Putting people under threat of rise in the cost of living, Bangladesh Energy Regulatory Commission (BERC) recently held another round of public hearings on the proposals for raising prices of electricity. The people already have experienced 82 percent hike in electricity price on an average that came into effect between March 2010 and December 2017 in eight phases. The BERC held the public hearing between November 28 and December 3 this year.
The state-run Bangladesh Power Development Board, BPDB, on 15 October 2019 submitted a proposal to the BERC, seeking government subsidy against its increasing generation and purchasing costs. The BPDB claimed that its power supply cost to the distribution utilities would be 23.27 percent or Tk 1.11 per kilowatt-hour, unit, higher than current sales price of Tk 4.77 per unit. BPDB plays a dual role as it supplies bulk electricity to all distribution utilities and also supplies retail electricity directly to the urban consumers in Sylhet, Mymensingh and Chattogram divisions.
The BPDB’s move encouraged the power transmission and distribution utilities to submit proposals seeking increase in retail prices as adjustment of the BPDB’s proposed bulk price hike and the ‘deficit or loss’ they have been incurring since December 2017. The transmission utility sought 50.77 percent hike in wheeling charge while the distribution utilities sought increase in supply charges by between 13.91 percent and 87 percent. Only Rural Electrification Board sought to reduce its average supply charge by 7.36 percent as its supply cost has fallen below the charge it realises from the consumers.
BERC technical committee, however, showed that the power transmission and distribution utilities exaggerated about their spending that increased their revenue requirements. During the public hearing, Consumers Association of Bangladesh, CAB, pointed out more areas which could enable the utilities to reduce the prices further if they are addressed properly.
Power Distribution Still Profitable
The country’s power distribution system would earn a net profit of Tk 394.83 crore in 2020 as per the tariff approved by the commission on 23 November 2017 with effect from 1 December of the year, according to the findings of the BERC technical committee. The committee estimated the power distribution charge keeping aside the pass-through components including the bulk price of electricity.
The committee showed in its reports that the Rural Electrification Board, REB, and West Zone Power Distribution Company, WZPDC, would earn a profit of Tk 6447.4 million and Tk 542.7 million respectively in the next year as their supply costs are less than they earn from the consumers.
However, BPDB, Dhaka Electric Supply Company, DESCO, and Dhaka Power Distribution Company, DPDC, would incur losses of Tk 225.27 crore, Tk 40.24 crore and Tk 38.67 crore in 2020 respectively. Northern Electricity Supply Company, NESCO, will remain at the breakeven point.
The power sector utilities could reduce through setting a practical target in growth of electricity they would receive in 2020 as some of the heads of expenditures are directly proportional to the quantity of electricity supplied. At least the utilities’ Office, Administration and General Expenditure will be reduced significantly.
The BERC technical committee considered the growth of electricity to be received by the power distribution utilities in 2020 are excessively higher than the utilities’ previous growth records. Following table shows projection for the year 2020 with respect to the previous 11 years’ data.
In the past 11 years, BPDB’s electricity supply grew at a double-digit rate for three years of which 15.95 percent growth (year-over-year) was the highest. Similar scenario is seen in case of the other power distribution utilities which would ultimately require more than 18 percent growth in total (bulk) electricity supplies to the six utilities. This projection is also unrealistic as 14.73 percent growth was the highest recorded in the previous 11 years.
During the public hearing, CAB said that the government should not burden the consumers for its plan to expand the power supply area uneconomically.
What is Happening in Power Generation?
While justifying the imports of Liquefied Natural Gas, LNG, the government and BERC officials said that LNG would be much cheaper than liquid fuel in electricity generation and would help reducing power generation costs significantly. But it was not reflected in the estimates for 2020 although electricity generation has been estimated at 34.27 percent less than the previous year using imported liquid fuels (diesel and furnace oil) and 21.49 percent higher using natural gas (mix of domestic and imported LNG).
Other damaging decisions of the government include extension of power purchase agreements with rental power suppliers keeping a provision of paying capacity payments at a very high rate although the suppliers had realized their capital investment (cost of power plant) during the first contract period.
During the public hearing, many experts and stakeholders opined that such contract extensions were driven by undue benefits not by the necessity of dealing with growing demand for electricity. They also said that the consumers would not pay for the increase in supply cost due to corruption and other vested interests in and around the government.
They also alleged that ‘Merit Order’ (least cost plant gets priority over costlier one) was not being followed in power generation leading to increase the average generation cost in the base year resulting in a hike in revenue requirement of BPDB for the next year.
