Energy ( Power )

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Power Sector Reform in Bangladesh

The power sector reform problems mostly originated from the 'lack of local ownership of the reform process'. DESA, DESCO and the Power Grid Company of Bangladesh (PGCB) were formed under donor pressure and these never performed up to expectation. Much of the reform process over the last 15 years has been donor driven and has, thus, remained insensitive to the political realities of the country. The government will have to recognise the political cost of a malfunctioning power system with insufficient capacity to meet the public demand for power. Created under pressure from donors, DESA had been the biggest liability of the sector with a Tk three billion debt to PDB. BPDB is suffering from inefficiency and corruption and at the same time, it is not getting the Atmosphere to become efficient and corruption-free.

BACKGROUND : 

At the time of partition of India in the year 1947, Power Generation and distribution of this part of the country were in the hands of some private companies. 

The power supply to 17 districts was within the township in a limited way. Power used to be supplied to most of the district during the right time only and the supply voltage was 400 volts. Only exception was Dhaka City where power used to be supplied by 2 Nos. of 1500 KW generators and the generation voltage was 6.6 KV and this was the highest distribution voltage. 

Besides, power used to be generated by some industries and railway workshops. With all these the total power generation capacity in the country was 21 MW. The generation capacity of the power utility companies together was only 7 MW and there was no transmission system. 

Electricity Directorate was created in the year 1948 in order to plan and develop power supply situation of the country. After the creation of WAPDA in the year 1959, and in 1960 Electricity Directorate was merged with WAPDA started working as a statuary organization. The pay structure of WAPDA in course of time was also higher than the Government Organization. The higher separate pay structure continued even after the creation of the new independent state Bangladesh in the year 1971. After liberation the new pay scale was announced and the same pay scale was formulated for both statuary and Government Organization. EPWAPDA was bifurcated into two autonomous Boards under an Ordinance (P.O. 59 of 1972). Bangladesh Power Development Board (BPDB) was solely entrusted with responsibility of Power Generation, Transmission and Distribution of electricity through the country.

POWER SECTOR REFORMS 

Power sector of Bangladesh is now in a period of transition. So long development of infrastructure like power was the responsibility of the Government. It was more essential for countries like Bangladesh where only 16% of the total population so far has access to electricity. The country is naturally very far from the take off position to meet the challenges of 21st Century. 

Power Sector Reform Policy was approved by the Government where the recommendation was to run the Generation and Transmission (G&T) as one entity. Reform and restructuring of power sector was imperative, as it was not functioning effectively. Reform of every country does not taken up in the same way. It should neither be taken up as per policy prescription of the donors, but according to the need of the society. For this reason it is imperative to undergo through public hiring to analyze the different aspect to find out the best possible solution. As part of the reform program, private power policy was approved by the Government in the month of October, 1996. Incentive package in terms of exemption of Tax and VAT on imported capital machinery and equipment, spare etc. is being offered to the Independent Power Producers (IPP). But the incentive package was not offered to BPDB. As a result, from the very inception of restructuring the utilities the existing system won’t be able to complete with the IPPs. In fact, the competition should be like for like. Steps need to be taken to make the existing Generation Sector healthy for the greater interest of the people of the country. It is necessary to think some factors, particularly the social obligation. The more realistic example is that the cost of generation of electricity in the Western Zone is about 6(six) times than that of the east. BPDB maintains the same tariff structure throughout the country. But Government does not replenish the excess operating cost to BPDB for maintaining the same tariff. In fact, from the very beginning, there was no vision of the policy planners make the system healthy and effective. 

BPDB sells power to DESA and REB at a cost lower than the average cost of generation of energy.  

As part of the social obligation BPDB is to run gas turbine plants based on costly liquid fuel during off peak hours to meet the irrigation load. This is a positive contribution to the country’s economy considering Bangladesh as agrobased economy. In fact it is necessary to take more time for discussion in order to doe the right and to get a good result from the reform process. 

As part of the social obligation when International Oil Price fluctuates, Government does not change the electricity price. But in case of IPPs the purchase power of energy will increase with the increase of fuel price. In any case there has to be some form of social commitment for the benefit of the common people. 

In any case the reform must bring benefit to the customers and will make the system efficient. The weaker links need to be identified and appropriate measures are to be taken with accountability in each type of the weaker system. Selling of power is a monopoly business. In this situation losses in the system cannot be acceptable. With proper accountability public or private sector basically are the two sides of the same coin in our country. In order to improve the system, strong Government commitment is necessary. 

Trade Unions under different political banners instead of looking into the welfare of the employees engaged themselves keen to work as a tail of structure. As a result interference even in day to day management affair has deteriorated the system more quickly. Donors even took interest to discuss with the trade union leaders to influence then to implement their ideas. There was no justification to interfere in the areas, where the utility and the Government should have the domain. In fact this kind of activities have deteriorated the administrative condition of BPDB and DESA to an unacceptable level. Due to undue to interference of the trade union leaders, it was impossible for the officials who sincerely desired to implement the ideas of the authority in order to improve the situation, may be they are very small in numbers. Eventually, it is hard to believe how the situation deteriorated in Govt. Organization that is being operated at the cost of the people. 

