When subsidised power is a lesser evil
Thursday, 13 May 2010
Enayet Rasul Bhuiyan
THE government of Bangladesh (GoB) will reportedly have to raise electricity prices substantially for consumers in the coming months or give around Tk 50 billion (Tk 5,000 crore) in subsidy a year. This is so because, what the reports said, the government has so far approved agreements for installation of 15 fuel oil-based rental and peaking power plants to generate 1,480 mw of high-cost electricity by 4 to 15 months.
Sources were reported to have said that the Power Development Board (PDB) would have to be allowed to increase the price of electricity by around 12 per cent every year as these oil-based plants' electricity would cost between Tk 7.0 and Tk 14 per unit, whereas at present the PDB sells it for only Tk 2.6 per unit.
Thus, the government's fast track approach to raise power production to cope with the high power demand during this particularly scorching summer and face up to the power demand during next summer, has invited a lot of flak. The critics were earlier heaping scorn on the government for not moving fast enough during its barely fifteen months in power to overcome nearly a decade of unpardonable neglect of the pivotal power sector under different governments. But now that it is showing real activism to provide relief at the soonest to all categories of power users, some of the critics are at it again expressing dark suspicion about this stepped up activity to increase power production substantially at an early date.
The main contention is that in this haste to produce power, the government is overlooking the fact that it would be producing power at much higher costs and sell the same at much lower costs. In order to do this, the government would either have to raise power tariffs for different types of consumers or have to heavily subsidise the operations. There would be limits to how far higher prices can be charged from consumers. In fact, this could become a volatile political issue causing even street agitation. On the other hand, if the government decides to subsidise, it could find itself strapped for funds from the huge drains from providing subsidies, according to the skeptics.
The worries are possibly misleading on both counts. If asked, the consumers in their present power-starved conditions or faced with a choice between no power or power at progressively enhanced but bearable prices, they would possibly settle gladly for the latter option. When industries are shutting down completely from lack of power or running woefully below capacities, in this situation their operators will very probably not be so short sighted to refuse to accept power supply at somewhat enhanced prices over a period of time. They would likely consider this path to be a lesser evil than keeping shutters down on their enterprises from not having power. The same logic holds for other classes of consumers including the household ones. Compared to the agonies from powerlessness for hour after hour they are now facing, surely they would find it true bliss to have power all or nearly all the time even if they have to pay a bearable percentage of higher charges for the same.
Besides, power charges need not go on escalating over the mid- and long-terms. The present thrust for emergency power production based on rental power plants and even the liquid fuel based units to be set up by the government, would create costlier power at the users' end. But prices of power would be falling in the longer run under the longer term big projects now in the planning boards. Some of these major ones would be run by coal -- probably from local coal after starting with imported coal for a while -- when the local mines would be readied for coal production, fully. This local coal based power would be notably cheaper. The government is also about to click deals for the establishment of nuclear power plants. Power from the nuclear source should be even cheaper than from the coal based plants. So, the higher-priced electricity could be a temporary phenomenon. Most of the rental power plants that have been contracted will go on producing for about three years only but would cease production to be rolled up after this time. But from that time the bigger power generating units in the public sector, now being planned, would be coming into operation one by one and both their generation costs and prices on offer for the power to be produced by them, could be in a declining mode.
Besides, for the time being, paying an amount of some Taka 50 billion annually as subsidies to produce and consume some 1,400 mw of power on emergency basis to keep a reasonable balance between power's demand and supply and, thus, the economy going, should be a very sensible proposition. For instance, it can be assessed in this manner. The decision not to want to pay Taka 50 billion now as subsidies would mean postponing or foregoing economic growth by some 2.0 or 3.0 per cent that would be valued at least ten or fifteen times more than Taka 50 billion. So, what should be more beneficial for the economy? To be tight fisted and miserly and not to give subsidies of some Taka 50 billion only and suffer losses many times over that amount in terms of production and income foregone or to provide this amount of subsidy to experience the bounties to be experienced by the economy as a result?
The answer should be an obvious one. It should be far more pragmatic to extend this amount of subsidy to accelerate greater economic activities and investment operations. Bangladesh's central economic problem or biggest economic problem now is insufficient investments. The productive sectors are running far below their potential from energy crisis, the power crisis in particular. Large local and foreign investments are not being made in view of the severe power crunch. But these investments will very likely be made the moment the investors start feeling confident that they would have enough power to run their projects sustainably.
The net expansion to occur in the economy will substantially increase the government's taxation base . This happening, in turn, would lead to government collecting far greater total revenues to be able to offset or feel much more than compensated for the giving of some Taka 50 billion for a period of time.
