BD power tariff now higher than India, Nepal, Bhutan

electricity rateThe almost three-fold hike over the past four years has pushed the country’s average electricity tariff to a level higher than that of India, Nepal and Bhutan among the South Asian countries.

The country’s average electricity tariff is now US cents 7.70 (Tk 6.15) per unit (1 kilowatt-hour), which is US cents 7.03 in India, US cents 7.63 in Nepal and US cents 3.21 in Bhutan, a recent World Bank (WB) report has revealed.

The average electricity tariff in trouble-torn Afghanistan and Pakistan and Sri Lanka, which recently ended Tamil insurgency, is higher than that of Bangladesh, it stated.

The average electricity tariff in Afghanistan and Sri Lanka is US cents 10.2 per unit and in Afghanistan US cents 9.18 per unit.

Installation of oil-fired rental and quick rental power plants over the past several years has pushed the country’s average electricity generation cost up to Tk 6.7 per unit during the previous fiscal year (FY) 2013 from Tk 2.62 per unit in the FY 2011.

“The change in the generation fuel mix over 2010-2013, with liquid fuel moving up from 5 per cent to 28 per cent of peak generation, has significantly increased the average cost of electricity,” the WB report revealed.

The Washington-based multilateral donor agency called building of these short-term rental and quick rental power plants ‘unsustainable short-term solutions’ and suggested to phase them out instead of extending their tenure.

It has recommended stopping payment to firms out of production to ease the government’s subsidy burden as the government has started renewing the contracts with the firms.

To provide electricity on an emergency basis, the government signed 3 to 5-year contracts with private suppliers for 2,300 megawatts (MW) of generation capacity at diesel or furnace-oil fired ‘rental’ plants.

“While these plants came on-line rapidly, they are less fuel-efficient than large coal or gas-fired plants. Moreover, since the contracts signed were quite generous, the power they supply is expensive,” the WB report spelled out.

“To date some contracts have been renewed on a ‘no power no payment’ basis, while some rental prices have come down, more should be done to reduce the cost of rental power and eventually phase it out,” the WB report suggested.

It has also called for increasing efficiency of state-owned power entities to develop the country’s energy sector.

“It is important to mention that tariff increase is not the only means to cover the revenue gap. There are several aspects including increase in operational efficiency that contribute towards reducing the revenue gap and hence improving the financial viability of the power sector, the Bank report noted.

Currently the country’s installed generation capacity is 10,213 MW, of which 58 per cent is in the public sector and 42 per cent in private sector.

Rental power plants comprise 49.3 per cent capacity of the private sector or 20.5 per cent of the total generation capacity.

Of the total installed capacity, 64.5 per cent is run by natural gas, 19.2 per cent by furnace oil, 6.7 per cent by diesel, 2.5 per cent by coal and 2.3 per cent by hydro power.

The WB stated that direct state support to the energy sector was substantial and has grown over the past decade — budgetary transfers rose from $85m in FY 07 to $815m in FY 12, before falling back to $640m in FY 13 following gradual tariff adjustments over the past two years.

Regarding future action plans, the WB said, “Bangladesh now needs to address the remaining demand supply imbalance in power by pursuing a multi-pronged strategy to ensure the sustainable availability of adequate and reliable power to support the country’s development.”

The policy priorities are to boost new base-load supply, promote efficiency across the value chain, diversify fuel mix to enhance energy security, and reduce the fiscal burden through better alignment of retail prices with unit costs, the World Bank report said.

“The government should not resort to install too many rental and quick rental power plants, which raised the country’s electricity tariff significantly over the past several years,” former Director General of state-owned Power Cell, BD Rahmatullah told the FE Saturday.

Bangladesh was renowned for low-cost energy in the South Asian region, which had prompted many foreign investors to come here and invest, he said.

If the government had been serious in rehabilitating inefficient old power plants and built base-load power plants, the tariff would not have increased this much, he said.

The higher electricity tariff would discourage foreign investments, he added.

Source : The Financial Express – BD