Red hot

Courier Briefing
Thursday, November 30th, 2017


 

The low base from which the electricity sector started its turnaround means prices too are on an upswing.

 

Even for a government with a propensity to describing itself as the harbingers of development in Bangladesh, the turnaround achieved in the electricity situation holds a special place in the hearts of the Awami League. The people can hardly forget the dire straits in which the electricity sector, indeed the population, found itself as this government came to power, and in fact the nadir was reached in its first two years, 2009-10, as load shedding peaked at around 12 hours a day in parts of even the capital.

 

The AL is always proud to hold up the turnaround achieved since, most often in terms of the increase in power generation. The aggressive stance helmed by the tenacious Dr Tawfiq Elahi, the prime minister’s influential energy and power sector advisor has induced a good deal of opposition from various sectors. The achievement has come at a cost obviously, and there are question marks over the strategy, that depended heavily on the quickly-available rental power plants.  In the last week, the government announced the eighth hike in power prices in 8 years, bullish that a population headed for middle-income status as a nation will be prepared to bear the extra cost out of their pockets.

 

But has the government done enough over two terms? Despite its achievements, half the rural population of Bangladesh has no access to electricity, ranking the country in bottom place among the least developed countries (LDCs) in Asia, according to a UN study launched November 22. The United Nations Conference on Trade and Development (UNCTAD) report identified a huge discrepancy between the country’s rural and urban populations, with around 84percent of the urban area inhabitants enjoying access to electricity.

 

The very next day, the Bangladesh Energy Regulatory Commission (BERC) raised retail power tariff by 5.3 percent on a weighted average. At present, average per unit cost of electricity at the retail level is Tk 6.49. After the increase, it will go up to Tk 6.84 per unit, reported our sister news agency UNB.

 

BERC Chairman Monwar Islam announced the decision saying that the new tariff will come into effect from December. The regulatory body announced its decision in response to power tariff hike proposals placed by different state-owned companies. The minimum charge of the consumers was withdrawn for which monthly power bill will be reduced for about 3 million “lifeline consumers” who consume 0-50 units each, Islam said.

 

Moreover, he said, retail tariff rate of about 6 million consumers under the Rural Electrification Board (REB) will remain unchanged. As a result, in total, there will be no hike in power tariff for about 38 percent consumers, claimed the regulator boss.

 

The BERC had last raised the gas and powers tariff in September 2015 by 2.93 percent and 26.29 percent respectively on average at the consumer level.

 

Under the new tariff structure, the residential consumers of 0-50 units will pay Tk 3.50 per unit while consumers of upto 75 units will pay Tk 4 per unit; consumers of 76-200 units at Tk 5.45 per unit, 201-300 units users will pay Tk 5.70 per unit; 301-400 units users Tk 6.02 per unit; 401-600 unit users Tk 9.30 per unit, and users above 600 units will pay Tk 10.70 per unit from December 2017.

 

Explaining the reason for not raising the bulk tariff rate, member of the BERC Mizanur Rahman said a number of adjustments were made in the expense of bulk consumers, which are mainly the power distribution companies that cut their increased expense.

 

Secondly, about Tk 3600 crore of the government grant or subsidy was expected in the calculation of the bulk consumers which offset their cost enhancement and it does not need to increase the bulk rate, he said.

 

The PDB’s per unit revenue requirement was Tk 5.44 against the existing average bulk tariff of Tk 4.84 per unit.

 

Mizan also said the government does not need to increase power tariff even if the costly imported LNG was supplied to the power plants as in that situation some dual fuel plants will run on imported gas, not by liquid fuel. He also admitted that if the government reduces the liquid fuel price, than it would give a scope to reduce the electricity tariff.

 

Earlier, the Commission held a series of public hearings on their proposals from September 25 to October 5. It also held a special public hearing on power tariff reduction proposal placed by the Consumers Association of Bangladesh (CAB) to reduce the bulk power tariff.

 

CAB has proposed reducing the bulk tariff price by Tk 1.32 per unit taking different measures and implementing the previous BERC order to ensure the purchase of lowest-cost electricity by Bangladesh Power Development Board (PDB).

 

Prof. Shamsul Alam, energy adviser to the Consumers Association of Bangladesh (CAB), said the proposals to increase the power tariff were not logical. “During the hearings, the proposals could not be justified. Still, the tariff was hiked.”

 

Measures like producing less power by burning diesel and rationalising capacity payment (payments for being available to produce power) for rental and quick rental power plants could have saved at least Tk 7,843 crore in 2015-16 fiscal year or Tk 1.56 per unit, according to the CAB.

 

“There is no need to increase the price of electricity, as the price of furnace oil, which is the primary fuel used by of power plants, continues to decrease. At present, the prices of furnace oil are low in the international market, so the price in the domestic market should also be low,” Prof. Alam said.