THE government of Bangladesh (GoB) will reportedly have to raise electricity prices substantially for consumers in the coming months or give around Tk 50 billion (Tk 5,000 crore) in subsidy a year. This is so because, what the reports said, the government has so far approved agreements for installation of 15 fuel oil-based rental and peaking power plants to generate 1,480 mw of high-cost electricity by 4 to 15 months.
Sources were reported to have said that the Power Development Board (PDB) would have to be allowed to increase the price of electricity by around 12 per cent every year as these oil-based plants' electricity would cost between Tk 7.0 and Tk 14 per unit, whereas at present the PDB sells it for only Tk 2.6 per unit.
Thus, the government's fast track approach to raise power production to cope with the high power demand during this particularly scorching summer and face up to the power demand during next summer, has invited a lot of flak. The critics were earlier heaping scorn on the government for not moving fast enough during its barely fifteen months in power to overcome nearly a decade of unpardonable neglect of the pivotal power sector under different governments. But now that it is showing real activism to provide relief at the soonest to all categories of power users, some of the critics are at it again expressing dark suspicion about this stepped up activity to increase power production substantially at an early date.
The main contention is that in this haste to produce power, the government is overlooking the fact that it would be producing power at much higher costs and sell the same at much lower costs. In order to do this, the government would either have to raise power tariffs for different types of consumers or have to heavily subsidise the operations. There would be limits to how far higher prices can be charged from consumers. In fact, this could become a volatile political issue causing even street agitation. On the other hand, if the government decides to subsidise, it could find itself strapped for funds from the huge drains from providing subsidies, according to the skeptics.
The worries are possibly misleading on both counts. If asked, the consumers in their present power-starved conditions or faced with a choice between no power or power at progressively enhanced but bearable prices, they would possibly settle gladly for the latter option. When industries are shutting down completely from lack of power or running woefully below capacities, in this situation their operators will very probably not be so short sighted to refuse to accept power supply at somewhat enhanced prices over a period of time. They would likely consider this path to be a lesser evil than keeping shutters down on their enterprises from not having power. The same logic holds for other classes of consumers including the household ones. Compared to the agonies from powerlessness for hour after hour they are now facing, surely they would find it true bliss to have power all or nearly all the time even if they have to pay a bearable percentage of higher charges for the same.
Besides, power charges need not go on escalating over the mid- and long-terms. The present thrust for emergency power production based on rental power plants and even the liquid fuel based units to be set up by the government, would create costlier power at the users' end. But prices of power would be falling in the longer run under the longer term big projects now in the planning boards. Some of these major ones would be run by coal -- probably from local coal after starting with imported coal for a while -- when the local mines would be readied for coal production, fully. This local coal based power would be notably cheaper. The government is also about to click deals for the establishment of nuclear power plants. Power from the nuclear source should be even cheaper than from the coal based plants. So, the higher-priced electricity could be a temporary phenomenon. Most of the rental power plants that have been contracted will go on producing for about three years only but would cease production to be rolled up after this time. But from that time the bigger power generating units in the public sector, now being planned, would be coming into operation one by one and both their generation costs and prices on offer for the power to be produced by them, could be in a declining mode.
Besides, for the time being, paying an amount of some Taka 50 billion annually as subsidies to produce and consume some 1,400 mw of power on emergency basis to keep a reasonable balance between power's demand and supply and, thus, the economy going, should be a very sensible proposition. For instance, it can be assessed in this manner. The decision not to want to pay Taka 50 billion now as subsidies would mean postponing or foregoing economic growth by some 2.0 or 3.0 per cent that would be valued at least ten or fifteen times more than Taka 50 billion. So, what should be more beneficial for the economy? To be tight fisted and miserly and not to give subsidies of some Taka 50 billion only and suffer losses many times over that amount in terms of production and income foregone or to provide this amount of subsidy to experience the bounties to be experienced by the economy as a result?
The answer should be an obvious one. It should be far more pragmatic to extend this amount of subsidy to accelerate greater economic activities and investment operations. Bangladesh's central economic problem or biggest economic problem now is insufficient investments. The productive sectors are running far below their potential from energy crisis, the power crisis in particular. Large local and foreign investments are not being made in view of the severe power crunch. But these investments will very likely be made the moment the investors start feeling confident that they would have enough power to run their projects sustainably.
The net expansion to occur in the economy will substantially increase the government's taxation base . This happening, in turn, would lead to government collecting far greater total revenues to be able to offset or feel much more than compensated for the giving of some Taka 50 billion for a period of time.