Subsidies for the power sector are likely to balloon 83 percent this fiscal year as the interim government is planning to clear all arrears owed to private power producers.

An additional Tk 25,000- Tk 30,000 crore may be kept in the revised budget to pay off arrears, which will be added to the allocation for subsidies, according to the finance ministry's initial plans.

As a result, overall subsidies for the power sector are expected to rise to around Tk 66,000 crore at the end of FY25, up from an initial budgetary allocation of Tk 36,000 crore.

The allocation is likely to go up in the revised budget for FY25 and the amount will be finalised by March, finance ministry officials said.

As the government is a long way off from its revenue collection target, the funds may be diverted from the budgetary allocation for the Annual Development Plan (ADP).

The budget for FY25 had allocated Tk 265,000 crore for the ADP, but that figure may fall by around Tk 50,000 crore in the revised budget, a top official of the ministry said.

"If we can allocate the amount to the power sector, the arrears will be cleared by this fiscal year. As a result, the subsidy burden in the power sector will be reduced next fiscal," the official added.

The official also said that the government has taken initiatives to reduce power production costs in order to ensure that arrears do not pile up and that there is some room for flexibility in the future.

In December, a mission from the International Monetary Fund told the government to clear arrears to the power sector by June of 2025. They also proposed increasing electricity prices to help reduce subsidy expenditures.

However, the government refused to increase prices and formed several committees to investigate how they could reduce costs.

Muhammad Fouzul Kabir Khan, adviser to the Ministry of Power, Energy and Mineral Resources, said on Saturday that they are under tremendous pressure to increase electricity and gas prices.

Although the interim government has been in office for six months, electricity prices have not yet increased, he said, adding: "But I don't know how long it will last."

The pressure of piling arrears is akin to having a gun held to their head, according to Khan.

Currently, the Bangladesh Power Development Board (PDB) has arrears amounting to Tk 21,000 crore.

Of the amount, Tk 9,000 crore is owed to the Bangladesh Independent Power Producers' Association, whose members have said they will be unable to produce electricity in the summer -- which starts around March -- if the government fails to clear arrears immediately.

India's Adani power plant also started pressing hard for arrears amounting to around $850 million since the interim government took office.

Additionally, local coal-fired power plants are facing hassles in importing coal to operate smoothly due to a lack of funds.

The interim government has formed separate committees to identify loopholes in contracts signed during the ousted Awami League government's tenure, which increased the burden of subsidies, and to renegotiate power purchase prices.

Zahid Hussain, a former lead economist of the World Bank's Dhaka office, told The Daily Star that the government should focus on reducing power production costs.

"The immediate solution is to phase out inefficient power plants and renegotiate prices, which are excessive," he said.

According to Zahid, some power plants' contracts were unfair to Bangladesh, giving producers the leverage to overcharge.