Bangladesh's energy future: A case for public-private partnership
Tuesday, 14 December 2010
Economic growth spurred by manufacturing boom has fuelled the demand for energy in Bangladesh. Over the last decade, the nation has experienced a net energy demand growth in the order of 8.0 per cent a year. But years of under-investment in energy exploration and power generation have led to a mismatch between supply and demand. While the country has 2.5 billion tonnes of coal reserves, it relies heavily on natural gas to produce electricity. Nearly 86 per cent of its electricity is generated by gas, which is set to dry up by 2015.
Bangladesh is currently facing the worst energy and power crisis in its history. Its daily production of gas hovers at around 2000 million cubic feet (mmcf) against the demand of more than 2500 mmcf a day, while per day electricity shortfall peaks at 2000 megawatt. Against this backdrop, the government has stepped up efforts to expand energy sources in a bid to reduce the current precarious dependence on fossil-fuels, thereby securing the country's energy future. Although the contribution of renewable energy to electricity generation is miniscule-less than 1 per cent now--Bangladesh aims to reach a target of 10 per cent power to be churned out from renewables by 2020. And this ambitious plan will require at least 1.5 billion dollars to implement. Where this money can come from? The government will turn to the private sector, donors and global lenders to catalyze this whopping investment.
Energy efficiency: A crying need
Being an energy-famished country, improving energy efficiency remains a top priority. Our natural gas is depleting fast while coal extraction is still mired in environmental debate. The acute gas shortages have prompted the authorities to shut down fertiliser plants, suspend operation of compressed natural gas filling stations for six hours a day and introduce staggered holidays in industry. The present government, which sailed back to power in 2008 general elections, has promised to lead the way in clean energy options such as solar energy, wind power, biomass, nuclear energy and hydro-power. Steps being taken at the national and international levels are supportive of achieving the goal.
Having realized the need for improving energy efficiency, in 2008, then military-backed interim government drafted the Energy Conservation Act, which is expected to be endorsed by parliament in the near future. The state-run energy firms are investing in media campaigns to mount public awareness about the need for energy conservation. It also moved to frame the renewable energy policy-first in a country where alternative energy is spurring a silent revolution. The policy aims to generate about 10 percent of total electricity demand by 2020 from renewable sources, such as solar, wind, biomass and hydropower.
To draw private investors into the alternative energy market -both local and foreign-the government will offer a raft of sweeteners like exemption from corporate tax for 15 years, soft loans and a cap of 3.0 per cent on import duty and value-added tax, according to the policy.
Energy officials figured that it would require an investment of $1.5 billion to achieve the 2020 target, which is supposed to come from private investors.
On the external front, in January, Bangladesh and India agreed to cooperate in development and exchange of electricity generated from renewable sources.
Also, the government has maintained good relations with global lenders and donor agencies to make sure funds for renewable energy sector don't dry up. Major international financiers include the World Bank, Asian Development Bank, Islamic Development Bank, GTZ, KFW, SNV Netherlands, USAID, and SIDA. Local banks are also jumping on the renewable energy train.
There is still ample scope to invest in renewable technologies, where growth over the years has been stunningly high. Last year, solar power had an unassailable growth of 90%, making Bangladesh the world's fastest-growing market for renewables. And the appetite for renewable technologies and energy is robust.
IDCOL, the state-run clean energy financier, has set a target of installing 2.5 million solar home systems by 2014 as part of its expansion drive.
As part of its quest for clean energy, Bangladesh has planned to build a 600-1000 MW nuclear power plant in Rooppur, Pabna, about 200 km from Dhaka, the capital. It will take four to five years to implement the project and the government has intensified efforts to mobilize funds for it. The government has inked a deal with Russia to build the $2 billion plant.
Myanmar is reported to have agreed to build two hydropower plants aimed at exporting around 575 megawatts (mw) of electricity to energy-famished Bangladesh.
