'Power crisis was inevitable due to wrong policies'

Muhammad Fouzul Kabir Khan

Muhammad Fouzul Kabir Khan, former power secretary, has a PhD degree in economics from Boston University. He was the first CEO of the Infrastructure Development Company Limited (IDCOL). His book, 'Financing Large Projects', co-authored by Bob Parra and published by Pearson/Prentice Hall, has been translated into Chinese. His second book 'Win: How public entrepreneurship can transform the developing world', is being translated into French. He has taught at universities in the US and Singapore as well as several universities in the country. He has served as consultant for various international agencies including the World Bank, EDP, UNDP and more. In an interview with Prothom Alo, he talks about the prevailing predicament of the power sector in the country and state of the energy sector.

Q :

The present government considers the development of the power sector as one of its greatest successes. Power generation has increased and the government claims 100 per cent electrification too. And yet now load shedding has reached an extreme. Why has the power situation deteriorated so drastically?

First certain matters concerning power must be made clear. Electricity is a secondary energy source. It is produced by converting the primary sources such as non-renewable energy like oil, gas, coal or renewable energy like solar energy. There was a time when it was said that Bangladesh was floating on natural gas and natural gas was the main fuel to produce electricity. But from back in the nineties, experts have been warning that if gas was used continuously at this rate and new gas reserves were not discovered, the reserves would exhaust within three to four decades. That is what has happened. With no significant reserves of gas being found, the recent reserves are dwindling. The main reason behind the relentless load shedding of power at present is the failure to supply the power generation plants with sufficient fuel.

Q :

The government maintains that due to the Russian-Ukraine war, the price of fuel has shot up and so the power sector is facing this crisis. Is the Russia-Ukraine war the only cause behind this crisis? Or are there also serious problems in the government's power and energy policy too?

The government's wrong policies, strategies and mismanagement in the power sector, mismanagement in the financial sector, lack of coordination in the power and energy sector and nepotism has placed the power and energy sector in a precarious position. The Russia-Ukraine war has simply served to accelerate the crisis. It is true that the price of fuel has increased because of the war, but the increase or fluctuation of fuel prices is nothing new. The main problem is failure to recover revenue, limitless corruption in development and non-development expenditure and wastage. The government is unable to pay the private entrepreneurs the power costs, they are not managing to avail dollars for import. Power plants remain idle and the liability of capacity payment increases. Altogether, this had led to excessive load shedding, immense public suffering and a crisis in local and export production. Various quarters had been issuing warnings in this regard for a long time now, but the government was so smug in its imagined success, that they paid no heed to these warnings. The bottom line is, its past misdeeds have caught up with the government.

Q :

Many experts say that Bangladesh's energy sector has been made dependent on imports. Almost all the energy required for power production has to be imported and this stands as a threat to our energy and power security. How do you view this?

This allegation is partially true. There has been no visible effort made to explore natural gas. There have been no visible efforts to use renewable energy. Another failure is the reluctance to use the country's own coal resources and to finalise the coal policy. As a result, the energy sector's dependence on imports has increased. Then again, many countries of the world, such as South Korea, are over 90 per cent dependent on imports for their energy. So fuel import is not the problem, the problem is in the price and process of import. Take the import LNG for instance. Instead of having a land-based LNG terminal, why has LNG been imported by means of vessels (FSRU or floating storage regasification unit)? If there was a land-based LNG terminal, then the fluctuation of the gas price could be somewhat controlled. A study by the research organisation Keystone for the Dhaka Chamber revealed that the price of gas imported through FSRU and the vessels costs are all much higher than in India and the same as in Pakistan. As we do not have adequate energy and if we keep up our power generation and industrial production, we will have to import fuel, but that must be done at competitive prices.

Q :

How effective do you think the government's policy and initiative was in ensuring adequate fuel for power production?

Let's first come to the management of the power sector. The head of the government is in charge of the power, energy and mineral resources ministry. There is also an advisor and a state minister. This tri-centric authority is the main obstacle to proper management of the power and energy sector. Given so many preoccupations, naturally the head of government cannot give undivided attention to the ministry. And there is also no scope to take action against the responsible minister for failure in carrying out duties.

As for policies and strategies, during the last caretaker government's term, initiative was taken to set up rental power plants as an emergency measure to keep up industrial production and to ease people's day-to-day lives. As large power plants take time for completion, these rental power plants were to run for five years. Once the large plants were complete, these rental ones were to be shut down. However, the present government has not only repeatedly extended the term of rental power plants, but has also taken these as the main strategy for power production. This is unwarranted.

What happened next was shocking. The Quick Enhancement of Electricity and Energy Supply (Special Provisions) Act 2010 was enacted for the quick rentals, destroying any competitiveness in this sector. Many have described this as a means of making quick money by the ruling class and their favoured ones. Even in the case of fixing the price of primary energy, outdated systems are being followed. In all countries of the world including neighbouring India, the domestic price of fuel is determined by a formula that monitors that fluctuation of oil prices in the international market. This is not done in our country.

Q :

Do you think that this special provision act of 2010 should be annulled, or at least amended?

Sections 9 and 10 of that act seem to be contradictory to the constitution. In Section 9 it is said that any decision taken under this law cannot be questioned in court. Yet Article 7 of the constitution says that the constitution is the supreme law of the republic and if any other law is inconsistent with this constitution, that other law shall, to the extent of the inconsistency, be void. And Article 101 determines the jurisdiction of the High Court Division and Article 103, the jurisdiction of the Appellate Division.

