Challenges in power, energy sectors
Wednesday, 4 January 2012
The economic growth prospects of the country will be greatly hampered in the coming years unless timely steps are taken to meet the challenges the power facing and energy sectors.
In spite of some improvements in recent years, albeit some costly ones, mainly in power generation, even the present shortfall in the supply of electricity and gas is having a negative impact on industrial growth. Many new and existing industrial units are unable to go into production while some power plants are sitting idle due to lack of gas supply. The Asian Development Bank had earlier cautioned that the growing power supply and energy shortages are the binding constrains to achieving the growth, job, and poverty reduction targets in the sixth five-year plan.
According to the projections made in the sixth five-year plan, the economy is losing more than 0.5 per cent of the gross domestic product annually due to the current power shortage alone. The generation of power is unable to keep pace with even the current rate of growth in demand. Presently, about 5,000-5,300mw of electricity is generated against a daily demand of 6,000mw. And only about 50 per cent of the population now has access to electricity. The situation is likely to deteriorate further in the near future if adequate power and gas supply cannot be ensured.
During the last three years, as a short-term temporary measure, the government has signed agreements to build 49 rental and quick-rental power plants to generate 5,319mw of electricity. Of them, 20 have already started operation, adding 1,944mw of power to the national grid. These rental and quick-rental power plants have short-term durations ranging from three to fifteen years. In addition, agreements have also been signed to set up several large gas and coal-based power plants, which will take a few more years to come up to the stream.
The short-term steps have certainly reduced load shedding considerably. But this has come at a very high cost as most of these rental power plants are fuel oil-based. As a result, the annual import of fuel oil increased from an average of 3.0-3.5 million tonnes to 4.8 million tonnes during the previous fiscal year and it is projected to further rise to 7.0 million tonnes during the current fiscal year. The subsidies in power sector alone has increased from Tk 9.94 billion in FY10 to Tk 42 billion in FY11 and is estimated to increase to about Tk 52 billion during the current fiscal year.
The government is now facing difficulty in arranging funds to import this additional quantity of petroleum products to run the rental power plants. It has led to increased government borrowing from the banking sector, which has already exceeded the entire budgetary target for 2011-2012. The higher level of government borrowing from the banking system is fueling further inflation, which is already hovering at a double-digit level. It is also having a crowding-out effect on private sector loan disbursements, slowing down investments. More importantly, it can also undermine the fiscal discipline.
It is quite surprising that the government was unable to adequately estimate the increased level of fuel oil import to run the rental power plants and make necessary funding arrangements. Clearly, the budgetary provisions underestimated the actual requirement in this area.
Faced with increasing pressure on the economic front, the government decided to reduce the level of subsidy in the power and energy sectors by increasing the power tariff and the retail price of petroleum products a number of times over the past year.
There seems to be discord over the possible retail pricing of electricity within the government as amplified by the opposing views on the issue expressed by the finance minister and the energy adviser in a press conference earlier this week.
Meanwhile, progress in further development of the energy sector has been quite dismal during the last three years, putting the country's energy security at risk. Development in the gas sector has been painfully slow. Although gas supply has slightly improved in recent years and now stands at 2,000 million cubic feet per day (mmcfd), there is still a shortfall of around 500 mmcfd. Moreover, there was also inordinate delay in initiating the much-needed upgradation of the gas transmission network.
The government's foot-dragging on finalising the national coal policy is another area of serious concern. It is estimated that the country has some 3.0 billion tonnes of high-quality coal reserves.
It may be mentioned that the government had earlier adopted the Speedy Supply of Power and Energy (Special Provision) Act 2010, to ensure quick implementation of power and energy sector projects, under which the rental power projects were awarded. It removed the obligation of holding tenders, which used to ensure the minimum level of transparency, and gave legal immunity to the people involved with implementing energy sector projects. Although provisions of the Act are applicable to all energy sector projects, not much has been done so far in areas other than the power sector.
