Power sector reform should get precedence over tariff hike

A fresh power tariff hike is in the offing. The Power Division under the Ministry of Power, Energy and Mineral Resources asked the electricity distribution companies to submit their respective proposals on the hikes to Bangladesh Energy Regulatory Commission (BERC).
The BERC is expected to arrange public hearing as per regulation before announcing a fresh tariff hike. The announcement is likely to come by the end of March, but the tariff hike might have retrospective effect from March 1, 2014.
The Power Division officials, during a recent meeting with the Prime Minister, stressed the need for a hike in tariff in order to reduce losses of the power distribution companies. The Prime Minister reportedly directed them to expedite the process of raising electricity tariff. The energy regulator hiked the average bulk and retail electricity tariffs by 16.92 per cent and 15 per cent on September 20, 2012.
The technical evaluation committee of the BERC earlier had recommended a hike in electricity tariff by 3.30 per cent for Dhaka Power Distribution Company (DPDC) and 3.65 per cent for Dhaka Electric Supply Company (DESCO) consumers. DESCO had sought to raise the power tariff at the consumer level by an average of 11.69 per cent, while DPDC proposed an 11.31 per cent increase.
The BERC evaluation committee had recommended 4.84 per cent and 4.15 per cent hikes in retail electricity tariffs for the consumers of Bangladesh Power Development Board (BPDB) and West Zone Power Distribution Company (WZPDC). The BPDB had sought 12 per cent hike in retail electricity tariff, while the WZPDC had sought a 9.59 per cent hike. The BPDB has argued that it would incur a loss of Tk 5.16 billion this year if the tariff is not hiked.
The cost of electricity has been rising as the government has adopted short-term measures of installing dozens of high-cost diesel and furnace oil-fired rental power plants to ease the country's mounting electricity crisis. The cost of supplying power to bulk customers in September, 2011, was Tk 4.15 per unit. It soared to around Tk 6.8 per unit by fiscal year 2012-13.
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. Business leaders said the hike came at a time when industries and businesses get only 40 to 50 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.
The consumer rights activists wanted drastic reforms in the sector first, prior to 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?
Country's business leaders, expressing their 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 escalation 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 concern over the hike of bulk power tariff, saying 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.
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.
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.
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 various power plants was delayed. Year's of apathy from the donor agencies in funding necessary power plants also aggravated the country's overall electricity crisis.
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 shoot up in local markets due to increased costs in farm production. The general consumers and the industries of all sorts will continue to suffer from higher tariff, notwithstanding load shedding and low voltage. Without further 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