The viability of rental power plants

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Syed Jamaluddin The government has extended the contract period for seven quick rental power plants by a year despite criticism by energy experts and opposition parties. This extension would cost the government Tk 12 billion. Dr Akbar Ali Khan, a former adviser to caretaker government, said the government could solve the problem by repairing the existing plants and solving the gas crisis instead of opting for rental power plants again. He also said that not a single country in the world succeeded in solving the electricity crisis through rental power plants. There is no justification why the people would pay excessive electricity bills resulting from system loss, mismanagement, corruption and quick rental power plants. The government stopped coal development and gas exploration despite clear advantages and decided to go for short-term and expensive oil-based rental power plants. The economy can not sustain the burden of importing expensive fuel. It would have been possible to produce additional 2,400 mw of power from the existing structure if the government reopened and repaired all the closed plants The total subsidy of the government in the energy sector stands at about 4.0 per cent of the country's gross domestic product (GDP), an amount higher than what it spends on health and social welfare programmes. The government is saying that energy subsidies are investment. This claim is debatable. The Bangladesh Power Development Board (BPDB) is in difficulty in managing the burden of the quick rental power plants. The PDB is losing Tk 6.0 billion per month on account of these power plants. PDB officials say that the amount will increase during the boro irrigation season. The total loss per year is Tk 72 billion crores. The PDB is receiving subsidy from the government as loan thereby further increasing their liability. The PDB has requested the government time and again to release fund as subsidy (grant) and not as loan but the government is not giving any clear directive. The government is rather planning to phase out subsidy on the advice of the IMF and the World Bank. By raising power tariff several times the government is shifting the burden to the consumers. It is learnt from distribution companies that they are selling power to the consumers at a lower price than what they are paying to the producers. the loss of distribution companies is, therefore, going up. In order to get out of this situation, power tariff is to be increased at the level of consumers or the wholesale price is to be lowered. Lowering wholesale price would mean increase in the loss of the PDB. The PDB's cost of production is still below Tk 3.0 per unit. But PDB has to pay Tk 22 per unit in some cases to quick rentals. The PDB has to add the cost of buying power from rentals to its own cost of production and then fix the average price. That is why PDB's price of supplying power goes up. Pressure on the government for raising power tariff was building up soon after awarding contracts to quick rental companies without tender under cover of an indemnity law. PDB officials informed that power tariff was raised because the owners of quick rentals pressurised the government/PDB for doing so. The Bangladesh Energy Regulatory Commission (BERC) has again recommended for further increase in the price of power. It is pointed out that fuel price has not increased recently. Therefore, there is no reason for raising the price of electricity. Cost of producing power varies between Tk 2.0 to Tk 2.50 per unit by burning gas or coal. But the cost may go up to Tk 20 per unit if power is produced by burning fuel oil. Oil-based power production was a short-term measure but the inability to implement medium to long term projects has compelled the government to continue depending on the short-term quick rentals. This is resulting in the rise in subsidy. Coal-based power production has to be increased. This will bring down the average cost of production. The scheme for making Bangladesh free from load-shedding has been delayed. 2011 was the target for making Bangladesh free from load-shedding. The target was shifted to 2012. This has also not materialised. Load-shedding is still continuing. The immediate past BERC chairman had promised not to hike power rates within the next one year unless the oil price increased significantly in the international market. But moves are now on to effect yet another hike in power tariff although oil price is not showing sign of volatility. The proposed hike may be due to IMF pressure. The Bangladesh Petroleum Corporation (BPC) incurred losses exceeding Tk120 billion last year for importing fuel oil at a high price and selling it at a lower price. BPC imported about 4.0 million tons of fuel oil. Foreign suppliers of oil have demanded more premium from BPC. Because of this BPC may lose more money in the current year. One litre of diesel is imported at Tk 81.83 and it is sold at Tk 61 thereby losing Tk 20.22 per litre. Furnace oil is imported at TK 65/67 and selling price is Tk 60. The import price of kerosene is Tk 82/84 and selling price is Tk 61. Any fresh hike in fuel oil prices may necessitate yet another hike in power rates because of increased dependence on liquid fuel-guzzling rental power plants. The people are unlikely to get any respite from intermittent power tariff hike. The government has again increased prices of diesel and kerosene by Tk 7.0 a litre and octane and petrol by Tk 5.0 per litre. The ground is now prepared for one more hike in power tariff. Too much dependence on fuel-based quick rentals is the main reason for increasing prices of electricity and fuel. The writer is an economist and columnist