To provide access to affordable and reliable electricity to all by the year 2020.

Introduction: Access to electricity in Bangladesh is one of the lowest in the world-coverage today stands at less than 20% of the total population; consumption of power is also meager, only about 110 kWh per capita per annum. Shortage of power supply, at times very acute and unreliable, has constrained economic growth. The lost output is, according to some estimates, as high as one percent of the GDP. This is critical because the foregone economic growth could have taken Bangladesh beyond the threshold of 6-7% of GDP growth rate that many policymakers think could make a significant and sustained dent on poverty. Moreover, availability of power is one of the important prerequisites for attracting domestic and foreign investment on manufacturing industry and services; it significantly influences social and human development. Demand for access to power, which  is the most popular in rural area,  aptly    sums up its overall benefits. Thus, providing access to affordable and reliable electricity to the majority of the people of Bangladesh by 2020 is a fitting national goal to usher the next millenium. Fortunately for us, the gas resource of Bangladesh, one of the cleanest and efficient fuels for power generation, provides a special window of opportunity.

2. In operational term, the broad objective set out above calls for large addition to generation capacity over time, expansion of grid and distribution networks. The existing power sector master plan would thus have to be updated and, in some instances, redone incorporating the national goal. For example, to meet the projected demand, the generation capacity alone will have to be increased fivefold to a ballpark estimate of 15000MW. Alongside, the gas sector plan has to be designed and implemented in tandem. Availability of capital, particularly from external sources, would be critical in ensuring the stipulated growth and expansion. Conservative estimates of such capital needs for the next five years for power sector alone put them in the range of US$ 5 to 6 billions.  Therefore, policies and practices that ensure such capital flows must be in place. Given the history of past FDI flows into Bangladesh, the best bet is a mix of concessional capital FDI. Steady growth in foreign exchange earnings with exchange rate stability would determine the long-term viability of such large capital flows in and out of the country. (These require sound economic, financial and external sector policies and management that foster growth,  particularly export earnings, ensure price and exchange rate stability; these important issues are not discussed here since they are part of overall macroeconomic management).

3. Ongoing Measures: In order to create appropriate and enabling conditions for improved public sector performance, attracting private and multilateral capital flows on a sustained basis and giving value for money to the customers, GOB has undertaken a series of reform  measures. To set out the overall framework for the improved performance of this sector- the Energy   Policy was prepared and adopted in 1996. The policy, among others, provides the broad guidelines for power sector reform including the evolving structure of the industry and its regulation. A separate organization termed as Power Cell was created to design, facilitate and monitor reform measures.

4. Presented below are some of the specific measures undertaken by GOB for each of the industry segment:

To introduce competition, induct foreign private capital and more importantly, to increase power supply to alleviate the acute shortage- Private Power Generation Policy was developed and adopted in 1996. To implement the policy, detail security documents were prepared for solicitations and till  now, through competitive bidding, 1158 MW of capacity has been contracted offering some of the lowest tariffs in the world and private projects totaling 1080 MW are under negotiation. Policy has also been designed to promote small scale generation in the private sector particularly to serve non-grid area, pockets of continued power shortage and provide opportunity for sale of excess power from captive generation to consumers in the neighboring areas. REB/ PBS is nearing finalization of contracts for 3 (three) 10MW plants in the private sectors.

 A mixed sector power plant of initial capacity of 70MW with ownership divided among REB, PBS and eventually private sector is also under implementation.

(These results indicate successful design and implementation of reform measures in the generation segment of the power industry.)

 Recently, decision has been taken to corporatise one of the major publicly owned power generation centers at Ashuganj (578MW) and develop as a cost center another set of installations at Haripur (99MW). These measures will separate generation at these places from other operations, provide opportunity for improving performance through management autonomy, incentives and competition.

To set a level playing field for all stakeholders and ground rules for participation, draft legislation replacing the old laws  and regulations has been prepared for setting up of a Regulatory Body. The draft has been designed to be consistent with our legal endowment and infrastructure and compatible with the socioeconomic context. In the meantime the government has adopted a well-specified power tariff formula and the tariffs have since been revised on that basis twice a year for the last two years.

The transmission segment is in the process of unbundling and separation. Power Grid Company of Bangladesh has been set up in 1996 and made operational in stages. Unlike other parastals, this has been incorporated under the Companies Act of 1994; the recruitment policy and pay packages are more in line with private sector including the scope for hire and fire. While this is a new experiment in public domain and with a natural monopoly, it has been designed to facilitate the regulation of the industry, comfort and sustain the capital flows in the power sector and particularly in private power generation.

The broad features of the emerging structure of the industry have also been generally agreed. To start with, a single buyer model may be adopted where the ‘Buyer’ purchases all the required power from the generators based on economic load dispatch and sells to different distribution companies.

