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GOVERNMENT OF THE PEOPLES REPUBLIC OF BANGLADESH
VISION STATEMENT
POWER DIVISION MINISTRY OF ENERGY AND MINERAL RESOURCES
Vision Statement
To provide access to affordable and reliable electricity to all by the year 2020.
Introduction: Access to electricity in Bangladesh is one of the lowest in the world-coverage today stands at less than 20% of the total population; consumption of power is also meager, only about 110 kWh per capita per annum. Shortage of power supply, at times very acute and unreliable, has constrained economic growth. The lost output is, according to some estimates, as high as one percent of the GDP. This is critical because the foregone economic growth could have taken Bangladesh beyond the threshold of 6-7% of GDP growth rate that many policymakers think could make a significant and sustained dent on poverty. Moreover, availability of power is one of the important prerequisites for attracting domestic and foreign investment on manufacturing industry and services; it significantly influences social and human development. Demand for access to power, which is the most popular in rural area, aptly sums up its overall benefits. Thus, providing access to affordable and reliable electricity to the majority of the people of Bangladesh by 2020 is a fitting national goal to usher the next millenium. Fortunately for us, the gas resource of Bangladesh, one of the cleanest and efficient fuels for power generation, provides a special window of opportunity.
2. In operational term, the broad objective set out above calls for large addition to generation capacity over time, expansion of grid and distribution networks. The existing power sector master plan would thus have to be updated and, in some instances, redone incorporating the national goal. For example, to meet the projected demand, the generation capacity alone will have to be increased fivefold to a ballpark estimate of 15000MW. Alongside, the gas sector plan has to be designed and implemented in tandem. Availability of capital, particularly from external sources, would be critical in ensuring the stipulated growth and expansion. Conservative estimates of such capital needs for the next five years for power sector alone put them in the range of US$ 5 to 6 billions. Therefore, policies and practices that ensure such capital flows must be in place. Given the history of past FDI flows into Bangladesh, the best bet is a mix of concessional capital FDI. Steady growth in foreign exchange earnings with exchange rate stability would determine the long-term viability of such large capital flows in and out of the country. (These require sound economic, financial and external sector policies and management that foster growth, particularly export earnings, ensure price and exchange rate stability; these important issues are not discussed here since they are part of overall macroeconomic management).
3. Ongoing Measures: In order to create appropriate and enabling conditions for improved public sector performance, attracting private and multilateral capital flows on a sustained basis and giving value for money to the customers, GOB has undertaken a series of reform measures. To set out the overall framework for the improved performance of this sector- the Energy Policy was prepared and adopted in 1996. The policy, among others, provides the broad guidelines for power sector reform including the evolving structure of the industry and its regulation. A separate organization termed as Power Cell was created to design, facilitate and monitor reform measures.
4. Presented below are some of the specific measures undertaken by GOB for each of the industry segment:
· To introduce competition, induct foreign private capital and more importantly, to increase power supply to alleviate the acute shortage- Private Power Generation Policy was developed and adopted in 1996. To implement the policy, detail security documents were prepared for solicitations and till now, through competitive bidding, 1158 MW of capacity has been contracted offering some of the lowest tariffs in the world and private projects totaling 1080 MW are under negotiation. Policy has also been designed to promote small scale generation in the private sector particularly to serve non-grid area, pockets of continued power shortage and provide opportunity for sale of excess power from captive generation to consumers in the neighboring areas. REB/ PBS is nearing finalization of contracts for 3 (three) 10MW plants in the private sectors.
· A mixed sector power plant of initial capacity of 70MW with ownership divided among REB, PBS and eventually private sector is also under implementation.
(These results indicate successful design and implementation of reform measures in the generation segment of the power industry.)
· Recently, decision has been taken to corporatise one of the major publicly owned power generation centers at Ashuganj (578MW) and develop as a cost center another set of installations at Haripur (99MW). These measures will separate generation at these places from other operations, provide opportunity for improving performance through management autonomy, incentives and competition.
· To set a level playing field for all stakeholders and ground rules for participation, draft legislation replacing the old laws and regulations has been prepared for setting up of a Regulatory Body. The draft has been designed to be consistent with our legal endowment and infrastructure and compatible with the socioeconomic context. In the meantime the government has adopted a well-specified power tariff formula and the tariffs have since been revised on that basis twice a year for the last two years.
