The government is adopting a new policy for electricity purchases to reduce the burden of subsidies.
Under the policy, it will no longer enter into new power purchase agreements at rates higher than the average tariff.
It will also stop extending the tenure of existing power purchase agreements that carry rates above the average tariff.
The policy aims to ease the financial pressure arising from the gap between electricity purchase and sales prices, according to a Power Division letter sent to the Finance Division on 6 October.
The letter also stated that steps had been taken to implement most of the recommendations in the IMF's three-year reform roadmap.
The government is also seriously considering the World Bank's recommendation of gradually phasing out price controls on fertiliser and moving towards market-based pricing, discussions with officials from the agriculture and finance ministries indicate.
This comes to fore as the Bank's latest report on Bangladesh Development Update reveals that large farmers receive nearly half of the government's fertiliser subsidies, with small farmers receiving just 13% of the support.
Purchase policy conforms to IMF roadmap
Ahead of a meeting between Bangladesh and the International Monetary Fund (IMF) on the sidelines of the IMF-World Bank annual meetings, the Power Division has explained to the Finance Division the steps taken to reduce subsidies in the power sector. The Finance Division had earlier sought details of the government's initiatives to reduce the subsidy burden.
The IMF-World Bank annual meetings are being held in Bangkok from 12 to 18 October. A high-level meeting between Bangladesh and the IMF is expected to take place today on the sidelines. A Bangladesh delegation led by Finance Minister Amir Khosru Mahmud Chowdhury is expected to discuss a new lending programme and economic reforms with senior IMF officials, according to Finance Division sources. However, the meeting date has not yet been finalised.
Bangladesh is negotiating a new loan-support programme with the IMF, aiming to finalise it by January next year. Discussions are under way for a loan of $4.5 billion to $5 billion under the proposed programme.
The IMF's latest regular mission on economic and lending programme issues visited Bangladesh from 12 to 16 July. During the visit, discussions took place on replacing the previous lending programme with a new one.
Finance Division officials said the IMF had sought time-bound plans to rationalise subsidies in the power, gas and agriculture sectors, among other things.
According to Power Division sources, the latest figures show that the BPDB purchases electricity at an average rate of Tk12.80 per unit and sells it at an average of Tk8.50. The government therefore has to provide a subsidy of Tk4.30 per unit.
According to the BPDB's annual report for the 2024-25 fiscal year, the overall average purchase price of electricity from independent power producers (IPPs) was Tk14.56 per unit.
BPDB sources said electricity was being purchased from the Rampal power plant at Tk13.57 per unit and from India's Adani Power at Tk14.86 per unit. Several other power plants also supply electricity at rates above the average generation cost.
In its letter to the Finance Division, the Power Division said the government had already adjusted electricity tariffs to control subsidies. It had also adopted a policy of not approving new power purchase agreements at rates above the tariff determined on the basis of average power generation costs. Agreements with rates higher than the average tariff would not be extended either.
The Power Division expects these measures to reduce the need for subsidies in the power sector in the 2026-27 fiscal year and bring further reductions in subsequent years. However, the letter did not specify how much subsidy expenditure the initiatives would save.
Asked about the power purchase policy, Bangladesh Power Development Board (BPDB) Chairman Engineer Md Rezaul Karim told TBS over phone that the prices of electricity from some government-owned power plants had already been aligned with the average electricity price. The authorities plan to gradually implement the same approach for other plants.
Power Division officials believe that reducing subsidies amid volatility in global fuel supplies and prices presents a policy challenge. In their view, the government must balance reducing the power sector's financial liabilities with ensuring an uninterrupted electricity supply and keeping prices affordable for consumers.
Shafiqul Alam, lead analyst at the Institute for Energy Economics and Financial Analysis (IEEFA), told TBS that the decision to purchase electricity at prices below the average levelised tariff was a positive step. If implemented effectively, it would help reduce subsidies and lower the government's electricity expenditure in the future. This, in turn, could ease pressure to raise electricity prices and benefit consumers.
However, he said the task would not be easy. Levelised tariffs vary across different types of power plants and may also differ among plants of the same type. Costs can vary depending on the reliability of gas supplies and whether a plant can operate at full capacity throughout the period. Determining the average tariff is therefore a technical exercise that requires an acceptable and clearly defined methodology.
"If everything is done properly, the government's expenditure on electricity will fall, subsidies will decline and there will be some scope to contain price increases," he said.
Fertiliser subsidies benefit large farmers
Large farmers receive nearly half of the government's fertiliser subsidies, while small farmers, who account for 40% of the country's total farmers, receive just 13% of the support. This disparity was highlighted in the World Bank's latest Bangladesh Development Update.
According to the report, large farmers own around 20% of the country's agricultural land. When farmers are classified by income, the poorest 40% receive slightly more than one-third of direct government assistance, while the wealthiest 20% receive nearly half of the benefits. This means larger farmers are receiving a disproportionately large share of costly subsidy programmes, including those for fertiliser.
Over the past five years, fertiliser subsidies have increased nearly fourfold to Tk28,000 crore. Against this backdrop, the World Bank has recommended gradually phasing out price controls on fertiliser and moving towards market-based pricing. It has also recommended providing direct assistance to small and marginal farmers by linking electronic vouchers to the "Krishak Card" introduced during the BNP government's tenure.
Discussions with officials from the agriculture and finance ministries indicate that the government is taking the World Bank's recommendations seriously. Under the proposed plan, fertiliser would be sold at its actual price instead of receiving a subsidy at the point of sale. Eligible farmers would instead receive cash assistance through their Krishak Cards.
To support the system, the government is building a database of farmers. It will record information including how much land each farmer owns, how much they cultivate, what crops they grow and other relevant details.