Bangladesh has spent years building electricity capacity to support growth, keep factories running, and reduce load shedding. On paper, that sounds like progress. In practice, a new wave of reporting around a government commissioned contract review suggests the country may be paying a steep premium for electricity it does not always need, through contracts that guarantee payments even when power plants sit idle.
If you have ever rented a place you barely use and still had to pay the full rent each month, you already understand the core issue. In Bangladesh’s power sector, that “rent” often shows up as capacity charges and “take or pay” style commitments, and the numbers being discussed are massive, with big implications for households, industry, government budgets, and the wider economy.
Below is a clear, reader friendly breakdown of what this review and related reporting is saying, why it matters, and what reforms could realistically change the direction of Bangladesh’s power costs.
What The Contract Review Is Saying In Plain English
A central claim emerging from recent reporting is that Bangladesh’s long term power contracts, many signed without competitive bidding, have locked the country into unusually expensive obligations that push up system wide costs.
While the Financial Times report itself is behind a paywall, summaries of its key findings and additional coverage point to a similar story: contracts that are overpriced, sometimes unnecessary, and structured to shift risk onto Bangladesh while guaranteeing payments to suppliers.
The core mechanics behind the pain
Here is the simplest way to understand how Bangladesh electricity contracts can inflate power costs:
- Capacity is built or contracted first, often with strong guarantees to the plant owner.
- Payments are owed even when electricity is not used, because the contract pays for availability, not only for actual energy delivered.
- Fuel costs and foreign exchange pressures stack on top, especially when contracts are dollar linked and the local currency weakens.
Prothom Alo, citing the National Review Committee findings and Bangladesh Power Development Board context, describes capacity charges as payments that must be made even if a plant does not generate power. It also notes that a committee report published on 25 January identified idle capacity of roughly 7,700 to 9,500 megawatts, with annual capacity charge costs estimated at $90 million to $150 million just to maintain that idle capacity.
Why the timing matters
This is not only a technical dispute about tariffs. It hits politics, business confidence, and the cost of living. Reporting indicates the review raises pressure to reform the energy sector, but also warns that renegotiating contracts could trigger arbitration or legal fights, especially when large cross border agreements are involved.
How Capacity Charges And Overcapacity Turn Into A Fiscal Trap
Bangladesh’s electricity system has a problem that many fast growing countries face: planners want “enough” power to avoid blackouts, but contracts can overshoot demand, leaving the country paying for capacity it rarely uses.
The scale of the capacity charge problem
Prothom Alo reports that capacity charges have surged sharply:
- In fiscal year 2022 to 23, generation capacity was 24,911 MW and capacity charge was Tk 250 billion
- In 2023 to 24, capacity increased to 28,098 MW and capacity charge rose to Tk 320 billion
- In 2024 to 25, capacity fell to 27,414 MW but capacity charge still climbed to Tk 420 billion, a jump of Tk 100 billion in one year
That last point is crucial: even when total capacity does not rise, the bill can still rise because contract terms and indexation formulas keep pushing payments upward.
Why paying in dollars makes it worse
A major pressure point is currency exposure. Prothom Alo notes that bills for many private sector plants are calculated in dollars, with a large portion settled in dollars, and that electricity imports from India are also paid in dollars. When the dollar exchange rate rises, Bangladesh’s costs rise even if underlying fuel prices do not move.
This “dollar linked cost base” is how a power sector problem becomes a foreign exchange problem and then a budget problem.
Overcapacity is not just waste, it is a liability
The Business Standard frames idle capacity as a fiscal burden, estimating annual carrying costs of stranded capacity through capacity payments alone at $0.9 to $1.5 billion, while warning that additional pass throughs and adjustments can make the true cost higher.
Even if you do not agree with every estimate, the direction is clear: when a system is built around guaranteed payments, the financial burden becomes sticky and politically hard to unwind.
The Adani Godda Deal And Why It Became A Lightning Rod
One agreement has attracted intense attention: Bangladesh’s power purchase arrangement tied to Adani Power’s coal fired plant in Godda, Jharkhand, India.
What the Bangladesh review committee flagged
Reuters reports that Bangladesh’s National Review Committee found the Adani plant priced power at a 39.7 percent premium over its nearest private sector competitor, and described it as the most significant outlier among Bangladesh’s cross border electricity procurement arrangements.
Reuters also reports the committee raised concerns including:
- Passing Indian corporate taxes through to Bangladesh, which the committee said deviates from standard practice where plants bear their own corporate taxes in their home jurisdiction
- Use of excessively priced coal
- “Serious anomalies” in contract award procedures, according to the committee’s assessment
Adani Power, according to Reuters, said it was not consulted during the review and urged Bangladesh to pay outstanding dues, stating it continues to supply electricity despite payment issues.
Why the dispute has legal and financial teeth
This is not a simple renegotiation. Reuters previously reported Adani Power had initiated an international arbitration process tied to disagreements over billing and cost components under the 2017 agreement.
So even if Bangladesh believes contract terms are unfair, changing them can trigger years of disputes, legal costs, and uncertainty that affects investors, lenders, and the wider market.
