Budget silent on power sector development
Enayet Rasul | Thursday, 19 June 2008
The proposed budget for 2008-9 was hailed as a business friendly one. Duty reduction on capital equipment and raw materials proposed in it is intended to much stimulate industrial activities. Proposed cuts on corporate tax and upping duties on imported finished products are supposed to be inducements for local industries and services as well as potent measures for their protection. Thus, from all of these budgetary measures new industrial and other forms of investments should be encouraged.
But will the investors be really motivated by these budgetary stimuli? The answer has to be an uncertain one in view of the present very poor conditions of power supply. The investors would probably respond in a positive manner to the budgetary stimuli from knowing or seeing that the government has provisioned well for the power sector's in the next year's budget. From such provisioning they would feel more confident that electricity generation would more or less meet their requirements to consider additional investments or new investments in industries and other enterprises. After all, they cannot embrace the risks of institutional borrowing plus their own equity participation, only to find that they cannot run their newly set-up industries or additional capacities in their existing industries from power shortage. Interest payments on borrowed amounts by entrepreneurs are not kept suspended if they fail to run their newly established industries from lack of power. The same keep on accruing whether they produce or not.
Many industries that have been set up over the last two years are already suffering such agonies of rising debts which they are unable to service as they have not got proper power connections to run them. Recently, it was officially announced that new power and gas connections would not be given to industrial users in Chittagong and would be considered only in special cases in the Dhaka region. Thus, more than any amount of fiscal and monetary incentives given, potential entrepreneurs or investors need tangible proofs that help is imminently on the way for them in the form of much improved power or energy supplies. Only, such a development can create the maximum interest on their part for going for new enterprising or additional enterprising under the existing situation.
The budget for 2008-9 is rather silent in response to the immediate needs of the power sector. No special provisioning is noted in it for the power sector. The finance adviser has proposed the spending of some Tk. 32 billion over the next seven years for meeting the needs of the Bangladesh Petroleum Exploration Company (BAPEX). Under the plan, this organisation could receive a part of the proposed amount every year to find new energy sources. But doing work on exploration activities to find gas reserves, to set up production facilities at the sites and to get the discovered gas ready for power generation, are all time consuming matters. Pumping in substantial resources to help energy exploration activities by the country's own organisation is fine and this is well recommended to deal with the medium and longer term requirements for energy. But similar resource availability should have been made also for the power sector to address the very pressing or short-term need for power augmentation through any means.
But the budget appears rather silent about provisioning exceptionally for the power sector to enable it to produce more on a very urgent basis. The year 2008 has been barren in terms of additional power getting added to the national grid. The year 2009 would be similarly fruitless in respect of additional power generation. According to reports, the adviser stated in his budget speech that power shortfall at present is 900 mw. Daily power requirement is 4,500 mw against the average net generation of 3,600 mw. But according to the Power System Master Plan (PSMP), the demand for power would be 5,569 mw this year, leaving a constant deficit of almost 2,000 mw.
The PSMP assessment was made taking into account the current demand for power by existing industrial and services sector users and demands for power to be made by new enterprises that have sprung up or are in various stages of being set up. Clearly, these new enterprises will receive a huge shock right from the outset from not getting supplied with power. There was no firm indication in the adviser's speech that significant additions of power to the grid can be expected in 2009.
Thus, all projections of economic growth, greater industrial activities, etc., may fall flat on the face of denials of power by the entrepreneurs. If the government truly wants the invigoration of the economy, it must take pro-active steps to help increase power supply by any means at the fastest. Only the unveiling of encouraging fiscal and monetary policies will not do. The entrepreneurs will simply not be able to exploit the advantages from such policies if they are not enabled to run their enterprises from power insufficiency.
But will the investors be really motivated by these budgetary stimuli? The answer has to be an uncertain one in view of the present very poor conditions of power supply. The investors would probably respond in a positive manner to the budgetary stimuli from knowing or seeing that the government has provisioned well for the power sector's in the next year's budget. From such provisioning they would feel more confident that electricity generation would more or less meet their requirements to consider additional investments or new investments in industries and other enterprises. After all, they cannot embrace the risks of institutional borrowing plus their own equity participation, only to find that they cannot run their newly set-up industries or additional capacities in their existing industries from power shortage. Interest payments on borrowed amounts by entrepreneurs are not kept suspended if they fail to run their newly established industries from lack of power. The same keep on accruing whether they produce or not.
Many industries that have been set up over the last two years are already suffering such agonies of rising debts which they are unable to service as they have not got proper power connections to run them. Recently, it was officially announced that new power and gas connections would not be given to industrial users in Chittagong and would be considered only in special cases in the Dhaka region. Thus, more than any amount of fiscal and monetary incentives given, potential entrepreneurs or investors need tangible proofs that help is imminently on the way for them in the form of much improved power or energy supplies. Only, such a development can create the maximum interest on their part for going for new enterprising or additional enterprising under the existing situation.
The budget for 2008-9 is rather silent in response to the immediate needs of the power sector. No special provisioning is noted in it for the power sector. The finance adviser has proposed the spending of some Tk. 32 billion over the next seven years for meeting the needs of the Bangladesh Petroleum Exploration Company (BAPEX). Under the plan, this organisation could receive a part of the proposed amount every year to find new energy sources. But doing work on exploration activities to find gas reserves, to set up production facilities at the sites and to get the discovered gas ready for power generation, are all time consuming matters. Pumping in substantial resources to help energy exploration activities by the country's own organisation is fine and this is well recommended to deal with the medium and longer term requirements for energy. But similar resource availability should have been made also for the power sector to address the very pressing or short-term need for power augmentation through any means.
But the budget appears rather silent about provisioning exceptionally for the power sector to enable it to produce more on a very urgent basis. The year 2008 has been barren in terms of additional power getting added to the national grid. The year 2009 would be similarly fruitless in respect of additional power generation. According to reports, the adviser stated in his budget speech that power shortfall at present is 900 mw. Daily power requirement is 4,500 mw against the average net generation of 3,600 mw. But according to the Power System Master Plan (PSMP), the demand for power would be 5,569 mw this year, leaving a constant deficit of almost 2,000 mw.
The PSMP assessment was made taking into account the current demand for power by existing industrial and services sector users and demands for power to be made by new enterprises that have sprung up or are in various stages of being set up. Clearly, these new enterprises will receive a huge shock right from the outset from not getting supplied with power. There was no firm indication in the adviser's speech that significant additions of power to the grid can be expected in 2009.
Thus, all projections of economic growth, greater industrial activities, etc., may fall flat on the face of denials of power by the entrepreneurs. If the government truly wants the invigoration of the economy, it must take pro-active steps to help increase power supply by any means at the fastest. Only the unveiling of encouraging fiscal and monetary policies will not do. The entrepreneurs will simply not be able to exploit the advantages from such policies if they are not enabled to run their enterprises from power insufficiency.