Energy regulations and private sector investment
Tuesday, 13 April 2010
Syed Yusuf Hossain
A new era in regulatory environment of Bangladesh energy sector has been marked by the creation of Bangladesh Energy Regulatory Commission (BER) by Act No. 13 of 2003.
The establishment of an independent impartial energy regulatory commission aims to create an atmosphere conducive to private investment in the generation of electricity, and transmission, transportation and marketing of gas resources and petroleum products, to ensure transparency in the management, operation and tariff determination in these sectors; to protect consumers' rights and promote creation of a competitive market.
Role of BERC
Bangladesh Energy Regulatory Commission functions in an autonomous environment primarily to serve the public interest by ensuring that energy prices reflect true cost of production and service.
BERC ensures that energy companies have incentives to provide quality service at affordable cost and the energy sector functions in a safe and reliable manner. Effective regulations will benefit all stakeholders and help ensure affordable energy supply for the economic development of Bangladesh.
BERC's basic features lie in its independence, neutrality and quasi-judicial character. It promotes private sector investment through mitigating investors' risks. BERC promotes investment by creating level playing field and ensuring reasonable return on investment, rationalising cost structure and helping effective dispute settlement. Decision making procedure of the Commission is also unique. Thorough examination of the rate application is done by calculating the revenue requirement of the applicants followed by adjudicatory public hearing of utility entities to ensure just and reasonable cost, better management and accountability. BERC ensures transparency by finding true cost of investment and ensuring quality of service rendered by the utility entities. For this purpose, uniform accounting system is going to be introduced shortly to help performance rating on a comparable basis.
BERC looks for international best practice regulatory framework aimed at fair return for investors in exchange of optimised efficiency & quality services. BERC has to play vital role in regulating the energy sector to safeguard stakeholders' interests including foreign investors in the country.
BERC aids government's endeavour to attract and sustain energy sector investment by promoting confidence in investors' mindset and help ensure wider & fair market competition. It mitigates energy sector investment risks, helps ensure reasonable return on investment, creates level playing field, and rationalises cost structure. It also helps effective dispute settlements.
Beyond cost rationalisation and tariff fixation BERC has been mandated to look into sound management principles and. best practices in the energy sector including transparency and accountability of the utility entities. BERC has the responsibility to look into reasonable interests of the utility entities and investors' concerns while addressing consumers' rights. We are charting out a road map to reach and achieve our objectives through setting of standards and close monitoring.
Electricity is the basic input in all our efforts for growth and development. To meet increasing demands of industry, agriculture, trade and commerce; we need reliable and adequate electricity in shortest possible time frame. There is no alternative to this. We have to examine the existing critical situation and available options in case gas continues to remain scarce. Energy has to be produced to meet demands for economic growth and development. We need to consider the opportunity cost of not having adequate reliable energy as against higher cost. It has to be remembered that electricity has a multiplier effect. Investment in energy will lead to multiple investments in other sectors of the economy. Adequate and reliable electricity is central to the concept of growth and equitable development leading to a higher quality of life. However, all these have to be transparent and accountable with least cost option.
Investment opportunities in Bangladesh
FDI is a key element in Bangladesh Government policy objectives for growth and development. The Government is clear on its policy and commitment to attract FDI. Hon'ble Prime Minister has emphasised the key role of Foreign Investment to achieve targeted objectives for turning Bangladesh into a middle income country by 2021. The programme of Charter for Change looks forward to achieve GDP growth of 8.0% by 2013, 10% by 2017 and poverty reduction rate to 25% by 2020.
Cost rationalisation through finding true economic cost will address issues of investors' interests and consumers' rights. Together it will help expand the energy sector market and help growth, development and quality of life.
Bangladesh has an emerging business class with initiative and ideas having preparedness for risk management. There is a sizeable domestic market with expanding middle income class looking for higher quality of Life, willing to spend on increasing goods and services.
Bangladesh is a winning combination with its competitive market, business-friendly environment and cheap cost structure that can give the investors the best returns. It offers a highly adaptive, trainable and industrious workforce with the lowest wages in the region. The country is showing welcome signs of developing a skilled workforce catering to investors' needs. Low land and energy costs and moderate communication infrastructure are added advantages.