The anatomy of a costly tariff
Local reporting adds additional detail around how pricing benchmarks may have been set and how fixed charges can dominate the bill. The Daily Star reports that the Adani deal pricing was benchmarked in discussions against another contract, and highlights how capacity payments can become a long term “capacity trap,” with large fixed obligations over decades.
Whether you focus on the Adani agreement or on domestic contracts, the pattern is similar: fixed payments, limited flexibility, and rising pressure on the public purse.
Why These Electricity Costs Hit Families And Factories So Hard
When power sector costs rise, someone pays. In Bangladesh’s case, the pain appears in three places: subsidies, tariffs, and industrial competitiveness.
The subsidy spiral
Prothom Alo reports that Bangladesh PDB sells electricity at Tk 7.04 per unit while generation cost was reported around Tk 12.34 per unit in fiscal year 2024 to 25, widening losses and requiring large government support. It also reports the electricity sector received Tk 590 billion in subsidies in the last fiscal year covered in the article.
That is the subsidy trap: if tariffs are kept low for political and social reasons, the government budget bleeds. If tariffs rise to reduce subsidies, households and businesses feel the shock.
The tariff shock risk
A summary of the Financial Times reporting says the review warned tariffs might otherwise have to rise sharply, citing an estimate of an 86 percent increase in tariffs in one scenario, which would threaten industrial competitiveness.
Even if that number becomes a negotiating position rather than a forecast, it signals how severe the underlying imbalance could be.
Competitiveness and jobs
Bangladesh’s export driven sectors, especially garments and manufacturing, rely on predictable energy costs. When electricity prices climb or become volatile due to currency swings and contract escalators, factories face:
- higher unit costs
- reduced margins
- tougher pricing in global markets
- pressure to cut investment or jobs
This is why “electricity deals” are not just an energy story. They are a growth story.
What Real Reform Could Look Like Without Breaking The System
Energy reform is easy to demand and hard to execute. Bangladesh cannot simply tear up contracts overnight without risking power shortages, investor flight, or arbitration.
But there are practical paths that many countries use to unwind expensive legacy contracts over time.
Renegotiate the worst provisions first
Reuters reports the review committee called for contracts to be reviewed to identify opportunities to renegotiate the most fiscally damaging provisions.
That is the most realistic starting point: target a small number of high cost outliers, and focus on provisions that are hard to defend publicly, such as unusual tax pass throughs, aggressive escalation clauses, or benchmark choices that look weak.
Increase competition and transparency
One repeated theme in commentary is the cost of awarding contracts without competition. The Business Standard argues that a decade of contracts awarded without competition produced an unsustainable cost structure, with high premiums across multiple technologies.
Competitive procurement is not a magic wand, but it can:
- reduce average tariffs over time
- provide documentation and audit trails
- limit political discretion
- improve lender confidence
Fix the planning incentives
If planners are rewarded for building capacity rather than for delivering affordable, reliable electricity, the system will drift toward overbuilding. Reform often requires:
- stronger demand forecasting
- tougher rules on reserve margins
- clear triggers for when new capacity is allowed
- accountability for idle capacity costs
Prothom Alo notes experts cited in the piece comparing reasonable reserve margins at around 15 to 20 percent, while warning that very high excess capacity drives costs up.
Reduce foreign exchange exposure where possible
Bangladesh cannot fully escape dollar linked energy costs because it imports fuel and some power. But it can reduce exposure by:
- negotiating partial local currency settlement where feasible
- expanding domestic gas and lower cost supply when available
- accelerating least cost renewables where grid integration allows
- improving payment discipline to avoid late fees and surcharges
Prothom Alo describes multiple cost drivers including gas shortages shifting generation toward oil and coal, and currency depreciation raising costs where bills are dollar linked.
What To Watch Next And Why This Story Is Bigger Than Bangladesh
This moment is not only about one country or one deal. It is a live case study in what happens when energy policy, politics, and finance collide.
Three signals to watch in 2026
- Will Bangladesh publish more of the review findings and act on them
Reporting suggests parts of the review have not been fully public, but the pressure to show reform progress is rising. - Will high profile contracts be renegotiated or litigated
Arbitration risk is real in cross border disputes, and Reuters has already reported formal arbitration steps in the broader Adani Bangladesh payment conflict. - Will tariffs rise or will subsidies expand again
Prothom Alo’s figures highlight the gap between cost and selling price, which cannot widen forever without major fiscal consequences.
The global lesson for emerging markets
Many emerging economies face the same temptation: sign guaranteed contracts fast to solve shortages now, then worry about cost later. It works until it does not.
The lesson is not “never build capacity.” The lesson is:
- build what demand justifies
- buy power through transparent competition
- keep contracts flexible enough to adapt to changing fuel prices and technology
- avoid structures where the public pays most risks while private operators collect guaranteed returns
When that balance is lost, power becomes a silent tax on the entire economy.
Disclaimer
This blog post is for general information and educational purposes only. It is not financial, legal, investment, or energy policy advice. While the information is based on publicly available reporting and sources believed to be reliable at the time of writing, accuracy and completeness are not guaranteed, and details may change as new information emerges. The author is not affiliated with any government body, utility, or company mentioned, and references to organisations or agreements are provided for commentary and context only. You should do your own research and, where appropriate, seek independent professional advice before making decisions based on this content. The author accepts no liability for any loss or damages arising from reliance on this information.