Energy and infrastructure: Conveyor-belt or constraint?

How do we convert second-string into mainstream industries/sectors? In other words, how do we bring back-burner industries/sectors on to the front-burner? Through previous articles in this series, we were exposed to the following gaps: energy-shortage, infrastructural deficiencies or absence, and inefficient and suboptimal usages.

Turning to the energy-sector deficiencies, the Fourth Bangladesh Investment Summit, Asia, held in April 2016 in Hong Kong, highlighted three gaps: volume shortage, transmission handicaps, and distribution problems. As the piece on fertilisers in this series pointed out, the country's natural gas reserves will be peaking soon, and to compensate for the huge dependence on gas, the administration has shifted attention to both mining and importing coal. All of this in an attempt to double the consumption generation from the current level of 12.5 gigawatt (GW) by our 50th birthday anniversary, thence, in conjunction with plans to become a developed country by mid-century, to expand beyond 60GW by then. For a country whose per capita energy consumption of 371 kilowatt per hour (kwh) today puts it in the low-income consumption bracket (with India, on the one hand, consuming more than twice that per capita and Malaysia, on the other, eleven-fold more), that is a huge leap.

Jackie Horne noted (in Finance Asia, April 27, 2016), though we have come a long way from 2009, when the total energy generated was barely 4.9GW, losses during transmission have been very high, up to 16 per cent then, and still 10 per cent today. We found out in the fertiliser piece of this series how inadequate utilisation, obsolete technology, and operational inefficiencies, contributed to that, though transmission negligence must also be acknowledged.

According to Dr. Tawfiq-e-ELahi Chowdhury, the prime minister's energy adviser who addressed that summit, the mid-century plan had both a funding and mixture plan, both of which were elaborated in Horne's article. From 2009, about $21 billion had been spent ($13 billion from the private, $8.0 billion from the public coffer); by 2021, another $16 billion would be needed ($9.0 billion for generation, $4.0 billion for transmission, and $3.0 billion for distribution); between 2021 and 2031, another $24 billion would be needed ($13 billion for generation, $.0 billion for transmission, and $5.0 billion for distribution); and thereafter $40 billion ($20 billion for generation, $10 billion for transmission, and $10 billion for distribution). Though today the energy mix elevates gas (7.86GW) and solar energy (3.8GW), and regional imports from India (600 megawatts, or MWs) over coal (300 MWs), by 2021 coal will register the fastest energy generation growth (to 4.3GW), while gas, still the king, would peak at 9.8GW, and the regional grid (imports from India) will rise to 1.1GW, and solar to 8.8GW. Though nuclear power will fetch 4GW by 2031, imports from India will double by then, and solar energy will supply 10 per cent as early as 2021.

Lofty though those goals, private sector borrowings have been central to their materialisation, with commercial banking supplying 60 per cent and multilateral institutions (like the World Bank's International Finance Corporation) 40 per cent. That would be even more so with infrastructural development, invoking a thicker investment outlay of over $100 billion just before our 50th birthday anniversary arrives. This is where Jame DiBiasio's account of the Third Bangladesh Investment Summit (in Singapore, September 2015) helps (see Finance Asia, September 04, 2015). He noted how $40 billion would go into communication networks, $13 billion into power, $14 billion into water supply and sanitation, $3.0 billion for solid waste management, $.0 billion for telecommunications, and $10 billion for irrigation.

That is a gigantic infrastructural developmental scorecard, erring on the low side: not how the $13 billion assigned to power then actually became $16 billion according to Chowdhury's April 2016 estimate. That is just one facet of the monumental task: upwardly-moving estimates throughout the construction phase (and as we are getting accustomed to already with the constantly escalating Dhaka flyover and Padma Bridge construction costs). Another is that work is already underway: note the sewage-treatment repairs in Bashundhara and Gulshan already. A third consideration is that we do not really have a choice: without these projects, the country would suffocate first, then culminate in an unprecedented chaos that would deter any investors. Finally, though much has already been said of the environment costs of shifting deeper into coal, it must again be raised, if only to put pressure for mitigating or remedial measures to be fitted in throughout the implementation processes.

Our highways, railways, ports, and bridges have finally got the attention they desperately need; but we must also remember how, without dipping heavily into the private sector and foreign investments (both multilateral and country-specific), we would still be stranded at first-base. Moving beyond is not just a materialistic advance: it also carries aesthetic spin-offs, since historically we have seen how the more affluent a person becomes the higher the acceptable NIMBY (not-in-my-backyard level) level, meaning that environmentally-threatening energy sources, such as coal, will become more unpopular locally. Any toss-up between infrastructural development and environmental harmony must not, therefore, be a zero-sum game: both sides must perceive advantages. Making mid-stream adjustments on projects already being implemented carries another positive offshoot: they will raise cost inefficiencies along the way.

As Social Overhead Capital (SOC) exemplifications, energy and infrastructures also have backward and forward linkages, but basically (a) a more nurtured SOC stock exposes a healthier set of backward linkages, predicting more stable forward linkages since a well-rounded industrial base and efficiently managed SOC projects culminates in desired forward links; (b) the more constrained the SOC stock, the more imbalanced the growth of backward linkages, creating constraints that can still be corrected before forward linkages get extended, otherwise extending that topsy-turvy growth into an equally uneven future; and (c) since by this developmental stage the country's future import-export balance will have itself become fairly clear, how cultivating diplomatic relations to synchronise with economic partnerships could go a long way to create a soft-landing future destination, because otherwise predatory claims, uneven sectoral growth, and uncontrollable external dependence could reverse whatever growth has been attained.

From the point of view of this series, the results of our first-string industries (RMG, leather, pharmaceuticals, and the like), elevated the urgency of energy and infrastructural self-sufficiency and reforms. That is a picture-perfect playground for our second-string industries to explore and exploit their capacities.

The final piece continues this discussion by appraising the strengths, weaknesses, deficits, and assets of a second-string sector in the larger national economy.

Dr Imtiaz A Hussain is Professor, International Relations,

 formerly Universidad Iberoamericana, Mexico City.

[email protected]