Bangladesh’s weak balance of payments – a reflection of its ongoing economic problems – is now impacting the energy sector. On October 31, Adani Power halved the electricity supply to Bangladesh due to outstanding dues of $790 million.[1] Adani Power’s 1,600-megawatt plant in Godda, Jharkhand, set up to supply power specifically to Bangladesh had become operational in June 2023. Before the cutbacks, the plant provided 8.5% of Bangladesh’s electricity. In eastern Bangladesh, the 1,200-megawatts Matarbari near Chittagong, owned by Bangladesh Power Development Board (BPDB) has been idle since October 25, as it has run out funds of to pay for the coal it imports from Indonesia.[2] This represents a loss of over 10% of the country’s daily power needs. In both these cases, the problem is a dollar shortage, which Bangladesh’s textile exports and remittances do not cover.
Other indicators also show that there is trouble on the external front. On November 12, the Central Bank issued a circular saying that delays in settling importer dues by Bangladeshi banks is causing reputational harm to the country[3]. Total imports have been shrinking – by 10.7% during 2022-23[4], and another 18% in the first half of 2023-24[5]. These numbers indicate the government has been restricting imports to preserve foreign exchange. That it now affecting electricity supply shows the severity of the problem.
Bangladesh’s power generation capacity is largely based on natural gas (45%) and liquid petroleum fuels (22%), and 25% is coal. The first two are expensive fuels not suited for large scale power generation. This imbalance is historical, as Bangladesh was gas-rich, offering power to households and industry at a low price. These reserves have however been depleted, and the country has not adjusted its energy grid to a lower cost fuel. Instead, it is relying on gas imported at market prices from Qatar and Oman. In 2017, Bangladesh signed a 15-year contract with Qatar for the supply of the supply of 1.8-2.5 million tons of natural gas per year. Another 10-year contract was signed with Oman in 2019 for supplying 1.0-1.5 million tons of natural gas annually.[6]
For mobility and some limited power generation, Bangladesh is almost entirely dependent on oil imports, mostly from Abu Dhabi and Saudi Arabia, which poses a financial burden. The Jeddah-based Islamic Development Bank has often provided finance to enable Bangladesh’s oil imports[7]. The current head of the regime, Chief Advisor Muhammad Yunus, has already appealed to Saudi Arabia for the concessional supply of oil.[8]
Cutting electricity costs will require shifting its grid to more affordable and efficient coal. Coal-fired power plants account for 25% of Bangladesh’s total generation capacity of 27,000 megawatts. But paying for this too, is now beyond the state’s capacity.
There is resonance with Pakistan, where forced reduction in electricity consumption has hit the economy. Bangladesh’s fragile economy relies on its textile industry for 83% of the country’s exports.[9] The sector has witnessed multiple strikes in the last two months by workers protesting unpaid salaries, indicating the country’s deep financial distress in the economy. The strikes and the reduced energy offtake mean lower export income, and compounded problems down the road.
One of the reasons for the trouble in Bangladesh’s power sector are energy subsidies – pegged at over $3 billion or 4.4% of the 2024-25 budget.[10] These subsidies distort consumption and hurt the finances of the utilities, limiting their ability to pay suppliers such as Adani Power and international coal suppliers. Bangladesh will have to cut these, even though it will hurt consumers and industry. But strained finances leave the interim government with few other options.
One of the factors that led to the ouster of former Prime Minister Sheikh Hasina in August was the difficult economic environment. The current developments indicate worse to come. This could be a repetition of the large-scale protests which preceded the street rebellions in August. Surely, there is trouble brewing for the interim administration led by Muhammad Yunus.
Amit Bhandari is Senior Fellow for Energy, Investment and Connectivity, Gateway House.
Aditya Shinde is Research Assistant, Gateway House.
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References
[1] Asifur Rahman, Outstanding bills: Adani halves power supply to Bangladesh, The Daily Star, November 2, 2024. https://www.thedailystar.net/business/news/outstanding-bills-adani-halves-power-supply-bangladesh-3742081
[2] Abdul Aziz, Coal crisis halts production at Matarbari power plant, Dhaka Tribune, November 2, 2024. https://www.dhakatribune.com/bangladesh/power-energy/363928/coal-crisis-halts-production-at-matarbari-power
[3] Timely settlement of import payments, Foreign Exchange Policy Department, Bangladesh Bank, Circulars/Circular letters, November 12, 2024
[4] Foreign Trade Statistics of Bangladesh 2023-24, The Bangladesh Bureau of Statistics, May 2024 https://bbs.portal.gov.bd/sites/default/files/files/bbs.portal.gov.bd/page/8643ec8b_27a3_41cd_bbd9_9be3479f578e/2024-05-12-07-34-e579cd4a68742f5c4e7184120cb9d08b.pdf
[5] Imports drop over 18% in H1’FY24, Dhaka Tribune, January 28, 2024. https://www.dhakatribune.com/business/economy/337996/imports-drop-over-18%25-in-h1-fy24
[6] Energy Scenario of Bangladesh 2022-23, Hydrocarbon Unit, Energy and Mineral Resources Division, February 2024. https://hcu.portal.gov.bd/sites/default/files/files/hcu.portal.gov.bd/publications/ae775b7e_b63d_491d_81e4_b317ff8e11ca/2024-07-15-09-11-d13a3451b969fb9a3c5c74e9130c9f6c.pdf
[7] Saudi-based ITFC signs $1.4bn deal to fund Bangladesh oil imports, Arab News, July 8, 2023. https://www.arabnews.com/node/2334316/business-economy
[8] Yunus seeks increased Saudi investment, economic cooperation, Dhaka Tribune, October 28, 2024. https://www.dhakatribune.com/bangladesh/foreign-affairs/363389/prof-yunus-seeks-increased-saudi-investment
[9] Pocket Export Statistics 2019-2020, Export Promotion Bureau, Bangladesh. https://epb.portal.gov.bd/sites/default/files/files/epb.portal.gov.bd/miscellaneous_info/8405d990_9311_41c8_88df_19b340500b6c/2021-11-08-09-17-0be47f58b59b001dd3f088dc56f08e65.pdf
[10] Asifur Rahman, Rejaul Karim Byron, Power gets a third of Tk 108,240cr subsidies, The Daily Star, June 9, 2024.
https://www.thedailystar.net/news/bangladesh/news/power-gets-third-tk-108240cr-subsidies-3630086