This year, the government distributed 15 million energy-efficient Compact Fluorescent Lights (CFLs) in high density load centers across the country-part of the government's broader push for energy efficiency. The World Bank-financed programme is expected to result in 468 GWh/year in energy savings equivalent to 17 million dollars a year. The ultimate plan is to replace all incandescent lights nationwide with 30 million CFLs in the long term.
Green tech gains ground
Today, Bangladesh is on the forefront of technological innovation in renewable energy. Grameen Shakti, a subsidiary of Grameen Bank, and Rahimafrooz, a private business group, are leading the innovation drive. The country has diversified use of renewable energy. Solar power is being used for running water pumps, telecom base stations and irrigating arid lands. Solar mini-grid has sprung life into the trade and commerce of Sandwip-a faraway island in Chittagong. An entrepreneurial youth has set up South Asia's first biomass gasification-based power plant in Gazipur district, some 30 km from the capital. The plant uses rice husk for power generation and supplies grid-quality electricity to 500 households and commercial entities of the area.
IDCOL, the government-owned but multi-donor funded infrastructure lender, has a target to finance 12 biomass gasification-based power plants equivalent to 5-MW capacity by 2012. Last year, its partners helped set up around 10,000 biogas plants across the country.
Chief Executive Officer of IDCOL Islam Sharif said solar panel sale by his partner organisations has averaged 25,000 a month and he forecast that sales could top 2.5 million by 2014.
"We've sought 250 million dollars in additional loan from the World Bank to scale up the programme," he told this author.
The delta nation is also frantically trying to harness wind energy. This year, the government has decided to install the country's largest wind-based independent power plant with a capacity between 100MW and 200MW. Besides, four 1MW wind-based power plants are planned at Swandwip, Hatiya and Kutubdia.
The installation cost of 1 megawatt will be around $2 million whereas a conventional gas-based unit costs below $1million for installation, according to an estimate by Power Development Board or PDB.
Supported by donors and UN organizations, some brick kilns also went green by using environment-friendly solutions to make bricks.
In fact, political commitment to alternative energy use is high as the Prime Minister's Office is partly powered by solar panels. Last year, the Bangladesh Bank, the central bank, installed solar panels on its rooftop to light the Governor's floor.
Why we can't overlook conventional energy
Bangladesh is an energy-starved nation, which has extremely limited natural resources. The country is perhaps the mostly densely populated in the world. Its economy is growing, but it is still a hugely poor country, where 40% of the population is below the poverty line. Few would disagree that the country needs to have access to bulk and cheaper energy to maintain its growth momentum. And cheaper energy means conventional energy. According to JICA, the demand for electricity in Bangladesh could reach 30,000 MW to 35,000MW by 2030, the generation of which will require exploring multiple fuel options.
The country is reeling under acute energy and power crisis right now. The nation's 13.54 tcf of proven and recoverable gas will emptied in five years at the current consumption rate. Paradoxically, it cannot lift 2.5 billion tonnes-plus coal reserves located in its northwestern region for years because of angry protests by residents and environmental groups. Almost half-or 45% to be precise-the country's power stations operate on the inefficient conventional steam cycle, which are gas-guzzlers.
What's the wayout?
The government has just clinched a preliminary deal with American oil goliath ConocoPhilips to conduct drilling in deep-waters of the Bay of Bengal. Similar deal was to be inked with Irish oil firm Tullow.
On the foreign policy front, Bangladesh is flexing its diplomatic muscle to demarcate its maritime boundary in the Bay of Bengal and resolve the row over the overlapping deep-water gas blocks with neighboring India and Myanmar. It has also launched pipeline diplomacy with Myanmar to bring in gas from the military-ruled Southeast Asian nation. The country is closely studying a recent Iranian offer to join the Iran-India-Pakistan gas pipeline scheme to make sure the country has access to the transnational energy supply network.
