Energy crunch and plan to raise power tariff again
Sunday, 24 October 2010
Shahiduzzaman Khan
BANGLADESH'S annual economic losses out of the perennial energy shortfall is US$16.6 billion, around 16.6 per cent of the $100 billion gross domestic product (GDP), according to a study conducted by a Bangladesh University of Engineering and Technology (BUET) teacher. In the export-oriented manufacturing sector, the power and gas crisis is eating up $ 1.33 billion worth of net output, it added.
The country's overall energy shortfall is equivalent to 4.0 million tonnes of oil, which is affecting the industrial sector badly. Energy crunch does not affect the services and agriculture sectors as much as it does with the industrial output. Bangladesh is now reeling under an acute power and gas crisis with the electricity generation shortfall hovering around 1500 megawatt (mw) and gas supply shortfall around 500 million cubic feet per day (mmcfd). The country is mostly dependent on natural gas which has an estimated reserve of around 12.5 trillion cubic feet (tcf).
Considering 6.0 per cent demand growth annually, natural gas reserve would be exhausted by 2020. As such, there is a need for diversifying energy resources to meet the country's future demand. In this connection, coal appears to be only near term option. Thrust must be made to local coal as importing and managing large quantities of bulky coal is not only difficult but also expensive. Bangladesh has 3.30 billion tonnes of high grade coal in five coal mines and more than 80 per cent of the total coal can be extracted if open pit mining is adopted. The government has planned to generate around 10,000 mw of electricity by next five years and is now eyeing on new high-cost liquid fuel-run power plants to ease the power crisis immediately and diversify the energy resources.
As the cost of electricity generation is skyrocketing with the installation of high-cost diesel and furnace-oil run power plants, the government has taken a fresh move to raise the power tariff to reduce mounting subsidy. The state-owned Power Development Board (PDB) has recently submitted a proposal to the power ministry for an upward power tariff adjustment. Power tariff was adjusted upward only in March this year when the government increased the electricity prices for all types of urban and commercial subscribers by six to seven per cent, on an average. If the upward power tariff adjustment is not made inow, the government says, the subsidy for the PDB alone would soar to Tk 79.19 billion by 2015.
Reports say it would require an increase of 53 per cent in tariff from the current rate for 2011 alone to reduce the amount of subsidy. In 2012, the power tariff requires to be 22 per cent higher than the previous year and in 2013 it should be 13 per cent higher. Alternatively, the government might resort to making upward tariff adjustment by 12 per cent every year. The accumulated subsidy in all the state-owned power entities might go beyond Tk 150 billion within the next five years.
Currently, the government is giving PDB a subsidy worth around Tk 10 billion annually. But the government is at risk of providing hefty subsidy as it has prioritised electricity generation from liquid-fuel run power plants instead of conventional fuels such as gas or coal. Some 5,500 mw of electricity or more than half of the total generation will be produced by high-cost diesel and furnace oil run power plants. Several 'quick' rental power plants have already been set up and started generating electricity. Average electricity supply cost from these power plants will be around Tk 8.0 per unit for furnace oil run power plants and around Tk 14 for diesel-run power plants.
Experts say a new hike within a span of a few months might fuel public anger. Last time, the government had raised the power tariff on the pretext that the systems loss had come down by 13 per cent. If that is the case, there is every reason to demand that the authorities should go for reducing the tariff, instead of hiking it. Indeed the systems loss had gone up during most of the previous governments due to unabated corruption and mismanagement in power sector. All successive governments failed to rid power distribution agencies of massive ills. There have also been some improvements in systems loss now, but not to the extent of 13 per cent, as claimed by the authorities. Media reports say electricity pilferage is going on unabated and unauthorised power corrections are still being reported from various corners of the country.
Even if this estimate is correct, the general people in this country are bearing the brunt of the systems loss in the power sector. Why should they pay such a penalty? Widespread corruption and inefficiency have gripped the whole sector and the country, thus, suffers a loss of $1.0 billion in annual power output. It is a general trend that such losses are recouped by raising electricity tariff. But that adversely affects businesses, irrigation operations and the living of the common people.
While the pilferage problem was hardly addressed, subsequent governments did not adjust power tariff in line with investment costs, pushing the PDB to a perpetual loss-making situation. Analysts believe a tariff hike should be undertaken only after exhausting all other options for increasing power revenue. These options, as there is enough reason to believe so, have not been explored to their entirety. The price of one megawatt of electricity lost due to PDB's inefficiency is estimated at Tk 200 million. A section of people is being largely benefited due to rampant corruption in the PDB, the entire power sector as a whole suffers immensely. There were hikes in power tariff in the past at regular intervals. The PDB raised the power tariff most frequently, but did not ensure its adequate supply. Very often, the PDB claims that the power tariff in Bangladesh is lower than that of many countries. But what it did not say that the purchasing capacity of the people here is lower than that of many other countries.
Past experiences suggest that when power tariff is raised, prices of essential consumer goods tend to make another jump. These are all inter-related matters. Consequent upon any power tariff hike, the prices of foodstuffs tend to go up again in local markets, because the prices of farm inputs also go up. The general consumers and the industries of all sorts will continue to suffer from higher tariff, notwithstanding load shedding and low voltage. The authorities concerned do, first of all, need to ensure adequate electricity generation to satisfy the consumers. Before going for any new tariff hike, it would be wiser to take the views of consumers, stakeholders and power agencies into consideration.
szkhan@dhaka.ne
BANGLADESH'S annual economic losses out of the perennial energy shortfall is US$16.6 billion, around 16.6 per cent of the $100 billion gross domestic product (GDP), according to a study conducted by a Bangladesh University of Engineering and Technology (BUET) teacher. In the export-oriented manufacturing sector, the power and gas crisis is eating up $ 1.33 billion worth of net output, it added.