· The transmission segment is in the process of unbundling and separation. Power Grid Company of Bangladesh has been set up in 1996 and made operational in stages. Unlike other parastals, this has been incorporated under the Companies Act of 1994; the recruitment policy and pay packages are more in line with private sector including the scope for hire and fire. While this is a new experiment in public domain and with a natural monopoly, it has been designed to facilitate the regulation of the industry, comfort and sustain the capital flows in the power sector and particularly in private power generation.
· The broad features of the emerging structure of the industry have also been generally agreed. To start with, a single buyer model may be adopted where the ‘Buyer’ purchases all the required power from the generators based on economic load dispatch and sells to different distribution companies.
· Several models and a host of measures are under implementation in the distribution part of electricity market, which is the weakest link in the industry with high system loss- technical and non-technical. Out of the integrated entity that PDB was from its inception in 1972, several organizational solutions are being tried to improve the performance of the distribution system. They are: (i) DESA, a separate distribution entity for Dhaka metropolitan area carved out from the PDB in 1991 covering nearly half of the country’s power market; (ii) DESCO, an independent power distribution company that was created out of DESA with a tenth of its customers in 1997; (iii) REB/PBSS the main distributor of power in the rural areas starting from 1978and (iv) PDB catering for distribution in other urban and rural areas.( While the REB model has worked reasonably well in extending access to power in the rural areas, DESA failed to show any market improvement and DESCO is too recent to be adjudged.) Other measures being tried include: (i) outsourcing of the commercial services -like contracting out meter reading and billing to the private sector and the workers’ coop; (ii) area rationalization among PDB, DESA and REB; (iii) introduction of computerized billing and prepaid meters in selected areas; (iv) administrative actions like line snapping and criminal penalty; (v) declaring the services of the employees in the power as essential services under the relevant act.(Illegal and criminal activities of sections of employees remain the single most important problem leading to large scale power theft in PDB and DESA areas and thus endangering the financial and commercial viability of the entire industry.)
· Limited measures for demand management have been tried by reducing the shopping hours at night, restricting energy intensive uses at peak hours and promotional campaigns particularly aimed at motivating farmers to irrigate during the off peak hours ( the success in meeting the irrigation needs of the farmers in the last three years during tomes of extreme power scarcity by shifting irrigation to off peak hours is valuable experience in this regard). The final draft of the renewable energy policy is under preparation.
5. Way forward: The overarching guiding principles for the reform strategy for the future will be pragmatism based on the experiences gained from the ongoing measures, reliance on the empirical findings about the best practices and giving due consideration to the socioeconomic and governance context. The successful reforms should due rolled over and innovative solutions should be found for unresolved problems. The pace and sequence of the reform should be tailored to solve problems ( may even be iterative at times) and deliver results rather than be driven by any fixed notion or paradigm. This would help mobilize support for the programs both within and outside the concerned organizations and thereby contribute to their success. Given the above criteria, the board and general features of reform agenda for the future are as follows:
· Highest in the agenda is to improve the commercial and financial performances of the distribution entities to reduce system loss in particular the ongoing measures need to be continuously reviewed, adjusted and modified to solve problems and achieve designated results. management focus should start with the short-term measures that should be rolled over and integrated with the evolutionary process of the long run structure rather than start the other way round. Along the way, projects and programs should be put in place to reduce technical loss, expand the scope for demand management and explore the possibility of innovate solutions like remote reading, computer network etc. These steps would ensure the viability of the industry, increase its attractiveness for investment and serve more customers with any given supply of electricity .
· Measures to improve efficiency and operations in the existing generation stations should be pursued along with the addition of more capacity in the private and public sector. The growth in capacity should generally be based on least cost expansion path, a revolving master plan would be of critical importance. Separation of the existing public sector generation units through a corporatized national power generation entity will further pave the way for restructuring of power generation on commercial lines. Gas network expansion in the western Bangladesh of which the first important project has already been implemented by taking gas across the Jamuna River along the Bangabandhu Bridge should be undertaken with urgency to replace liquid fuel in the existing power stations and add new gas-based capacity. Projects and programs should be identified to implement the measures outlined above.
· Transmission system should be expanded in tandem with generation capacity expansion on one hand and growth of demand on the other. Network development, expansion and management should be designed and implemented in such a manner that it is capable of accessing the most efficient supply of power and transport it to customers the cheapest way. Resources, domestic and foreign have to arranged for these purposes.
