The crushing burden of quick rental power
Monday, 25 April 2011
Shafiqul Alam
The severe power crisis has guided the government to look for alternative solutions like quick rental power plants. However, this might further complicate the situation due to the huge gap between the production cost being claimed by the private operators and the selling price which the Power Development Board (PDB) charges the end-users. Eventually, this might put further pressure on the PDB as well as the government to arrange a huge amount of subsidy. According to media reports, the amount of subsidy will be around US$ 700 million during the current fiscal year alone. Even a layman can ask why this type of subsidy in this form has to be injected when we are seeking foreign aid for an important project like Padma Bridge. On the other hand, $1.0 billion is good enough for a project like Dhaka metro rail with at least a 30 km route at a shallow depth. Again, according to available information, PDB would pay more than Tk. 13 per kilowatt hour (kwh) of electricity generated by the private diesel-based quick rental power plants and more than Tk. 7.0 per kwh for electricity generated by furnace oil-based power plants. Thus, PDB would lose more than Tk. 4.0-Tk 10.0 per kwh. The question is why do we need quick rental power plants? Apparently, the answer is-- it takes four to six months to set up a rental unit, while two to five years may be needed to build a conventional power plant. Countries like China and Turkey have also gone for the rental route to bridge power supply gaps for the short-term. Pakistan has also applied the same principle. Rental plants can provide a breathing space for Bangladesh to focus on medium and long-term projects. Advocates say rental plants are efficient, will help quickly meet growing needs, and the end-consumers will pay the same or a bit less for their electricity. Opponents say that second-hand equipments are mostly used in such plants which will be less efficient and that the tariff will rise. They argue that the government would be better off spending money on upgrading and using idle existing capacity. But any logic in favor of quick rental power plant does not seem to be tenable in Bangladesh due to the fact that the amount of subsidy would be a crushing burden for the country and its economy. Moreover, time is running out with no sign of visible improvement. Another major factor, which makes people concerned, is the deadline which is never met in any type of such projects in the country. Many are worried about the government's higher expenditure to buy electricity from rental power plants and concurrent higher fuel import bill. The burden may hamper the country's economic growth. According to the World Bank projection, additional cost for fiscal year 2011 would range between Tk 52 billion and Tk 56 billion, which is about 0.6 per cent or 0.7 per cent of the gross domestic product (GDP). With the advent of the summer, the spectre of load-shedding has returned and is set to intensify in the coming days. The city dwellers have been experiencing power outage several times for the last few days. The load- shedding may stand at as much as 2000 mw per day. The PDB's priority on quick rental power plants, as a short-term solution, is in dilemma now but if they had gone for long-term contracts with private suppliers enabling them to build new power plants in the first place, the situation could have been much better. If they had signed the contracts by 2009, the power plants would have been in operation at least partially by the end of 2011 and perhaps fully by 2012. The present scenario is bleak and quite far from satisfactory and this can deteriorate in the near future. Moreover, rental power plant is never a permanent solution. As a long-term solution, the PDB should immediately look into the following issues: overhaul the old power plants; replace the old and inefficient natural gas-based power plants by new combined cycle power plants, if possible; initiate the process for setting up new conventional power plants; and ensure the timely completion of the projects undertaken. The writer can be reached at e-mail: shafiq@iidfc.com
The severe power crisis has guided the government to look for alternative solutions like quick rental power plants. However, this might further complicate the situation due to the huge gap between the production cost being claimed by the private operators and the selling price which the Power Development Board (PDB) charges the end-users. Eventually, this might put further pressure on the PDB as well as the government to arrange a huge amount of subsidy. According to media reports, the amount of subsidy will be around US$ 700 million during the current fiscal year alone. Even a layman can ask why this type of subsidy in this form has to be injected when we are seeking foreign aid for an important project like Padma Bridge. On the other hand, $1.0 billion is good enough for a project like Dhaka metro rail with at least a 30 km route at a shallow depth. Again, according to available information, PDB would pay more than Tk. 13 per kilowatt hour (kwh) of electricity generated by the private diesel-based quick rental power plants and more than Tk. 7.0 per kwh for electricity generated by furnace oil-based power plants. Thus, PDB would lose more than Tk. 4.0-Tk 10.0 per kwh. The question is why do we need quick rental power plants? Apparently, the answer is-- it takes four to six months to set up a rental unit, while two to five years may be needed to build a conventional power plant. Countries like China and Turkey have also gone for the rental route to bridge power supply gaps for the short-term. Pakistan has also applied the same principle. Rental plants can provide a breathing space for Bangladesh to focus on medium and long-term projects. Advocates say rental plants are efficient, will help quickly meet growing needs, and the end-consumers will pay the same or a bit less for their electricity. Opponents say that second-hand equipments are mostly used in such plants which will be less efficient and that the tariff will rise. They argue that the government would be better off spending money on upgrading and using idle existing capacity. But any logic in favor of quick rental power plant does not seem to be tenable in Bangladesh due to the fact that the amount of subsidy would be a crushing burden for the country and its economy. Moreover, time is running out with no sign of visible improvement. Another major factor, which makes people concerned, is the deadline which is never met in any type of such projects in the country. Many are worried about the government's higher expenditure to buy electricity from rental power plants and concurrent higher fuel import bill. The burden may hamper the country's economic growth. According to the World Bank projection, additional cost for fiscal year 2011 would range between Tk 52 billion and Tk 56 billion, which is about 0.6 per cent or 0.7 per cent of the gross domestic product (GDP). With the advent of the summer, the spectre of load-shedding has returned and is set to intensify in the coming days. The city dwellers have been experiencing power outage several times for the last few days. The load- shedding may stand at as much as 2000 mw per day. The PDB's priority on quick rental power plants, as a short-term solution, is in dilemma now but if they had gone for long-term contracts with private suppliers enabling them to build new power plants in the first place, the situation could have been much better. If they had signed the contracts by 2009, the power plants would have been in operation at least partially by the end of 2011 and perhaps fully by 2012. The present scenario is bleak and quite far from satisfactory and this can deteriorate in the near future. Moreover, rental power plant is never a permanent solution. As a long-term solution, the PDB should immediately look into the following issues: overhaul the old power plants; replace the old and inefficient natural gas-based power plants by new combined cycle power plants, if possible; initiate the process for setting up new conventional power plants; and ensure the timely completion of the projects undertaken. The writer can be reached at e-mail: shafiq@iidfc.com