Bangladesh is strategically located next to India, China and ASEAN markets. This location may serve as the bridge between South and South-East Asian high-growth regions. Bangladesh offers the most liberal FDI regime in South Asia, allowing 100% foreign equity with unrestricted exit policy, easy remittance of royalty, repatriation of profits and incomes and avoidance of double taxation. A largely homogeneous society of people living in harmony irrespective of race and religion, Bangladesh is a democratic, secular, politically stable and foreign investment friendly country enjoying broad bi-partisan political support for private investment including FDI.
Investment climate
The legal and policy framework for business is conducive to foreign investment. Comprehensive legal framework is in place for promoting and protecting foreign investment. The country enjoys steady economic growth, around 6.0% GDP growth, despite global economic downturn. Government is gradually withdrawing from industrial and infrastructure sectors to create opportunities for private investment. It is also promoting private sector participation including PPP (Public Private Partnership) and joint venture investment. Energy sector could be a prospective arena for investment under PPP. All foreign investments are given protection with equitable treatment and accorded indemnification and security. Chambers of Commerce and Industries of Bangladesh are being organised and becoming proactive.
Investment priorities in energy sector
Evidently the energy sector is the driving force for the overall development of the country. To reduce poverty to a moderate level the required Gross Domestic Product (GDP) growth rate of around 8.0% and electricity growth rate of 1.5 times of GDP growth rate need to be achieved.
The present democratically elected government has a vision to achieve electricity for all by 2020-21 with a generation capacity of 20,000 MW. The government has taken up steps and projects to raise power generation to 13,000 MW by 2015 and load shedding free power by 2012.
Possibilities of investing in Power Sectors ranges from individual investment to PPP (Public Private Partnership), from solicited IPP (independent Power Producers) to Commercial Power Plants, from Conventional Energy to Renewable Energy. The country is looking for investment in gas exploration, coal based power plant, LNG (Liquefied Natural Gas) and nuclear power plant. Energy from solar and wind power generation may also be seriously considered to augment the power sector. To augment the critical power supply situation and to find out alternative source of fuel, LNG could be an option for which we need to build LNG terminals. The re is also scope for investment in power plants on ROO (Rehabilitate, Own and Operate) and ROT (Rehabilitate, Own and Transfer) basis.
Incentives promoting investment
Bangladesh offers one of the finest incentives package for FDI. Fiscal and other incentives for private investment in power generation are much higher. The IPPs enjoy security packages like PPA (Power Purchase Agreement), FSA (Fuel Supply Agreement), LLA (Land Lease Agreement) and IA (implementation Agreement). Special incentives are there to encourage non- resident Bangladeshis for investment in the country.
Scope for improvement
Although the regulators and coordinating and facilitating agencies may think that the prevailing scope, environment and incentives are adequate to attract investment in Bangladesh, still the situation has to be analysed from investors' point of view. There might be some retarding elements which need to be addressed. In the perception of foreign investors, cost of doing business in Bangladesh is higher and implementation time is longer. To achieve government road map in energy sector this image has to be erased. We have to look for business unusual not business as usual if we have to achieve the targeted objectives of Hon'ble Prime Minister's vision of Charter for Change.
To make the regulatory functions more effective, further study is required to ascertain whether existing regulations are favourable and comprehensive for investment. BERC Act empowers the Commission to formulate regulations, codes and standards. Existing regulations may be reviewed to meet the challenge of time.
To attract investment in power generation, benchmark pricing may be considered after a thorough study. Such pricing may require subsidy if the government desires to administer the price of energy. Presently government is providing subsidy to agriculture, health, education and certain categories of electricity consumers. Subsidy in energy sector may be seriously considered as energy has multiplier effects on investment and the economy. If we need benchmark pricing for promoting investment in the energy sector, enabling laws may be enacted to ensure transparency.
Renewable energy has to be promoted. Solar energy though requires substantial initial investment but in the long run it becomes affordable. Wind power could be considered in the coastal belt of Bangladesh. The government and Bangladesh Bank may consider soft loan or refinancing facilities.
Conclusion
In the past, regulators were in general characterised as barrier to development. In contrast, nowadays the society considers independent regulators as a positive force and key player to promote investment and development. Investors feel safe when they find effective regulators in place. Development partners are also showing interest to strengthen regulatory practices. The positive role played by Bangladesh Energy Regulatory Commission has earned an image in the sector. BE RC is making efforts to play a positive and effective role for transparent and viable energy sector. This will help attract the private sponsors to invest in energy sector, which in turn will augment power supply of the country in the shortest possible time frame.
