[🇧🇩] Energy Security of Bangladesh

[Saif]

https://www.newagebd.net/post/opinion/316978/stabilising-domestic-oil-prices

Stabilising domestic oil prices
Faizul Latif Chowdhury 08 October, 2026, 00:00

THERE is no arguing that the government is currently caught in a severe macroeconomic impasse. The escalation of regional geopolitical conflicts has driven international petroleum, oil and lubricants prices upward, exhausting foreign currency reserves and exacerbating domestic inflation. Concurrently, critically low domestic revenue collection limits the government’s capacity to offer any further fiscal relief.

The current 25.9 per cent cumulative ad valorem (percentage-based) tax structure on fuel imports compounds this crisis by creating a ‘passive windfall’ for the National Board of Revenue at the direct expense of the consumer. As global import prices spike, the absolute tax collected per litre automatically balloons, feeding a destructive domestic inflation loop. Tis may be discontinued right away.

A structurally neutral, counter-cyclical alternative is abolishing the ad valorem architecture at the port, and replacing it with a specific duty, meaning flat-rate tariff per litre in the taka. This transition untethers the state budget from international volatility, provides predictable revenue for sovereign debt service, protects the productive economy (agriculture and mass transit) from hyper-inflation and simplifies customs administration at the Chittagong port.

Bangladesh’s fiscal policy space is heavily constrained by structural vulnerabilities. It is difficult to hold NBR responsible for the widening revenue deficit. The country possesses one of the lowest tax-to-GDP ratios in South Asia, leaving no room to simply cut taxes without violating fiscal sustainability and international financing safeguards.

The current 25.9 per cent import tax structure is calculated sequentially, meaning taxes multiply upon other taxes rather than applying as flat fees. First, customs duty is collected at the rate of 6.0 per cent on the ‘assessable value’ at port of entry. Then import VAT is calculated at the rate of 15 per cent, based on the duty-paid value (assessable value plus customs duty).

Thirdly, advance tax is realised at the rate of 2.0 per cent. This causes upfront liquidity pull. No one clearly understands the logic behind introducing advance tax, over and above advance income tax.

Finally, advance income tax is collected at the rate of 2.0 per cent, to be adjusted later.

Altogether, the incidence turns out to be 25.9 per cent. When the international cost of refined diesel stands at an assessable value of Tk 70.00 per litre, the NBR bags Tk 37.00 per litre in cumulative duties. If global disruptions drive the assessable value up to Tk 90.00 per litre, the 25.9 per cent progressive structure automatically forces the tax collection to surge to Tk 47.00 per litre. No customs officer can claim credit for this additional collection.

This passive state profit acts as an aggressive, regressive consumption tax. To mitigate the shock, the Bangladesh Petroleum Corporation (BPC) is forced to run steep commercial deficits or pass the costs onto the refuel stations, stunting sluggish investments and raising transport and irrigation costs.

In this context, we propose replacing the multi-tiered percentage calculation with a single, statutory flat BDT rate assessed purely against the physical volume of fuel unloaded at the port. The ministry of finance should abolish the percentage-based customs duty, VAT, advance tax, and advance income tax system on fuel imports, replacing it with a singular, uniform specific duty denominated in fixed taka per physical litre at port of entry. Based on average historical revenue generation, the optimal baseline is proposed as follows:

(a) High-speed diesel and furnace oil: A flat, immutable Tk 35.00 per imported litre.

(b) Octane and petrol: A flat, immutable Tk 45.00 per imported litre.

Under this scheme, customs officers will calculate state revenue based entirely on physical volume unloaded from vessels rather than volatile international monetary valuation invoices.

The first layer of the proposed reform would be to eliminate the 6 per cent customs duty, 15 per cent VAT on duty-paid value, 2 per cent advance tax, and 2 per cent advance income tax on energy imports.

The second step should be to put in place and institutionalise a flat tariff of Tk 35.00 per litre for diesel (the primary driver of the productive economy) and Tk 45.00 per litre for octane/petrol at the import stage.

As the third step, the Bangladesh Petroleum Corporation should be declared fully exempt from upfront advance tax and advance income tax liquidity obligations, instantly freeing up state-level foreign exchange capacity.

Transitioning to a volumetric specific duty structure provides the National Board of Revenue with critical leverage to stabilise the broader macroeconomy without compromising structural fiscal discipline. Needless to emphasise that it will enhance sovereign fiscal credibility of the business scenario. On the other hand, by establishing a guaranteed, floor revenue of Tk 35.00 per imported litre, the NBR guarantees a reliable stream of non-devaluing domestic cash. This ensures the treasury can comfortably meet high domestic debt service liabilities without relying on inflationary central bank money printing.

