Within one month of assuming power for the third time, the government of Prime Minister Sheikh Hasina has initiated the process of raising power tariff. During her previous tenure as prime minister, the power tariff was raised six times, the last one on September 09, 2012.
The Power Division has already advised the power distribution companies to submit their proposals on the revised power tariff to the Bangladesh Energy Regulatory Commission (BERC). The BERC will take final decision after necessary hearing. Considering the need for subsidy, 10/12 per cent increase may be recommended. A reliable source of the Power Division has said that power is being purchased at a high price from oil-based power stations but this is being sold at a lower price to the consumers. As a result, overall subsidy has increased. At the time of last power rate increase, the BERC said that in spite of power tariff rise, subsidy to the extent of Tk 38.50 billion would be needed. Oil-based rental and quick rental power plants are responsible for this.
The Power Development Board (PDB) is facing problems because it has to incur a loss of over Tk 6.0 billion per month. This amount goes up during irrigation season. According to one estimate, its total loss has exceeded Tk 75 billion. But it has no capacity to bear this loss. The government is not taking any responsibility for losses caused by rental and quick rental power stations. This burden is shifted to the Power Development Board. The government is claiming that it is giving subsidy to the power sector but in reality, it is imposing the hefty amount as loan on the PDB.
The PDB is urging the government to treat the amount as subsidy rather than as loan. But the government is not giving any guidance in this regard. It is trying to show to the World Bank and the IMF that subsidy has been reduced to justify more loans from these agencies. The PDB's own cost of production is still below Tk 3.0 per unit of power but it has to spend Tk 18 per unit when it buys it from rental and quick rentals.
The government is under pressure to raise prices once it has allowed rental and quick rentals without tender. Legal indemnity has been given for setting up power stations without bidding. When the Prime Minister attended office in the Energy Ministry a few days ago, officials proposed to increase price of power to reduce losses. The PM agreed to this proposal. Thereafter, the process of hiking power tariff has started. The rate hike will inflate the monthly power bill of consumers and will also fuel inflation which is now hovering at around 8.0 per cent.
The power situation has improved. But it remains to be seen what happens during the next summer season when the demand for power peaks and power generation finds it difficult to cope with. If load shedding returns with previous severity, any power tariff hike will make resentment of power subscribers more intense. It appears that with the liquid fuel-fired rental power plants dominating the generation scenario, the power subscribers will always remain vulnerable to intermittent power tariff hikes.
The government has been trying to implement a few large power projects in the public sector but the progress in this respect is slow. This is taking an economic toll on the power subscribers. If large projects are implemented, the rate of hike would have been lower and within a tolerable limit of the power consumers.
The latest situation is that oil-based high-cost quick rental power plants will continue in the long run. In view of the demand for power and large power plants failing to come on stream soon, the government has to depend on quick rental power plants. Although purchase of power from rental and quick rental power plants is to be closed in 3/5 years, it is not going to materialise.
Power sector experts are of the view that if the government could give priority to large and coal-based power plants from the beginning, it would not have been necessary to depend on quick rentals. People would not have to be required to pay for high power tariff. A committee in the Ministry of Power has recommended to purchase power from rental and quick rental power plants up to 2020.This committee has recommended extension of rental power plants. The situation is not yet appropriate for shut-down of quick rental power plants.
The big power stations can not come on stream for gas crisis.
The government set up a large number of rental and quick rental power plants in the private sector in last five years to solve the power crisis. But many of the plants could not deliver adequate power supply as per the contracts. The PDB has been imposing penalty on these plants for their failure to generate electricity as agreed upon. The government has to purchase electricity from these plants at substantially high price, which has drawn criticism from experts and subscribers. They blamed the high-cost rental plants for rise in electricity tariff.
The writer is an economist and columnist. [email protected]
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