• Saturday, December 20, 2014

Freedom in the air

Government was never committed to master plans

Eminent Electrical Engineer STS Mahmud talks to Shamsuddoza Sajen, Sr. Editorial Assistant, The Daily Star on various aspects of power tariff hike and possible solutions to it.

STS Mahmood

The Daily Star (TDS): It is reported that eletricity providers are asking for unusual increase in power tariff (15-20%). What is your view?

STS Mahmood
STS Mahmood

STS Mahmood (STS): I have not seen the tariff proposal except reports in the newspapers.  Therefore, my comments would be on assumptions. In Bangladesh, tariff was never high as compared to the cost to supply each unit. The proposed tariff may have some hike as a result of rental power plants. You have to pay for electricity you consume for its true cost, if you want the electric supply system to survive. The factors of production are not for free. If you do not want to pay, government has other means to get money out of you.  
The government owns the electricity supply industry. There is a misconception in public mind that as the government is running the electricity business so it should be free or heavily subsidized.  On the other hand, instead of applying correct tariff, the government used to subsidize electricity sector on political consideration which, in the long run, badly affected the power sector itself.
The government has never applied the correct tariff rate for electricity. Supply cost can be worked out through historical cost basis, or long run marginal cost (LRMC) that reflects the true cost of supply. It is the marginal cost of supplying an additional unit of electricity from changing capacity level at the lowest cost associated with that extra output. For the first time, a tariff study on long run marginal cost, on the basis of least cost generation addition programme (WASP) was taken up in 1985/86. The tariff designed on its basis was not accepted or followed. The government should present its tariff study for public hearing explaining clearly the rationale for increasing tariff. It will reduce confusion about power tariff hike among general people.
In the late 50's of 20th century, for the first time, government promulgated an electricity tariff. It was based on a report prepared by Mr. Hayat who was consultant of ECAFE. That time it was 6 anna (37 paia) / kWh for domestic consumers. That time one dollar was equal to 4.50 Rupees. A barrel of crude oil used to sell at about $2 as compared to present price of about $100/barrel. You may imagine how much should the current power tariff be? I would say current tariff is much less than the electricity rate of 1958. I do not think that the proposed tariff is high.   

TDS: Electricity providers have proposed to adjust system loss, line expansion, and bad loans through tariff hike? Is it rational?

STS:  Consumers have to pay for the cost of supply of electricity. It includes all the factor of production, transmission and distribution to sell a unit to the consumer, just like any other business. Depreciation of physical assets is a common factor that is charged to revenue by manufacturing entity. Electricity industry simply has been doing the same thing. The purpose of depreciation is to create a fund so that a utility company can use it to build a new plant to replace it, when it becomes old and unreliable and costly to operate and to perpetuate its business and service to its consumers. This is nothing new.
There are two types of system losses. One is technical loss which is inherent due to    flow of current through conductor. Some amount of power is also lost in transformers, around only 1%. In electricity distribution, inherent loss may be within 10 %. In transmission, it may be within 3%. You can reduce it further by using higher size of conductor relative to demand. But this will not be cost effective as investment will go up and hence the tariff. In power plants, some amount of energy/power has to be used for the production process. It is better to consume its self-generated power than to buy from outside. These are inherent to the power system.  
The other type of loss is man-made and called non-technical loss. It is theft or pilferage by the consumers or non-consumers. However, it is difficult to isolate it from technical loss.  Who will take this social liability? Investor cannot bear that.  

TDS: Electricity providers have proposed more tariff hike for the consumers of the lowest slab. Is it favouring rich consumers?

STS:  I do not think so. Rich consumers already pay much higher tariff than the consumers of poor section of the society. It may be assumed that those who consume more are rich and can afford to pay more than rural poor. The rich consumers are paying close to supply cost. Higher rates are applied on them to subsidize the poor to some extent. But tariff rate that is applied to the rural poor is much less than supply cost. It was almost give away price for electricity. Now that purchasing power of people has gone up, and saving a little bit on imported fruit they can afford to pay some more on electricity. To lessen burden on poor people we can urge the rich consumers to pay a little more while reducing the proposed tariff for poor consumers to some extent. It is a social logic. This particular cross subsidy has been going on for years.  
If the consumers cannot afford the true cost of electricity then the government should subsidize the consumers directly.  A system can be designed for this and payment to the consumers can be made through modern means of money transferring. The moot point is that a power generation and distribution companies should get their appropriate revenue from their respective buyers.

TDS: It is alleged that Government often tries to influence BERC's (Bangladesh Energy Regulatory Commission) judgment on power tariff? What's your view on BERC's role?  

STS: BERC is a pseudo-judicial body established through a legislative Act. Its vision is to "make provisions for the establishment of an independent and impartial regulatory commission for the energy sector". So government cannot and should not try to influence BERC's decision. If it happens people will loose confidence on BERC. Actually, the Government being owner of the power supply enterprises, it should submit its price proposal(s) to the Commission. The Commission is there to uphold the genuine interest of both the consumers and the supplier.    

TDS: What is the feasible solution to the uninterrupted power hike?  

STS:  We should emphasize on how to cut down the cost of electricity generation by introducing combined cycle power plant. We can reduce transmission loss by economic dispatch of power through on line economic load dispatch. We should avoid rental power plant for future.  When the supply cost will be lower the tariff will automatically go down.
Large thermal power plant based on imported coal was a feasible solution. The government took that plan but could not implement it yet. Their approach to implementation was wrong.  
For future, we should first assess what would be the major source of fuel. In 2005, a power system master plan had been prepared based on natural gas as the major fuel. Later, it was discovered that we do not have that much gas reserve. So, that plan was reviewed in 2010. This time they took coal as the major fuel, be it local or foreign. I am not sure that the government is committed to this plan or not.
Our large base load plant should be combined cycle plant if the fuel is gas. It can ensure best utilization of our shrinking reserve of gas. For example, efficiency rate of steam powered plant is between 33-39% and gas fired combustion turbine plant is 25-28%; whereas, combined cycle (steam turbine and gas turbine set in tandem) may provide efficiency of 56-59%.
Government was never committed to master plans that BPDB has been developing since 1985 every ten years. Without a proper master plan and its timely implementation it is impossible to get out of this menace of power crisis.  I am afraid that people have to bear the ordeal of high tariff for some more time to come due to high cost of generation for obvious reason.

Published: 12:01 am Wednesday, March 12, 2014

Last modified: 8:55 pm Tuesday, March 11, 2014

TAGS: Power sector power tariff hike Bangladesh Power Development Board (BPDB) Electrical Engineer

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