This will reign in the inflationary feedback loop due to uncontrollable rise of petroleum in the international market. Because diesel drives mass passenger transit, commercial logistics and agricultural irrigation (powering water pumps across rural grids), any increase in its cost has an immediate multiplier effect on the consumer price index and food security. A flat BDT tax stops the tax architecture from artificially inflating these essential sectors during global energy shocks.

Exempting the BPC from upfront advance collections removes unnecessary internal administrative bottlenecks. It prevents the state from efficiently choking its own energy supply chain’s liquidity, helping preserve scarce foreign currency reserves for international settlement rather than tying it up in internal tax escrow accounts.

Will this be a freeze on the collection of customs duty from imported petroleum, oil and lubricants? This is certainly a relevant question for the government exchequer. The answer is yes. The amount collected at the port of entry will not change unless there is an increase in import volume. Historically the import of petroleum, oil and lubricants has increased every year since the birth of Bangladesh.

Let us not forget that instituting a flat-rate specific duty, replacing the ad valorem one, will eliminate passive windfalls, allowing the retail pump price to remain significantly closer to the actual cost of fuel. Budgetary revenue becomes a direct function of physical consumption volume, ensuring steady funds for the government exchequer. At the port, the customs officials will simply verify the physical volume unloaded from the tanker and apply the flat multiplier, and the clearance procedure will be truly simplified. The Bangladesh Petroleum Corporation will know in advance how much will be the duty liability at the port. The government will not be forced to deploy massive universal subsidies to shield consumers against international price hike. The new system will put in place a clean domestic retail pricing while ring-fencing treasury baseline in a transparent way. Good governance does not need windfall gain in revenue owing to international price hike.

Faizul Latif Chowdhury teaches economics and business at the Independent University Bangladesh.​

 

[Saif]

Solar power cheaper than oil and coal, focus shifts to solar

Of this, 19 power plants based on renewable energy sources—solar, hydro and wind—have a combined generation capacity of 1,089 megawatts.

en.prothomalo.com

Solar power cheaper than oil and coal, focus shifts to solar

Mohiuddin
Dhaka

Solar panels installed on the roof of Jorargonj Bouddha High School in Mirsarai, Chattogram Prothom Alo

A 100-megawatt solar power plant was commissioned in Bhabanipur, Pabna, in 2024. The plant was built on 400 acres of land on the vast sandy char of the Padma River. During the day, the plant supplies solar-generated electricity to the national grid.

As rising global prices of fuel oil and gas and supply shortages have made it increasingly difficult and costly to operate the country’s fossil fuel-based power plants, the solar power plant on the Padma char is supplying electricity to people. Solar power does not require fuel imports using foreign currency, nor does it cause air pollution. It is also relatively cheaper.

The Bhabanipur solar power plant was developed by Paramount Group. Under a 20-year power purchase agreement signed with the company in 2021, the price of electricity is 11.5 US cents per unit, equivalent to around Tk 13 at present. By contrast, the cost of electricity from furnace oil-fired power plants is more than Tk 28 per unit. The cost of coal-fired power is around Tk 15 per unit. Coal also carries the risk of environmental pollution.

On the other hand, during the tenure of the Awami League government, which was ousted in the July mass uprising, approvals for solar power plants were granted without competitive tenders. Equipment for solar power plants was also more expensive at the time.

As a result, electricity prices were higher. After the fall of the Awami League government, the interim government invited tenders and was able to sign contracts for solar power at less than Tk 8 per unit. This shows that solar power is cheaper than electricity generated from coal and oil.

Despite these advantages, Bangladesh remains behind in renewable energy. During the Awami League government’s 15-and-a-half-year rule, one power plant after another was built relying on fossil fuels.

Renewable energy, however, did not receive sufficient attention. Towards the end of the Awami League government’s tenure, some greater emphasis was placed on solar power amid growing difficulties in the sector.

Between 2010 and 2023, around $30 billion was invested in the power sector, equivalent to Tk 3.7 trillion at current prices. Only 3.3 per cent of that investment went to renewable energy.
According to data from the Bangladesh Power Development Board (PDB), contracts were signed for the construction of a total of 136 power plants during the Awami League government’s tenure, most of them based on fossil fuels.

The country’s total power generation capacity now stands at 28,347 megawatts.

Of this, 19 power plants based on renewable energy sources—solar, hydro and wind—have a combined generation capacity of 1,089 megawatts.

Only 4 per cent of the total electricity connected to the grid comes from renewable sources. PDB data show that renewable energy accounted for 2.58 per cent of power generation capacity in fiscal year 2012–13.

