• Wednesday, November 26, 2014

Costly electricity weighs on budget

Government report observes in its mid-term review

Rejaul Karim Byron

The power sector has achieved remarkable success in generation and supply, but the high production cost, a major concern, is piling pressure on the national budget, according to a government review report.

The power sector will be part of a discussion today as the planning ministry presents the mid-term review of the Sixth Five-Year Plan (SFYP) designed for the country's economic development.

“Much of the additional private electricity supply has come from rental plants that supply electricity to the national grid at a much higher cost than from other sources,” the report said.

The government missed its target to diversify sources of primary fuel by boosting domestic production of gas and coal, according to the report.

The SFYP started in July 2011 and will end in June 2015.

When the plan was launched the power generation capacity was 5,823 megawatts. It rose to 9,598MW in fiscal 2013-14. As a result, the population's access to electricity went up from 47 percent in fiscal 2010-11 to 62 percent in fiscal 2013-14.

As a result, per capita electricity consumption rose from 170 kilowatt/hour (KWh) to 285 KWh, according to statistics from the planning ministry.

However, unforeseen development led to a huge increase in the marginal cost of electricity. For example, the average generation cost of power at government-run plants was Tk 3.19 a unit in 2010-11, which jumped 2.5 times to Tk 8.05 for rental power plants.

The major expansion in the power generation has put squeezes on the national budget as imported expensive oil is producing the additional power.

The electricity subsidy bill zoomed from Tk 1,200 crore in 2009-10 to Tk 6,000 crore in 2011-12. It stood at Tk 5,500 crore in 2012-13.

The rapid growth in the share of oil-based power supply from 8 percent in 2009-10 to 17 percent in 2013-14 is a reflection of a major primary fuel constraint in Bangladesh, the report said.

The substantial reliance on the rental power plants and the growing share of fuel oil in power generation have severely strained electricity sector financing, according to the report.

The review also said the coal mining scenario has not improved in the country because of a lack of policy.

"Overall, there is an absence of a strategic long-term view about how the growing needs of primary fuel will be met in the next 10-20 years," it said.

The report said it appears that the increasing reliance on imported fuel oil will likely to continue which could exert considerable pressure on the balance of payments and the budget.

“This is a serious long-term challenge and a major weakness with the implementation of the government's overall energy policy.” In August, the government extended the timeframe of quick rental power plants for another four years to 2018 amid criticism.

In September 2012, the government extended the timeframe for two years. The timeframe of the power plants was supposed to expire in October this year.

The country only produces less 2 percent of its electricity from coal although it sits on about 3.3 billion tonnes of quality coal reserves. Gas accounts for 75 percent of power generation.

The future power expansion programme must be based on a least-cost expansion path and not just the convenience of the hugely expensive small rental plants, the report said.

"Even more important, renewed efforts are needed to institute a national coal policy and invest more resources in gas exploration and production.”

 

Published: 12:00 am Wednesday, September 03, 2014

Last modified: 1:23 am Wednesday, September 03, 2014

TAGS: Power sector Electricity economic development Budget Sixth Five-Year Plan (SFYP)

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