Fund crunch for power projects to ease in two years

Infographic: TBS

After years of heavy spending on development, the capital-intensive power and energy sector is expected to get breathing space after two years when it will have a surplus in the allocated budget to spend on new projects.

In the fiscal 2024-25, the sector will have more than a half its budget ceiling of Tk60,254 crore, projected in the medium-term budgetary framework (MTBF), left in hand after meeting development expenditures, according to an official document.

But the public investment ceiling set for the current and the next fiscal years – FY23 and FY24 – will not cover the cost of the ongoing power and energy projects, the planning ministry's sector strategy paper says, suggesting alternative sources of financing and adjustment of electricity tariffs.

The development budget ceiling set in the MTBF for the power and energy sector projects for the fiscal 2022-23 is Tk49,796 crore, while the resources needed are estimated to be Tk75,387 crore, leaving a negative fiscal space of Tk25,591 crore

The resource gap is estimated to come down to Tk1,817 crore for FY24. The budgetary ceiling for the next fiscal is Tk54,776 crore, while resources for implementing the ongoing projects in the sector would be Tk56,593 crore, according to the estimate made in the strategy paper.

However, the budget ceiling for FY25, is much wider than the estimated resource needs, meaning that there will be fiscal space for new projects.

Resources needed for implementing power and energy projects are estimated at Tk25,815 crore for FY25, which is less than half the budget ceiling set for the sector.

The assessments have been made under the Japan-funded project to strengthen public investment management system that analysed the financial projection for the power and energy sectors' development during the 8th five-year plan till 2025.

The assessments and suggestions have been incorporated in the power and energy sector strategy paper released by the Bangladesh Planning Commission of the Ministry of Planning in August this year.

The financing projection under the 8FYP indicated that a large funding shortfall would be expected in the sector, creating a negative fiscal space in FY23 and FY24, according to the strategy paper.

Negative fiscal space means there is "fiscal room" for new projects in the two fiscal years, it says, suggesting careful analysis and strong justifications in case any new project becomes necessary.

"This indicates that the estimated total cost of ongoing projects in the coming fiscal years exceeds the sector budget ceiling during those period if ongoing projects are completed on time and budget is disbursed as planned," it reads, stressing the need for expanding fiscal space by exploring other sources of financing to complete the projects on time.

Increasing self-finance by autonomous bodies under the ministry of power, energy and mineral resources, increasing public-private partnership arrangements and increasing sector-specific foreign assistance are among the potential alternative sources of finance, it listed.

It also recommended electricity tariff adjustment policies and enhancing efficiency of the power and energy sector as ways to reduce the cost burden on the exchequer.

As the power and energy sector needs investments to the tune of some trillion taka in the long run, the strategy paper calls for government action – reforms in regulatory issues and procurement process – to accelerate private financing.

The cumulative expenditure for power supply through both generation and imports up to June 2021 stood at Tk44,250 crore for ongoing projects, some starting in early 2013. Tk17,358 crore was allocated for the last fiscal year with Tk52,560 crore remaining for the remaining periods of the projects until 2026.

During the period, Tk13,404 crore was spent for power transmission and distribution network improvement, while Tk7,285 crore was allocated in last fiscal year's ADP and Tk36,740 crore remains for the projects until the end of tenures.

Up to June 2022, Tk57,083 crore has been spent on the Rooppur Nuclear Power Plant project (2016-2025), with a further Tk13,395 crore allocated in the annual development programme (ADP) of FY23 for the first phase.

Moreover, the cumulative cost for the nuclear power plant up to 2040 is estimated to be over Tk2,60,000 crore just for the plant cost alone, the strategy paper notes.

The construction of the Rooppur project constitutes almost 33% of the total value of the ADP portfolio of the power and energy sector for FY22.

The financing need for the power and energy sector in the 8FYP is substantial, and Bangladesh needs to improve energy efficiency and control the demand side to cut consumption of energy and power.

Referring to the Jica-supported energy efficiency and conservation master plan, it says Bangladesh could reduce power demand by 20% by 2030, which can be translated into roughly 8,000MW.

The strategy paper sets the target to reduce transmission loss from 3% now to 2.5% and distribution system loss from 8% to 7.2% in 2027 to ensure energy efficiency.

It sees good prospects of off-shore and on-shore gas exploration and stresses the need for partnership with international oil companies through attractive production sharing contracts.

"Unsatisfactory performance of the recent exploration and production implies that Petrobangla requires more financial resources, state-of-the-art skills and experiences," it points out.

It, however, finds that despite the potential of exploration, natural gas will be far from sufficient to meet the rapidly growing demand for energy in the future, requiring more reliance on imported LNG.

It identifies the challenges in domestic coal production and delays in arrangements for large-scale coal imports for planned coal-fired power plants. "Coal mining has not progressed due to lack of a coal policy," the strategy paper says, stressing the urgency for a deep seaport to handle large-scale imports of coal and gas.

Ahsan H Mansur, executive director of the Policy Research Institute of Bangladesh, told The Business Standard, that in the current situation, transmission and distribution is more important than power generation.

More important than this is to keep the power plants running. Many power plants have stopped production due to the energy crisis. So, there is no need to invest in power generation for now.

In the next two years, importance should be given to the financing of transmission and distribution.

He said, our main challenge now should be the development of the transmission and distribution system. Funding should be ensured for those power plants which have been commissioned and are in the final stages of implementation.

"Many power plants are closed due to lack of fuel. The Payra power plant is sitting idle due to lack of transmission. The new Rampal that will go into production also has questions about the transmission system. The problem is the same with the electricity that is supposed to come from Jharkhand in India. As a result, the next two years will have to be invested in the specific project of transmission."

He also said new wells can be dug to meet the energy demand, but the investment on such a venture must be carefully considered as no oil and gas fields have been discovered in 10 years.