Photo: Star Archive

Is systematic power tariff increase the only way forward?

MUSHFIQUR RAHMAN

It is unwise to think that people do not understand the differences between getting the electricity supply and living without. Those experts who favour supplying power even at a high price argue that the cost of non availability of one kilowatt hour (kWh) energy to the economy has a cost of approximately within the range of Tk.25 to Tk.50. A World Bank report estimated that 1% increase in number of power outages annually contributes to 10% average fall in enterprise productivity. And the power outage in Bangladesh results in an annual loss of US$1billion worth industrial output.

We are all eagerly waiting to elevate our status from a 'least develop country' to a 'middle income country' within 2021, the year of 50th anniversary of our independence. It is an achievable goal and experts suggest that attaining the target is possible if Bangladesh can accelerate its growth rate from its current 6% to 7-8% or more.

Currently, around 50% of the Bangladeshi population has access to electricity and 47% of the total supplied electricity is consumed by the household consumers. As per Bangladesh Power Development Board (BPDB) the average per capita electricity generation including the captive generation capacity is approximately 265 kWh.

Our prime minister made an unambiguous statement on December 2, 2012 for the electricity consumers that people should at least pay the cost of electricity generation. It is indeed a logical statement and the government needs resources for supplying electricity to the people that require a lot of investment and management efforts.

It is a known fact that approximately 15% (conservative estimate) of the supplied electricity never returns revenue - in other words, this significant portion disappears in the so-called 'system loss' riddle.

Prothom Alo reports that the average electricity generation cost is Tk.6.25 per unit (kilowatt hour) now. And BPDB supplies the electricity at Tk.5.75 (average) per unit. The balance is subsidised. BPDB, the sole custodian of the power sector management with the support of the government (the Ministry of Power, Energy and Mineral Resources) generates electricity with its own plants, purchases power from public and private sector power producers and distributes the power to its consumers with the help of its subsidiary companies. BPDB estimates that the power price consists of: 15% fuel cost, 11% non fuel cost (operation and maintenance costs); power purchase costs 5% from public sector plants and 69% from the private sector plants. As per BPDB, the average non fuel cost of power generation is approximately Tk.0.66 per unit.

In 2009, the average electricity generation cost was around Tk.3/kWh and the primary fuel mix for power generation was around 82% natural gas, 10% liquid petroleum, 4% hydro and 4% coal while. And the power generation capacity was (not installed capacity) approximately 3,500 MW when the present government assumed office in 2009.

Now at the end of 2012, power generation capacity in the country has increased to nearly 7,000 MW (installed generation capacity is 8,390 MW). Taking into consideration the urgent need for enhancing power generation capacity, government opted for installing the imported liquid fuel dependant rental and quick rental power plants, as the alternative options were time consuming and warranted massive investment.

Initially there was a plan for limiting the costly liquid fuel based rental and quick rental power plants for a maximum 2,000 MW capacity. The installed generation capacity of the rental and quick rental power plants dependant on liquid fuels has already crossed that threshold to 2,315 MW and more liquid fuel based plants are on the pipeline. The contribution of oil (furnace oil and diesel) for power generation has reached nearly 28%, bringing down the role of natural gas as primary fuel for power to 67%.

Unfortunately, the planned major baseload power plants promising to bring down the power generation costs could not successfully be implemented during the last four years period of this government. And the ‘make-shift short term rental and quick rental power plants,’ despite high costs of power generation, became the major achievements of the current government in the power sector. BPDB is now compelled to extend the tenure of rental and quick rental power plant contracts for continuing to receive power for the national grid from the plants.

The government had a plan to commission the gas and coal based large baseload power plants for securing steady supply of electricity from these plants. It was expected that the baseload power plants could help government to reduce its dependence on the costly oil based rental and quick rental power plants and generate electricity at Tk.4-5/kWh.

Unfortunately that plan so far did not work and BPDB continues to depend and expand its reliance on the costly oil based rental and quick rental power plants for maintaining the power supply. Published information suggests that the government would not be able to significantly reduce its dependency on the oil based rental and quick rental power plants until 2015. Thus the expectations for building load shedding (power outage) free Bangladesh within 2013 will remain as an unaccomplished goal.

