How exchange rate losses take a toll on power companies

Electricity generation and supply companies are experiencing the brunt of taka depreciation, serving as glaring examples of how exchange rate losses can profoundly affect their financial stability.

For instance, state-owned Dhaka Electric Supply Company (Desco), faced a substantial setback, reporting a loss of Tk541 crore in the fiscal year 2022-23, according to the company's latest financial statement issued yesterday.

This a stark contrast to the Tk66 crore profit it had achieved in the prior year.

The lion's share of these losses - Tk428 crore – has been attributed to the depreciation of the taka against the dollar, as Desco holds Tk2,900 crore in foreign loans.

Desco, listed with Dhaka Stock Exchange (DSE), claims that the remaining Tk113 crore in losses stemmed from the difference between the purchase and sale prices of electricity.

Many private companies are also tallying losses due to the volatile foreign exchange situation, brought about by the sharp devaluation of the taka against the dollar, in combination with delayed LC payment settlements, as noted by industry experts.

Private power producing companies also faced substantial loss due to sliding value of taka against dollars, according to financial statements submitted to the Dhaka Stock Exchange.   

Doreen Power, for example, posted a 61% year-on-year profit decline at the end of FY23 compared to the previous fiscal owing to foreign exchange loss by its subsidiary.

In FY23, the company made a profit after tax of Tk64.48 crore, which was Tk166.81 crore in the previous fiscal year. During the year, its earnings per share stood at Tk3.56, which was Tk9.21 in FY22.

Doreen Power said in its annual disclosure, that the profit has decreased due to incurring a significant amount of exchange loss in foreign currency transactions incurred by subsidiary companies for significant devaluation of taka against dollar.

Meanwhile, Summit Power, the country's largest independent power producer, yesterday asked for an extension to submit its annual and 1st quarter financial statements.

The company also mentioned that it has been facing acute fund shortage due to volatile foreign exchange coupled with delayed settlement of monthly bills by its lone vendor.

According to Bangladesh Bank data, the local currency depreciated by 1.52% in the new fiscal year (FY24). The central bank pegged the dollar at Tk95 in the first week of September 2022, which means that the taka lost 16.32% of its value against the greenback over the past year.

At present, the new dollar rates are Tk110 for remittances and export proceeds and Tk110.50 for import settlements. Last year, the dollar rate soared to Tk122.

Desco

Desco's General Manager (Finance & Accounts) Md Mominul Islam told The Business Standard that the company incurred losses for the first time in its financial history. "It has consistently generated profits, but this year marks a significant loss."

The reason for the loss, he said, was an increase in the cost of foreign loan repayments and an increase in electricity tariffs due to the fall in the value of the taka.

He further explained that despite a bulk increase in electricity prices, the consumer-level rates have not risen in proportion. Consequently, Desco is incurring a loss of Tk0.69 per unit of electricity sold.

For various projects, Desco borrowed from the Asian Development Bank, the Japan International Cooperation Agency (JICA) and the Asian Infrastructure Investment Bank.

Besides, according to Desco officials, the bulk price of electricity increased by 8% in January this year after the first increase of 20% in November last year.

After increasing the bulk price, the price has been increased by 15% in three phases at the retail level.

Company officials said the bulk price has been increased by 28% in two phases, but the price at the consumer level has not increased accordingly.

If the increase was at least 7% more than what has increased, the losses would have come down, they said.

In the last fiscal, Desco spent Tk5,104 crore to buy electricity but sold it for Tk5,372 crore. The total operating revenue of the company stood at Tk268 crore, which was 48% lower than the previous year.

Doreen Power

Doreen Power in its latest financial report said import duty on heavy fuel oil – a basic raw material for power plants. When a company opens LC for raw materials at a fixed rate, they have to pay much higher when it is settled due to dollar appreciation.

However, the company's net operating cash flow per share has increased remarkably because of a significant recovery of receivables from the Bangladesh Power Development Board and a decrease in payment to suppliers for efficient inventory management compared to last year.

The company has recommended an 11% cash dividend for their shareholders at the end of FY23. The company recommended 12% stock and 18% cash dividend for shareholders in FY22.  

The share price of the company closed at Tk61 on the Dhaka stock exchange on Sunday.