 

The savings would have brought down the bulk rate, which would have been reflected in the retail rate, he added. He went on to denounce the process of holding public hearings as a ‘farce’, as none of their proposals seem to be taken into account, and the hikes are pre-decided.

 

Ploughing ahead

 

According to a US government advisory for potential investors, demand for electricity in Bangladesh is projected to reach 34,000 megawatts (MW) by 2030 and the government has plans to increase power generation beyond expected demand to help propel growth in the export-oriented economy and to meet the demands of a growing middle class.  Total investment in the sector over the next 15 years is estimated at $70.5 billion.  While installed generation capacity is 13,179 MW as of February 2017, shortfalls exist due to poor distribution infrastructure and a mismatch between the types of energy plants and fuel mix available.  Private power production units are approaching half of total installed capacity.

 

Only two-thirds of Bangladesh’s population is currently connected to the electricity grid.  This indicates an untapped potential market of up to 60 million people connecting to the national grid in coming years as Bangladesh continues its growth trajectory.

 

The fuel mix of Bangladesh’s power plants is heavily based on natural gas.  The government plans to reduce dependence on natural gas and move towards coal with plans to generate 50 percent of total electricity using coal-based power plants by 2030.  Other solutions include importing electricity from neighboring countries, importing liquefied natural gas (LNG), and expanding use of renewable resources, including solar and wind.

 

The leftist parties have condemned the decision to go for the price hike, blaming it on an evil design wrought by influential foreign powers in cahoots with the political establishment in Bangladesh. There can be no denying that foreigners play a strong role in the power and energy industry in Bangladesh. As the industry matures, foreign experience and expertise has proved vital in getting things off the ground.  US companies, or more like one US company, Chevron, produces over 55 percent of Bangladesh’s domestic natural gas supply and are among the largest investors in power projects.  US-origin power turbines currently provide 80 percent of Bangladesh’s installed gas-fired power generation capacity.

 

Yet as the country’s supply of natural gas continues to dwindle, the prospects indicate the people may be forced to endure further hikes in electricity prices in the coming years. Currently a move is underway to import LNG, or liquefied natural gas, to progressively replace natural gas as fuel in power generation. The projected shift to coal on the other hand, sounds unrealistic in view of the present realities. The row over the 1320MW coal-fired plant in Rampal has shown that the people are not as insensitive to environmental concerns as the government might think.

 

There are also opportunities for offshore gas exploration.  Currently, 18 offshore blocks exist in the Bay of Bengal, most of which remain available for allocation and exploration.  Oil and gas firms can pursue exploration and production ventures through production sharing agreements with the state-owned oil and gas company, Petrobangla.  In March 2017, without public tender, the government and state-run Petrobangla signed a production sharing contract with POSCO Daewoo Corporation of South Korea for oil and gas exploration in deep sea block 12. It typified the aggressive stance favoured by Tawfiq Elahi.

 

The government had previously indicated that the terms of production sharing contracts would be improved to attract greater international interest.  According to press reports, Bangladesh’s new model production sharing contract (PSC) allows Daewoo to sell natural gas and other petroleum resources to a third party in the country or outside at negotiated prices if Petrobangla refuses to buy the gas.  The Bangladesh government processed the proposal of Daewoo under the “Prompt Power and Energy Supply (Special) Act-2010,” under which there was no open competitive bidding process in awarding the contract. This was the first time a PSC was signed under the special act.

 

Power to the people

 

One of the key steps of the present AL administration was in changing around the administrative structure for electricity in the country. Whereby electricity is procured and distributed in the country. The BPDB or PDB now purchases power from rental and IPP power plants, Electricity Generation Company of Bangladesh (EGCB) Ltd, Rural Power Company Limited (RPCL), Ashuganj Power Station Company Ltd (APSCL) and North-West Power Generation Company Limited (NWPGCL).

 

It sells power to its bulk consumers – Dhaka Power Distribution Company Ltd (DPDC), Dhaka Electric Supply Company Ltd (Desco), Rural Electrification Board (REB), West Zone Power Distribution Company Limited (WZPDCL), North West Zone Power Distribution Company Limited (NWZPDC) and to its retail consumers in its own distribution regions – at the price fixed by the BERC. The latest power price hike has come at their insistence.

 

The PDB had proposed raising the power tariff by 15 percent per unit at the bulk level, taking account of the proposals by the distribution companies who buy electricity from it at bulk.  In the proposals, Rural Electrification Board of Bangladesh sought an 11percent hike in retail tariff, West-Zone Power Distribution Company Ltd sought 10.36percent, DPDC 6.24percent, North West Zone Power Distribution Company Ltd 16percent, and Desco 6.34percent respectively.

 

The distribution companies say that every time the price of electricity has been increased less at a retail level than wholesale. This makes it difficult for them “to run the companies”.

