Abnormal capacity charges show power sector abuse

Greatly varying capacity charges paid to power companies with similar capacities highlight a chronic ill practice by the past Awami League regime, sending Bangladesh’s economy into a tailspin.

The Bangladesh Power Development Board calculated the capacity charges considering the use of 60 per cent capacities of the power plants.

Established about the same time using the same technology, some power plants received way more capacity charge than their peers, 300 per cent or even more, per unit of electricity produced, revealed a BPDB analysis.

The list of beneficiaries invariably included AL favorites whose names frequently surfaced in reports, including the white paper published by the incumbent interim government in December last year, as power companies raking abnormal profits, often flouting the law.

‘The varying capacity charges speak of too many ill practices,’ said Hasan Mehedi, member secretary, the Bangladesh Working Group on Ecology and Development.

From manipulating loans to bribing politicians to distorting information on equity to tampering expenses, private power companies left no stones unturned to inflate their capacity charges, he noted.

‘The sad news is they are still enjoying the privilege despite a political changeover promising to end such favours,’ he said.

Capacity charge is the amount of money the BPDB pays a power-sector investor, covering the power plant’s establishment cost plus its estimated profit, regardless of whether the plant produces or does not produce electricity.

Energy experts explained that capacity charge covers the loans received by a plant, along with interest, employees’ salaries and a return on equity.

Power plants with shorter lifetime could be entitled to a higher rate of capacity charge. Power plants taking loans at high interest rates could also result in excessive capacity charge payment, energy experts said.

‘Usually the return on equity remains about 12 per cent,’ said energy expert Mohammad Tamim, who was also a member of the team that prepared the white paper on the economy of Bangladesh last year.

Joint ventures were found to be earning 16 per cent return on equity while the Rampal power plant was entitled to an 18 per cent return on equity, he said.

After considering possible investment in power plants by different types of fuels, energy experts gave a range of ideal capacity charge rates per unit of electricity – around Tk 1 for gas-based power plants, maximum Tk 4 for coal-based power plants and Tk 2 for oil-based power plants.

But the situation in Bangladesh is far from ideal.

For instance, the Jamalpur 115MW oil-based power plant, owned by the United Group, received Tk 4.23 for generating per KWh of electricity. The rate is 327 per cent higher than what is paid to another private power producer Raj Lanka for its 52MW power plant in Natore – Tk 0.99. The power plants operate with reciprocating engine. While the Jamalpur plant has been operating since 2019, the Natore plant has been in operation since 2014.

The United Group received Tk 4.26 for a unit of power for its 200MW power plant in Mymensingh, which was established in 2018.

Set up in 2020, the 104MW oil-based Meghnaghat power plant, owned by the Orion Group, receives Tk 3.42 per unit, which is 272 per cent higher than what state-owned oil-based power plant receives on average – Tk 2.39 a unit.

Similarly, the 149MW and the 300MW oil-based Kodda power plants and the 55MW oil-based Madanganj power plant, all owned by the Summit Group, receive in capacity charge for a unit of electricity Tk 3.34, Tk 3.33 and Tk 3.06 respectively. The Summit Group built its power plants between 2016 and 2018. The 200MW oil-based power plant in Chandpur, owned by the Desh Energy, set up in 2018, receives Tk 3.42 per unit in capacity charge. The power plants all have reciprocating engines.

The average capacity charge received by independent oil-based power plants for a unit of power is Tk 3.23, followed by similar public plants earning Tk 2.44 and state-owned power plants Tk 2.39. The state-owned oil-based 100MW Gopalganj power plant, set up in 2011, receives the lowest Tk 0.92 capacity charge per unit.

‘Such huge differences in prices are reminiscent of the absence of competition in the power sector,’ said Shafiqul Alam, lead energy analyst, Institute for Energy Economics and Financial Analysis.

During the 15 years of the past AL regime, power projects went ahead mainly through one-on-one negotiation without any tender under the indemnity law recently scrapped. The power ministry was under the authority of former prime minister Sheikh Hasina and she oversaw ￥33 billion investments.

The average capacity charge paid to gas-based independent power plants is Tk 3. The gas-based Meghnaghat 335MW and 583MW power plants, both owned by the Summit Group, receive Tk 3.48 and Tk 3.67 per unit respectively. The power plants were set up in 2015 and 2024 respectively with combined cycle engines.

The 584MW Meghnaghat power plant, owned by the Unique Group and set up in 2024 with combined cycle engine, receives Tk 3.78 per unit.

The average gas-based joint venture projects’ capacity charge stands at Tk 3.71. The 195MW Ashuganj power plant, set up in 2015 and owned by the United Group, receives Tk 3.51 per unit.

There were big anomalies in capacity charges received by public power companies. For instance, the Haripur 100MW plant, set up in 1987, receives Tk 2.42 as capacity charge, far higher than Tk 0.55 received by the Ghorashal 409MW power plant, set up in 1989.

There are other gas-based public power plants that get less than Tk 1 in capacity charge per unit. The average capacity charge received by BPDB-owned gas-based power plant is Tk 1.31. The average capacity charge received by gas-based power plants owned by public companies other than the BPDB is Tk 2.44.

To coal-based state-owned power plants, the average capacity charge paid is Tk 4.63 for each unit. Joint venture coal projects receive an average of Tk 5.43 capacity charge per unit. Independent power plants, on the other hand, get an average of Tk 7.17.

The 1,320MW coal-based Banshkhali power station, owned by the

S Alam Group and set up in 2023, receives the highest Tk 7.34 capacity charge per unit.

The national capacity charge spending is set to reach Tk 38,000 crore in the current financial year of 2024–25. Initially introduced to incentivise private investment to tackle an acute power crisis by the ousted AL government, the capacity charge eventually proved to be a huge burden for the nation.

In September 2023, the then power state minister informed the parliament that in its three consecutive terms, the AL government paid a total of Tk 1.04 lakh crore as capacity charges.

Bangladesh’s power generation overcapacity is about 50 per cent of the total installed generation capacity of 27,645MW. The overcapacity is the result of the inability to buy energy, mainly due to the dollar crisis partly triggered by the massive power sector spending. The energy crisis has also set off a staggering inflation, trapping Bangladesh in a huge debt obligation.

BPDB chair Rezaul Karim said that they are reviewing power purchase agreements and will sit with power companies to present their side of the story.

‘We want to resolve the issue rationally, giving the companies a chance to present their case as well,’ he said.

‘We can assure you that a good result will come out of it,’ he told New Age on Friday.

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