Despite years of domestic and foreign investment in Bangladesh’s energy sector, government subsidies continue to balloon, driven by costly electricity generation, inefficient infrastructure use, and expensive LNG imports. In the last five fiscal years alone, the government has provided over Tk 2.06 lakh crore in subsidies to the power and energy sectors, with electricity alone accounting for more than Tk 1.39 lakh crore - an increase of nearly 600 percent.
This growing financial burden, despite major investments and capacity expansions, raises critical questions about the sustainability, planning, and management of Bangladesh’s energy policy.
Subsidies Soar Amid Overcapacity and Underutilisation: According to data from the Ministry of Power, Energy and Mineral Resources, the Bangladesh Power Development Board (BPDB) has become increasingly dependent on government subsidies. In FY 2020-21, BPDB received Tk 8,945 crore in subsidies. That amount surged to Tk 62,500 crore in the revised budget of FY 2024-25 - marking a 593 percent increase in five years.
Despite these subsidies, nearly half of the country’s installed electricity generation capacity remains unused. The installed capacity rose from 22,031 MW in FY 2020-21 to 28,098 MW in FY 2023-24. However, demand growth has lagged far behind projections in the Power System Master Plan (2010), which assumed 10 percent annual demand growth.
With much of the capacity lying idle, the government has had to make capacity payments - fixed payments to power producers regardless of production - totaling over Tk 1.5 lakh crore between 2009 and January 2025. These payments primarily benefited 82 private and 32 rental power plants established during the previous government’s tenure.
Gas Sector Also Heavily Dependent on Subsidies: The gas sector, especially since the introduction of LNG imports in 2018, has also seen a steep rise in subsidies. Over the past five fiscal years, the government has allocated Tk 68,000 crore in gas and energy-related subsidies. The primary subsidy driver is Liquefied Natural Gas (LNG), which Bangladesh imports at high international prices but supplies domestically at much lower rates. According to Petrobangla, it currently spends Tk 29.39 per unit of gas supply, while the gas is sold to consumers at Tk 22.87, creating a deficit of Tk 6.52 per unit. This deficit is met by government subsidies.
Structural Inefficiencies Fueling the Crisis: Experts argue that the surge in subsidies is a symptom of structural inefficiencies rather than necessity. Infrastructure development in the power sector was prioritized during the past 14 years, but fuel supply management and domestic gas exploration were neglected.
“Overcapacity without matching demands, reliance on expensive imported fuels, and failure to tap into domestic energy resources - all of this created a perfect storm,” said a senior official from the Energy Division.
Subsidies continue to mount even as electricity and gas prices have been raised repeatedly in recent years. Consumers are being squeezed with price hikes, while taxpayers are footing an ever-growing subsidy bill.Additionally, there have been allegations of irregularities in plant installation, mismanagement of power purchase contracts, and inflated costs in fuel imports.
Energy Experts: Focus on Cost Control, Not Price Hikes: Critics say the previous government’s approach to rising expenses was to pass costs onto consumers through price hikes, rather than addressing inefficiencies.”The answer to rising power sector costs should not be more expensive bills for consumers. We need a systemic overhaul - smart planning, domestic exploration, and renegotiation of expensive contracts,” said Dr. Shafiqul Alam, an energy policy analyst.
Experts also point out that only 20 percent of gas in the national grid is sourced from imported LNG, yet it accounts for the lion’s share of the gas subsidy burden due to high import costs and dollar instability.
Furthermore, Petrobangla’s limited exploration budget has constrained efforts to develop new local gas fields. Every year, only Tk 1,000 to 1,500 crore is allocated for gas field development, which is far from sufficient for meaningful exploration. Many deep-well drilling plans have been postponed due to funding gaps.
Government Response: Reviewing Agreements, Planning Reforms: Muhammad Fawzul Kabir Khan, Advisor to the Prime Minister on Power, Energy and Mineral Resources, acknowledged the burden of rising subsidies and indicated that corrective steps are underway.”We are reviewing energy purchase agreements and identifying where costs are unnecessarily high. Our goal is to make electricity generation more cost-effective,” he said.
He also mentioned that the government has paid off large arrears in both gas and electricity sectors in the current fiscal year to stabilize the system and avoid supply disruptions.
However, no major reforms in fuel mix planning or local gas exploration policy have been announced yet. Without urgent reforms, observers warn that subsidies could spiral further, particularly if global energy prices surge again.
The Way Forward: Policy Coherence and Accountability: To curb the subsidy explosion and ensure energy sector sustainability, experts recommend:Cutting unnecessary capacity charges by retiring underutilized rental and quick rental plants.Accelerating domestic gas exploration to reduce LNG dependency.Restructuring long-term power purchase agreements that guarantee profits to private producers regardless of production.Developing demand-side management strategies to align capacity expansion with actual consumption trends.Ensuring transparency and accountability in procurement and infrastructure projects.
The continued expansion of subsidies amid high investments and rising consumer tariffs highlights a lack of strategic coherence in Bangladesh’s energy sector. Without a bold shift toward cost-efficiency, domestic resource development, and smarter planning, the country risks entrenching itself in a subsidy trap - straining public finances and undermining long-term energy security.
