Energy tops agenda despite 23% cut in allocation

The government has identified energy security as one of its top strategic priorities for fiscal 2026-27, even as it proposed a nearly 23 percent reduction in the power and energy sector’s allocation from this year’s original.

Finance Minister Amir Khosru Mahmud Chowdhury proposed Tk 17,345 crore for the power and energy sector, in contrast to Tk 22,520 crore in this year’s original budget and Tk 16,952 crore in the revised budget.

The cut came in the power division, while the energy and mineral resources division received an additional Tk 984 crore compared with the revised allocation.

The allocation represents 1.85 percent of the proposed national budget for the next fiscal year, continuing a declining trend in the sector’s share of public spending. The sector accounted for 2.85 percent of the budget this fiscal year, 3.5 percent last fiscal year and 4.66 percent in fiscal 2023-24.

Power generation costs had risen due to “unplanned” policies, while large amounts of public money had been spent through capacity payments made to power plants regardless of actual electricity generation, Khosru said.

Several large power projects signed under the previous Awami League government contained controversial and one-sided terms that increased the cost of electricity imports and purchases, adding to the state’s financial burden, he said, adding that annual subsidies in the power and energy sector now exceed Tk 40,000 crore.

Bangladesh currently has an installed power generation capacity of 28,919 megawatts but has yet to ensure an uninterrupted and quality electricity supply, he said.

To address the challenges, the government plans to strengthen oversight of the power sector, identify and take action against those involved in corruption, retire inefficient power plants, modernise transmission and distribution networks, and review capacity payments and power purchase agreements.

The government aims to increase generation capacity to 35,000 megawatts and expand transmission lines to 25,000 circuit kilometres by 2030.

The budget outlines an ambitious agenda centred on energy security, renewable energy expansion and reducing dependence on imported fuels.

To promote solar energy, Khosru proposed zero tax for the solar power sector until 2035.

Consumers generating or using solar electricity will also be eligible for a 5 percent tax rebate on payments made against solar electricity bills.

The government further proposed reducing several duties and taxes to zero percent on key solar power components until June 2031.

However, duty concessions on certain products such as mounting structures, lithium cells, battery packs and battery energy storage systems are expected to be withdrawn after June 2028 to encourage domestic manufacturing.

Besides, providing incentives for electric vehicles, the government aim to reduce fuel imports and improve environmental sustainability.

Khosru proposed sharply reducing taxes on imported electric vehicles (EVs) and lowering registration and renewal taxes. In contrast, taxes on imported conventional internal combustion engine vehicles would be increased.

Wider use of solar power and electric vehicles would reduce the country’s dependence on imported petroleum products while supporting environmentally sustainable industrialisation, he said.

The budget also extends duty concessions for local manufacturing of EVs, e-bikes, batteries and related components as part of the efforts to develop domestic clean-energy industries.

Khosru reaffirmed the government’s target of meeting 20 percent of electricity demand from renewable sources by 2030 and between 30 percent and 50 percent by 2050.

M Tamim, vice-chancellor of Independent University, Bangladesh and former energy adviser to the caretaker government, welcomed the tax incentives for solar power and EVs, saying the measures move Bangladesh in the right direction.

However, reducing taxes on solar equipment must be accompanied by strict quality-control measures.

“Promoting renewable energy is the right decision. But if low-quality products enter the market because they are cheaper, consumers will suffer and confidence in solar technology could be undermined,” he said.

According to the budget speech, Bangladesh currently imports around 95 percent of its petroleum requirements, approximately 34 percent of its natural gas demand in the form of LNG and virtually all of its LPG requirements.

To reduce that dependence, the government plans to intensify domestic gas exploration and expand energy infrastructure, Khosru said.

Under plans adopted by the Bangladesh Petroleum Exploration and Production Company Limited (Bapex), 270 kilometres of geological surveys, 700 line-kilometres of two-dimensional seismic surveys and 700 square kilometres of three-dimensional seismic surveys will be conducted between fiscal 2025-26 and 2027-28.

Bapex also plans to drill 69 wells and carry out workover operations on 31 existing wells using its own rigs.

The government plans to procure two new exploration rigs to strengthen domestic exploration capabilities.

It has also announced a new offshore bidding round this month in an effort to attract international oil companies in the Bay of Bengal.

The government also plans to increase domestic coal production as part of its broader strategy to reduce dependence on imported energy.

The budget sets production targets of 600,000 tonnes of coal and 1.4 million tonnes of stone for the next fiscal year.

New projects have been undertaken to develop the second phase of the Barapukuria coal mine and the Dighipara coal field, while authorities are also assessing the economic potential of valuable minerals such as zircon and monazite found in the sands of the Jamuna and Meghna rivers.

Alongside exploration activities, the government intends for an additional LNG terminal at Moheshkhali and activities for a land-based terminal at Matarbari is also undergoing, Khosru said.

The government’s energy reform agenda is intended to address longstanding financial challenges in the sector.

“Years of corruption, mismanagement and controversial power sector contracts had increased generation costs and imposed a heavy burden on public finances.”

Tamim said there is room to reduce costs in the power sector through better operational efficiency, improved plant management and a more optimal fuel mix.

Greater utilisation of coal-fired power plants and a gradual reduction in expensive oil-based generation could help lower electricity production costs, he said.

However, he stressed that a lasting reduction in power generation costs would be difficult without increasing domestic gas production.

“As long as a large share of our fuel has to be imported, reducing generation costs will remain challenging. Ultimately, lowering import dependence through greater domestic energy production is the key,” he said.