Exploring Alternative Fuels: A Path to Economic Stability Without Price Hikes

The current economic crisis and mounting stress in Bangladesh are deeply concerning. A significant portion of the population, particularly the lower middle class and impoverished communities, are experiencing stagnant income levels while facing a surge in expenditures. Balancing income with expenses has become increasingly challenging. Since the onset of the pandemic, there has been a noticeable escalation in the prices of essential goods. This trend has been exacerbated by fluctuations in international fuel prices. While global fuel prices have experienced a decrease, this reduction has not been reflected in the local market, leading to a disproportionate burden on consumers across various sectors.

The recent decision to simultaneously raise gas and electricity prices amid an already escalating trend of inflation suggests that domestic market inflation could intensify in the near future. Compounding this issue is the imminent arrival of the holy month of Ramadan, during which prices traditionally surge in our country. This year, however, the price hikes during Ramadan seem to be even more pronounced. There is a real concern that this compounded inflationary pressure will exacerbate the economic challenges faced by the populace.

Furthermore, there appears to be a lack of accountability for those responsible for these price hikes, who seem to be profiteering without restraint. Their apparent proximity to the government raises questions about any meaningful action being taken against them. As a result, the burden of these price increases falls squarely on the shoulders of ordinary citizens, with little recourse for relief.

The proposed increase in electricity prices will have far-reaching consequences that extend beyond just higher utility bills for consumers. Given that electricity is a fundamental input in the production of goods and services across all sectors, a hike in electricity prices will inevitably lead to a widespread increase in the cost of living. This burden is particularly heavy for the average citizen, who will likely have to bear an additional cost of at least Tk 5 per unit or more.

Moreover, the impact on small and medium-sized enterprises (SMEs) cannot be overstated. Unlike large corporations that often benefit from government incentives and have greater financial flexibility, SMEs operate on tighter margins and are more vulnerable to cost increases. Many SMEs may struggle to absorb the higher production costs and may even be forced to shutter their operations altogether. This poses a significant threat to economic stability and employment opportunities, as SMEs are often major contributors to both GDP growth and job creation.

Furthermore, the rise in production costs will erode the competitiveness of domestic products both in the international market and against imported goods. Small producers will find it increasingly difficult to compete, leading to a decline in sales and further financial strain. This, in turn, can hinder overall GDP growth and exacerbate poverty levels as employment opportunities diminish.

The repeated increases in gas, electricity, and fuel oil prices by the government raise concerns about the absence of alternative strategies. Indeed, there are viable alternatives that could have been pursued, particularly through long-term planning and investment in energy capacity.

The Energy Security Act of 2010 was enacted precisely to prevent such shortsighted decision-making in the energy sector, yet unfortunately, we've witnessed actions that contradict this goal. Instead of resorting to quick fixes, efforts could have been made to enhance our capacity for onshore and offshore gas exploration and extraction through national investment and capacity building. While this may have required significant initial investment, the long-term benefits would have far outweighed the costs. The failure to pursue these avenues has resulted in exponentially higher expenditures down the line.

Furthermore, there is ample opportunity to expand the production and utilisation of renewable energy sources. By investing in renewable energy infrastructure and promoting their adoption, we could have diversified our energy sources and reduced dependency on costly imports.
An integrated approach that combines gas and renewable energy resources could provide the most sustainable solution for ensuring energy security in Bangladesh.

In 2017, we put forth a comprehensive counter-master plan aimed at ensuring a safe, affordable, and environmentally friendly uninterrupted power supply for Bangladesh. Our analysis clearly demonstrated the detrimental effects of relying on coal-based and nuclear power, both financially and environmentally. We argued that these options undertaken by the government would not only incur higher costs but also inflict significant harm on the environment, increase foreign debt, and foster dependence on imported materials.

Instead, we advocated for prioritising the expansion of national capacity in power and gas generation, coupled with a concerted effort to harness renewable energy sources. Our proposal outlined a path where uninterrupted power supply could be achieved through a combination of gas and renewable energy, with the added benefit of gradually reducing costs and minimising environmental impact.

Regrettably, the government pursued a different course of action, one that exacerbated dependence on foreign loans, increased reliance on imported resources, and strengthened ties with foreign companies. Large-scale projects were initiated with financing obtained from abroad, further deepening the country's debt burden.

The Bangladesh government's continued emphasis on coal-based power generation, despite global trends moving away from it, has led to several adverse outcomes. Many major projects have incurred significantly higher costs compared to international standards, resulting in wastage, corruption, and increased debt burden. Moreover, this approach has heightened import dependency, particularly in terms of LNG imports, due to insufficient provisions for local gas exploration and extraction.

The reliance on imported coal and LNG exposes the country to the risk of price fluctuations in the international market. The recent drastic increase in LNG prices globally underscores the vulnerability of import-dependent energy strategies, leading to escalated import costs. Additionally, importing nuclear power equipment further exacerbates the import dependency issue in the energy sector.

Furthermore, the involvement of foreign companies in energy projects, alongside certain domestic beneficiary groups, has raised concerns about transparency and accountability. Over the past decade, companies operating in the energy sector in Bangladesh have amassed significant profits, surpassing those of energy companies in many other countries worldwide.

The government's decision to permit the establishment of numerous private sector power plants has resulted in an oversupply of electricity in Bangladesh. This surplus has led to underutilisation of production capacity across many power plants, with some remaining idle for extended periods. Despite this excess capacity, the government continues to purchase electricity from privately owned plants at higher rates, even though there are cheaper sources available.

This inefficient use of resources not only incurs unnecessary expenses for the government but also undermines the competitiveness of the energy sector. Furthermore, privately owned power plants sometimes sit idle while still charging for their full capacity, exacerbating financial strain on the government and consumers alike.

Over the past decade, several privately owned power companies have received substantial capacity charges totaling over one lakh crore taka. This has resulted in significant profits for these companies, while simultaneously burdening the economy with high costs of LNG imports and foreign borrowing. As a consequence, the cost of power generation has escalated disproportionately, contributing to the justification provided by the government for increasing electricity prices.

However, the root cause of this increase in production costs is not adequately addressed by the government. The pursuit of the government's master plan for the power sector, particularly with reliance on Japanese loans, is likely to perpetuate the trend of rising gas and electricity prices. The beneficiaries of these price hikes are primarily domestic and foreign business groups, along with commission takers, while ordinary citizens bear the brunt of the economic burden.

It is evident that alternative solutions to address the challenges in the power sector have been ignored, despite their potential to alleviate the economic strain and reduce the suffering of the people. By prioritizing the interests of vested business groups over the welfare of the populace, the government is complicit in perpetuating economic injustices and exacerbating the hardships faced by ordinary citizens.

Anu Muhammad: Eminent Economist and Emeritus Professor, Department of Economics, Jahangirnagar University
Transcribe: M A Khaleqe