 

However, according to the proposals submitted to BERC by the distribution companies, of the six companies, only the Rural Electrification Board (REB) is recording losses. The four that are making profits are the PDB distribution zone, Dhaka Power Distribution Company (DPDC), Dhaka Electric Supply Company (DESCO), and West Zone Power Distribution Company Limited (WZPDCL).

 

The North-West Zone Power Distribution Company Limited (NWZPDCL) has been newly formed. This company started operating in October last year. For the first time it has approached BERC regarding PDB’s Rajshahi and Rangpur Zone assets and liabilities.

 

The REB is playing the key role between six distribution agencies and companies to accomplish the task of getting electricity to every household in the country, something the present AL administration wants to complete by 2018, in time for the election. REB has already implemented several projects and a number of projects are ongoing.

Officials and contractors related to REB project implementation said around 47 percent of the consumers were getting electricity when the government took charge in 2009. According to them, around 80 percent of the population now avails electricity. However, 80 percent coverage does not mean that 80 percent of the country is connected to the grid in terms of area.

 

There are 491 upazilas in the country; three of them are islands that can only be connected to the grid at a massive cost. So REB’s target is to get power to 488 upazilas. Out of these 488 upazilas, only 16 upazilas have electricity connections across their entire area. There are 10 other upazilas where this has been accomplished, which the prime minister was scheduled to inaugurate on August 20, but this was cancelled due to floods. REB says another 35 upazilas are now ready to launch full electrification. By December 2017, the REB is expecting to add another 50 upazilas to this list.

 

Put together, all of these only covers 111 upazilas or less than one-fourth of the total. Which suggests bringing forward the target for full electrification by 3 years from 2021 may well be an overambitious one, causing the distribution companies to take on projects at a much faster rate than possibly even they can manage.

 

History of electricity in Bangladesh

 

Electricity utilization in this region (Bangladesh) started in 1901 when a private generator was installed at the residence of the then Nawab of Dhaka. Mr. Bolton, British citizen, switched on the first electricity in Ahsan Monjil on 7 December 1901. Electricity distribution system under private ownership was begun by DEVCO, a subsidiary of Octavian Steel Company in the 1930s and Dhanmondi power house was setup for commercial distribution of power.

 

In the year 1947, power generation and distribution of this part of the country were in the hands of some private companies. The power supply to then 17 provincial districts was within the township in a limited way. The generation voltage was 400 volts. Power used to be supplied to most of the districts during nighttime only. Only exception was Dhaka City where power used to be supplied by two 1500 kW generators and the generation voltage was 6.6 kV and this was the highest supply voltage.

 

There were no long distance transmission lines. In aggregate the generation capacity of the country was 21 MW.

 

In 1948, Electricity Directorate was created in order to plan and improve power supply situation. In 1959, Water and Power Development Authority (WAPDA) was created and the power sector really started working satisfactorily. In 1960, Electricity Directorate was merged with WAPDA. The basic philosophy was to give more autonomy to an organization for development of this basic infrastructure.

 

At that time (1960) relatively higher capacity plants were built at Siddhirganj, Chittagong and Khulna (highest plant size was only 10 MW Steam Turbine at Siddhirganj). At the same time, Kaptai dam was under construction under Irrigation department. Unit size of Kaptai was 40 MW, which for that time was considered to be a large power plant. Side by side construction of Dhaka-Chittagong 132 KV transmission line was in progress. Construction of Kaptai dam and commissioning of Dhaka-Chittagong 132 KV transmission line in the year 1962 may be taken as milestone of power development of this country.

 

In 1972, Bangladesh Power Development Board (BPDB) was created to boost the power sector. A different approach and a new model was considered for undertaking a comprehensive scheme. Thus the Government created Rural Electrification Board (REB) in October 1977. Later in 1991 Dhaka Electric Supply Authority (DESA) was created basically to operate and develop distribution system in and around Dhaka (including the metropolitan city) and bring about improvement of customer service, collection of revenue and lessen the administrative burden of BPDB. The company has since evolved to DESCO.

 

One of the key steps of the present AL administration was in changing around the administrative structure for electricity in the country., whereby electricity is procured and distributed in the country. The BPDB or PDB now purchases power from rental and IPP power plants, Electricity Generation Company of Bangladesh (EGCB) Ltd, Rural Power Company Limited (RPCL), Ashuganj Power Station Company Ltd (APSCL) and North-West Power Generation Company Limited (NWPGCL).

 

It sells power to its bulk consumers – Dhaka Power Distribution Company Ltd (DPDC), Dhaka Electric Supply Company Ltd (Desco), Rural Electrification Board (REB), West Zone Power Distribution Company Limited (WZPDCL), North West Zone Power Distribution Company Limited (NWZPDC) and to its retail consumers in its own distribution regions – at the price fixed by the BERC.

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