The country's overall energy shortfall is equivalent to 4.0 million tonnes of oil, which is affecting the industrial sector badly. Energy crunch does not affect the services and agriculture sectors as much as it does with the industrial output. Bangladesh is now reeling under an acute power and gas crisis with the electricity generation shortfall hovering around 1500 megawatt (mw) and gas supply shortfall around 500 million cubic feet per day (mmcfd). The country is mostly dependent on natural gas which has an estimated reserve of around 12.5 trillion cubic feet (tcf).
Considering 6.0 per cent demand growth annually, natural gas reserve would be exhausted by 2020. As such, there is a need for diversifying energy resources to meet the country's future demand. In this connection, coal appears to be only near term option. Thrust must be made to local coal as importing and managing large quantities of bulky coal is not only difficult but also expensive. Bangladesh has 3.30 billion tonnes of high grade coal in five coal mines and more than 80 per cent of the total coal can be extracted if open pit mining is adopted. The government has planned to generate around 10,000 mw of electricity by next five years and is now eyeing on new high-cost liquid fuel-run power plants to ease the power crisis immediately and diversify the energy resources.
As the cost of electricity generation is skyrocketing with the installation of high-cost diesel and furnace-oil run power plants, the government has taken a fresh move to raise the power tariff to reduce mounting subsidy. The state-owned Power Development Board (PDB) has recently submitted a proposal to the power ministry for an upward power tariff adjustment. Power tariff was adjusted upward only in March this year when the government increased the electricity prices for all types of urban and commercial subscribers by six to seven per cent, on an average. If the upward power tariff adjustment is not made inow, the government says, the subsidy for the PDB alone would soar to Tk 79.19 billion by 2015.
Reports say it would require an increase of 53 per cent in tariff from the current rate for 2011 alone to reduce the amount of subsidy. In 2012, the power tariff requires to be 22 per cent higher than the previous year and in 2013 it should be 13 per cent higher. Alternatively, the government might resort to making upward tariff adjustment by 12 per cent every year. The accumulated subsidy in all the state-owned power entities might go beyond Tk 150 billion within the next five years.
Currently, the government is giving PDB a subsidy worth around Tk 10 billion annually. But the government is at risk of providing hefty subsidy as it has prioritised electricity generation from liquid-fuel run power plants instead of conventional fuels such as gas or coal. Some 5,500 mw of electricity or more than half of the total generation will be produced by high-cost diesel and furnace oil run power plants. Several 'quick' rental power plants have already been set up and started generating electricity. Average electricity supply cost from these power plants will be around Tk 8.0 per unit for furnace oil run power plants and around Tk 14 for diesel-run power plants.
Experts say a new hike within a span of a few months might fuel public anger. Last time, the government had raised the power tariff on the pretext that the systems loss had come down by 13 per cent. If that is the case, there is every reason to demand that the authorities should go for reducing the tariff, instead of hiking it. Indeed the systems loss had gone up during most of the previous governments due to unabated corruption and mismanagement in power sector. All successive governments failed to rid power distribution agencies of massive ills. There have also been some improvements in systems loss now, but not to the extent of 13 per cent, as claimed by the authorities. Media reports say electricity pilferage is going on unabated and unauthorised power corrections are still being reported from various corners of the country.
Even if this estimate is correct, the general people in this country are bearing the brunt of the systems loss in the power sector. Why should they pay such a penalty? Widespread corruption and inefficiency have gripped the whole sector and the country, thus, suffers a loss of $1.0 billion in annual power output. It is a general trend that such losses are recouped by raising electricity tariff. But that adversely affects businesses, irrigation operations and the living of the common people.
While the pilferage problem was hardly addressed, subsequent governments did not adjust power tariff in line with investment costs, pushing the PDB to a perpetual loss-making situation. Analysts believe a tariff hike should be undertaken only after exhausting all other options for increasing power revenue. These options, as there is enough reason to believe so, have not been explored to their entirety. The price of one megawatt of electricity lost due to PDB's inefficiency is estimated at Tk 200 million. A section of people is being largely benefited due to rampant corruption in the PDB, the entire power sector as a whole suffers immensely. There were hikes in power tariff in the past at regular intervals. The PDB raised the power tariff most frequently, but did not ensure its adequate supply. Very often, the PDB claims that the power tariff in Bangladesh is lower than that of many countries. But what it did not say that the purchasing capacity of the people here is lower than that of many other countries.
Past experiences suggest that when power tariff is raised, prices of essential consumer goods tend to make another jump. These are all inter-related matters. Consequent upon any power tariff hike, the prices of foodstuffs tend to go up again in local markets, because the prices of farm inputs also go up. The general consumers and the industries of all sorts will continue to suffer from higher tariff, notwithstanding load shedding and low voltage. The authorities concerned do, first of all, need to ensure adequate electricity generation to satisfy the consumers. Before going for any new tariff hike, it would be wiser to take the views of consumers, stakeholders and power agencies into consideration.
szkhan@dhaka.ne