Blackouts bedevil Bangladesh as South Asia forex worries mount
Echoing Sri Lanka And Pakistan, Woes Blamed On Ukraine War And Falling Reserves
DHAKA -- Bangladesh is sinking deeper into a power crisis that has alarming echoes of the electricity woes seen in its politically and economically troubled South Asian neighbors Sri Lanka and Pakistan.
Blackouts due to load shedding -- when utilities interrupt some electricity supply to avoid overstretching their capacity -- have become increasingly common as the country struggles to import enough fuel for its power plants amid rising international prices. This is undercutting claims by Prime Minister Sheikh Hasina's government that it had solved the power deficiency that once plagued the nation.
As recently as late March, the government was boasting that it had made electricity available to 100% of the population. But at the beginning of July, Hasina conceded that the industry faced significant challenges.
"Prices have gone up to such an extent that it has now become difficult to keep the power plants running with the gas we have in stock," she said in an online appearance on July 7.
Julfiqar Ali, a graphic designer who lives in the northern city of Rangpur, complained: "Electricity doesn't stay continuously even for three hours. When power cuts happen, they linger on. Overall, we are getting at most 12 to 13 hours of electricity per day. I simply can't work in this situation."
He said the supply has become so volatile that he missed deadlines for two projects.
The outages come amid growing worries over the country's depleting foreign currency reserves, which recently slipped below $40 billion for the first time in about two years. The finance minister this week said that Dhaka is asking the International Monetary Fund for a loan, without specifying the amount, though he insisted the economy was "no way in trouble," according to Reuters.
Bangladesh produces 52% of its electricity using natural gas. Since 2018, declining domestic production of natural gas has been supplemented by imports of liquefied natural gas, and such LNG now accounts for 20% of the gas supplied to power plants. But as Europe sought alternatives to Russian gas in response to Moscow's invasion of Ukraine, global prices surged, forcing Bangladesh to hit the brakes on its purchases.
"Even before the Russian invasion of Ukraine, LNG prices had reached their highest levels on record," said Sam Reynolds, an energy finance analyst at the U.S.-based Institute of Energy Economics and Financial Analysis (IEEFA). "And following the invasion, the Asian spot price for LNG spiked to $84.76 per metric million British thermal units, more than 15 times one year earlier."
Bangladesh -- which bought 42% of its LNG from the spot market in 2021, rather than through long-term contracts -- last paid $25 per million BTUs. The price lately has been moving around $40.
Reynolds said countries with long-term LNG purchase contracts are less exposed to this extreme volatility. Dhaka's exposure to the tumultuous spot market "has had a particularly destabilizing effect on Bangladesh, causing gas and power shortages," he said.
At the same time, to further ease pressure on Bangladesh's foreign exchange reserves, the Hasina administration also decided to temporarily shut down all diesel-fired power plants.
Bangladesh's forex reserves have not fallen into dangerous territory like those of Sri Lanka, where the immediately usable stockpile was said to be just $50 million earlier this year. But recent trends have nevertheless raised concern in Dhaka: Foreign currency reserves slid to $39.67 billion as of July 20 -- down by more than $8 billion over a span of 10 months. The latest figure marked a 21-month low.
Imports accounted for almost all of Bangladesh's fuel oil stock, and before the closure, diesel-fired power plants contributed 1,000 to 1,500 megawatts to the national grid on a daily basis. That was roughly a tenth of the 12,000 to 13,000 MW produced overall, according to the Bangladesh Power Development Board -- a total that even then fell short of the demand of 14,000 to 14,500 MW.
Iqbal Mahmud Tuku, who was the power minister during the 2001-2006 government of the Bangladesh Nationalist Party -- now the main opposition party -- told Nikkei Asia that the country's ongoing electricity crisis has more to do with declining foreign reserves than the war in Ukraine.
"The Hasina government boasted about our foreign currency reserve and said we would become Singapore soon," attracting foreign capital, Tuku said. "But the truth is because of the faulty policy, Bangladesh's import payment capacity has significantly weakened over [recent] months. We now can't import necessary things like diesel or LNG."
Attempting to manage the situation, the government from July 19 made load shedding official and decided to carry out power cuts in areas across the country for one to two hours per day. That schedule, however, has barely been maintained. Outside Dhaka and the port city of Chattagram, the rest of Bangladesh has seen far more than two hours of blackouts.
The state minister for power, energy and mineral resources, Nasrul Hamid, admitted at a news conference on Saturday that in many places, load shedding has continued for longer than the promised duration.
In the northeastern Sylhet region, which suffered a devastating flood just weeks ago, electricity producers have not shied away from publishing a schedule that shows some areas will not have electricity for 13 hours a day.
Frustrated by these long power cuts, Sylhet resident Hamidul Bhuiya went out to protest along with hundreds of others. "This government used to say that it has brought the whole of Bangladesh under electricity coverage," Bhuiya said. "Where is my electricity now?"