However, according to data from the Sustainable and Renewable Energy Development Authority (SREDA), many companies and organisations generate electricity from rooftop solar systems and feed it into the grid.

As a result, a total of 1,492 megawatts of electricity from renewable sources is currently connected to the grid. Even taking this figure into account, renewable energy accounts for only 5 per cent of total power generation capacity.

The target was to generate 10 per cent of the country’s total electricity from renewable sources by 2021. That target was not achieved. The deadline was later extended to 2025, but that target was also missed because of inadequate investment in the sector.

Between 2010 and 2023, around $30 billion was invested in the power sector, equivalent to Tk 3.7 trillion at current prices. Only 3.3 per cent of that investment went to renewable energy.

The new BNP government is stepping up efforts to increase solar power generation and is offering various incentives to the sector.

State Minister for Power, Energy and Mineral Resources Anindya Islam Amit told Prothom Alo that the government is giving the highest priority to renewable energy. He said rooftop solar was being prioritised to rapidly increase power generation before next summer, so that people would not face the kind of hardship they experienced last summer.

Alongside rooftop solar, initiatives have been taken to build power plants on government land through partnerships. He said there is strong interest among both domestic and foreign investors. The government has already approved a 442-megawatt solar power plant at the site designated for a coal-fired power plant in Rampal, Bagerhat.

Solar power gets a boost amid crisis

The Awami League government built one power plant after another, relying on imported gas, coal and fuel oil. After the Russia-Ukraine war began in 2022, energy prices in the global market rose sharply.

The target was to generate 10 per cent of the country’s total electricity from renewable sources by 2021. That target was not achieved. The deadline was later extended to 2025, but that target was also missed because of inadequate investment in the sector.
Foreign exchange reserves continued to decline as the country spent more to import fuel. The price of the dollar rose, as did the prices of electricity, gas and fuel oil in Bangladesh.

Despite having many power plants, people then had to endure load-shedding. In such circumstances, the government of the time was forced to place greater emphasis on renewable energy. Towards the end of the Awami League government’s tenure, consent letters were issued for 37 solar power plants.

In the process of building power plants, the government first issues a consent letter to an investor, followed by a power purchase agreement. The consent given to the 37 power plants towards the end of the Awami League government’s tenure was cancelled during the interim government’s term.

The stated reason was that the Awami League government had issued the consent letters without inviting tenders under the Special Provisions Act for the Quick Enhancement of Electricity and Energy Supply. The High Court repealed the special powers law on 14 November 2024. As a result, there was no scope to sign agreements with those plants.

On 18 November 2024, the Bangladesh Power Development Board (PDB) informed 31 companies by letter that it would not purchase any electricity from them. Between December and January, 15 companies filed 11 writ petitions with the High Court challenging the government decision. Meanwhile, the interim government invited tenders in several rounds and signed agreements for 11 solar power plants—seven on 25 January and four on 29 January. These plants have a combined generation capacity of 818 megawatts.

Since the new BNP government took office, tenders have so far been invited for the construction of 10 solar power plants. However, the deadline for submitting bids has been extended several times. As a result, it is not known how many bids have been submitted or which companies have expressed interest.

During the Awami League government’s tenure, sovereign guarantees were provided for foreign loans taken for power plants. The interim government scrapped the practice. Sources at the PDB and private power plants say foreign lenders are reluctant to provide loans without sovereign guarantees. There have also been difficulties in purchasing land for the past two years. The companies that have recently secured power plant projects have limited experience.

In addition, imports of power plant equipment have been disrupted by the war in the Middle East. Taken together, these factors mean there is little prospect of obtaining electricity from the newly contracted solar power plants within the next year or two.

Confidence Group won contracts to build three solar power plants after participating in tenders during the interim government’s tenure. Group Chairman Imran Karim told Prothom Alo that some problems had arisen over land purchases and bank financing. It could take until mid-2028 to begin generation. However, he said the new government was providing certain assurances for the projects, which would make financing easier.

According to PDB data, work is currently under way on 19 renewable energy-based power plants in the private sector, with a combined generation capacity of 1,042 megawatts. Six solar power plants are under construction in the public sector, with a combined capacity of 110 megawatts.

An agreement for one of these plants, with a capacity of 100 megawatts, was signed in 2023. During the interim government’s tenure, agreements were signed for five publicly owned plants with a combined solar generation capacity of 10 megawatts. In addition, a consent letter has been issued for a 100-megawatt solar power plant in Cox’s Bazar, and the agreement is under process.

Investors left in a difficult position

A report published by the Centre for Policy Dialogue (CPD) in April said that if the 31 solar power plants whose consent letters were cancelled in the private sector had been implemented, they would have generated 3,287 megawatts of electricity and attracted $6 billion in investment. Fifteen of the companies had already purchased land. However, there were questions over the price at which electricity from those plants would be sold.

