Impact of Energy Price Adjustments in Bangladesh: A Macro-econometric Modeling Approach

Study Team: Dr. Monzur Hossain (Team Leader), Dr. Md. Mahbubur Rahman and Atiqur Rahman

The domestic price of energy products including electricity, oil and natural gas has long been administered in Bangladesh. The government provides subsidy to all these energy products in various forms. While natural gas is the main source of primary energy (85%-90%), the government supplies it to the people at a subsidized price (after buying it at a higher price from gas companies). On the other hand, although selling price of natural gas to the power (electricity) generation companies is not that much subsidized, the government provides huge subsidies for the power sector as it supplies electricity to the people and others at a rate lower than the market price. Power generation is also dependent on imported diesels or furnace oils, the price of which is also administered—lower than actual price. Therefore, the government of Bangladesh incurs a large amount of expenditures in the form of subsidies every year for the energy sector.