The writer is Chairman, Bangladesh Energy Regulatory Commission
A new era in regulatory environment of Bangladesh energy sector has been marked by the creation of Bangladesh Energy Regulatory Commission (BER) by Act No. 13 of 2003.
The establishment of an independent impartial energy regulatory commission aims to create an atmosphere conducive to private investment in the generation of electricity, and transmission, transportation and marketing of gas resources and petroleum products, to ensure transparency in the management, operation and tariff determination in these sectors; to protect consumers' rights and promote creation of a competitive market.
Role of BERC
Bangladesh Energy Regulatory Commission functions in an autonomous environment primarily to serve the public interest by ensuring that energy prices reflect true cost of production and service.
BERC ensures that energy companies have incentives to provide quality service at affordable cost and the energy sector functions in a safe and reliable manner. Effective regulations will benefit all stakeholders and help ensure affordable energy supply for the economic development of Bangladesh.
BERC's basic features lie in its independence, neutrality and quasi-judicial character. It promotes private sector investment through mitigating investors' risks. BERC promotes investment by creating level playing field and ensuring reasonable return on investment, rationalising cost structure and helping effective dispute settlement. Decision making procedure of the Commission is also unique. Thorough examination of the rate application is done by calculating the revenue requirement of the applicants followed by adjudicatory public hearing of utility entities to ensure just and reasonable cost, better management and accountability. BERC ensures transparency by finding true cost of investment and ensuring quality of service rendered by the utility entities. For this purpose, uniform accounting system is going to be introduced shortly to help performance rating on a comparable basis.
BERC looks for international best practice regulatory framework aimed at fair return for investors in exchange of optimised efficiency & quality services. BERC has to play vital role in regulating the energy sector to safeguard stakeholders' interests including foreign investors in the country.
BERC aids government's endeavour to attract and sustain energy sector investment by promoting confidence in investors' mindset and help ensure wider & fair market competition. It mitigates energy sector investment risks, helps ensure reasonable return on investment, creates level playing field, and rationalises cost structure. It also helps effective dispute settlements.
Beyond cost rationalisation and tariff fixation BERC has been mandated to look into sound management principles and. best practices in the energy sector including transparency and accountability of the utility entities. BERC has the responsibility to look into reasonable interests of the utility entities and investors' concerns while addressing consumers' rights. We are charting out a road map to reach and achieve our objectives through setting of standards and close monitoring.
Electricity is the basic input in all our efforts for growth and development. To meet increasing demands of industry, agriculture, trade and commerce; we need reliable and adequate electricity in shortest possible time frame. There is no alternative to this. We have to examine the existing critical situation and available options in case gas continues to remain scarce. Energy has to be produced to meet demands for economic growth and development. We need to consider the opportunity cost of not having adequate reliable energy as against higher cost. It has to be remembered that electricity has a multiplier effect. Investment in energy will lead to multiple investments in other sectors of the economy. Adequate and reliable electricity is central to the concept of growth and equitable development leading to a higher quality of life. However, all these have to be transparent and accountable with least cost option.
Investment opportunities in Bangladesh
FDI is a key element in Bangladesh Government policy objectives for growth and development. The Government is clear on its policy and commitment to attract FDI. Hon'ble Prime Minister has emphasised the key role of Foreign Investment to achieve targeted objectives for turning Bangladesh into a middle income country by 2021. The programme of Charter for Change looks forward to achieve GDP growth of 8.0% by 2013, 10% by 2017 and poverty reduction rate to 25% by 2020.
Cost rationalisation through finding true economic cost will address issues of investors' interests and consumers' rights. Together it will help expand the energy sector market and help growth, development and quality of life.
Bangladesh has an emerging business class with initiative and ideas having preparedness for risk management. There is a sizeable domestic market with expanding middle income class looking for higher quality of Life, willing to spend on increasing goods and services.
Bangladesh is a winning combination with its competitive market, business-friendly environment and cheap cost structure that can give the investors the best returns. It offers a highly adaptive, trainable and industrious workforce with the lowest wages in the region. The country is showing welcome signs of developing a skilled workforce catering to investors' needs. Low land and energy costs and moderate communication infrastructure are added advantages.
