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     Volume 6 Issue 8 | March 2, 2007 |

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Cover Story

Still in the Dark

Nader Rahman

With frequent power shortages, more often than not the only way to study is by candle light

The power situation in Bangladesh has steadily moved from bad to worse and no one is willing to take the blame. In the process the entire country has been brought to its knees, the farmers don't have enough electricity to irrigate their fields, shop owners have to close their shops by 7:00 pm to save power and as summer approaches the nation is on the brink of its largest power shortage ever. Where do we go from here, or more importantly where do we start?

For many people the topic of energy is a touchy one. Sixty-two-year-old Naveed Rahman says, “In 1971 no one had ever even heard of a power shortage, across the border in West Bengal there were massive power shortages. There daily load shedding lasted between 8 to 12 hours, since then the tables have been turned. These days I even read about importing power from India. What a disgrace.” From having over 350 Mega Watt (mw) surplus in 1971, we are now overburdened with the pressure of a 2000 mw deficit. There are many people and reasons to blame for the situation, of which a clear lack of foresight top the list.

Muhammad Aziz Khan, Chairman, Summit Group of Industries

The energy sector in Bangladesh has only relatively recently become an area of concern. In 1990 we still had a surplus of roughly 300 mw, since then we have gone through a prolonged period of instability. The economics of power and its importance is quite simple. If Bangladesh is to move forward economically, it must have power to run its industries. If those industries are to receive foreign direct investment, they have to prove suitable infrastructure, which entails a steady source of power. Another easy example of just how much power effects our economy lies with our ready made garments (RMG) sector. Currently 90% of all RMG factories run on diesel powered generators, if they were to receive electricity from our national grid their productivity would go up by at least 5%. The calculation is easy: we export roughly $ 5.8 billion worth of RGM's a year, 5% of that is $ 290 million. And that is taking a very conservative increase in growth. It is all woefully simple, but a lack of foresight and planning has led us quite literally to a dark alley.

Even though the past three governments all have a share of the blame, in their own small ways they have tried to ease the burden of our pitiful power sector. They put forward the

Privatising the power sector seems the best and most logical step

Power Sector Master Plan, Private Power Policy and the Awami League government from 1996 to 2001 orchestrated the era of private power where more than 1100 mw was added. The Power Sector Master Plan still acts as the guide for the development of the energy sector, but these are all rare success in overall scheme of things. While the addition of 1100 mw was the greatest achievement in the history of our power sector, its success has not been replicated yet, and that is where the previous government let us down badly.

The secret of the 96' government's success lay in transparency and the private sector. Investment from the private sector fuelled the most of the 1100 mw added during that time. Muhammad Aziz Khan, Chairman, Summit Group of Industries, a pioneer in private sector energy investment says, “In my opinion the energy sector in Bangladesh has failed for four reasons. Firstly the governments have the view that electricity is not for the private sector. They don't have the desire to foster the private sector's role in energy. They seemingly inherently believe, that energy should stay under the umbrella of the government.” This issue is at the heart of many a debate about who exactly should take the power sector forward, public or private enterprises. If experience is anything to judge from then the private sector has one up on the public sector.

The regular loadshedding from 7pm onwards in shopping malls is a measure to prepare for an inevitable crisis Before 7pm (top). After 7pm (bottom)

He also says, “The second problem is largely a philosophical one. The power sector is a losing concern, and for what reasons? We have moved towards free market economy and according to the ideology of free the market economy governments have to accept the fact that business will be conducted by the private sector. Instead mismanaged state owned enterprises run the power sector at a loss, without the profit making motive.” Coupled with this point, he says, “is the problem of tariffs. Currently the tariffs are far too low, cost prices must be met or else the industry will collapse. Along with that systems loss must be reduced. Currently systems loss is between 20 and 25% that needs to be reduced drastically. "And as we all know systems loss is a euphemism for theft,” Khan adds, “The fourth problem is that is of cross subsidies and financing. Cross subsidies have broken the back of our energy sector.” While there were the reasons he put forward as to why the sector has failed, he also said there was bright future ahead, with the proviso that it was handled properly.

“The solution to our problem lies in managing and implementing our current supply chain. By supply chain I mean exploration, production, transmission and distribution of natural gas, coupled with the generation, transmission and distribution of electricity into homes, offices and industries. We should look at the whole process and find out our weakness, currently our weaknesses lies in generation. Let us say that miraculously we manage to set up power plants overnight, they still would be ineffective, because the gas from our fields is still very tough to get to them,” says Khan. For this lack of infrastructure the blame can be put squarely on the shoulders of the last government. After five years of success in the energy sector they took over and transformed it into the worst run and possibly most corrupt sector around. Over and above that, they did not properly invest in the infrastructure of the sector, as contracts were given on the basis of political affiliation.

“If there is to be a way out, the government must immediately increase the cost of electricity and decrease the systems loss. That would be in an enabling environment for investment, because investors would like to see there is a return on equity available,” adds Khan. But even his suggestions have fallen on deaf ears as the government has still yet to decide exactly how big a role the private sector will play in the advancement of the power sector.

