Bangladesh raises domestic natural gas and electricity prices

Bangladesh has raised domestic natural gas tariffs for power plants and electricity tariffs for all types of consumers this week, in a move that is likely to incentivize gas sales and LNG imports in the coming months.

The price increases, aimed at reducing government subsidies in these sectors, will take effect retrospectively from Feb. 1. Bangladesh subsidizes both natural gas and electricity sales as prices for downstream sectors are regulated, saddling the state exchequer with millions of dollars in debt every year.

On Feb. 27, the country raised the domestic gas tariff by Taka 0.75/cubic meter, or 2.5%, to Taka 30.75 ($0.28)/cubic meter for independent power plants and by Taka 0.75/cubic meter, or 5.36% for captive power plants run by industries for their internal consumption. Bangladesh last raised gas tariffs in 2023 across categories, but this time it only raised prices for the power sector.

The electricity tariffs were raised in an announcement late Feb. 29 for both retail and bulk consumers, within a spot span of the gas tariffs. Retail electricity tariffs went up by around 8.50%, or by Taka 0.70/ unit (1 kilowatt-hour) on average, while the bulk tariff increased by 5.0%, or by Taka 0.34/ unit, on average.

The Energy and Mineral Resources Division and Power Division under the Ministry of Power, Energy and Mineral Resources (MPEMR) published separate gazette notifications on the tariff hikes.

With the latest power tariff hike, the new average retail price has increased to Taka 8.95/unit from Taka 8.25/unit and the new average bulk electricity price has increased to Taka 7.04/ unit from Taka 6.70/ unit. The least volume power consumers will have to pay an additional Taka 0.28/unit, while the highest consumers will have to pay an additional Taka 1.35/unit.

The power tariff for retail consumers using more than 600 units rose to Taka 14.61 ($0.13)/unit from Taka 13.26 ($0.13)/unit. The tariff for the irrigation sector rose by Taka 0.43/unit.

In 2023, the government had raised electricity tariffs thrice at the retail level in three consecutive months -- January, February and March -- by around 5% each to bridge the price gap between fuel costs and power prices.

The price adjustments have been made to minimize government losses caused by the high exchange rate, State Minister for Power, Energy and Mineral Resources Nasrul Hamid said Feb. 29.

He said the government will incur losses totaling Taka 430 billion ($3.91 billion) in the fiscal year 2022-23 (July-June) due to the regulated electricity sales but there is a plan for Bangladesh to gradually eliminate its subsidies.

Subsidy impact

The MPEMR clarified its position separately saying the power and gas tariff hikes were implemented under the Bangladesh Energy Regulatory Commission (BERC) Act, 2003 in the public interest to ensure uninterrupted electricity supply and that consumers will be able to tolerate the hikes.

Despite the hike, the government will have to incur financial loss and pay a subsidy worth Taka 65.70 billion ($600 million) for gas for the financial year 2023-24 (July to June) due to the difference between the import and sale price of natural gas.

Bangladesh has eight categories of gas consumers, of which 37% is used in power generation, 23% in industries, 18% in captive power, 10% in household use, 7% in fertilizer production, 4% in CNG and 1% in commercial and tea industry.

Although non-power sector gas prices remained unchanged, the government may be able to limit the annual subsidy to Taka 60 billion ($550 million) due to cheaper LNG and a stabilizing exchange rate, the government said.

Bangladesh will also introduce dynamic fuel pricing from March 1 to align domestic petroleum prices in line with international fuel prices, Hamid told reporters.