Power tariff hiked 16.7% as govt moves to cut subsidy burden

The government has increased electricity tariffs by 16.68% at the consumer level in a move aimed at reducing the power sector's mounting subsidy burden, a decision economists, industry leaders and energy analysts warn could fuel inflation, raise business costs and further strain households already grappling with rising living expenses.

The Bangladesh Energy Regulatory Commission (BERC) today (3 June) raised the weighted average retail electricity tariff by Tk1.52 per unit, from Tk9.11 per kilowatt-hour (kWh) to Tk10.63 per kWh. 

The new rates will take effect from June's billing cycle.

Infographic: TBS

The regulator also increased the weighted average bulk electricity tariff by 19.85%, or Tk1.39 per unit, from Tk7.00 per kWh to Tk8.39 per kWh.

The increase follows a series of energy price adjustments introduced by the government in recent months as it sought to contain subsidy costs.

Amid pressure on the energy sector stemming from the Iran war, the government raised the prices of four types of fuel oil on 18 April. While prices remained unchanged in May, three of those fuel types were increased again in June, with diesel being the only exception.

Following those fuel price adjustments, discussions intensified over a possible increase in electricity tariffs, culminating in today's decision.

The wholesale electricity tariff was last revised in February 2024, when the average bulk tariff was increased from Tk6.70 per unit to Tk7.40.

Subsidy reduction behind the hike

BERC Chairman Jalal Ahmed said the latest adjustment was necessary to reduce the government's subsidy requirement in the power sector. 

According to BERC, the government would need around Tk56,000 crore in power subsidies in fiscal year 2026-27 under the existing tariff structure.

The latest tariff increase is expected to reduce that requirement by about Tk14,200 crore, lowering the subsidy burden to nearly Tk41,000 crore.

"Even after the tariff increase, the government will still have to provide a substantial amount of subsidy," Jalal said while announcing the decision.

Officials at the Power Division said the move was consistent with the government's broader commitment to gradually reduce energy subsidies, a reform recommendation repeatedly highlighted by the International Monetary Fund (IMF).

Several officials familiar with the matter, however, said there had also been pressure to demonstrate progress on subsidy reforms ahead of budget preparations and ongoing discussions with development partners.

Responding to questions about whether external lenders had influenced the decision, the BERC chairman said, "There was no pressure. The decision was taken quickly considering the upcoming budget."

Inflation fears mount

Economists warned that the sharp rise in electricity prices would inevitably raise living costs and add to the cost pressures already facing businesses.

Asked whether BERC had assessed the impact of the tariff increase on inflation and household expenditure, Jalal Ahmed acknowledged that no such evaluation had been conducted. "The price increase will increase people's expenses, but an economic evaluation has not been done. There is an opportunity to do this."

Fahmida Khatun, executive director of the Centre for Policy Dialogue (CPD), said the increase would have direct consequences for inflation and industrial production costs.

"The tariff hike will certainly contribute to higher inflation and increase the cost of industrial output. However, the current level of subsidy in the power sector is also unsustainable," she said.

She argued that tariff increases alone would not solve the problem and called on the government to address inefficiencies, wastage and governance shortcomings within the sector.

Industry, consumers faces higher power bills

Industrial and commercial consumers have been among the hardest hit by the latest adjustment.

Commercial tariffs have been increased from Tk13.46-16.00 per unit to Tk15.36-18.40 per unit, while small industries will now pay Tk12.73 per unit, up from Tk11.05.

Medium-voltage industrial consumers will pay between Tk12.52 and Tk16.36 per unit, compared with Tk10.94-Tk14.24 previously. High-voltage industrial tariffs have been raised to Tk12.12-Tk15.91 per unit from Tk10.62-Tk13.84.

Shawkat Aziz Russell, president of the BTMA, said the increase would significantly affect the country's export-oriented textile and apparel sector.

"Energy accounts for nearly 30% of total production costs in many textile and spinning units, and this increase in power prices could raise overall production costs by around 10%," he said.

"At a time when manufacturers are already struggling with high interest rates, gas shortages, rising wages and global market uncertainties, this additional burden will further erode the competitiveness of Bangladeshi products in the international market," he added.

"We understand the government's need to mobilise resources ahead of the national budget, but such a sharp tariff hike will have broader consequences for inflation, investment and industrial growth. This decision could prove highly disruptive to the overall economy if not accompanied by structural reforms in the power sector," Russell further said.

Mahmud Hasan Khan, president of the BGMEA, told TBS that businesses were already struggling with higher fuel costs and operational challenges.

"We have asked the government to ensure an uninterrupted power supply. It would have been better if the decision to raise electricity prices had come after that was guaranteed," he said.

Speaking to TBS on the issue, Business Initiative Leading Development Chairperson Abul Kasem Khan said that while Bangladesh is able to produce goods at lower costs than some countries in certain cases, energy costs account for a significant share of production expenses. As a result, an increase in electricity prices directly raises production costs.

"Broadly speaking, there is little we can do – the cost of production will increase. We hope the government will consider the issue and provide some form of support or compensation in other ways. The additional cost could be partially adjusted through tax relief and other measures," he added.

Consumer groups also criticised the decision.

Residential consumers will also face higher bills across all consumption slabs. The lifeline tariff for consumers using up to 50 units a month has been increased from Tk4.63 to Tk5.32 per unit, while households consuming more than 600 units will pay Tk17.35 per unit, up from Tk15.40.

The Consumers Association of Bangladesh expressed deep concern, arguing that higher electricity prices would have a broad economic impact and that consumers would ultimately bear the burden.

In a statement, the organisation's vice-president, SM Nazer Hossain, said the move was difficult to justify at a time when many countries were waiving utility bills for low-income and marginal consumers.

He said that increasing prices in the name of reducing subsidies for small consumers was not acceptable.

Structural reforms needed

On the matter, Shafiqul Alam, lead energy analyst at the Institute for Energy Economics and Financial Analysis (IEEFA), also noted that tariff hikes alone would not resolve the financial challenges facing the power sector.

According to him, structural reforms were essential to reduce dependence on subsidies.

"Addressing overcapacity and capacity payment obligations should be the priority. Tariff increases may provide temporary relief, but they will not resolve the underlying causes of the subsidy burden," he said.

He warned that continued additions to generation capacity despite sluggish demand growth could force the Bangladesh Power Development Board to keep making large capacity payments while purchasing less electricity from operational plants, increasing financial pressure on the sector.

Higher transmission charges

BERC has also increased the transmission, or wheeling, charge for Power Grid Bangladesh PLC from Tk0.3135 per kWh to Tk0.3886 per kWh, an increase of Tk0.0751 per unit.

The regulator, however, left retail demand charges unchanged across all consumer categories and retained the existing 0.5% rebate on net electricity bills for prepaid meter users.