Are frequent power tariff hikes justified?

Shahiduzzaman Khan

The government is contemplating raising the power tariff again. The cabinet committee on economic affairs, in its latest meeting this week, postponed a hike in power tariff. According to report published in the FE this week, the finance adviser formed a high profile committee, which is expected to submit a report on the proposed hike within a month.

 There is no denying that Bangladesh is under severe pressure from the development partners to go for further power tariff hike. The high profile committee will most probably recommend further tariff hike in line with the donors' prescription. It will be a matter of only a month that the proposed hike would be delayed. It is not understood what would the finance adviser say then about the people's sufferings!

  Indeed, public sufferings reached an intolerable level after so many tariff hikes at regular intervals. Successive governments raised the power tariff most frequently, but did not ensure its adequate supply. Load shedding and power outage are now a common phenomenon. The immediate past alliance government failed to generate single megawatt electricity during its five-year tenure. Its lone achievement - Tongi power plant - became inoperative after it tripped repeatedly soon after launching.

The finance adviser said that the power tariff in Bangladesh is lower than in many countries in the world. What the adviser did not say is that the people here have less purchasing capacity than those in many other countries of the world. With a low per capita income, the people of this country have to fight a grim battle against poverty and hunger.

In fact, the power division submitted the proposal for another rise in power price in consultation with the finance ministry. The proposal was drawn up in the light of the donors' condition that different ventures will have to be turned profitable if the country is to receive their assistance for the development of power sector. This time, the power division proposed to increase per unit rate for electricity by Tk 0.45 in the next one year (in three phases) for users of all categories. It also suggested reviewing the price situation at least once a year.

The division projects that the demand for power might reach 19,312 MW in 2025 and to meet that, it needs to produce at least 17,700 MW in addition to the existing capacity. The sector needs an estimated $10.2 billion investment in electricity generation and another $1.5 billion in installation of transmission lines.

Earlier, the Asian Development Bank (ADB) had suggested further adjustment to power tariff to strengthen the financial position of the Power Development Board (PDB). The power adviser disagreed with the ADB suggestion, saying the government recently raised the power tariff by 5.0 per cent for urban consumers. He also said the tariff adjustment is a matter of policy decision, which should be taken by a political government rather than an interim one.

On readjustment of the power tariff, an expert on the sector said: "A tariff hike should be undertaken only after all other options for increasing power revenue have been exhausted. These options, there is much reason to believe, have not been explored to the fullest". Now the question is: Have all the options been exhausted?

The interim government increased the electricity tariff by 5.0 per cent for the urban consumers using above 100 units with effect from March 1. It also enhanced the prices of petroleum fuel prices only last week amid a chorus of protest from among the consumers. Immediately after the fuel price increase, the WB suggested the government to further raise the electricity price as it is annually incurring a loss of Tk 12 billion, and the amount will exceed in the current fiscal year (2006-07). The WB thought the loss would continue to go up if the Power Development Board (PDB) signs more agreements in the future with private power producers, known as independent power producers (IPPs).

 Now there are 1000-MW overpriced and under-performing power plants in the country's public sector. Besides, the planned 2500-MW capacity power plants cannot be built yet because of the country's poor procurement process. The average production cost of per unit electricity is Tk 2.37, while its selling rate is between Tk 2.05 and Tk 2.17.

If the WB estimate on losses in the power sector is correct, then the general people are bearing the brunt of the systems loss in the said sector. Why should they pay such a penalty? Widespread corruption and inefficiency have gripped the whole sector and the country thus suffers $1.0 billion on account of annual power output. It is a general trend that such losses are recouped by raising electricity tariff, which affects business, irrigation and the living of the common people.

There is denying that the country's power sector is in a very bad shape due to rampant corruption, which is badly affecting private sector growth and investment climate. The World Bank (WB) recently warned that the country's future growth might slow down if the problems in the power sector could not be resolved urgently. The WB, which has taken a tough stance on governance and corruption, said its future assistance would depend on the improvement of governance that includes reducing corruption. 

The interim government is trying to clear up an age-old mess in the power sector. Corrupt and inefficient elements are being identified and taken to task. System loss on account of unbridled corruption and nepotism in the power sector entities is huge. If the bad elements in the sector are eliminated, national and international deals are transparently made, then there is a flickering hope for the beleaguered power sector. These options need to be diligently tried for the benefit of the power sector as well as the nation.