A research report prepared by the Implementation, Monitoring and Evaluation Department (IMED) has termed the capacity charge paid to the power plants in the country as the 'looting model'.
It also referred to the agreement to pay the rent for the power plants that are unable to generate power for months as an ill-motivated agreement.
The IMED is a department under the planning ministry. It monitors government projects as well as published research on different sectors of the government.
Its recent research report on the progress of government projects in the power sector says that the government has paid a total of Tk 900 billion as capacity charge in the last 14 years. The existing model of capacity charge is not sustainable at all.
Earlier, independent researchers and non-government research agencies raised questions over the power sector. The oppositions in the parliament also criticised this sector at different times.
On 21 May, 2022, the Federation of Bangladesh Chambers of Commerce & Industries (FBCCI) said the power sector of the country is corrupt and incompetent. Now the IMED have raised questions over different issues in the power sector in their research.
The research was led by IMED director (sector-1) Mohammad Mahidur Rahman. IMED chief SM Hamidul Haque was the advisor. Speaking to Prothom Alo, Mahidur Rahman said the report was submitted in June. It was prepared as part of the Annual Procurement Plan of the government.
It evaluates the progress of some 67 projects undertaken by different agencies and departments in the power sector, including the Power Development Board (PDB), Power Grid Company of Bangladesh, Dhaka Electric Supply Company Limited (DESCO), Dhaka Power Distribution Company (DPDC), Northern Electricity Supply Company Limited and Bangladesh Rural Electrification Board in 2013. The progress of project implementation is ‘frustrating’, the report states.
According to the IMED reports, even after seven years, the progress of some projects is only 10 per cent.
Questions over capacity charge
The amount that the government has to pay as per the agreement as rent regardless of production is known officially as the capacity charge. The Centre for Policy Dialogue (CPD) said the government had to pay a total of Tk 2400 billion as capacity charge in 2021-22 fiscal, which could reach Tk 2800 billion in the 2022-23 fiscal.
According to the IMED report, Bangladesh now has a power generation capacity of 24,143 MW. The actual capacity is (derated) 23370 MW. However, the country produces only 12,000 to 14,000 MW.
People used to suffer a lot due to load shedding before the Awami League came to power in 2009. The country now has overcome the generation deficit. There are government, private and foreign investments in the power sector. As a result, power generation capacity rose while the demand didn’t.
Meanwhile, in recent times the government had to close down operations in several power plants as there was not enough US dollars in the reserve to purchase fuel. Residents of some areas had to experience even 10 hours of load shedding. However, the situation has improved now.
The government says without capacity charges there will be no investment. However, the IMED report claimed the statement of the government as ‘false’. It says only two conditions are enough to attract investment: allowing the private power producers to sell electricity at a higher rate of 25 to 50 percent depending on the location and a minimum offtake of one-fourth or half the electricity generated. Besides, there should be assurance of getting loans on easy terms.
Speaking regarding this to Prothom Alo, CPD’s research director Khandker Golam Moazzem said, “There was a massive deficit in power generation when the Awami League came to power in 2009. A special law was legislated at the time for rapid power generation and to attract investments. There may be a temporary rationale for this. However, it becomes irrational after achieving the capacity to produce electricity as per the demand. Now the power generation capacity of the country is surplus."
Some of the industrial groups, including Summit Group, United Group, Orion Group, Doreen Group, Mohammadi Group, Hosaf Group, Sikder Group, are at the top among the domestic companies investing in the power sector of the country. These have got the larger portion of the capacity charge. Even the government has to pay the capacity charge to power plants built at joint initiatives of local and foreign investors.
The Power Development Board (PDB) is in charge of the purchase agreement to procure electricity from government and non-government power plants. The price of per unit electricity is fixed in USD. The PDB had to bear an additional cost of Tk 120 million in the last one year.
The IMED report says the private power plants are local. Therefore, it’s not logical to ask them to pay in dollars. There will be no solution to the fund crisis in the power and energy sector without stopping the irrational facilities, including high price per unit, capacity and overhauling charges, energy and land at a low cost, easy bank loans and tariff free import.
Quoting PDB, the IMED report says that the agency had incurred a loss of Tk 1,053.29 billion in the last 12 years. The PDB will have to incur a loss of Tk 1165.32 billion in the 2022-23 and 2023-24 fiscal which is more than it was together in the last 12 years.
Indemnity law ‘increasing the loss’
In 2010, the government made a new law, the quick supply of energy and electricity act, under this law, the agreement for the power plants was signed without any competitive tender. This law is referred to as the indemnity law. The validity of this law has been extended up to 2026. This law is increasing the amount of loss, the IMED report said.
It said, the purchase price per unit and the model of expenditure in the power sector are beyond accountability by force of this law. Calculating the overall expenditure, including capacity charge, of the power plant that are not in operation, it has been found that the annual average price per unit has crossed even Tk 100. And the loss is mounting as the payment has to be made in dollars. It has now become essential to stop this mischief.
‘Corruption-friendly procurement processes’
The IMED report has directly termed the procurement processes in the power sector as corruption-friendly. It further says a group of incompetent, inexperienced and corrupted managers, in the name of a wrong and short-sighted government law and provisions on procurement, has made the power sector a rehabilitation centre for Chinese and Indian suppliers. In the name of giving contracts to the lowest bidder, they are purchasing substandard equipment, spare parts and machinery without any guarantee.
According to this report, a lack of skilled manpower and a wrong policies of transferring experienced engineers are the major setbacks for power sector in Bangladesh. Overall, the power sector is marred by multifarious problems. Implementation of an intelligent, farsighted, futuristic transparent and accountable plan is necessary to solve these problems.
Speaking to Prothom Alo, power sector expert and senior vice president of the Consumers’ Association of Bangladesh (CAB), M Shamsul Alam, said, “We have long been vocal about what the IMED report finds out. Now a report of the government monitoring agency has highlighted it.”
CAB proposed that the additional cost of power production be reviewed. If that is done, Tk 30-35 billion will be saved, he added.
This report appeared in the print and online edition of Prothom Alo and has been rewritten in English by Ashish Basu