesh Textile Mills Association, said businesses want a predictable price of energy as it directly impacts their cost of doing business.

"We want predictability in energy prices because we take orders at least three months before delivery."

He said many businesses shifted to electricity after a massive hike in gas prices in January. After increasing power tariffs three times in two months, electricity bills have also become costlier, pushing up production costs.

"If we raise prices of products, sales will be impacted and if it continues factories will be shut down and people will be unemployed," he warned.

Dr Khondaker Golam Moazzem, research director of the Center for Policy Dialogue, said consumers were feeling the pinch despite having no responsibility behind the rise in power production cost. 

He said excess capacity charge, purchasing power at higher prices and anomalies in purchase deals had also come to the surface in recent times. 

He questioned why consumers would have to take responsibility for these. 

Moazzem said production cost will increase and irrigation will become more expensive for farmers, impacting the prices of rice and paddy. 

The latest hike is yet another exercise by the Power Division of the Ministry of Power Energy and Mineral Resources of the recent ordinance which amended the Bangladesh Energy Regulatory Commission (BERC) Act-2003, enabling the ministry to adjust the prices of gas and electricity bypassing the public opinion.

Earlier, the Berc used to announce the gas and electricity prices after holding a public hearing on the distribution companies' price hike proposal.

Recently, distribution companies had applied for at least a 15.43% increase in retail/consumer-level electricity prices to cover their financial loss against the 20% price increase at the wholesale level.

Previously, the Ministry of Power, Energy and Mineral Resources used to adjust the prices of fuel oil including diesel, octane, kerosene and petrol without any hearing. The prices of gas and electricity were adjusted by the Berc through hearings.

This is the fourth time the Bangladesh government used its newly-granted authority to adjust the price of electricity without a public hearing.