Who benefits from the power sector's white elephants?
Load shedding or power cuts are escalating across the country. Rural areas are facing more frequent outages than urban centres. Industrial areas are also suffering due to shortage of power supply.
The daily electricity requirement in Bangladesh ranges from 13,000 megawatts (MW) to a maximum of 17,000MW. Generally, the country produces between 13,000MW-15,000MW based on the need. Presently, the total power generation capacity of the country, as per government report, is 27,515MW.
For all latest news, follow The Daily Star's Google News channel. Interestingly, on April 29, the country suffered a power shortage of over 3,000MW when the demand reached 17,000MW. Throughout the last week of April, escalating temperatures led to a gradual increase in demand for electricity. The supply could have been adjusted to meet this demand. But we saw a continuous rise in load shedding due to supply shortage between April 23 to April 29.
To address the electricity and gas crisis, the "Quick Enhancement of Electricity and Energy Supply (Special Provisions) Act, 2010" was enacted for an initial period of two years. The tenure was subsequently extended in 2012 by two years, in 2014 by four years, in 2018 by three years, and most recently in 2021 by five years. With four extensions, the validity of the law has been extended up to 2026.
This legislation effectively shields almost all aspects of the energy sector from legal scrutiny. The law allows purchase of rental power plants, importation of Liquefied Natural Gas (LNG), and construction or procurement of all sorts of infrastructure in connection with the operation and distribution of gas-electricity without following the usual procedures. Government officials involved in any sort of activities in connection with enhancement of electricity—purchase, production, transmission, distribution, and electricity related fuel transactions—have been allowed legal impunity under the provisions of this law.
The aim and objective of this law was to ensure uninterrupted electricity supply nationwide at reasonable prices. But what the impunity law has done is empower the authorities with limitless laterality.
Despite the existence of power plants capable of producing at least 10,000MW more than the existing maximum demand, load shedding is being imposed if there is a slight rise in demand from what is normal. This additional production capacity is either not being utilised or is for some reason not usable.
Research shows that a significant portion of such privately-owned plants has never produced electricity or has produced minimal amounts, such as one or two percent of their capacity, in some cases.
During 2018-22, some plants did not produce any electricity, but the government bore all their operational expenses.
Until the fiscal year 2021-22, the country had 151 power plants. Among these, 42 government-owned and 26 private power plants operated at 10 percent or less of their production capacity over the past five fiscal years. Despite this low production, they have charged the government capacity fees based on their full capacity production.
Presently, Bangladesh Power Development Board (BPDB) is incurring huge financial losses as it is selling electricity at a much lower cost than the cost of production.
To cover the deficit, a provision for subsidy is kept in the national budget. An amount of Tk 39,406 crore was earmarked from the public exchequer for the fiscal year 2023-24 on that account.
However, it has been observed that during this period, an estimated Tk 32,000 crore was paid as capacity charges for unused power stations. This amount constitutes approximately 81 percent of the total subsidy.
In other words, a major portion (81 percent) of the amount provided as subsidy to mitigate BPDB's losses goes to pay capacity charges or rentals of private power plants. This indicates that almost the entire amount of BPDB's losses stem from payments made to privately rented power plants against capacity charges.
From 2009 to the fiscal year 2023-24, Tk 1,37,000 crore has been paid for capacity charges or rentals without utilising the production capacity.
Two large gas-powered power plants have recently begun production in Meghnaghat. These plants, operated by Summit and Unique Group, have a combined capacity of 1,167MW. Additionally, a 718MW power plant by Reliance in the same area is ready for production.
With the inclusion of these plants, BPDB's total production capacity will significantly increase. Due to the lack of demand, these plants or some other plants in lieu of them will remain unused, leading to additional capacity charge payments. Consequently, the total expense for capacity charges will rise further.
In short, power generation capacity is being increased despite insufficient demand. As a result, many of these plants remain idle without producing electricity. Since there is no production, there is no opportunity to earn revenue by selling electricity produced by these plants. However, according to the contracts, large amounts of money still need to be paid on account of capacity charges.
Although the burden of subsidies is now being shifted onto the customers through accrued electricity prices, most of the additional revenue is being used to pay rent to these privately-owned power plants.
So, the capacity charge is the main reason for the increase in electricity prices. If such power plants were absent or fewer in number, electricity prices would not have to be increased, or increased so much.
Since 2010, the electricity price has been raised 13 times, rising from an average of Tk 3.73 per unit to Tk 8.70. According to the conditions set by the IMF, this trend of increase is expected to chronically continue. Consequently, it is difficult to assert that electricity is or will be supplied at a reasonable price.
It may be mentioned here that renting private power plants, having provision for payment of rent or capacity charge are not the problems. The main problem lies in creating excess production capacity in relation to demand, and then keeping them idle and paying capacity charges or rent. Any money paid to such power plants enriches the deficit unilaterally. In short, these power plants have now become white elephants.
And it is difficult to understand why a power generation capacity exceeding 27,000MW was created at a time when our electricity demand typically ranges from 13,000MW to a maximum of 17,000MW.
Moreover, it appears that this capacity expansion trend persists, incurring significant costs and escalating both domestic and foreign debt. Notably, 19.46 percent of foreign loans are allocated to the power sector. Yet, the anticipated economic growth necessary to justify the increase in electricity usage remains elusive.
Private power plants are domestically owned, but they are being paid in foreign currency. According to our banking law, no bank can lend to any company more than 25 percent of its capital. This limit is not enforced in the power sector for the private power plant owners. It is difficult to find any logic for these extraordinary facilities to be provided to them.
Despite giving various types of benefits across the board in the power sector, uninterrupted electricity supply is not being ensured. Far from getting electricity at a fair price, white elephant-like power plants have been created and the ever-increasing high cost of maintaining them has been thrust upon the shoulders of the people.
Ghulam Muhammed Quader is an MP and leader of the opposition, Bangladesh Parliament.
Views expressed in this article are the author's own.
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