Finance Minister Amir Khasru Mahmud Chowdhury recently acknowledged that Bangladesh needs at least two years to stabilise its energy sector and the wider economy. The admission is sobering, but also useful. It raises a question that deserves more attention: if adequate supply cannot be restored soon, how will the country manage with scarce energy during the next two years?
The government does have plans for new wells, production-sharing contracts (PSCs), solar generation, LNG terminals, and an energy hub near Khulna. Japan’s $317 million Emergency Support Loan, highlighted during Prime Minister Tarique Rahman’s Tokyo visit, is also relevant as it supports economic and energy reforms, not a specific power plant. But these initiatives will be helpful in the medium term at best. Wells, terminals, pipelines, and renewable projects require time, capital, and capable institutions. Until they deliver, the government must decide who receives scarce energy, at what price, and with which level of reliability.
As things stand, Bangladesh is not short of installed power plants. A recent Panam Institute policy note estimates the country’s grid capacity at about 28,900 MW, against a record generation of only 17,200 MW. Its message is that the system is short of gas and money, not power plants. The same note reports that domestic gas production has been falling since 2016-17, while imports rose from contributing 47.7 percent to 62.5 percent of primary energy between 2020-21 and 2024-25.
My recent conversation with a leading industrialist in the energy business pushed me beyond this familiar supply-side diagnosis. His argument was that the deeper problem lies in industrial policy. For decades, extraordinarily cheap domestic gas influenced where firms invested, what they produced, and how much they focused on energy efficiency. Bangladesh did not pursue textbook import-substituting industrialisation throughout the 1980s and 1990s; those decades also brought trade liberalisation and the rise of export-oriented garments. But policies protected and promoted domestic processing industries such as steel re-rolling, fertiliser, ceramics, glass, cement, and textiles while gas and electricity remained priced below their full economic cost.
That model could appear successful while domestic gas was plentiful, but it is harder to justify when the marginal unit is imported LNG. An industry that saves one dollar of imports but requires more than a dollar of imported fuel, foreign exchange, and public subsidy is not genuinely saving foreign exchange. It is merely replacing one import bill with another, while part of the cost is concealed in the accounts of Petrobangla, the Bangladesh Power Development Board, and in the national budget.
This does not make steel, ceramics, or glass inherently undesirable. They create jobs and supply essential inputs. The relevant question is whether a new project or major expansion can compete when charged the full, long-run cost of reliable energy. Existing workers and capital cannot be moved without serious disruption. New investment, however, should not receive an open-ended entitlement to subsidised energy.
The allocation problem is already substantial. Industries directly consume about 19 percent of Bangladesh’s gas, while captive power generation inside factories accounts for another 17 percent—together more than one-third of supply, according to the Panam Institute policy note. However, the rules governing how shortages are distributed among grid power, industrial processes, captive generation, fertiliser production, and households remain unclear to the public. In practice, allocation is determined by pressure fluctuations, unplanned outages, administrative discretion, and political access. This is industrial policy by default, rather than by design.
This is where I partly agree with former energy adviser Muhammad Fouzul Kabir Khan’s warning that politicians and their business associates helped create today’s gas crisis. He pointed to unnecessary generation capacity, promises of industrial gas connections when gas was unavailable, and connections awarded through corruption. My argument is complementary but broader: even without an illegal transaction, a policy regime can create the wrong industrial structure when it socialises energy costs while privatising the returns.
Additionally, Professor Anu Muhammad’s recent diagnosis in this newspaper emphasises imported-energy dependence, weak national capability, and the political interests surrounding large projects. Here, a comparison with Malaysia is especially instructive. Malaysia built Petronas into a capable national institution rather than treating lack of domestic capacity as a permanent excuse. Bangladesh must likewise strengthen Bapex and Petrobangla while using foreign firms for capital and specialised knowledge under transparent contracts. But stronger supply institutions still need a disciplined demand policy.
For the next two years, grid management must therefore become an explicit part of industrial policy. The government should publish and enforce clear rules for rationing gas and electricity during shortages; introduce predictable time-of-use tariffs for large consumers; replace arbitrary interruptions with scheduled curtailments; and set public reliability standards for industrial zones. Efficient exporters should be able to plan production rather than discover their effective energy allocation through the duration of an outage. Major sectors should also be assessed for energy intensity, value added, employment, and net foreign-exchange contribution. Any subsidy that remains should be transparently accounted for in the budget, carry a time limit, and be justified by measurable economic benefits.
Over the longer term, new energy-intensive production should cluster near ports, fuel storage, regasification facilities, renewable resources, and common utilities. “Off the national grid” should not mean thousands of unregulated diesel generators, but rather serviced industrial-energy zones using dedicated generation, cogeneration, direct contracts, or transparently priced grid connections. The most energy-intensive stages may sometimes be better located in energy-abundant economies such as Malaysia, while fabrication, distribution, and higher-value activities remain in Bangladesh. Temporary duty relief for heavy fuel oil may ease an emergency, but it should be time-bound and tied to efficiency and emissions standards rather than becoming another permanent subsidy.
The costs of this model are now becoming harder to avoid. Cheap domestic gas helped generate profits and keep input costs low, but it also weakened incentives to explore, conserve, and invest in efficient machinery. The same business leaders who benefitted from that model for decades now find themselves grappling with unreliable supplies and the high cost of imported LNG.
The finance minister’s two-year timetable should be treated as more than a forecast; it should be viewed as a deadline for replacing implicit rationing with transparent demand management.
Bangladesh must accelerate exploration, renewable energy, and import infrastructure while also deciding which uses of scarce energy generate enough social and economic value to justify their cost. Otherwise, the country will continue allocating energy through outages, influence, and inherited privilege.
Source: Bangladesh cannot wait two years to manage its energy demand
This article was originally published by The Daily Star and is republished here by Panam Institute with permission. © The Daily Star. All rights reserved.