Also, Section 10 of that law grants impunity to the officials and employees of their work. Yet Article 46 clearly specifies areas of impunity. Section 3 renders the relevant part of the Public Procurement Act 2006 ineffective and 5 (2) dismisses competition, which seems to be inconsistent with the ruling of the High Court in various countries under the English Law pertaining to the necessity of competition in public procurement.

We are well aware of the outcome of this law. The expected advancement in the power system was not achieved. To the contrary, there are allegations of massive wastage of public money. It is obvious that any law enacted in the interests of vested quarters, overlooking the constitution and prevailing laws of the land, can never usher in people's welfare.

Q :

It is not being possible to generate power as per demand, yet the government is having to pay huge amounts as capacity charge. How can the government come out of this?

In order to encourage the private sector towards power production, the Bangladesh Power Development Board purchases all their power. A part of BPDB's purchasing cost is the capacity charge. The private sector is ready to supply electricity, but the government is unable to take it according to the BPDB agreement. That is why capacity charge has to be paid with which the private power producer will bear its loan installments and other fixed expenditures. Theoretically it may sound fine, but the problem is these private power plants were not selected through competition and so their capacity charge is exorbitant. Experts also question the standard of some of these power plants. There is need to assess whether all these power plants are prepared to supply electricity and are qualified to receive capacity charge.

More importantly, IPP or BPDB buying electricity on behalf of the government from the private sector, are conventional methods, not widely followed anymore. That is why the government in 2008 drew up the Merchant Power Plant (MPP) regulations. Under these regulations, the power producer will sign a long-term contract with the electricity user company regarding the costs and other details, and will use the PGCB transmission line in exchange of wheeling charges. The seller and the buyer will fix the price of electricity. The government will ensure the purchase of a maximum 20 per cent electricity. As a result, the government or BPDB's liability, including capacity charge, will be much less. But for some mysterious reason, the government has not headed in this direction.

Q :

On one hand the government is under the burden of capacity payment, and on the other the power producers in the private sector are unable to pay installments on foreign loans. How would you explain this situation?

There is much to be learnt here both for the government and the private producers. The main argument behind involving the private sector was to increase efficiency in power generation and availing power at low costs. But none of these objectives were achieved because of the move away from competition and also due to alleged corruption. Yet in the nineties, in this government's previous term, agreements were signed for two large power plants (450 MW Meghnaghat and 360 MW Haripur) in the private sector at minimum costs and highest efficiency.

Private sector producers thought that good days were here to stay and the government would be able to pay high prices for electricity under any circumstance. They did not realise that this system was not sustainable. Now the brunt will be borne by the producers, the institutions that invested in them, and finally, the helpless people facing continuous load shedding and high electricity costs. This is suicidal.

Q :

There are allegations that though the government paid attention to increasing power generation, it did not pay attention to improving the power distribution and transmission system and overall management. Your comments on this matter?

The private sector has only been brought into the area of generation in Bangladesh's power sector. Transmission and distribution remains with government companies and institutions. There is a financial crisis here. There is also extensive waste and delay in project implementation. There is a lack of coordination the systems of fuel procurement, power generation, transmission and distribution.

Q :

What was the reason behind the collapse of the national grid recently? The PGCB report indicated that lack of coordination was the main reason. What do you think?

The function of the national grid is to maintain a balance between power generation and the load, this is done in 50 hertz. There is room for a little variation within the limits of 47.5 to 51.5 hertz. If there is an upset in balance, it is adjusted by increasing generation or lowering the load. Workers of the power transmission division do this work diligently round the clock. If these limits are crossed, the grid fails. It has been learnt that this recent blackout was caused by problems in a GIS substation in Ghorasal.

During Cyclone Sidr too, many power lines in the southern regions were damaged at the same time and demand plummeted. As generation couldn't be lowered speedily enough, the balance was disrupted and the power grid failed. A committee comprising professors of BUET was formed at the time to determine the cause behind the failure. The committee put forward a number of recommendations among which was the setting up of automated generation control of AGC so that power plants could be such down from a control centre. Presently this is done by orders through a phone call, which is risky. That is why the AGC was to be set up on a priority basis. Just making the engineers scapegoats won't prevent a grid breakdown.

Q :

It will not be possible to change the state of the power sector overnight. But what short, mid and long term measures do you think can be taken to improve the situation?

There was scope for a sustainable development of the power system under the long term of the present government. The price of primary energy and the global economy was relatively stable. But they couldn't put this opportunity to use and the power and energy sector is now in dire straits.

In order to overcome this situation, I feel the following steps must be adopted. 1. Instead of the head of government, an honest and professional full minister should be placed in charge of the power, energy and mineral resources ministry. 2. The Quick Enhancement of Electricity and Energy Supply (Special Provisions) Act 2010 must be annulled immediately and all procurement in the sector must be done through open competition. 3. In order to cut down on fuel import, new gas fields must be explored and the use of renewable energy must be increased. 4. The coal policy must be finalised to use the country's coal resources on a priority basis. 5. LNG plants must be set up on land to procure LNG through floating vessels. 6. Rental, quick rental projects must not be renewed. 7. The private sector must be involved in the power generation through MPP instead of IPP. 8. The capacity of the private power plants must be determined by means of neutral capacity tests. 9. In order to avoid grid failure, the national grid dispatch centre including AGC procurement must be modernised. 10. The validity of the foreign power supply agreements must be checked. 11. A master plan must be formulated and followed for the integrated development of the primary energy, power generation, transmission and distribution system.

Q :

Thank you

Thank you too