Finance Minister AH Mahmood Ali recently unveiled the 53rd national budget, proposing Tk 7,97,000 crore, with the energy and power sector securing a mere 3.8 percent of the total budget. This represents a notable decrease from the 4.6 percent allocated in the FY 2023-24, marking a significant 12.9 percent reduction for FY 2024-25, according to a press release.

The South Asian Network on Economic Modelling (SANEM) expressed concerns over these trends, analyzing the implications for Bangladesh’s economy. Historically, budget allocations for the power and energy sector have fluctuated, peaking in FY 2018-19. Since then, the sector saw a 10.91 percent and 31.06 percent decrease in allocations for FY 2019-20 and FY 2020-21, respectively.

Starting from FY 2020-21, while allocations have gradually increased in absolute value, they remain insufficient. Within the power and energy sector, the budget for the energy sector has been continuously falling since FY 2018-19, dropping to 4 percent in FY 2023-24 and further to 3.6 percent in FY 2024-25, indicating persistent neglect.

Meanwhile, the Bangladesh Power Development Board (BPDB) has raised electricity tariffs four times in the past year. Despite efforts to reduce subsidies in the power and energy sector, the devaluation of the Bangladeshi Taka (BDT) against the US Dollar has significantly impacted subsidy payments. A devaluation by one BDT against the USD in FY 2024 could increase subsidy payments by Tk 473.6 crore, with the total subsidy burden projected to rise by Tk 4,404.48 crore due to devaluation.

Direct tax expenditure (tax exemptions) for the sector has decreased to Tk 7,611 crore from last year’s Tk 11,942.147 crore, further reducing benefits. The proposed budget allocates only Tk 100 crore for renewable energy development, far from sufficient. The Sustainable Renewable Development Authority (SREDA) received a lower allocation of Tk 11.19 crore, down from the previous year’s Tk 14.65 crore.

Despite having overcapacity, 27 power plants with a combined capacity of 9,144 MW are under construction. New LNG infrastructure is also being developed, despite the volatile international market affecting the economy. Insufficient natural gas reserves highlight the urgent need for stable and alternative energy sources.

BAPEX plans to drill 48 wells for onshore gas exploration and extraction from January 2023 to December 2025, contrasting with the completion of 49 wells since February 2014. The Bangladesh Offshore Model Production Sharing Contract (PSC) 2023 has initiated the ‘Bangladesh Offshore Bidding Round-2024’ to attract international companies for oil and gas exploration in 24 blocks.

SANEM calls for a strategic approach to managing budget allocation in the energy sector, emphasizing renewable energy projects, domestic natural gas exploration, currency devaluation management, and efficient subsidy policies. The organization recommends a substantial increase in the energy sector’s budget within the total power and energy allocation.