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Subsidies on electricity, LNG may double in next budget

Published : 15 May 2022 09:40 PM | Updated : 16 May 2022 01:43 PM

The government is considering giving almost double the subsidy in the power sector in the upcoming national budget as compared to the current fiscal year. Besides, it is being planned to increase the subsidy on LNG imports.

Finance Division officials said the subsidy will be effective if the prices of electricity, gas and fertilizer are not hiked in the next financial year. In the process of raising the price of gas, the subsidy may also be reduced on the decision.

As a result of the Russia-Ukraine war, the prices of various products including oil, gas and fertilizer are increasing in the international market, which is also affecting the country's market. As a result, the pressure on subsidies is increasing. Being compelled, the government has also increased the allocation of subsidies in these sectors in the revised budget for the current fiscal year 2021-22.

In the current budget, the subsidy in the power sector was allocated at Tk 9,000 crore. However, in the revised budget, the subsidy in the power sector has increased by Tk 3,000 crore to Tk 12,000 crore. In the upcoming budget for the 2022-23 financial year, the subsidy in the power sector may remain at Tk 18,000 crore. 

Among the subsidies, the interest subsidy on liquefied natural gas (LNG) import price payment and incentive package could be taka 17,300 crore.

According to finance ministry officials, the overall subsidy and incentive allocation for the upcoming budget will increase by Tk 16,620 crore to an estimated Tk 57,045 crore.

Subsidies and incentives are increasing in the budget every year. As a result, the allocation is also being increased. For example, in the budget for the 2022 fiscal year, the allocation for subsidies and incentives is at taka 40,425 crores, which has been increased by taka 12,857 crores to taka 53,282 crores in the revised budget.

According to the Finance Division, the size of the budget for the next 2022-2023 fiscal year is around taka 6.78 trillion. These include subsidies, incentives and cash loans. The total expenditure in these three sectors has been estimated at Tk 1,77,145 crore.

As an alternative, the government has taken steps to increase the import of costly LNG. Gas exploration funds have been spent on LNG imports.

The government has provided a subsidy of Tk 3,000 crore to LNG in the last eight months due to rising LNG prices in the international market.

In a coordination meeting on December 28, energy sector officials argued that gas prices need to be increased to meet the shortage of funds required to import liquefied natural gas (LNG).

The senior secretary to Energy and Mineral Resources Division told the meeting that a subsidy of Tk 70,000 crore is required for the fertilizer, electricity and gas sector for the current fiscal year through the national budget has earmarked only Tk 12,500 crore for subsidy. 

The Petrobangla chairmen said at the meeting that they sent a letter to the Finance Division on November 17 last seeking the disbursement of Tk 9,331 crore in subsidy for the purchase of LNG, but the division has disbursed only Tk 1,000 crore.

In the fiscal year 2021-2022, the total subsidy required for Petrobangla import of LNG was taka 23,367 crores 47 lakh. Of this, Petrobangla's outstanding VAT / AIT with the National Board of Revenue was Tk 7,321.48 crore. Petrobangla's subsidy demand for LNG price and re-gasification charges alone is Tk 16,046 crore. The amount of subsidy has increased as compared to other years due to the need for more funding for LNG imported from the spot market.

LNG is currently being imported under a long-term contract of about $11.50 per million British thermal unit. On the other hand, LNG has been imported from the spot market for the latest $36.70 per million British thermal units.

Terming the purchase of a huge quantity of LNG from the spot market ‘a wrong decision’, energy experts say a maximum of 10 percent LNG should be purchased from the spot market and the rest 90 percent should be procured through long-term agreements with multiple countries. 

Experts say the country should give more priority to domestic oil and gas exploration to lessen the dependence on imported LNG, but the issue has long been neglected. 

The 1995 Energy Policy laid emphasis on the drilling of four exploration wells a year – a suggestion successive governments ignored.

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