Sources in the Power Division said the average price of solar power under the 10 tenders conducted during the interim government’s tenure was 21 per cent lower than that of the power plants whose consent letters were cancelled.

The average price had previously been 10.47 US cents per unit, or around Tk 13. Following the tenders, it fell to an average of 8.27 cents, or slightly more than Tk 10. One agreement was signed at as low as 7.49 cents per unit, or slightly more than Tk 9.

After the consent letters were cancelled, Chinese companies also proposed renegotiating the price of electricity. The government, however, has yet to consider the proposal. The Ministry of Power did form a committee in May to review the claims of the cancelled solar and renewable energy projects. Little progress has been made by the committee so far.

People familiar with the matter say some of the cancelled power plants could be contracted after negotiating lower prices. This would make it possible to obtain solar power quickly.

For example, two plants—a 50-megawatt facility in Dimla, Nilphamari, and a 100-megawatt facility in Dinajpur—could begin commercial generation within next year if necessary. Everything needed for the two plants had already been completed, and even draft power purchase agreements had been prepared. However, work came to a halt after their consent letters were cancelled.

Sources said the cancelled power plants involved investment from several countries. One of the investors was among China’s top five power companies. It had received consent for two power plants with a combined capacity of 150 megawatts. In addition, agreements for several more plants with a combined capacity of 600 megawatts were at an advanced stage of negotiation, including a 200-megawatt floating solar power plant. Some companies, unable to invest in Bangladesh, have instead invested in the Philippines and Vietnam over the past two years. The Chinese company is also working on a $7 billion investment plan in Indonesia.

Several officials associated with the cancelled power plants told Prothom Alo on condition of anonymity that if fresh tenders were invited, the plants would not begin generation for another five years.

Instead, they said, the government could quickly scrutinise the cancelled projects and allow genuine investors whose plants had made sufficient progress to proceed.

On the matter, State Minister Anindya Islam Amit said some of the projects whose consent letters had been cancelled had already made progress. He said the government was reviewing which power plants had genuinely secured projects in compliance with the rules and made investments, with a view to bringing them into generation.

Experiences of Three Countries

In 2006, neighbouring India brought renewable energy under a separate institutional framework by establishing the Ministry of New and Renewable Energy.

According to a statement issued by the country’s Press Information Bureau (PIB) on 8 April, renewable energy meets 51.5 per cent of India’s 203 gigawatts of electricity demand.

Vietnam had only 86 megawatts of solar power capacity in 2018. By the end of 2025, that figure had risen to more than 19,000 megawatts. Pakistan has also made significant progress in solar power. As electricity prices rose sharply in the country, many people began installing rooftop solar systems.

Grid-connected rooftop solar capacity has surpassed 6,000 megawatts. Various sources, however, say the actual amount of rooftop solar power is several times higher, as much of it is not connected to the grid and is used directly by consumers.

Potential in Bangladesh

The current government has announced a target of generating 10,000 megawatts of electricity from renewable energy by 2030. People familiar with the sector say the target is achievable. Import duties on equipment for solar power plants have already been reduced to 1 per cent.

The government has also introduced substantial incentives for rooftop solar power. It will purchase rooftop electricity at Tk 10.50 per unit, creating considerable interest in the market. Alongside rooftop systems, the government now needs to accelerate the construction of large-scale solar power plants on land. It has planned to allocate government land for solar power plants through public-private partnerships.

Experts say electricity can be generated from renewable sources at a lower cost than from nuclear power plants. Building a nuclear power plant can take 10 to 12 years, whereas a solar power plant can be built within one and a half years.

Land acquisition, however, remains a major challenge. Bangladesh has around 3.6 million acres of khas land and 1.8 million acres of non-agricultural land. Of this land, there is an opportunity to use 30,000 acres of char land to generate 10,000 megawatts of solar power. The PDB also owns around 6,000 acres of land that could be used to build solar power plants.

The cost of generating solar power is also declining. An investment of around $35 million is required to build a 50-megawatt power plant. The investment can be recovered within six to seven years.

Khondaker Golam Moazzem, president of the Knowledge Hub Institute, told Prothom Alo that the government’s efforts to promote small-scale solar power generation, starting with rooftop systems, were encouraging.

Some private-sector companies are also generating solar power on the rooftops of industrial facilities. However, he said, the construction of large-scale solar power plants needs to be accelerated.

He said the government should quickly submit the report of the committee formed to evaluate the power plants cancelled by the interim government. If necessary, he added, appropriate foreign companies could be given an opportunity to proceed after negotiating an agreement on electricity prices.​