Part I: PSMP 2016 and Strategic Shift in Bangladesh’s Power Sector

LightCastle Analytics Wing
October 26, 2016
Part I: PSMP 2016 and Strategic Shift in Bangladesh’s Power Sector

Bangladesh is undergoing rapid transition, which is propelling the economy towards greater growth and diversification. Fueled by rampant urbanization, development and infrastructure development, the economy is moving towards a middle income country. The Government’s vision is to elevate the country to a developed economy by 2041, and as such has developed a “Vision 2041” policy. A key focal point of the policy is on the power sector of Bangladesh. In previous years, Bangladesh had faced significant problems in the power sector. The mismatch in demand and supply had resulted in frequent load shedding which hampered business activities. In recent years, however, the frequency of load shedding has gone down significantly. Higher domestic power generation coupled with from neighboring country has resulted in an improving condition of the power sector. However, it has come at a cost as electricity tariff has gone up in recent years leading to dissent from the masses and business sector.

The “Power Sector Master Plan (PSMP) 2016” is a key document detailing the roadmap of the power sector of Bangladesh. The road map provides a comprehensive analysis of the current scenario of power consumption and production in Bangladesh. The road map focuses on how Bangladesh can facilitate sustainable economic growth by diversifying its power generation capability. The Master plan puts up 5 key viewpoints which is in tandem with the overall economic growth of Bangladesh and also the Sustainable Development Goals (SDGs) as developed by the World Bank.

The Five points

The entire PSMP is developed keeping in mind these five broad goals. The Master Plan also lays out a roadmap on how to successfully achieve the five key targets.

Enhancement of energy infrastructure and its flexible operation

Any country that goes through sustained economic development needs a robust supply of primary energy, particularly for industrial and transport sector. At present, Bangladesh is overly reliant on gas based primary energy, but in order to sustain development, the need for diversification is significant. Investment in increasing domestic generation is a long term process and as such, viable short term alternative, such as from neighboring countries are crucial.

Efficient development and utilization of domestic and natural resources (gas and coal)

Bangladesh has a decreasing reserve of natural gas and as such it is important to utilize the remaining reserve with maximum efficiency. The current mining and extraction technology of Bangladesh is rudimentary and greater reforms are required to enhance mining and extraction ability.

Construction of a robust, high quality power network

In to achieve greater economic growth, Bangladesh cannot solely rely on labor intensive industries. The need for investment and expansion of high value capital intensive industries is a logical progression in the development of an economy. As such, the demand for high quality power is imperative. To ensure high quality power supply, massive investment is required to develop infrastructure.

Maximization of green energy and of its introduction

Bangladesh is susceptible to the adverse effect of climate change. Therefore, it is to develop environmentally friendly power generation policy. There needs to be investment in renewable energy as it will help in reducing green-house emission and also result in cheaper electricity for rural people.

Improvement of human resources and mechanisms related to the stable supply of energy

Investment in power sector shouldn’t be focused on infrastructure and increased capacity only. The need for more trained human resource as well as ancillary infrastructure and industry is important. The pricing of electricity is a sensitive issue and it requires a comprehensive policy which won’t put the burden on the consumers or the producers.

Status Quo of Power Sector in Bangladesh

The Demand Side


Source: IEA Statistics, PSMP 2016

The demand for Power in Bangladesh comes from four major sectors: Residential, Industrial, Transport and Agriculture.

Assuming that the scenario is normal, the growing demand for energy consumption for both industrial sector and transport sector is expected if Bangladesh is moving towards the path of an advanced, high income economy. Agriculture and residential, despite slow growth will still command a sizeable portion of the final energy consumption.

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Regulatory Bodies

All prices related to Natural gas (domestic and), oil, and electrical power are controlled by the regulatory bodies of the Government and not determined by market prices. The ownership composition of power generation companies are a mix of private and public entities but all natural gas entities are state owned and oil import/refinery are state owned as well.


Source: PMPS 2016

The Supply Side


Source: PSMP 2016

The supply side of power in Bangladesh, at present is dominated by Natural Gas with more than 50% of the power being generated with Natural gas as raw material. The minimal output generated from renewable energy (Hydro, Solar, Wind power and others) is a cause of concern because Bangladesh is at risk of being seriously affected by the climate change. The GoB also has plans to launch a Nuclear power plant within 2020 to ease the pressure on Natural Gas as the primary source of raw material for energy in the future.


Source: IEA Statistics, PSMP 2016

The projected primary energy supply still shows a reliance on natural gas. It is a cause of concern for all relevant parties due to the depleting nature of the resource. The recent developments regarding Coal based power plants in Rampal and the extraction of coal from Boropukuria is signs that the GoB is looking towards diversifying its raw material sources in to achieve higher power generation output.


A brief overview of the power sector points towards two key factors: Over reliance on Natural Gas and increasing demand from industry and transport sector in the future. As such, it is to take a more comprehensive look into the composition of individual raw materials and study the potential alternatives to natural gas to sustain the development of the economy.

Research conducted by Ahraf Zahir, Junior Associate at LightCastle Partners. For further queries, please contact us here: [email protected]

WRITTEN BY: LightCastle Analytics Wing

At LightCastle, we take a systemic and data-driven approach to create opportunities for growth and impact. We are an international management consulting firm which creates systemic and data-driven opportunities for growth and impact in emerging markets. By collaborating with development partners and leveraging the power of the private sector, we strive to boost economies, inspire businesses, and change lives at scale.

For further clarifications, contact here: [email protected]

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