20th September 2021
Humayun Rashid

Sustainable development cannot be achieved unless local resources, materials and services are best utilized for infrastructure development, including energy and power. But appropriate policies for this could not be formulated in the last 50 years since our liberation. For fiscal policies, especially on tax and vat, imported materials and foreign EPC are getting priority in the infrastructure development sector. Local companies and manpower are accomplishing 90 percent of the work, yet the foreign companies are taking away lions share of the profit.

 

Energypac CEO Humayun Rashid made the observation in an exclusive interview with Energy & Power Editor Mollah Amzad Hossain.

 

Bangladesh has ensured access to power for all its citizens. What is your observation? How it would contribute to achieve developed country status?

 

Access to power for all would usher in a new era of development through changing life and living of the people and facilitating rapid development especially in health, education and other social services sectors. Industrial development would get an impetus. Source areas of raw materials and adjacent areas of labors’ habitations would now be centers of industrialization rather than some concentrated areas thanks to 100% electrification. This process would create huge job opportunities in upazillas and villages. Highest possible development needs ensuring through utilization of region-based resources. For these, apart from 100% coverage, the supply of quality power on uninterruptible basis at affordable prices needs to be ensured.

 

I believe the government is committed to do this.

 

The government, according to plan, is going to be imported primary fuel dependent from 2025. For this, the gas price may increase from US$ 3.0 to US$ 6.0 per MMSCF. This would also push up the price of power generation. Do you think industrial development can be expedited with the higher price of energy and power?

 

The energy and power are essential for pleasant living as much as for industrial development. But optimum utilization of local primary fuel resources must be ensured for keeping the price of power within affordable limits keeping pace with the economic development. The government can serve the nation if it can do this for making energy available to all. The economic development is entirely dependent on energy security.

 

There is no option but to import fuel if a nation does not possess own primary energy or cannot economically utilize own resources. But Bangladesh has not gone to that stage yet. I believe, for limiting import dependency, the government should finalize 5-year and 10-year plans for exploration, development and utilization of own coal and petroleum resources till 2030, 2040 and up to 2050. Necessary budgetary allocations must be made for achieving this.

 

Bangladesh like the rest of the world would enter into new era of energy from 2050. Perhaps hydrogen energy would take the lead. But the price would depend on the global energy market if import reliance becomes essential. Consequently, the cost of power generation would shoot upwards. Energy efficiency must be made mandatory in industrial, commercial and domestic sectors for managing such situation. Subsidies cannot be provided for the imported fuel dependent energy sector for a long time, I believe. Questions would be raised about legitimacy of paying the subsidy from people’s money.

 

Enabling policies of the government have facilitated local private sector investment in IPPs. Local private sector now is dominating the power sector as compared to the foreign investors. What are your views? Do you think, for achieving reliable and uninterrupted power supply, the government should create similar opportunities for local entrepreneurs for investment in the transmission and distribution segments as well?

 

You have rightly pointed out. Yes, enabling government policies have encouraged the IPPs to contribute about 50% of the total generation capacity now. It can be said that the local private sector alongside the government can make investment on stand alone basis for power generation. For this special act was introduced at the early stage for speedy power and energy supply. It was essential for crisis management at a time. But recently, the tenure of that act has been extended for 5 more years. I do not think it is essential now. Keeping this alive would rather encourage corruption and non-transparency.

 

Introduction of IPP has facilitated efficient use of fuel, effective operation, efficient maintenance and supplying reliable power. Now alongside generation, transmission and distribution segments must become safe and reliable. For these, there is no alternative to creating opportunities for private sector investments. Especially for security of safe supply, skilled human resources must be developed for ensuring cyber security. The public sector alone cannot do this. Policy formulation is essential for integrating private sector for this. If that happens, the private sector would be interested to invest in transmission and distribution segments like they did in generation.

 

What should be the government policy for encouraging local investment in oil and gas exploration on stand-alone basis or in joint venture?

