Power sector reform should follow tariff hikes

For the third time in a year, the energy regulator raised electricity tariff for bulk consumers last week by 33.57 per cent on an average, to be effective in two phases. Bangladesh Energy Regulatory Commission (BERC) claimed that the decision was taken in order to reduce mounting losses incurred by state-owned Power Development Board (PDB). Under the first phase, bulk power has been hiked by 16.79 per cent, or Tk 0.47 per unit (1 kWh), to Tk 3.27 per unit on an average, with effect from December 01, 2011. Power tariff for bulk consumers will increase further by 14.37 per cent, or Tk 0.47 per unit, to Tk 3.74 per unit from February 01, 2012, meaning that overall tariff will be raised by 33.57 per cent. PDB's average bulk tariff rate is Tk 2.80 per unit now. Last week's tariff hike for bulk consumers will be followed by a fresh hike for retail electricity consumers, which is likely to be announced next week. The new bulk tariff was calculated taking into account the subsidy of Tk 50 billion from the government to the PDB against its total requirement of Tk 179 billion. Due to this hike, all the state-run distribution entities including Dhaka Power Distribution Company Ltd (DPDC), Dhaka Electric Supply Company (DESCO), Rural Electrification Board (REB) and West Zone Power Distribution Company (WZPDC) will have to count extra money to purchase electricity from the PDB. The distribution companies buy electricity from the PDB at bulk level of 132 kilo-volt (kV) and 33 kV and sells electricity at retail tariff rates to reach end-users. Already battered by endless cycles of load-shedding and outages, the general as well as commercial consumers of electricity are now faced with another predicament -- fresh hikes in power tariff. The increase evoked criticism from all circles, who said the government could have waited until the acute power crisis in the country is solved. Business leaders said the hike came at a time when industries and businesses get only 30 to 40 per cent of their total requirements from power. The consumer rights group also voiced concern saying that the new tariff would create further pressure on the customers. If the government could fix the faults at production stage, it might not be needed to increase price in such a way, it added. If the authorities can stop pilferage, the country will be able to save a lot of electricity. The consumer rights activists wanted drastic reforms in the sector first, before any hike in power tariff. In all public hearings, consumers tagged uninterrupted supply to the price hike move. Consumers and members of various business organisations said if the government fails to ensure its stable supple, why should they pay the inflated bills? Representatives of various business chambers and associations also expressed their concerns on the hike. They raised questions about making a projected 110 per cent hike in three years. It is not, however, clear as to how increased tariff will address the problem of systems loss, or distribution inefficiency as long as the pilferage of power rooted in systemic corruption as well as bureaucratic sloth continues to plague the power administration. Country's business leaders, expressing their mounting concern over the government's fresh electricity tariff hike, said the country's industrial growth will be severely jeopardised. A significant increase in electricity tariff would be detrimental to industry as well as the consumers, they pointed out. Cost increases should be reasonable, appropriate and within the context of the state of economy. It must take into account the impact on the economy, inflation and employment. A steep increase in tariff would provide greater incentives for theft and pilferage, they added. Garment manufacturers have expressed their deep concern over the hike of bulk power tariff, saying that it will further decrease the sector's competitiveness in the global market. According to the Bangladesh Garment Manufactures and Exporters Association (BGMEA), the manufacturers will face serious difficulties in producing garments as the hike will further increase production and transportations costs. It said export orders of the products the apparel makers are now producing have been negotiated earlier. As such, the producers will have to pay the costs. Production costs of the RMG sector increased significantly comparing to their global competitors due to recent hike in the prices of diesel and furnace oil as well as high rate of bank interest. Under the circumstances, it will be very tough for garment manufacturers to keep the growth continuing. The BGMEA requested the government to retain the previously charged power tariff in the garment factories for protecting the struggling sector where more than three million people were employed. Bangladesh's annual economic loss out of country's the perennial energy shortfall is $16.6 billion, around 16.6 per cent of the $100 billion gross domestic product (GDP), according to a study. 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). Due to poor and insufficient planning and necessary fund, coupled with inadequate supplies of natural gas -- the main fuel for the country's power generation -- installation of much-needed power plants is being delayed. Year's of apathy from the donor agencies in funding necessary power plants also aggravated the country's overall electricity crisis. Nagging electrify crisis all over Bangladesh has recently become an issue of concern of the government as the power sector is deemed by critics as among the worst performing sectors of the government. 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. Experts say a tariff hike should be undertaken only after exhausting all other options for increasing power revenue. These options, as there are sufficient reasons to believe so, have not been explored to their entirety. Past experiences suggest that when power tariff was raised, prices of essential consumer goods made a jump. These are all inter-related matters. Consequent upon any power tariff hike, the prices of foodstuffs 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. Without improving the situation in power sector it will not be a rational choice to force the citizens to pay for a service that they seldom get. szkhan@dhaka.net