· Measures for establishment of an effective and accountable regulatory regime would continue to be identified and implemented. To this end, legislation regarding Energy Regulatory Authority will be enacted. The details of the rules and regulations governing the industry would be worked out in consultation with all the stakeholders in an interactive process to ensure the establishment of the best working model. The industry structure whose general features are already agreed upon needs fine tuning to make it workable in the present context and also allow for gradual upgradation to a more stable form. These details are to be worked out.
· Balancing the interests of the consumers and the industry will guide the setting of tariffs. The process will progressively reflect the cost of supply of electricity at an adequate and improving level of efficiency. In designing the tariff structure and rates, issues such as the least cost development plan, efficient allocation of resources and legitimate and deserving socioeconomic considerations will be taken into account.
· Measures for improved demand management and energy efficiency will be designed and implemented.
· Concerns of the employees will be appropriately addressed through construction dialogues and their views will be given due considerations.
6. To conclude, the ongoing measures need to be monitored, evaluated and consolidated to identify the future course including the need for their modification and enlargement. Adoption and new measures their pace and sequence should be governed by pragmatism, usefulness and most importantly by the goals set out at the beginning. Access to electricity is an empowerment that can unleash vast untapped potentials for economics growth and social change, particularly in rural Bangladesh. The government is determined to make that happen.
Note : A Policy Statement of Power Sector Reforms in annexed to this Statement.
Annexure of the Vision Statement. GOVERNMENT OF THE PEOPLES'S REPUBLIC OF BANGLADESH
POLICY STATEMENT ON POWER SECTOR REFORMS
POWER DIVISION MINISTRY OF ENERGY AND MINERAL RESOURCES
January 2000
DHAKA
POLICY STATEMENT ON POWER SECTOR REFORMS 1. INTRODUCTION 1.1 Electricity is a vital ingredient for both economic and
social development. Adequate reliable and reasonably priced supply of electricity is an
essential input for national development. Making electricity available to all the people
of the country at affordable price can improve standard of living of the people and
enhance the economic development of the country. 1.3 Initially a vertically integrated utility named Bangladesh
Power Development Board (BPDB) was solely responsible for generation, transmission and
distribution of electricity throughout the country. As a first step of reform Rural Electrification Board (REB) was created in 1977 to expand and improve
the distribution network in the rural areas through rural electric co-operatives (PBSs).
This has improved the electricity supply in the rural areas significantly. Dhaka Electric
Supply Authority (DESA) was created in 1990 for improvement of the performance of
distribution system in greater Dhaka area. But desirable results could not be achieved as
DESA was created without addressing the fundamental institutional deficiencies. Though the
problem is not solved but at least it is identified. 1.4 The present installed generation capacity is 3600 MW. Ageing
of the plants over the years has resulted in decline of capability to the existing level
of about 2950 MW. The shortage of power supply has been partly relieved by high cost
captive power generation of about 450 MW. 4.3 million consumers are presently served with
electricity which is estimated at 16% of total population in 1998-99. Given the ambitious
plan of GOB stated earlier, a vigorous program has to be launched to accelerate the pace
of electrification in the country. In this context initial projection of required
generation capacity is around 6700 MW in 2005. Conservative estimates capital needs for
the next five years for power sector alone put them in the range of US$ 5 to 6 billions. 1.5. The purpose of this Policy Paper is to layout, within the
framework of the Vision Statement a set of specific programs and measures which will not
only establish financial viability of the sector but also restructure it to put it on a
new and sound footing. These are designed to respond effectively to the current demand for
power and to maximize the long term development potential of the power sector in
Bangladesh. 2. REFORM ACTIVITIES IN RECENT YEARS In order to create appropriate and enabling conditions for improved
public sector performance, attracting private and multilateral capital flows on a
sustained basis and giving value for money to the customers, Government has undertaken a
series of reform measures. To set out the overall framework for the improved performance
of this sector, the National Energy Policy was prepared and adopted in 1996. The policy,
among others, provides the broad guidelines for power sector reform including the evolving
structure of the industry and its regulation. A separate organization termed as Power Cell
was created under the Ministry of Energy and Mineral Resources in 1995 to design,
facilitate, co-ordinate and monitor reform measures. Presented below are some of the specific measures undertaken by the
Government for each of the industry segment: 2.1. To introduce competition, induct foreign private capital
and more importantly, to increase power supply to alleviate the acute shortage, Private
Sector Power Generation Policy was developed and adopted in 1996. To implement the policy,
detail security documents were prepared for solicitations and till now, through
competitive bidding, 1158 MW of capacity has been contracted offering some of the lowest
tariffs in the world and private projects totalling 1080 MW are under negotiation. 2.2. Policy has also been designed to promote small-scale
generations in the private sector particularly to serve non grid areas, pockets of