Unprecedented power cuts also prompted the government to even bypass public procurement regulations to award contracts to private investors ready to generate electricity on a fast-track basis. Bangladesh has already signed a 35-year deal with India to import around 250mw of electricity from the neighboring country by 2012 under cross-border electricity trade. Since January 2010, the government has awarded contracts of 27 oil-fired power plants to private sponsors in an attempt to cut overwhelming reliance on gas.
Bangladesh plans to add 10,000 megawatts of electricity by 2014, which will require an investment of 9.5 billion dollars. This is how the country is moving forward to securing its vital energy supply.
Fostering public-private
partnership
Public-private partnership (PPP) has now become a buzzword in Bangladesh. Although the history of PPP model in this country dates back to the early 1990s, the present government's renewed emphasis has given it the much-needed limelight. Experts say, Bangladesh's energy sector is the first to embrace the idea of PPP as it entered production sharing contract with international oil companies for hydrocarbon exploration. Later, in 1996, the government crafted the IPP (independent power producer) policy and moved to set up 450 megawatt Meghnaghat power plant in 1997 under the PPP model, followed by another IPP-Haripur power plant.
In today's inter-connected world, no nation, no government can follow the policy of isolation. Bangladesh needs to tap the opportunities globalisation is offering. It's not the issue of access to capital alone, it's all about cutting-edge knowledge, sophisticated technology and talent. And PPP, I believe, can open up that opportunity for Bangladesh and local companies as well. Renewable energy is bringing about revolution. It's a life-altering experience. Bangladesh should learn from the global best practices in the area of alternative energy. For us, it's an enlightened self-interest.
The global financial crisis has spawned worldwide credit crunch, whose fallout is not yet over. Western donors' purses have tightened. It's the private entrepreneurs who can fill up the void. The government alone can't make the difference. It must partner with private entrepreneurs-both local and foreign. Private energy investors will not only inject cash, it will bring with it technology, management skills and sophisticated knowhow, which are conspicuously scarce in Bangladesh's public sector. Few have doubt that PPP model is a success story for Bangladesh, even if there are rooms for further improvement. The deal must be win-win for both sides. I believe that a robust relation between the government and the private sector can salve the energy angst of Bangladeshis in the 21st century.
Note: The paper was originally prepared for the East West Center, Honolulu, Hawaii. The author can be reached: russell_fe@yahoo.com
Bangladesh is currently facing the worst energy and power crisis in its history. Its daily production of gas hovers at around 2000 million cubic feet (mmcf) against the demand of more than 2500 mmcf a day, while per day electricity shortfall peaks at 2000 megawatt. Against this backdrop, the government has stepped up efforts to expand energy sources in a bid to reduce the current precarious dependence on fossil-fuels, thereby securing the country's energy future. Although the contribution of renewable energy to electricity generation is miniscule-less than 1 per cent now--Bangladesh aims to reach a target of 10 per cent power to be churned out from renewables by 2020. And this ambitious plan will require at least 1.5 billion dollars to implement. Where this money can come from? The government will turn to the private sector, donors and global lenders to catalyze this whopping investment.
Energy efficiency: A crying need
Being an energy-famished country, improving energy efficiency remains a top priority. Our natural gas is depleting fast while coal extraction is still mired in environmental debate. The acute gas shortages have prompted the authorities to shut down fertiliser plants, suspend operation of compressed natural gas filling stations for six hours a day and introduce staggered holidays in industry. The present government, which sailed back to power in 2008 general elections, has promised to lead the way in clean energy options such as solar energy, wind power, biomass, nuclear energy and hydro-power. Steps being taken at the national and international levels are supportive of achieving the goal.
Having realized the need for improving energy efficiency, in 2008, then military-backed interim government drafted the Energy Conservation Act, which is expected to be endorsed by parliament in the near future. The state-run energy firms are investing in media campaigns to mount public awareness about the need for energy conservation. It also moved to frame the renewable energy policy-first in a country where alternative energy is spurring a silent revolution. The policy aims to generate about 10 percent of total electricity demand by 2020 from renewable sources, such as solar, wind, biomass and hydropower.
