Experts at a dialogue held in Dhaka under the auspices of the Centre for Policy Dialogue (CPD), a private think tank, last Saturday sought a thorough review of the current state of public sector subsidy operation: how it is allocated, its destinations, real beneficiaries and its impact on the fiscal management on the part of the government.
It did appear that none taking part in the CPD dialogue was happy with the government's subsidy operations for reasons of its abuse and misallocation. The participants at the dialogue felt that in most cases subsidies failed to reach the target population and the affluent section having clout and political connections devour the major portion of the subsidies.
The economists were found particularly unhappy with the subsidy distribution programme for the cost-intensive rental power plants that have generated enough of controversy in the public domain in recent years. The rental power plants established in the private sector have played an important role in improving the power situation in the country, no doubt. But the cost that the people are paying, both directly and indirectly, on account of securing the services of the rental power plants is very exorbitant.
However, the developments in the power sector in recent years would lead one to believe that the higher cost the consumers and the state are being made to pay on account of the rental power plants is deliberately planned by some unscrupulous section of people. No matter what the law concerned says and extends protection against 'anything done in good faith' it is hard to hide the truth. People would invariably discuss the issue and reach a conclusion that may not be palatable for the framer/s of the law and the amendments made to it later.
For instance, a good number of gas-based power plants in the public sector are now out of operation and some others in operation partially because they are not getting enough gas.
According to a report published in a Bengali business daily, a total of 53 power plants are now being supplied with natural gas. Among these plants, 16 are rental power plants.
The government recently extended for the third time the tenure of rental power plants and the gas-based ones are among those.
There was no logic behind allowing gas-based rental power plants in the first place when the plants of same kind in the public sector could not be operated in full capacity or kept closed due to shortage of gas.
Yet another important factor, the cost to be counted by the Power Development Board (PDB) for purchasing power from the private sector rental plants was conveniently ignored by the power sector policymakers despite the fact there is a large gap in the two costs.
The average cost of generation of per unit of power by the gas-based rental power plants is Tk. 6.0 (cost of fuel supplied plus rent given to the plants) while the generation cost of per unit power in the case of public sector and independent power plants (IPPs) is estimated at Tk 2.0.
The government incurs substantial volume of loss in the case of purchase of power from the gas-based rental power plants. The Bengali business daily cited a number of examples to show how financial benefits are unduly distributed among the rental power plants by the government. It said the PDB in 2013 purchased 860 million units from the 145 megawatt Ghorasal rental power plant owned by Agrico. The cost of fuel supplied to the plant was estimated at Tk 2.20 billion and rent paid to it was about Tk.4.78 billion. So, the cost of per unit power was Tk.8.11.
It is not just price. The government does keep the operation of its fertilizer power plants suspended during the summer season to feed gas to power plants. What is the justification of supplying gas to rental power plants keeping its own gas-based power plants closed and production in fertilizer plants suspended?
There is no denying that the incidence of load-shedding even during this peak summer days, at least in Dhaka city, is not that much. But the relief has come at a very high cost. The government, it seems, is making the temporary yet cost-intensive measures permanent. The repeated extension of tenures of rental power plants and its failure to come up with one single large power plants in nearly seven years lead one to make such a conclusion.
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