Before the lights flicker: Understanding the real risk in Bangladesh’s power sector

Bangladesh is heading into a time of year when electricity demand usually increases. Even moderate disruptions in generation capacity can lead to load-shedding. Photo: TBS

Bangladesh's energy sector has always been somewhat fragile. Over the past 20 years, the country's economy has grown rapidly, but it has been largely powered by fuel imported from other countries. 

This makes the electricity system sensitive to disruptions in the global market. Recently, tensions in the Middle East, particularly between Iran and Israel, have demonstrated just how fragile Bangladesh's energy sector is. 

Because fuel prices are unpredictable and supply chains uncertain, many countries are now reconsidering how to make their energy supplies more secure.

It is not entirely accurate to point fingers at global politics for Bangladesh's current struggles. The truth is more complex. While global developments have certainly made the energy market more difficult, a larger problem exists within the country's own power sector, and it is exacerbating the situation.

At the heart of the matter is the escalating financial and legal strain between the Bangladesh Power Development Board (BPDB) and several local independent power producers. On the surface, it may appear to be a typical contractual disagreement, but it is raising concerns about the reliability of the electricity supply in the near future. This issue goes beyond the financial well-being of a few companies; it affects the overall functioning of the entire power generation system.

The main issue is delayed payments. It is estimated that BPDB owes around Tk14,000 crore to power plants that use heavy fuel oil, with payments delayed by eight to ten months. For the companies operating these plants, such delays quickly create operational difficulties.

Electricity generation depends on a steady supply of fuel. To import that fuel, power plants must open Letters of Credit (LCs) with banks. However, securing those LCs requires financial liquidity. 

When payments remain unpaid for months, plants struggle to purchase fuel from international suppliers. What begins as a financial bottleneck gradually becomes a technical one: the plants exist, but they cannot always generate electricity because fuel is unavailable.

The situation is further complicated by the contractual framework governing electricity generation. Most power purchase agreements between BPDB and private power producers require payments to be settled within thirty days. 

That timeline was designed to ensure stability in a sector where large investments depend on predictable cash flow. When those timelines stretch into several months, the contractual balance inevitably becomes strained.

At the same time, another issue has emerged regarding the deduction of Liquidated Damages from power producers for what BPDB describes as "excess outages". The debate here is not only financial but also legal.

Producers argue that outages caused by fuel shortages, particularly when those shortages result from unpaid invoices, should not automatically trigger penalties. In several cases, they claim that dispatch instructions are issued through the National Load Dispatch Centre even when it is widely understood that certain plants cannot operate because fuel supplies have been disrupted.

From the producers' perspective, penalties imposed under such circumstances appear inconsistent with the contractual provisions governing the sector.

This interpretation often refers to Section 13.2(j) of the power purchase agreements, which contains a clause known as "Suspension of Deliveries". The clause states that if undisputed invoices remain unpaid beyond a specified period, the power producer's obligation to deliver electricity may be suspended while the plant continues to receive capacity payments. In practical terms, the clause recognises a simple commercial principle: when payment obligations are not fulfilled, service obligations may also be affected.

A major issue came to light in the case of Barisal Electric Power Company Ltd (BEPCL), where a substantial amount of Liquidated Damages was initially deducted by BPDB. After legal review, however, the decision was reversed and around Tk270 crore was reimbursed. The reasoning was that the plant had been operating under a valid suspension condition due to delayed payments.

That case has inevitably raised questions within the industry about consistency in the application of contractual provisions.

Beyond the legal debate, there is also a practical concern regarding system reliability. In Bangladesh, power plants that use heavy fuel oil play an important balancing role in the electricity system. While gas remains the main fuel for power generation, these liquid-fuel plants help stabilise the grid when gas supply fluctuates, or demand rises sharply.

If these plants face prolonged financial constraints, the system's ability to maintain stable generation during high-demand periods could be affected.

Bangladesh is heading into a time of year when electricity demand usually increases because of seasonal consumption, industrial activity, and agricultural irrigation. Even moderate disruptions in generation capacity during such periods can lead to load-shedding.

Avoiding that scenario requires addressing structural issues within the sector.

The priority is restoring financial discipline in the payment cycle. Clearing arrears and ensuring regular payment schedules would allow power producers to secure fuel and maintain operations.

It is also important to resolve the dispute over Liquidated Damages through a consistent interpretation of contractual provisions. When rules are applied transparently and fairly, investors gain confidence in long-term infrastructure projects.

There are also broader policy questions. Bangladesh currently imposes relatively high duties on fuels used for electricity generation—around 34% on heavy fuel oil and 22% on LNG. Some analysts argue that reviewing these duties, even temporarily, could reduce generation costs and ease pressure on both producers and government subsidies.

Bangladesh's electricity sector has achieved remarkable progress over the past two decades. Installed capacity has expanded rapidly, and access to electricity has reached levels that were once considered unattainable.

But infrastructure alone does not guarantee energy security. Stability depends on institutional coordination, contractual credibility, and financial discipline.

If those foundations weaken, the consequences will eventually appear not only in policy discussions but also in the daily lives of households, businesses, and farmers across the country.

Zillur Rahman is a journalist, political analyst and president at the Centre for Governance Studies (CGS). He is the host of 'Tritiyo Matra' on Channel i. His X handle is @zillur.