Bangladesh’s Macroeconomy Thrown into Turmoil by Energy Crisis

By Rintu Anwar

The lifeblood of any emerging economy is uninterrupted and affordable energy security. Yet Bangladesh’s macroeconomy, industrial sector and daily life are now caught in a severe energy and power crisis.

The current government assumed office with an ambitious pledge to create 10 million new jobs. But the reality of the past six months has raised serious concerns over economic indicators, foreign exchange reserves and policymaking coordination.

The industrial sector is suffering most. According to the Dhaka Chamber of Commerce and Industry (DCCI), energy and power shortages are causing losses of up to Tk 23.87 billion a day in the industrial sector. Daily gas demand is around 3,800 million cubic feet (mmcfd), while the national grid can supply only about 2,420 mmcfd. The shortfall of nearly 1,380 mmcfd is directly affecting garment, textile, ceramics, steel and fertilizer factories.

Even when factories remain shut, businesses must continue paying loan interest, wages and maintenance costs. The crisis is also discouraging new investment. Around 1,857 applications for new gas connections are reportedly stalled because of bureaucratic complications and capacity constraints. These projects were expected to bring nearly Tk 350 billion in investment and create significant employment.

Entrepreneurs are increasingly using expensive diesel generators, raising production costs and weakening the competitiveness of Bangladeshi products. In the long run, this could reduce export earnings and deepen the dollar crisis.

The roots of the crisis, however, extend beyond the past six months. They must also be traced to the policies and strategic failures of the previous 15 years. The previous Awami League government expanded power-generation capacity, but the sector became heavily dependent on imported fuel.

Using a special indemnity law, several costly short-term power contracts were signed without open tenders. Around 45 percent of power-generation capacity remained idle for extended periods, while companies received large capacity payments. Annual system losses reached around Tk 400 billion, and subsidies rose to approximately Tk 800 billion.

Domestic gas exploration remained inadequate as dependence on imported LNG and LPG increased. Over the past decade, domestic gas production reportedly fell from around 2,700 million cubic feet per day to about 1,630 million cubic feet.

After the previous government’s fall, the interim government led by Dr Muhammad Yunus governed for 18 months. Although it did not undertake major energy projects or capacity expansion, it maintained relative stability using existing infrastructure and limited resources. During that period, people did not experience load-shedding and fuel shortages to the same extent.

The current government’s inability to maintain that stability has raised public questions. Frequent load-shedding, gas shortages and long queues at filling stations are increasing frustration. Government officials have blamed the problems accumulated over 15 years and sought at least two years to restore normalcy. But citizens ask why an elected government with a strong mandate cannot maintain stability when the interim government did so without an electoral mandate.

Analysts point to bureaucratic delays, slow decision-making and poor coordination among policymakers. Global geopolitical tensions and instability in international energy markets are also contributing.

Around 95 percent of Bangladesh’s petroleum requirements are met through imports. Tensions in the Middle East and instability around the Strait of Hormuz have increased transportation and insurance costs. Even modest increases in global oil prices can have a disproportionate impact because of Bangladesh’s dollar shortage. A recent fire at Excelerate Energy’s floating LNG terminal in Maheshkhali and a sudden LNG supply shortage have further exposed the vulnerability of the country’s energy security.

There are, however, some reasons for optimism. Under the direct intervention of Prime Minister Tarique Rahman, several high-level meetings have been held to address the crisis. The government has decided to pay around Tk 130 billion in outstanding dues to private oil-fired independent power producers (IPPs). The Power Development Board has also been instructed to increase generation from oil-fired plants by up to 80 percent.

With global LNG prices high, generating electricity with furnace oil can be more cost-effective than buying LNG from the spot market. If around 3,000MW of idle private capacity can be utilized, it could provide benefits comparable to a new floating LNG terminal supplying 500 million cubic feet of gas per day.

The government expects the IPPs to return to near-full production within three weeks, potentially adding around 2,500MW to the national grid. This would reduce domestic gas consumption in power generation and allow more gas to be supplied to industries. It is a timely emergency measure, but it cannot replace long-term reforms.

Bangladesh must urgently expand oil and gas exploration onshore and offshore to reduce import dependence. BAPEX needs modern technology and skilled manpower to complete the planned drilling of 150 gas wells. Only around 30 have reportedly been completed so far. The offshore exploration bidding process must also be protected from bureaucratic delays.

The country should diversify LNG sources, strengthen storage and terminal infrastructure, and expand renewable energy through large-scale projects. The government has set a target of 10,000MW of renewable electricity within five years and withdrawn import duties and advance taxes on solar equipment.

At the same time, theft, waste and system losses must be reduced through greater transparency and accountability. Bangladesh also needs strategic fuel reserves capable of meeting national demand for several months during international crises. The stalled plan to build a 7–8 million-tonne crude oil refinery in Chattogram or another coastal area should also be expedited.

Bangladesh’s energy crisis is therefore more than a temporary supply shortage. It threatens industrialization, employment, inflation control, exports and economic security. The accumulated weaknesses of the past, combined with global uncertainty, cannot be resolved overnight.

What Bangladesh needs now is political commitment, long-term planning, efficient use of domestic resources and transparent energy management. Emergency measures may ease current pressure, but only structural reforms and a diversified, affordable and sustainable energy system can put the economy on a stable path toward long-term growth.

Writer: Journalist and columnist.
rintuanowar.com