The government appears to be facing difficulty in formulating and implementing a well-coordinated and integrated energy policy. Much more attention needs to be given in developing the entire energy sector. It should include finalising the coal policy, attracting higher level of foreign investment in carbon exploration, investing in renewable energy and enhancing the efficiency of the existing power and energy sector projects, including a drastic reduction in pilferage or so-called system loss.
yaminbakht58@gmail.com
In spite of some improvements in recent years, albeit some costly ones, mainly in power generation, even the present shortfall in the supply of electricity and gas is having a negative impact on industrial growth. Many new and existing industrial units are unable to go into production while some power plants are sitting idle due to lack of gas supply. The Asian Development Bank had earlier cautioned that the growing power supply and energy shortages are the binding constrains to achieving the growth, job, and poverty reduction targets in the sixth five-year plan.
According to the projections made in the sixth five-year plan, the economy is losing more than 0.5 per cent of the gross domestic product annually due to the current power shortage alone. The generation of power is unable to keep pace with even the current rate of growth in demand. Presently, about 5,000-5,300mw of electricity is generated against a daily demand of 6,000mw. And only about 50 per cent of the population now has access to electricity. The situation is likely to deteriorate further in the near future if adequate power and gas supply cannot be ensured.
During the last three years, as a short-term temporary measure, the government has signed agreements to build 49 rental and quick-rental power plants to generate 5,319mw of electricity. Of them, 20 have already started operation, adding 1,944mw of power to the national grid. These rental and quick-rental power plants have short-term durations ranging from three to fifteen years. In addition, agreements have also been signed to set up several large gas and coal-based power plants, which will take a few more years to come up to the stream.
The short-term steps have certainly reduced load shedding considerably. But this has come at a very high cost as most of these rental power plants are fuel oil-based. As a result, the annual import of fuel oil increased from an average of 3.0-3.5 million tonnes to 4.8 million tonnes during the previous fiscal year and it is projected to further rise to 7.0 million tonnes during the current fiscal year. The subsidies in power sector alone has increased from Tk 9.94 billion in FY10 to Tk 42 billion in FY11 and is estimated to increase to about Tk 52 billion during the current fiscal year.
The government is now facing difficulty in arranging funds to import this additional quantity of petroleum products to run the rental power plants. It has led to increased government borrowing from the banking sector, which has already exceeded the entire budgetary target for 2011-2012. The higher level of government borrowing from the banking system is fueling further inflation, which is already hovering at a double-digit level. It is also having a crowding-out effect on private sector loan disbursements, slowing down investments. More importantly, it can also undermine the fiscal discipline.
It is quite surprising that the government was unable to adequately estimate the increased level of fuel oil import to run the rental power plants and make necessary funding arrangements. Clearly, the budgetary provisions underestimated the actual requirement in this area.
Faced with increasing pressure on the economic front, the government decided to reduce the level of subsidy in the power and energy sectors by increasing the power tariff and the retail price of petroleum products a number of times over the past year.
There seems to be discord over the possible retail pricing of electricity within the government as amplified by the opposing views on the issue expressed by the finance minister and the energy adviser in a press conference earlier this week.
Meanwhile, progress in further development of the energy sector has been quite dismal during the last three years, putting the country's energy security at risk. Development in the gas sector has been painfully slow. Although gas supply has slightly improved in recent years and now stands at 2,000 million cubic feet per day (mmcfd), there is still a shortfall of around 500 mmcfd. Moreover, there was also inordinate delay in initiating the much-needed upgradation of the gas transmission network.
The government's foot-dragging on finalising the national coal policy is another area of serious concern. It is estimated that the country has some 3.0 billion tonnes of high-quality coal reserves.
It may be mentioned that the government had earlier adopted the Speedy Supply of Power and Energy (Special Provision) Act 2010, to ensure quick implementation of power and energy sector projects, under which the rental power projects were awarded. It removed the obligation of holding tenders, which used to ensure the minimum level of transparency, and gave legal immunity to the people involved with implementing energy sector projects. Although provisions of the Act are applicable to all energy sector projects, not much has been done so far in areas other than the power sector.
The government appears to be facing difficulty in formulating and implementing a well-coordinated and integrated energy policy. Much more attention needs to be given in developing the entire energy sector. It should include finalising the coal policy, attracting higher level of foreign investment in carbon exploration, investing in renewable energy and enhancing the efficiency of the existing power and energy sector projects, including a drastic reduction in pilferage or so-called system loss.
yaminbakht58@gmail.com