continued power shortage and provide opportunity for sale of excess power from captive
generation to consumers in the neighbouring areas. REB/PBS is nearing finalization of
contracts for 3 (three) 10 MW plants in the private sectors. 2.3. A mixed sector power plant of initial capacity of 70 MW
with ownership divided among REB, PBS and eventually private sector is also under
implementation. 2.4. Recently, decision has been taken to corporate one of the
major publicly owned power generation centers at Ashuganj (724 MW) and develop as a profit
center another set of installations at Haripur (99 MW). These measures will separate
generation at these places from other operations, provide opportunity for improving
performance through management autonomy, incentives and competition. These results indicate successful design and implementation of reform
measures in the generation segment of the power industry. 2.5. The transmission segment is in the process of unbundling
and separation. Power Grid Company of Bangladesh (PGCB) has been set up in 1996 and made
operational in stages. Unlike other parastatals, this has been incorporated under the
Company Act of 1994; the recruitment policy and pay packages are more in line with private
sector including the scope for hire and fire. While this is a new experiment in public
domain and with a natural monopoly, it has been designed to facilitate the regulation of
the industry, comfort and sustain the capital flows in the power sector and particularly
in private power generation. 2.6. A distribution company named Dhaka Electric Company Ltd.
(DESCO) has been created in 1996 under the Companies ACT, 1994 with public ownership.
Distribution assets of Mirpur area from DESA has been handed over to DESCO about a year
ago. After evaluation of its performance future course of reforms will be designed and
implemented. 2.7. To set out a level playing field for all stakeholders and
ground rules for participation, draft legislation replacing the old laws and regulations
has been prepared for setting up of a Regulatory Body. The draft has been designed to be
consistent with our legal endowment and infrastructure and compatible with the
socio-economic context. This draft has been approved in principle by the Government and it
is expected by the Parliament soon. 3. PRESENT CONFIGURATION OF POWER SECTOR The entities responsible for different functions of the sector are
stated below: 3.1. GENERATION 3.2. TRANSMISSION 3.3 DISTRIBUTION 4. KEY CONSTRAINTS The key constraints affecting the performance of the power sector
are as follows: 4.1. Acute scarcity of resources hinders financing the huge cost
required for the development of the sector from the national budget. 4.2. High system losses in the sector, large amount of accounts
receivable and existing tariff rates & structure affecting the financial viability of
the utilities and attractiveness for investment, domestic and foreign. 4.3. Absence of clear organizational goals, adequate financial
and commercial autonomy and lack of adequate incentive. 4.4. Lack of differentiation of responsibilities for generation,
transmission and distribution of electricity is hindering segment specific corrective
measures. 4.5. Lack of appropriate cost and asset accounting system by
plants, absence of effective operational performance evaluation of the different areas of
the system such as generation, transmission and distribution. 5. GOVERNMENT'S VISION 5.1. LONG TERM GOALS FOR THE POWER SECTOR a) To make electricity available for all. b) To ensure reliable and quality supply of electricity. c) To provide electricity at a reasonable price. 5.2. POWER SECTOR REFORMS 5.2.1. OBJECTIVES In order to realise the vision, the Government has set a number of
objectives for the power sector reform. These include: 5.2.2. MAIN COMPONENTS The Government is committed to the Power Sector Reforms and intends to
achieve the aforesaid objectives within a reasonable span of time. The main components of
the proposed reforms program are: 5.3. REFORM STRATEGY The overarching guiding principles for the reform strategy for the
future will be pragmatism based on the experiences gained from the ongoing measures,
reliance on the empirical findings about the best practices and giving due consideration
to the socio economic and governance context. The successful reforms should be rolled over
and innovative solutions should be found for unresolved problems. The pace and sequence of
reform should be tailored to solve problems (may even be iterative at times) and deliver
results rather than be driven by any fixed notion or paradigm. This would help mobilize
support for the programs both within and outside the concerned organizations and thereby
contribute to their success. 5.3.1. GENERATION Measures to improve efficiency and operations in the existing
generation stations should be pursued along with the addition of more capacity in the
private and public sectors. 5.3.1.1. EXISTING GENERATON 5.3.1.2. NEW GENERATION New generation projects would be selected to enable the desired
security of supply at generation levels to be met at least cost. The Government would seek
new generation capacity through a mix of sources i.e. both public and private. The growth in capacity should generally be based on least cost
expansion path; a revolving master plan would be of critical importance. Gas network
expansion in the western Bangladesh, of which the first important project has already been
implemented by taking gas across the Jamuna river along the Bangahandhu Bridge, should be
undertaken with urgency to replace liquid fuel in the existing power stations and add new
gas based capacity. 5.3.2. TRANSMISSION Transmission system should be expanded in tandem with generation
capacity expansion on one hand and growth of demand on the other. Efficient network
development, expansion and management capable of accessing the most efficient supply
supply of power and transport it to customers should be designed and implemented.
