Of quick rental power, subsidy and reality

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Shafiqul Alam Power sector is facing a dual crisis - one is the huge gap between supply and demand and the other is the absence of reliable energy source, besides natural gas. Under such a condition, the government has gone for alternative solutions like quick rental power plants. Presently, some rental power plants are in operation as well; however, besides demand-supply gap of electricity, a huge gap between production cost and selling price of rental power has been created. Eventually, the gap is being filled by the government as subsidy. Let us look at one side of the present situation: even though 14 rental power plants are operational now, load shedding is still as bad as before and to some extent, the situation is worse than before. The reason is very simple -- most power plants are running even less than 50 per cent of the rated capacity in absence of maintenance. So, what is the rationale behind taking burdensome rental power plants, instead of improving efficiency of the old power plants? In a sharp contrast to the present situation, the government is, once again, thinking to raise power tariff this year without ensuring uninterrupted power supply. For the time being, it is also thinking to ensure uninterrupted supply to posh areas like Gulshan, Banani etcetera. Is not it a biased decision? Recently, the government, on the ground of reducing subsidy, has re-fixed price of all types of fuels for the second time in this year. However, such price-hikes have only increased the sufferings of the common people. Now let us look at the problem from a different angle. The main issues contributing to the slow development of the energy sector are: Slow pace of gas exploration, which has led to a decline in proven gas reserves; over-reliance on natural gas; inefficient gas and electricity consumption practices; massive investment is required to meet the projected growth rate about demand for energy; lack of private sector participation in the energy sector; limited institutional capacity to follow through on reform and investment programmes; and slow and non-transparent procedures, and lack of decision-making at government level and so and so forth. Finally, from yet another a different angle, we may dilate on the problem. According to media reports, the amount of subsidy will be around US$ 700 million during the current fiscal year alone. Power Development Board (PDB), as available information suggests, would have to pay more than Tk 13 per kilowatt hour (kwh) of electricity generated by the private diesel-based quick rental power plants and more than Tk 7.0 per kwh for electricity generated by furnace oil-based power plants. Thus, PDB would lose more than Tk 4.0 to Tk 10.0 per kwh. Many are worried about the government's higher expenditure on buying electricity from rental power plants and concurrent higher fuel import bill. This fiscal burden may hamper the country's economic growth. According to the World Bank projection, additional cost for fiscal year (FY) 2011-12 would range between Tk 52 billion and Tk 56 billion, which is about 0.6 per cent or 0.7 per cent of the country's gross domestic product (GDP). Advocates say rental plants are efficient, will help quickly to meet the growing needs, and the end-consumers will pay the same or a bit less for their electricity. Opponents say that second-hand equipments are mostly used in such plants which will be less efficient and that the tariff will rise. They argue that the government would be better off spending money on upgrading and using idle existing capacity. The PDB's priority on quick rental power plants, as a short-term solution, is, certainly, in a dilemma now. If it had gone for long-term contracts with businesses in the private sector to enable it to build new power plants in the first place, the situation could have been much better. If it had signed the contracts by 2009, the power plants would have been in operation, at least, partially by the end of 2011 and perhaps fully by 2012. The present scenario is bleak and quite far from satisfactory and this can deteriorate further in the near future. Moreover, rental power plant is never a permanent solution. As a long-term solution, the PDB should immediately look into the following issues: overhaul the old power plants, replace the old and inefficient natural gas-based power plants by new combined cycle power plants, if possible, initiate the process for setting up new conventional power plants and ensure the timely completion of the projects undertaken. (The writer can be reached at email: shafiqul0032@yahoo.com)