Besides, BPDB has been relaxed in establishing its own mechanism to monitor fuel oil market so that it would not have to pay higher than the real price of furnace oil. With the government approval, a number of private companies import furnace oil to run their power plants. BPDB pays for the fuel as per the bill submitted by the companies concerned. There are strong allegations that some of these companies are making money out of ‘over invoicing’ for furnace oil imports.
Apart from all these issues, the country’s power generation is getting costlier as huge capacities, particularly in generation, remain unutilized due to sluggish growth in industrial consumption compared to domestic commercial consumption.
BPDB’s recent data shows (August-December 2019) that 55 percent to 75 percent of the total power generation capacity remain unutilized during winter while they are 35 percent to 51 percent remain unutilized during summer. It is not much difficult to understand about the growing overhead costs of electricity generation with increasing underutilized capacity in power generation.
For the sake of optimum use of power generation capacity, around 70 percent of the grid electricity supposed to be consumed by the industries. The idea is that industries consume electricity round year as seasonal diversity does not affect the consumption. In contrast, domestic and commercial consumption of electricity varies with seasonal diversity. For instance, electricity consumption by the households and commercial spaces in Bangladesh falls drastically with winter falls which again start growing as summer begins.
In Bangladesh, stakes of domestic and commercial consumption on grid electricity has been growing over industrial consumption since late 90’s when the industries were allowed to set up their own power generation arrangements (captive power plants) as the utilities failed to supply uninterrupted quality (without voltage and frequency problems) electricity.
BPDB data shows, in 2001, stakes of domestic, commercial and industrial consumption on grid electricity were 40.28 percent, 6.91 percent and 46.55 percent respectively. The stakes in 2010 became 47 percent, 9 percent and 37 percent respectively aggravating the situation further in 2019 as the stakes became 53.31 percent, 12.11 percent and 29.54 percent respectively.
Therefore, replacement of captive power plants with grid electricity and fostering industrialization are two fundamental areas to care about. And new industries should be developed uniformly across the country which would require other infrastructural and institutional supports. The government initiative of developing 100 economic zones across the country was apparently a fit program in this connection. But sluggish progress is resisting to becoming hopeful about its success.
Utilities Reluctant in Obeying Other Instructions Than Price Hike
Unlike other public hearings held by the BERC, this time the technical committee reviewed the compliance of the instructions by the utilities. The BERC used to tag a number of conditions with its tariff orders. The conditions are related to economical operation and management, transparency and accountability. But the utilities are only interested in realizing bills from the consumers at the increased rates set by the BERC. Hardly, they complied with the other instructions, which is a punishable offence as per the Bangladesh Energy Regulatory Commission Act 2003.
The BERC review gives a sad picture about the compliance of the commission’s instructions as the most of the instructions are not complied by the utilities. Asset and financial management has been found very poor in the agencies involved in the agencies involved in power generation, transmission and distribution.
The BERC technical committee, however, took a bold step this time that it did not consider the cost of electricity generation at four age-old and inefficient diesel-fired power plants as BPDB ignored the commission’s order to shut down the plants by 30 June 2018. The cost of electricity generation at these power plants often exceeds Tk 60 per unit pushing up the average generation cost of BPDB.
Officials said that the commission may take measures against the power sector utilities for their noncompliance of the instructions tagged with the tariff orders.
Power Price: How Far to Go?
It started with short-term measures to battle severe shortage of electricity supply across the country since 2008 when the military-backed government ruled the country. The government initiated the process to purchase electricity on rent-basis from private players. In 2009, the Awami League-led government expanded the expensive program with a promise that it was a short-term program spanning three to five years. Meanwhile, medium-term cheaper gas-fired power plants would be commissioned and would replace the liquid fuel-based power plants bringing down the electricity generation cost. Finally, with commissioning of the coal-fired large power plants would bring down the power generation cost further.
In course of the journey, thegovernmenthas increased electricity generation by about 170 percent (2.68 times)in 10 years. Electricity generation was increased to 68,616 million units in 2018-19 FY from 25,622 million units in 2008-09 FY, when the government took office. In a bid to afford the increase in electricity generation, consumers have already experienced 82 percent hikes in electricity prices on an average enforced in nine phases between March 2010 and December 2017. Now another blow is waiting for the people with no hope in sight that could reduce their efforts to keep pace with the growing cost of living.
Ahsan Shuvro;
Energy Journalist
