An expensive stopgap solution to power problem
Wednesday, 9 September 2009
Shamsul Huq Zahid
The incumbent government is facing a delicate situation in the power and energy sector. The past governments, too, had been in similar situation. But the public attention is now more focused on the performance of the present government since it had made loud and time-bound electoral promises to improve the situation.
Understandably, there is no magic formula to improve the supply situation of both gas and power overnight since installation of medium to large power plants and exploration in both onshore and offshore areas to locate gas reserves need three to four years or more.
In the case of power plants, if the government decides to set up its own power plants, it has to mobilize resources from local and foreign sources first before inviting bids in this regard. However, the process is easier and less cumbersome if the government allows setting up of power plants by private operators.
More than anything else, the type/s of fuel for the future power plants has become an important issue for the decision makers. The nation, which has been under the impression that the country is floating on gas, is now facing stark reality with gas reserve. Unless new reserves are struck and developed soon, the country would run out of gas by 2012. The use of cheap fuel, gas, to run power plants remains no more an option for the policy planners.
The urgency for generating additional power is so great that the government is not in a position to wait until the discovery of new gas reserves. Then again, available gas is not enough even to feed the exiting gas-based power plants. The government until the other day was operating those power plants only after depriving three public sector urea fertilizer factories of gas supply. These factories were forced to suspend operation seven months back, leading to import of urea fertilizer in greater volume at huge expenditure. Two of these units have resumed operation and another is expected to start urea production soon.
Many gas-based industries are either closed or partially operational because of gas short supply. Last Saturday, a Bengali daily published a pictorial story on the suspension of production in a leading ceramic industry in Gazipur because of the non-availability of gas. Similar situation prevails in many industrial areas of the country. The CNG (compressed natural gas) filling stations in Dhaka are forced to suspend operation during peak hours because of low-pressure of gas in the main supply line.
Against this backdrop, the government has decided recently to set up diesel and furnace oil fed power plants both in private and public sectors. The private sector ones would be smaller and the power development board (PDB) would buy their entire produced power for a period of five years. The PDB itself would set up some small and medium scale power plants.
But the mismatch between cost of power generation and power tariff at the consumers' level remains a stumbling block to the government move. The amount of subsidy to be required to bridge the gap would be staggering, leading to pressure on the government's budgetary resources.
What is worse is that the phenomenon that foiled the implementation of a number of private sector power during the rule of the BNP-led four-party alliance government has already started troubling the incumbent government's move to set up rental power plants in the private sector. According media reports, influential groups have started lobbying in the corridors of power to influence bids for setting up rental power plants. They are, reportedly, creating pressure on the government to allow entrepreneurs having no experience in power generation to take part in the bidding.
The government has not yet agreed to effect any change in line with the demand by a section of businesses. But it has succumbed to pressure from the would-be bidders to extend the contract-period for buying power from rental power plants from three years to five years, meaning more expenditure of the government on account of subsidy.
It is not the subsidy alone, the government would have to spend a substantial amount of foreign exchange on the import of an additional quantity of liquid fuel, at least 25 per cent more than the current annual import, to help run these power plants both in private and public sectors.
One cannot, however, rule out the possibility of complications over payment of funds to the private rental power plants against the purchase of power by the PDB. Any delay in the disbursement of subsidy to the PDB by the government might result in problems. It had happened in the case of independent power producers (IPPs) in the recent past. Problems of some other nature might surface as soon as these units go into production.
The question is: Is the move involving fuel-based power plants a viable one? The government, apparently, has decided to go for it out of desperation. There is no other short-cut formula to start generation of additional power. However, the move might backfire in the future. The government should, in the meanwhile, concentrate its efforts on the installation of coal-based power plants since the cost of power generation in these plants is far cheaper than the liquid-fuel based ones.
The incumbent government is facing a delicate situation in the power and energy sector. The past governments, too, had been in similar situation. But the public attention is now more focused on the performance of the present government since it had made loud and time-bound electoral promises to improve the situation.
Understandably, there is no magic formula to improve the supply situation of both gas and power overnight since installation of medium to large power plants and exploration in both onshore and offshore areas to locate gas reserves need three to four years or more.
In the case of power plants, if the government decides to set up its own power plants, it has to mobilize resources from local and foreign sources first before inviting bids in this regard. However, the process is easier and less cumbersome if the government allows setting up of power plants by private operators.
More than anything else, the type/s of fuel for the future power plants has become an important issue for the decision makers. The nation, which has been under the impression that the country is floating on gas, is now facing stark reality with gas reserve. Unless new reserves are struck and developed soon, the country would run out of gas by 2012. The use of cheap fuel, gas, to run power plants remains no more an option for the policy planners.
The urgency for generating additional power is so great that the government is not in a position to wait until the discovery of new gas reserves. Then again, available gas is not enough even to feed the exiting gas-based power plants. The government until the other day was operating those power plants only after depriving three public sector urea fertilizer factories of gas supply. These factories were forced to suspend operation seven months back, leading to import of urea fertilizer in greater volume at huge expenditure. Two of these units have resumed operation and another is expected to start urea production soon.
Many gas-based industries are either closed or partially operational because of gas short supply. Last Saturday, a Bengali daily published a pictorial story on the suspension of production in a leading ceramic industry in Gazipur because of the non-availability of gas. Similar situation prevails in many industrial areas of the country. The CNG (compressed natural gas) filling stations in Dhaka are forced to suspend operation during peak hours because of low-pressure of gas in the main supply line.
Against this backdrop, the government has decided recently to set up diesel and furnace oil fed power plants both in private and public sectors. The private sector ones would be smaller and the power development board (PDB) would buy their entire produced power for a period of five years. The PDB itself would set up some small and medium scale power plants.
But the mismatch between cost of power generation and power tariff at the consumers' level remains a stumbling block to the government move. The amount of subsidy to be required to bridge the gap would be staggering, leading to pressure on the government's budgetary resources.
What is worse is that the phenomenon that foiled the implementation of a number of private sector power during the rule of the BNP-led four-party alliance government has already started troubling the incumbent government's move to set up rental power plants in the private sector. According media reports, influential groups have started lobbying in the corridors of power to influence bids for setting up rental power plants. They are, reportedly, creating pressure on the government to allow entrepreneurs having no experience in power generation to take part in the bidding.
The government has not yet agreed to effect any change in line with the demand by a section of businesses. But it has succumbed to pressure from the would-be bidders to extend the contract-period for buying power from rental power plants from three years to five years, meaning more expenditure of the government on account of subsidy.
It is not the subsidy alone, the government would have to spend a substantial amount of foreign exchange on the import of an additional quantity of liquid fuel, at least 25 per cent more than the current annual import, to help run these power plants both in private and public sectors.
One cannot, however, rule out the possibility of complications over payment of funds to the private rental power plants against the purchase of power by the PDB. Any delay in the disbursement of subsidy to the PDB by the government might result in problems. It had happened in the case of independent power producers (IPPs) in the recent past. Problems of some other nature might surface as soon as these units go into production.
The question is: Is the move involving fuel-based power plants a viable one? The government, apparently, has decided to go for it out of desperation. There is no other short-cut formula to start generation of additional power. However, the move might backfire in the future. The government should, in the meanwhile, concentrate its efforts on the installation of coal-based power plants since the cost of power generation in these plants is far cheaper than the liquid-fuel based ones.