Traditionally, Bangladesh is attracted to foreign loans and more attracted for import to utilize these loans. It matters little to the policy makers whether these loans will be beneficial to the country and the people. PGCB was created as a precondition to receive the 9th Power Sector Loan of ADB despite Cabinet decision to keep Generation & Transmission system to develop and operate as one entity. There is no justification to separate the transmission system first as a first step of separation of Generation, Transmission and Distribution system in the concept of vertical configuration. 

THE DISTRIBUTION SYSTEM 

As part of the reform program distribution sector is to be addressed first as most formidable part of the reform program, where the end users have direct access to electricity as a customer. Bangladesh Power Sector having very high losses in the distribution system, more precisely theft and pilferage of energy at the end users level are the root causes of mismanagement of the entire power system.

The unfair deal between electricity supplier and a significant number of customers have taken the management to such a position, that unless radical reforms and restructuring are taken up in this sector, it would be very difficult to pay the Independent Power Purchase (IPP) bills. Bangladesh Power Development Board has already signed Power Purchase Agreement (PPA) with some IPPs and some are under process of negotiation. First IPP, Khulna Power Company (110 MW) has started supplying power to the National Grid. So, unless money is not collected from the customers in time, Government will have to pay bills to IPPs from National exchanger.

Eventually, there will be a mismanagement and crisis in financial sector of a trade deficit country like Bangladesh. 

In this situation, emphasis has to be given, how the sick distribution system can be restructured in the context of environment of this country. Here, strong Government commitment can only save the situation. In the context of changing world economic scenario, it is not realistic to continue to accept a situation which is unhealthy and totally unacceptable. 

On the other hand there is no justification to separate generation from transmission at this moment. Rather, there was no necessity except the necessity of the donors to fulfil their desires and objectives. 

Many important issues have to be analyzed before the system is ready for changes. These include a) Maintaining system reliability and customers service b) Maintaining of social and low-income program in the form of tariff, particularly subsidized agricultural tariff and domestic tariff for the vernerable customers of the society c) Safety, security and expansion of the existing system etc. 

One most important issue is that, any reform of the existing system should bring benefit to the customers, not sufferings. We have experienced the effect of sudden creation of DESA which could neither contribute to the welfare of the customers nor helped to strengthen the financial position of the utility itself. Rather it is now in a verge of collapse. In fact the changes was made without any firm objective and vision. 

THE POWER GRID COMPANY OF BANGLADESH   

It is well known that losses in the distribution system is beyond any acceptable limit. There is no direct customer in the high voltage transmission system. The transmission system developed as per International Standard and the transmission losses is only 3-4%. So there is no justification to create PGCB at this moment in the name of restructuring in vertical configuration. 

Before restructuring it is necessary to evaluate first its necessity before steps are taken to implement it. It was quite logical to keep the generation and transmission system together. The investment requirement in Generation, Transmission and Distribution is 45%, 15% and 40% respectively. Moreover to develop a power plant, transmission system needs to be associated with it so that these can be developed simultaneously for evacuation of power. 

Traditionally, Bangladesh is attracted to foreign loan and more precisely for import of equipment and materials to utilize this foreign loan. PGCB was created as a precondition to receive the 9th Power Sector Loan of ADB. In this situation it is necessary to cite some examples of restructuring of power sector of some states of USA. 

The basic principle of restructuring of electric supply industry of USA is a clear evidence of benefits to the citizen of the state should be shown prior to any electric industry restructuring. The benefits are in terms of lower price (tariff), enhanced services, increased economic efficiency and innovation. 

For all this, a commission works and public hiring is made and written comments are solicited to evaluate the pros and cons of the reform. 

So, the question arises, what was the necessity of creation of PGCB and for whose benefit. The transmission system was running with only2400 employees and majority of then are professionally developed. The necessity was to strengthen the transmission system operation with proper relay co-ordination of the system along with generation system protection. It is of no use to introduce wheeling charge in the transmission system which ultimately will increase the tariff of the end users and against the concept of restructuring. In the name of vertical configuration, where there was no problem and so no necessity. The country is small and transmission system is also not huge. 

Before any form of restructuring, there should be a workshop and public hiring and recommendation in writing about the benefit of restructuring. These need to be evaluated by an independent body who will justify and qualify the benefits of restructuring for the greater interest of the nation. No more we can afford to go ahead with trial and error method and burden our economy with foreign debt to implement the ideas of donors in association with the thinking of some microscopic personality of one society. The evaluation must highlight the impact of changes to the electric industry in terms of costs, rates and reliability of service structure after meeting the social obligation.