Resources domestic and foreign have to be arranged for these purposes. The transmission
network will be owned, operated, planned and developed by a corporatized entity in the
public sector. 5.3.3. SINGLE BUYER The broad features of the emerging structure of the industry have also
been generally agreed. To start with, a single buyer model may be adopted where the Buyer
purchases all the required power from the generators based on economic load dispatch and
sells to different distribution companies. Functions of Single Buyer The Single Buyer shall be a public sector entity. Initially BPDB will
act as a Single Buyer till a suitable alternative organization is setup. 5.3.4. DISTRIBUTION Highest in the agenda is to improve the commercial and financial
performances of the distribution entities to reduce system loss in particular. The ongoing
measures need to be continuously reviewed, adjusted and modified to solve problems and
achieve designated results. Management focus should start with the short-term measures
that should be rolled over and integrated with the evolutionary process of the long run
structure rather than start the other way round. Along the way, projects and programs
should be put in place to reduce technical loss, expand the scope for demand management
and explore the possibilities of innovative solutions like remote reading, computer
networking, dividing BPDB's national distribution system into a number of profit center
based on commercial lines etc. These steps would ensure the viability of the industry,
increase its attractiveness for investment and serve more customers with any given supply
of electricity. In this context the specific measures being considered to strengthen
the distribution segment are as follows: After introduction of vertical separation among generation,
transmission and distribution, commercial relations will be established. Generators will
sell all their energy to the Single Buyer who in turn will sell it to the distributors. 6. EMPLOYEES ISSUES 6.1. The Government recognizes that for successful
implementation of the reform and restructuring of the power sector, the concerns of the
employees of the sector are required to be appropriately addressed. 6.2. The employees will be involved in constructive dialogue of
the reform program and their views will be given due consideration during the
restructuring process. 6.3. The Government shall ensure that the interests of the
employees are protected during reform process as follows: 7. TARIFF The Tariff setting will be guided by the following parameters: 8. REGULATION OF THE POWER SECTOR Measures for establishment of an effective and accountable
regulatory regime would continue to be identified and implemented. To this end,
legislation regarding the Energy Regulatory commission will be enacted. The details of the
rules and regulations governing the industry would be worked out in consultation with all
the stakeholders in an iterative process to ensure establishment of the best working
model. The industry structure, whose general features are already agreed upon, needs fine
tuning to make it workable in the present context and also allow for gradual upgradation
to a more stable form. These details are to be worked out. 8.1. The Regulatory Commission will cover regulation of both
electricity and gas sector. 8.2. The Regulatory Commission will: 9. FINANCIAL RESTRUCTURING The restructured entities shall be given opportunity to start
operation with a clean balance sheet. To this end the assets and liabilities will have to
be reassessed/revalued and the process should be adequately funded. Fiscal regime will be made neutral irrespective of ownership of power
entities. 10. IMPLEMENTATION A revised and updated implementation program for reforms and
restructuring of the power sector incorporating the ongoing measures will be prepared
considering a realistic timetable and covering all intermediate steps. Accordingly, all
concerned agencies will workout a time bound performance/result oriented implementation
program. This process will be monitored regularly.
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