The rapid increase of import oil demand for operating the power plants put huge pressure on the national budget. As per the published reports, during the last financial year, government subsidy for the power sector was Tk.6,357crore (63,570 million). Policymakers are willing to limit the subsidy within Tk.4,000crore (40,000 million) annually (Samakal, November 18, 2012).

During last April 2012, the government decided to supply uninterrupted electricity to the industries provided the willing industries would agree to pay the cost of electricity generation from imported liquid oil fired

power plants. The cost for power within the scope of such an arrangement was proposed as Tk.16/kWh. The power outage and poor quality power supply have been costing the local enterprises dearly in their efforts to 'gain and hold on to external markets'. Also the limited energy supply limits the expansions of manufacturing investments. Still, no industry has agreed to pay for such a high price for getting power from the grid so far. It may be mentioned that most of the larger industrial units in the country generate their own power using large-scale generators and cost per/kWh is significantly less.

International Monitory Fund (IMF) recommended the government to increase the fuel price to reduce its growing fiscal and external imbalances and cut down on subsidies. Experts fear that increased fuel prices will raise inflation rates. Published statistics indicate that the higher energy prices forced annual inflation rates in the advanced economies. Outside OECD area, annual inflation rates accelerated in India, China and Russia due to fuel price increase in July-August 2012.

The information provided by the UK Trade and Investment, suggests that Bangladesh needs to meet the demand for 34,000 megawatts (MW) of power to attain 8% GDP growth rate. It is further stated that a total of US$17 billion investment is required to minimise the growing gaps between the demands and supply of electricity in the country. Considering the current trends of power generation facilities development, economist Forrest Cookson (The Independent, 13 December 2012) predicts that the demand for electricity will continue to rise by 700-1,000MW during next four years. But the supply of power is expected to increase by approximately 500 MW annually unless there would be significant increase in the rental power generation.

Private power plant Barakatullah Electro Dynamics (BEDL) at Fenchuganj, Sylhet. Photo: Star Archive

We have come to the realisation that short term power generation solutions are costly. And power sector development without primary fuel supply security is unthinkable. Analysts have been arguing for coordinated efforts for harnessing domestic primary fuel sources especially for natural gas and coal. Analysing the experiences of Pakistan and Sri Lanka energy sector expert and BUET professor Dr. Tamim wrote in his article (The Daily Star, July 26, 2012) that the import oil-based power generation pushed the economy in Pakistan to near bankruptcy. As per published reports (The Nation, April 3, 2012), oil share in Pakistan could reach 48% in 2013. Pakistan has been facing nearly 8,000 MW systematic load-shedding due to its inability to pay for high price of oil. On the other hand, Sri Lanka charges highest rates per unit of electricity in the region as it was forced to develop import oil-based power systems in the past decades. Fortunately, Sri Lanka has realised its mistakes and decided to switch to import coal based power generations along with other options. Pakistan unfortunately continues to dilly dally with the political indecisions and struggles with the import oil-based power and its growing import oil bills.

Until Bangladesh ensures the primary fuel supply security the large investment for power will remain a challenging task. And the efforts of the government for balancing the power prices will continue to struggle. Consumers will continue to ask why the burden of inefficient management of power sector and political indecisions for enhancing domestic primary fuels supply be shifted to them as increased power tariff systematically. And whether, the government has been doing enough to improve energy efficiency which can significantly reduce the demands for electricity generation in the country without compromising the quality supply of electricity at an affordable price. Prof. Tamim suggests that electricity production costs can be maintained at taka 4/kWh for the production of 20,000MW for the next 20 years by using indigenous primary fuel (50% coal, 30% natural gas, 8% renewable energy including hydro) and the balance 12% with imported liquid fuel along with improved efficiency in power sector.

Are our energy sector managers willing to show their commitment and mobilise required skills for taking the challenges for or would they prefer to conduct affairs in business as usual mode?

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The writer is a Mining Engineer. He writes on energy and environment issues.