SANEM’s concerns about reducing allocations to power and energy sectors

Private research organization South Asian Network on Economic Modeling (SANEM) has expressed concern about the impact on the economy of Bangladesh due to the reduction in the allocation to the power and energy sector in the national budget of the fiscal year 2024-25.

The research institute expressed this concern in a press release sent to the media on Tuesday (June 25) analyzing the latest trends in budget allocation.

According to Sanem, in the 53rd National Budget, Tk 7 lakh 97 thousand crores have been proposed, while the power and energy sector has received only 3.8 percent of the total budget allocation. In the fiscal year 2023-24, the budget allocation for the same sector was 4.6 percent, compared to that, the allocation for the fiscal year 2024-25 was significantly 12. 9 percent decrease. In the past years, the budget allocation for power and energy sector has seen significant fluctuations, of which the allocation in the financial year 2018-19 was the highest. In the next two financial years (2019-20 and 2020-21), the allocation for this sector is 10. 91 and 31.06 percent were reduced. From FY 2020-21, the allocation is increasing gradually but not significantly. Within the power and energy sector, the budget allocation to the energy sector has been steadily declining since FY 2018-19, which is only 4 percent of the total power and energy budget in FY 2023-24 and further reduced to just 3.6 percent in FY 2024-25.

The agency says, this figure indicates the continued lack of importance towards the country’s energy sector.

The press release also said that the Bangladesh Power Development Board (BPDB) has increased the electricity tariff four times in the last one year from January 2023 to February 2024 by 5, 5, 5 and 8 respectively. 9 percent rate. Price adjustment of electricity, fuel, and gas was introduced to reduce subsidies in the power and energy sectors but the devaluation of the rupee against the US dollar has had a serious impact on subsidies in the power sector.

According to the institute, BPDB has found that a one rupee devaluation against the US dollar could increase the amount of subsidy payments to Rs 473.6 crore in the financial year 2023-2024. As a result of rupee depreciation against the dollar in FY 2023-24 (from 107.7 per dollar to 117 per dollar), this year’s subsidy burden may increase to Tk 4404.48 crore. While the percentage of direct tax-expenditure (tax exemption) in this sector is positive, the actual amount has come down to Rs 7,611 crore from last year’s Rs 11,942.147 crore, indicating a reduction in tax benefits for this sector.

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They say that despite the targets of renewable energy in various government plans, the special allocation of only 100 crore rupees for the development and use of renewable energy in the proposed budget is not enough. .19 crore) which was Rs.14.65 crore last year. However, this allocation came down to just Rs 7 crore in last year’s revised budget, raising questions about the effectiveness and importance of shredders.

Sanem also said that despite the excess power generation capacity, the emphasis on increasing more production capacity continues, Sanem said, currently 27 power plants with a capacity of 9144 MW are under construction. Construction of new LNG infrastructure is also questionable as LNG prices remain volatile in the international market, which has already had a serious impact on our economy. As a significant number of power plants are gas-fired, the existing situation of insufficient fuel reserves has made the provision of a stable and alternative fuel source especially natural gas imperative. BAPEX plans to drill 48 wells from January 2023 to December 2025 for onshore gas exploration and production. However, in the ten years to February 2014, BAPEX has drilled 49 wells, inconsistent with this target. Bangladesh Offshore Model Production Sharing Agreement (PSC) 2023 has been established which has initiated ‘Bangladesh Offshore Bidding Round-2024’ to engage international companies for oil and gas exploration in 9 shallow and 15 deep sea blocks. While these are promising initiatives, they involve considerable uncertainty, time-delay and cost overruns. In this situation energy sources need to be diversified and renewable possibilities should be explored as it is the most reliable and sustainable method.

In the press release, the institute called for a strategic approach to managing budget allocations in the energy sector, emphasizing expansion of renewable energy projects, domestic natural gas exploration, managing the impact of currency devaluation and reducing subsidy burden through effective policy measures.

In addition, the budget share of the energy sector in the total electricity and energy sector budget is continuously decreasing. SANEM has recommended increasing allocation to this sector. As per Revised Annual Development Program (ADP) data, there has been a continuous decline in the budget allocation of the Power and Energy Sector and Department of Energy and Mineral Resources (EMRD) from the financial year 2021-22, which requires revaluation.

SANEM said that changing the rate of allocation of ADP and subsidy for the power sector and EMRD with special emphasis on renewable energy can contribute to energy security of the entire power and energy sector in the country.