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Electricity tariff hike- another challenge to doing business competitiveness

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AKM Asaduzzaman Patwary,

Additional Secretary, DCCI

power-electricity-energy-electric-line-reuse-800x500Affordable and uninterrupted energy facilitates industrial development, stimulates business and economic growth cycle. Our power generation, transport, industry, commercial activities, fertilizer, domestic consumption largely depend on natural gas. Power sector is the largest gas user followed by industry and captive power as per local consumption. It is worth mentioning that despite the gas shortage, the power generation capacity reached to 22500 MW under the leadership of current Government and almost 92% people came into power network.

Our industry share to GDP reached to 35.14% backed by 23.01% manufacturing sector contribution which indicates efficient energy use and manufacturing expansion. Indeed, the growth of power generation trend helped to large extent the economic growth of Bangladesh. Power sector has huge capacity and in line with realizing the visions of Bangladesh, predictable and sustainable power supply tariff is critical. Private and public sector account for 55% and 45% of total power generation of country respectively. We are undergoing the gas supply shortage with 1000MMCFD. And, many energy intensive industries and investment are not expanding as expected due to primary energy shortage. In this circumstance, the recent 32.8% on average gas tariff hike is a blow to our economic and industrial growth.

In line with the vision of being the 28th largest economy by 2030, our investment to GDP ratio need to be increased to 40% from current ratio of 31% requiring $100 billion plus investment and double digit GDP growth. To meet these targets, we need to obtain energy and power security. According to Power Sector Master Plan (PSMP), the power demand will be increased to 27.4 GW in 2030 and 51 GW in 2041 to steer our huge game-changing economic visions.

BPDB claimed that in bulk tariff level they incur loss in selling price ranging per Kwh/ TK. 1.50 to TK.2.28 through their bulk sale to different distribution companies. In an estimate that 129924 million KWh electricity units will be procured in 2020. And, system loss needs to be reduced which is currently at 7%.  BPDB also claims that distribution expense is Tk. 1.05 per unit which is 23.32 % tariff hike with operating profit shortage. Distribution expense shortage is estimated TK. 526 million with operation cost ranging from Tk.0.94 to Tk. 1.54. All other 6 distribution companies and transmission companies ask from tariff hike and their tariff is dependent on bulk purchase from BPDP. PGCB claimed 50% transmission tariff hike.

screenshot-3Against this backdrop, taking this entire economic private sector state into account, I would like to put forward my views regarding power sector development and likely issues and impacts due to electricity tariff hike move:

Coal reserve of Bangladesh is 7962 Million Mt equivalent to 70 TCF gas and entire coal needs to be used as an alternative fuel to produce power which can rationalize the cost of electricity production and add leverage in fuel mix and may be cheaper than imported coal. We had petroleum import worth of USD3652 million in 2017-18 which was USD2898 million in past year and Costs for diesel and HFO have been increased significantly over the years at a rate of 58% and 47.6% respectively between 2010 and 2017. Though these fuels are import dependent, Government is trying to reduce dependence on imported liquid fuel to rationalize power production cost using alternative fuel mix. Industry will have multiple effects due to gas tariff hike as most of the energy intensive Industry is required to use captive power and industrial gas which brings in cost burden by cumulative 81.8% considering captive and industrial gas apart from electricity cost. Electricity gas tariff hike is 40.8%. This proposed electricity hike will affect our competitiveness both in home and global market.

It is evident that combined cycle power plants are more efficient for Bangladesh. Using combined cycle additional electricity can be produced by 10-15%. All government plants need to be remodeled to combined cycle power plants. And, dual fuel peaking plants may be used. Wheeling charge was increased by 0.27 Kwh in 2015 now demanded nearly 52% hike. Inadequate transmission and distribution systems fail to bring 100% people into power network and northern and southern part of country is deprived which cause poor power quality and system loss. System ranges from 7% to 10 % with different companies. The declining trend of legacy gas is also add threaten the power generation cost which may stimulate power purchase tariff soon.

Following issues and suggestions can be considered for power sector development and neutralize the move of expensive electrify tariff:

  • Off-shore blocs need to be allocated for new seismic survey and exploration works to meet the growing supply of gas. And, Local Exploration and Production companies need to be well-equipped technically and financially to better function gas production. LNG based IPP power plants will be suicidal and unaffordable for the industry and economy.
  • Long-term and predicable energy tariff needs to be determined for the greater interest of investment, industry and economy since frequent tariff hike in energy and electricity raise the cost of doing business. And, we experienced 7 times tariff escalation since 2010 and if this trend continues we will lose our place from competitiveness map.
  • Prior to increase of wheeling charge, the plans to build 8,000km of new transmission and 120,000km of new distribution lines need to be expedited and private sector can be engaged in this regard.
  • Small and medium plants/ business which uses 50 to 100 Kwh power will be severely affected.
  • It has been evident that HFO based power plants can import HFO relatively low over import of BPC based on current trend. Government may allow private sector more to import HFO for minimum generation cost.
  • Operational efficiency of public power plants needs to be ensured to reduce tariff burden at consumers’ level.
  • Since BPDB sources power from different IPPs and state run power plants at different price, all power plants are required to produce efficiently at par irrespective of private and public sectors. All gas, steam and combined cycle power plants should operate at their optimum efficiency level so that low cost production cost can be ensured as production cost contributes almost 75%-80% of electricity tariff.
  • In a cross-country power tariff scenario, Bangladesh has advantage in competitive tariff around USD 0.09 cent compared to Thailand, Indonesia and India and Pakistan and equivalent to Vietnam. We are required to sustain this tariff in order to remain competitive in export market as well as in FDI attraction.
  • Vietnam has huge production of electricity which are cheaper. If tariff is increased, the money goes to energy sourcing like gas and Coal but our tariff hike money goes to support the capacity payment of IPP and RPP for inappropriate Power purchase agreement. All PPA need to be revised and
  • Almost all power intensive manufacturing industries will be adversely affected especially SME, steel re-rolling, textile sector may face average 5% to 8% production cost height.

Bangladesh has got the strength and endowment of cheap labour and low energy price and these two salient features help to attract foreign investment in Bangladesh, if labour and energy cost grow higher than we will lose potential of all local and foreign investment opportunities in manufacturing sectors including relocation business. Our private investment is hovering around 23% around last 5 years and recent private sector credit flow was around 12.6% recorded in MPS.  This tariff hike also damage our desired private sector investment growth and also slim the potential of relocation of sunset manufacturing industries from Japan, Korea and China. The likely electricity tariff hike will affect the low-cost industrial productivity strength of Bangladesh hurting the massive hard infrastructure work, export competitiveness and limiting thrust industry diversification and plan of low cost of living of people and cost of doing business.

Voicing the pro-business promise of the Government, BERC is required to consider endeavour for long-term energy road map to be shared with all stakeholders forecasting the future cost of energy and encourage all companies to come up with innovative solution to reduce power tariff. Indeed, Low cost and reliable energy security is expected to ensure uninterrupted electricity supply stimulating private investment led economic growth and ease the vision of developing economy 2024 and developed economy by 2041.

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