 

The local private sector has now the capacity to invest in high-risk exploration of petroleum. Like the power sector, enabling policies should be formulated for facilitating private sector investment on stand-alone basis or in joint venture. Competent human resources for exploration is now available in Bangladesh. If given the opportunity, local private sector can also conduct oil and gas exploration through hiring technology, equipment and services like IOCs.

 

Subject to right kind of policy support, Energypac would also be interested to invest in exploration.

 

In 50 years, Bangladesh has achieved commendable success in EPC mode development of infrastructure. Around 50 local companies are capable to work at international level. What kind of challenges you encountered? What kind of additional policy support you need? What kind of fiscal supports are required for developing local companies as competent EPC contractors?

 

There exists major disparity between local and foreign contractors in the context of EPC contract. Over the past few years, the local contractors have accomplished about 90% of the EPC contracts as subcontractors. For example, the local contractors by engaging local manpower have executed electrical and mechanical works under the supervision of foreign experts. Quiet a few local companies are available now for executing these works complying with all international health, safety and environment (HSE) standards and procedures. We cannot execute the works directly as main contractor due to the flawed government policies. Apparently looking at the policies, one may think that the policies have opportunities for local contractors. For example, the tax for a local company is 7% and foreign company is 7.5%. One example would clarify. Let us say that a project is worth US$ 100 million. Around 70% foreign component is tax-free and 30% is in local currency. For this 30%, a local company has to pay 7% tax and a foreign company accounts for 7.5% tax. Foreign companies taking away 70% of the foreign exchange component without paying any tax. Local companies are getting the entire amount or part of it paying 10% income tax at source. If it is a Chinese company, it gets 13% incentives in their country for bringing 70% money back home from other countries.

 

Consequently, the local companies have to add 10% tax on the 70% amount during the bidding. For this, the local companies are falling behind the foreign companies in competitive bidding. A balance can be made only if the government considers the foreign component as deemed export for the local EPC contractors.

 

If opportunity is created for local EPC companies, it would create catalytic effect in materials and services utilization. It would also create positive impact in human resources development and create huge new jobs. Above all, the money would stay in the country.

 

Other aspects are after sales service and warranty. Let us say that an electrical substation is procured from China or another country. During the warranty period, for some reasons it goes out of order. It would take long time to replace. This may cause power interruptions. If local materials are procured instant services can be provided.

 

The government must give priority to using local materials and services in all sector including energy. That would facilitate sustainable development.

 

Bangladesh is working with in Nepal and Bhutan for investment in hydropower. Do you think the government would make a consortium taking private sector along with the governments?

 

It is a positive initiative of the government considering investment in regional countries for power generation. Private sector would definitely be interested if the governments consider forming consortium. Energypac is keenly interested to work with the government for such development.

 

What is your evaluation about the future of LPG in Bangladesh? What should be done for the security of LPG supply?

 

All knows about the over investment in LPG sector. This is harmful. This has encouraged compromising with business ethics. The quality of the commodity would be affected. Safety at all stages of the value chain might be compromised. These would harm the people. LPG is still being imported, bottled and traded following the international standards.

 

In my opinion, the government has to launch special initiative for redressing the situation. Supply of pipeline gas must not be given to any new user. Otherwise, the investors’ capital recovery would be at risk.

 

How relevant you consider is the LPG price fixing by the BERC?

 

The BERC has determined the price following a court’s directive. Negative impact has been created in the market as the determined price was not correct. The BERC-followed formula could not create a right balance. They should review distributor, dealers’ commission, transport cost etc. They must also check and review again. Minus 1 in consideration of CP (Contract Price) is not correct way to consider.

 

What is the policy of Energypac for investment in renewable energy?

 

Land availability for grid solar power is an acute problem in Bangladesh. Farmlands cannot be affected for this at all. We have started working on large rooftop solar. Industrial entrepreneurs are now interested in this under net-metering policy of the government. Energypac is now working on complete package of rooftop solar solution.


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