Currently privately generated power accounts for one-third of the national grid

Where does this leave us now? Recently the government even toyed with the idea of importing power from West Bengal. The idea itself of importing something as essential as power from India is also quite subversive. To this Aziz Khan adds, “In 2002 I along with some associates offered to build, own and operate a 1000 mw power plant in Bheramara, which would have provided 500 mw to India and 500 mw to Bangladesh. It would have among other things provided the opportunity to share the water of the Ganges in a more reasonable way. India would have been urged to allow more water via the Farakka barrage. This was put forward to the Bangladesh Power Development Board (BPDB) and power division ministry of energy and mineral resources. They gave me no formal response.” This was another shining example of what not to do by our government, while currently we are faced with the prospect of importing power from India, five years ago they were given the opportunity to export power to India and they refused. Khan goes on to say “I am in favour of a regional power grid, with Bhutan, Nepal, India and Bangladesh. However I do not think that there is any possibility to export power from India in the near future. To the best of my knowledge India does not have surpluses.”

Another challenge is the state owned enterprises have receivables from each other creating a situation where all of them are heading towards bankruptcy. For example BPDB has receivables of about Tk 4500 crores and most of these receivables are from other state owned enterprises like DESA, DESCO and REB and so on and so forth. The Bangladesh Petroleum Corporation (BPC) owes Sonali Bank, Janata Bank and Agrani Bank about Tk 8000 crores for the LC's they have established from petroleum products. Similarly BPC has huge receivables from the BPDB and Biman which are yet to be realised. If the energy sector is to be fixed there must be a mechanism where the receivables and payables amongst the state owned enterprises must be dealt with. It must be fixed from within if it is to move forward.

According to The Daily Star a recent Asian Development Bank report said, "The country faces several downside risks in its near to medium-term prospects. These include political disruption and infrastructure constraints, including power shortage." It went on to say, "In Bangladesh, per capita energy generation is only 158 kilowatt-hours a year, among the lowest in the world. Only one-third of the population have access to electricity. In recent years, the power situation has worened because of load-growth outstripping supply capacity expansion, and slow progress in reforms." It further stated that Bangladesh needs substantial investment to handle the gigantic task of meeting the growing energy reform. Plus it should adopt a cost-reflective power tariff structure, establish the northwest power generation company and take up other measures to organise and streamline its various power entities. The report and its suggestions are to be taken seriously.

Everyday activities like going to the local barbershop for a shave, has to be done under candlelight

The previous four party alliance must take the lions share of the blame for our current crisis. Their handling of the energy sector was shambolic, so much so that state minister for Power Iqbal Hasan Mahmood had to be removed from his post last year. Alleged irregularities in tender processes delaying a number of power projects and failure to rein in the bureaucracy defined his four-and-a-half year tenure. It was also reported in the press that, during his four and half years in office, Iqbal cashed in on a few million dollars through massive corruption. However Iqbal had publicly indicated that since the beginning of 2005 that he had no executive power as the Prime Ministers Office and the PM's principal secretary were taking all the decisions, indirectly passing the blame of his failure on the PMO. Corruption has led us to where we are, now transparency seems the only way out.

There is an issue of energy security, which has not yet received enough importance in Bangladesh. Pakistan has planned for a 30 year period of energy security while India has planned for a 50-year energy security. The Bangladesh government has left this vital subject to an unknown future. The very concept of energy security has a direct and strong linkage to the national economy and the environmental consequences. It is generally argued that a more diverse system is more secure than a less diverse one. Bangladesh is a mono-energy (natural gas) based country. Hence diversity in safekeeping of supply (physical) should be a good hedge against supply uncertainty. As a consequence, regional cooperation in energy would provide a vehicle for diversification of fuel sources, resulting in a better security of supply. Availability of proper infrastructure (power grid, for instance) will considerably balance the demand and supply, hence impacting positively on the supply security.

New regulations given to the caretaker government have changed the city's shopping culture

After it is all said and done, the energy sector in Bangladesh is in dire straits. We have come to 2000 mw shortage with seemingly no way out. Truth be told there is no easy or quick way out of our current predicament. The private sector needs to be encouraged, if we are to leave this current state of powerlessness behind us. But the task is not easy, we have to accept that the current electricity rates we pay are ridiculously low, we must pay the real cost price. If we are to move forward we must make some sacrifices, and the people will be the first to feel the pinch of it. But the benefits will be reaped in the long run, we have the capability to move from a 2000 mw deficit today to a 200 mw surplus in four years time. There are some seemingly laughable short term proposals, but even their vision is squinted. The private sector must come to our rescue, but without complete government support even that will cease to work. As a country we have all that is needed to be a self sufficient power provider, now all we need is a strong hand to take us there. The following two quotes come from Energy Information Administration which provides official energy statistics and reports from the U.S government:

“Almost all of Bangladesh's commercial electricity supply comes from natural gas-fired plants”;

“With its large potential natural gas reserves, Bangladesh is becoming increasingly important to world energy markets.”

After years of corruption and mismanagement now more so than ever for our energy, we must practise the importance of being earnest. The economic future of our country depends on it.



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