Bangladesh is strategically located next to India, China and ASEAN markets. This location may serve as the bridge between South and South-East Asian high-growth regions. Bangladesh offers the most liberal FDI regime in South Asia, allowing 100% foreign equity with unrestricted exit policy, easy remittance of royalty, repatriation of profits and incomes and avoidance of double taxation. A largely homogeneous society of people living in harmony irrespective of race and religion, Bangladesh is a democratic, secular, politically stable and foreign investment friendly country enjoying broad bi-partisan political support for private investment including FDI.
Investment climate
The legal and policy framework for business is conducive to foreign investment. Comprehensive legal framework is in place for promoting and protecting foreign investment. The country enjoys steady economic growth, around 6.0% GDP growth, despite global economic downturn. Government is gradually withdrawing from industrial and infrastructure sectors to create opportunities for private investment. It is also promoting private sector participation including PPP (Public Private Partnership) and joint venture investment. Energy sector could be a prospective arena for investment under PPP. All foreign investments are given protection with equitable treatment and accorded indemnification and security. Chambers of Commerce and Industries of Bangladesh are being organised and becoming proactive.
Investment priorities in energy sector
Evidently the energy sector is the driving force for the overall development of the country. To reduce poverty to a moderate level the required Gross Domestic Product (GDP) growth rate of around 8.0% and electricity growth rate of 1.5 times of GDP growth rate need to be achieved.
The present democratically elected government has a vision to achieve electricity for all by 2020-21 with a generation capacity of 20,000 MW. The government has taken up steps and projects to raise power generation to 13,000 MW by 2015 and load shedding free power by 2012.
Possibilities of investing in Power Sectors ranges from individual investment to PPP (Public Private Partnership), from solicited IPP (independent Power Producers) to Commercial Power Plants, from Conventional Energy to Renewable Energy. The country is looking for investment in gas exploration, coal based power plant, LNG (Liquefied Natural Gas) and nuclear power plant. Energy from solar and wind power generation may also be seriously considered to augment the power sector. To augment the critical power supply situation and to find out alternative source of fuel, LNG could be an option for which we need to build LNG terminals. The re is also scope for investment in power plants on ROO (Rehabilitate, Own and Operate) and ROT (Rehabilitate, Own and Transfer) basis.
Incentives promoting investment
Bangladesh offers one of the finest incentives package for FDI. Fiscal and other incentives for private investment in power generation are much higher. The IPPs enjoy security packages like PPA (Power Purchase Agreement), FSA (Fuel Supply Agreement), LLA (Land Lease Agreement) and IA (implementation Agreement). Special incentives are there to encourage non- resident Bangladeshis for investment in the country.
Scope for improvement
Although the regulators and coordinating and facilitating agencies may think that the prevailing scope, environment and incentives are adequate to attract investment in Bangladesh, still the situation has to be analysed from investors' point of view. There might be some retarding elements which need to be addressed. In the perception of foreign investors, cost of doing business in Bangladesh is higher and implementation time is longer. To achieve government road map in energy sector this image has to be erased. We have to look for business unusual not business as usual if we have to achieve the targeted objectives of Hon'ble Prime Minister's vision of Charter for Change.
To make the regulatory functions more effective, further study is required to ascertain whether existing regulations are favourable and comprehensive for investment. BERC Act empowers the Commission to formulate regulations, codes and standards. Existing regulations may be reviewed to meet the challenge of time.
To attract investment in power generation, benchmark pricing may be considered after a thorough study. Such pricing may require subsidy if the government desires to administer the price of energy. Presently government is providing subsidy to agriculture, health, education and certain categories of electricity consumers. Subsidy in energy sector may be seriously considered as energy has multiplier effects on investment and the economy. If we need benchmark pricing for promoting investment in the energy sector, enabling laws may be enacted to ensure transparency.
Renewable energy has to be promoted. Solar energy though requires substantial initial investment but in the long run it becomes affordable. Wind power could be considered in the coastal belt of Bangladesh. The government and Bangladesh Bank may consider soft loan or refinancing facilities.
Conclusion
In the past, regulators were in general characterised as barrier to development. In contrast, nowadays the society considers independent regulators as a positive force and key player to promote investment and development. Investors feel safe when they find effective regulators in place. Development partners are also showing interest to strengthen regulatory practices. The positive role played by Bangladesh Energy Regulatory Commission has earned an image in the sector. BE RC is making efforts to play a positive and effective role for transparent and viable energy sector. This will help attract the private sponsors to invest in energy sector, which in turn will augment power supply of the country in the shortest possible time frame.
The writer is Chairman, Bangladesh Energy Regulatory Commission