To draw private investors into the alternative energy market -both local and foreign-the government will offer a raft of sweeteners like exemption from corporate tax for 15 years, soft loans and a cap of 3.0 per cent on import duty and value-added tax, according to the policy.
Energy officials figured that it would require an investment of $1.5 billion to achieve the 2020 target, which is supposed to come from private investors.
On the external front, in January, Bangladesh and India agreed to cooperate in development and exchange of electricity generated from renewable sources.
Also, the government has maintained good relations with global lenders and donor agencies to make sure funds for renewable energy sector don't dry up. Major international financiers include the World Bank, Asian Development Bank, Islamic Development Bank, GTZ, KFW, SNV Netherlands, USAID, and SIDA. Local banks are also jumping on the renewable energy train.
There is still ample scope to invest in renewable technologies, where growth over the years has been stunningly high. Last year, solar power had an unassailable growth of 90%, making Bangladesh the world's fastest-growing market for renewables. And the appetite for renewable technologies and energy is robust.
IDCOL, the state-run clean energy financier, has set a target of installing 2.5 million solar home systems by 2014 as part of its expansion drive.
As part of its quest for clean energy, Bangladesh has planned to build a 600-1000 MW nuclear power plant in Rooppur, Pabna, about 200 km from Dhaka, the capital. It will take four to five years to implement the project and the government has intensified efforts to mobilize funds for it. The government has inked a deal with Russia to build the $2 billion plant.
Myanmar is reported to have agreed to build two hydropower plants aimed at exporting around 575 megawatts (mw) of electricity to energy-famished Bangladesh.
This year, the government distributed 15 million energy-efficient Compact Fluorescent Lights (CFLs) in high density load centers across the country-part of the government's broader push for energy efficiency. The World Bank-financed programme is expected to result in 468 GWh/year in energy savings equivalent to 17 million dollars a year. The ultimate plan is to replace all incandescent lights nationwide with 30 million CFLs in the long term.
Green tech gains ground
Today, Bangladesh is on the forefront of technological innovation in renewable energy. Grameen Shakti, a subsidiary of Grameen Bank, and Rahimafrooz, a private business group, are leading the innovation drive. The country has diversified use of renewable energy. Solar power is being used for running water pumps, telecom base stations and irrigating arid lands. Solar mini-grid has sprung life into the trade and commerce of Sandwip-a faraway island in Chittagong. An entrepreneurial youth has set up South Asia's first biomass gasification-based power plant in Gazipur district, some 30 km from the capital. The plant uses rice husk for power generation and supplies grid-quality electricity to 500 households and commercial entities of the area.
IDCOL, the government-owned but multi-donor funded infrastructure lender, has a target to finance 12 biomass gasification-based power plants equivalent to 5-MW capacity by 2012. Last year, its partners helped set up around 10,000 biogas plants across the country.
Chief Executive Officer of IDCOL Islam Sharif said solar panel sale by his partner organisations has averaged 25,000 a month and he forecast that sales could top 2.5 million by 2014.
"We've sought 250 million dollars in additional loan from the World Bank to scale up the programme," he told this author.
The delta nation is also frantically trying to harness wind energy. This year, the government has decided to install the country's largest wind-based independent power plant with a capacity between 100MW and 200MW. Besides, four 1MW wind-based power plants are planned at Swandwip, Hatiya and Kutubdia.
The installation cost of 1 megawatt will be around $2 million whereas a conventional gas-based unit costs below $1million for installation, according to an estimate by Power Development Board or PDB.
Supported by donors and UN organizations, some brick kilns also went green by using environment-friendly solutions to make bricks.
In fact, political commitment to alternative energy use is high as the Prime Minister's Office is partly powered by solar panels. Last year, the Bangladesh Bank, the central bank, installed solar panels on its rooftop to light the Governor's floor.