Several models and a host of measures are under implementation in the distribution part of electricity market,  which is the weakest link in the industry with high system   loss- technical and non-technical.  Out of the integrated entity that PDB  was from its inception   in 1972, several organizational solutions are being tried to improve the performance of the distribution system. They are:  (i) DESA, a separate distribution entity for Dhaka metropolitan area carved out from the PDB in 1991 covering nearly half of the country’s power market; (ii) DESCO,  an independent power distribution company that was created out of DESA with a tenth of its customers in 1997; (iii) REB/PBSS the main distributor of power in the rural areas starting from 1978and (iv) PDB catering for distribution in other urban and rural areas.( While the REB model has worked reasonably well in extending access to power in the rural areas, DESA failed to show any market improvement and DESCO is too recent to be adjudged.) Other measures being tried include: (i) outsourcing of the commercial services -like contracting out meter reading and billing to the private sector and the workers’ coop; (ii) area rationalization among PDB, DESA and REB; (iii) introduction of computerized billing and prepaid meters in selected areas; (iv) administrative actions like line snapping and criminal penalty; (v) declaring the services of the employees in the power as essential services under the relevant act.(Illegal and criminal activities of sections of employees remain the single most important problem leading to large scale power theft in PDB and DESA areas and thus endangering the financial and commercial viability of the entire industry.)

Limited measures for demand management have been tried by reducing the shopping hours at night, restricting energy intensive uses at peak hours and promotional campaigns particularly aimed at motivating farmers to irrigate during the off peak hours ( the success in meeting the irrigation needs of the farmers in the last three years during tomes of extreme power scarcity by shifting irrigation to off peak hours is valuable experience in this regard). The final draft of the renewable energy policy is under preparation.

5. Way forward: The overarching guiding principles for the reform strategy for the future will be pragmatism based on the experiences gained from the ongoing measures, reliance on the empirical findings about the best practices and giving due consideration to the socioeconomic and governance context. The successful reforms should due rolled over and innovative solutions should be found for unresolved problems. The pace and sequence of the reform should be tailored to solve problems ( may even be iterative at times) and deliver results rather than be driven by any fixed notion or paradigm. This would help mobilize support for the programs both within and outside the concerned organizations and thereby contribute to their success. Given the above criteria, the board and general features of reform agenda for the future are as follows:

Highest in the agenda is to improve the commercial and financial performances of the distribution entities to reduce system loss in particular the ongoing measures need to be continuously reviewed, adjusted and modified to solve problems and achieve designated results. management focus should start with the short-term measures that should be rolled over and integrated with the evolutionary process of the long run structure rather than start the other way round. Along the way, projects and programs should be put in place to reduce technical loss, expand the scope for demand management and explore the possibility of innovate solutions like remote reading, computer network etc. These steps would ensure the viability of the industry, increase its attractiveness for investment and serve more customers with any given supply of electricity .

Measures to improve efficiency and operations in the existing generation stations should be pursued along with the addition of more capacity in the private and public sector. The growth in capacity should generally be based on least cost expansion path, a revolving master plan would be of critical importance. Separation of the existing public sector generation units through a corporatized national power generation entity will further pave the way for restructuring of power generation on commercial lines. Gas network expansion in the western Bangladesh of which the first important project has already been implemented by taking gas across the Jamuna River along the Bangabandhu Bridge should be undertaken with urgency to replace liquid fuel in the existing power stations and add new gas-based capacity. Projects and programs should be identified to implement the measures outlined above.

Transmission system should be expanded in tandem with generation capacity expansion on one hand and growth of demand on the other. Network development, expansion and management should be designed and implemented in such a manner that it is capable of accessing the most efficient supply of power and transport it to customers the cheapest way. Resources, domestic and foreign have to arranged for these purposes.

Measures for establishment of an effective and accountable regulatory regime would continue to be identified and implemented. To this end, legislation regarding Energy Regulatory Authority will be enacted. The details of the rules and regulations governing the industry would be worked out in consultation with all the stakeholders in an interactive process to ensure the establishment of the best working model. The industry structure whose general features are already agreed upon needs fine tuning to make it workable in the present context and also allow for gradual upgradation to a more stable form. These details are to be worked out.

Balancing the interests of the consumers and the industry will guide the setting of tariffs. The process will progressively reflect the cost of supply of electricity at an adequate and improving level of efficiency. In designing the tariff structure and rates, issues such as the least cost development plan, efficient allocation of resources and legitimate and deserving socioeconomic considerations will be taken into account.

Measures for improved demand management and energy efficiency will be designed and implemented.

Concerns of the employees will be appropriately addressed through construction dialogues and their views will be given due considerations.

6. To conclude, the ongoing measures need to be monitored, evaluated and consolidated to identify the future course including the need for their modification and enlargement. Adoption and new measures their pace and sequence should be governed by pragmatism, usefulness and most importantly by the goals set out at the beginning. Access to electricity is an empowerment that can unleash vast untapped potentials for economics growth and social change, particularly in rural Bangladesh. The government is determined to make that happen.