Why we can't overlook conventional energy
Bangladesh is an energy-starved nation, which has extremely limited natural resources. The country is perhaps the mostly densely populated in the world. Its economy is growing, but it is still a hugely poor country, where 40% of the population is below the poverty line. Few would disagree that the country needs to have access to bulk and cheaper energy to maintain its growth momentum. And cheaper energy means conventional energy. According to JICA, the demand for electricity in Bangladesh could reach 30,000 MW to 35,000MW by 2030, the generation of which will require exploring multiple fuel options.
The country is reeling under acute energy and power crisis right now. The nation's 13.54 tcf of proven and recoverable gas will emptied in five years at the current consumption rate. Paradoxically, it cannot lift 2.5 billion tonnes-plus coal reserves located in its northwestern region for years because of angry protests by residents and environmental groups. Almost half-or 45% to be precise-the country's power stations operate on the inefficient conventional steam cycle, which are gas-guzzlers.
What's the wayout?
The government has just clinched a preliminary deal with American oil goliath ConocoPhilips to conduct drilling in deep-waters of the Bay of Bengal. Similar deal was to be inked with Irish oil firm Tullow.
On the foreign policy front, Bangladesh is flexing its diplomatic muscle to demarcate its maritime boundary in the Bay of Bengal and resolve the row over the overlapping deep-water gas blocks with neighboring India and Myanmar. It has also launched pipeline diplomacy with Myanmar to bring in gas from the military-ruled Southeast Asian nation. The country is closely studying a recent Iranian offer to join the Iran-India-Pakistan gas pipeline scheme to make sure the country has access to the transnational energy supply network.
Unprecedented power cuts also prompted the government to even bypass public procurement regulations to award contracts to private investors ready to generate electricity on a fast-track basis. Bangladesh has already signed a 35-year deal with India to import around 250mw of electricity from the neighboring country by 2012 under cross-border electricity trade. Since January 2010, the government has awarded contracts of 27 oil-fired power plants to private sponsors in an attempt to cut overwhelming reliance on gas.
Bangladesh plans to add 10,000 megawatts of electricity by 2014, which will require an investment of 9.5 billion dollars. This is how the country is moving forward to securing its vital energy supply.
Fostering public-private
partnership
Public-private partnership (PPP) has now become a buzzword in Bangladesh. Although the history of PPP model in this country dates back to the early 1990s, the present government's renewed emphasis has given it the much-needed limelight. Experts say, Bangladesh's energy sector is the first to embrace the idea of PPP as it entered production sharing contract with international oil companies for hydrocarbon exploration. Later, in 1996, the government crafted the IPP (independent power producer) policy and moved to set up 450 megawatt Meghnaghat power plant in 1997 under the PPP model, followed by another IPP-Haripur power plant.
In today's inter-connected world, no nation, no government can follow the policy of isolation. Bangladesh needs to tap the opportunities globalisation is offering. It's not the issue of access to capital alone, it's all about cutting-edge knowledge, sophisticated technology and talent. And PPP, I believe, can open up that opportunity for Bangladesh and local companies as well. Renewable energy is bringing about revolution. It's a life-altering experience. Bangladesh should learn from the global best practices in the area of alternative energy. For us, it's an enlightened self-interest.
The global financial crisis has spawned worldwide credit crunch, whose fallout is not yet over. Western donors' purses have tightened. It's the private entrepreneurs who can fill up the void. The government alone can't make the difference. It must partner with private entrepreneurs-both local and foreign. Private energy investors will not only inject cash, it will bring with it technology, management skills and sophisticated knowhow, which are conspicuously scarce in Bangladesh's public sector. Few have doubt that PPP model is a success story for Bangladesh, even if there are rooms for further improvement. The deal must be win-win for both sides. I believe that a robust relation between the government and the private sector can salve the energy angst of Bangladeshis in the 21st century.
Note: The paper was originally prepared for the East West Center, Honolulu, Hawaii. The author can be reached: russell_fe@yahoo.com