Despite repeated hikes in power tariff both at customer and bulk power distribution levels in the last five years, the power sector will not recover from incurring losses before 2018 until the large and cheaper coal-based power plants come into operation.
According to experts, people will continue to pay high prices for power and the government will have to continue providing subsidy to the Power Development Board (PDB) till then.
“The power sector losses might go beyond 2018 if the government today does not address the problems in implementation of various large power projects,” said Alamgir Kabir, former chairman of PDB. “Many projects are facing financing and other problems that urgently need the government's attention and innovative solutions,” he added.
Since coming to power in 2009, the government in phases laid out massive plans for increasing power generation on the back of severe load-shedding that had affected the country's growth. This plan was designed keeping in mind the crisis of gas, the cheap indigenous source of power generation.
As a result of these plans, the country has doubled its power supply up to 7,200 megawatt in the last five years and largely addressed the problems of persistent load-shedding.
A good part of this new power comes from heavy fuel-based power plants, which were built for supplying electricity for three to five years. As a result, the cost of power generation has jumped from Tk 2.75 per kilowatt-hour (or a unit) in 2009 to Tk 6.12 in 2013.
To deal with this, the government has hiked the power tariff at retail and distribution levels in phases. But this could not cover the losses being incurred by the PDB that buys electricity from power plants and sells in bulk to different power distributors, Desco or Rural Electrification Board (REB) for instance.
“The PDB in 2009-10 incurred a loss of Tk 1,100 crore by selling each unit power to distributors at Tk 2.36. It was buying power at Tk 2.75 per unit,” said a well-placed source on the Board.
This loss shot up to Tk 4,500 crore the following year as more power was being generated through using heavy fuel oil (HFO), which became significantly costly that year. This pushed up the generation cost to Tk 4.15 per unit.
The losses continued to skyrocket in 2011-12 and 2013-14 by Tk 4,000 crore and Tk 5,100 crore respectively.
All the while, the government kept on increasing bulk tariff to minimise this loss. Now the bulk tariff stands at Tk 4.7 per unit, which is significant compared to the tariff of 2009 but still not enough to cover the costs.
“The volume of power we sell has also increased over the years, adding up to the loss,” says a PDB official. Back in 2009, the PDB sold 2,700 crore units of power and now it sells 3,700 crore units, the official adds.
However, the power cost has declined to below Tk 6 a unit in the last one year, as some gas-based large power plants have started operation and around 500 MW power is being imported from India.
“The government may not hike power tariff this year and we project that the loss this fiscal year will stand at Tk 4,500 crore,” the official notes.
If the government pushed up the bulk tariff to Tk 5.2 per unit as per the PDB's next plan, the loss would stand at Tk 2,000 crore.
The government expected that the rise of power generation cost would begin to drop from 2014-15 when some large coal-based power plants would come into operation and it would not need any fuel-based plants to operate. Coal-fired power is costlier than gas-based power but is way cheaper than oil-based one.
The government also believes that by 2017, it would be able to add around 8,000 MW new power, which is more than what the country produces today.
But former PDB chairman Alamgir Kabir noted that implementation of many large plants, which would be able to save the day, was being affected by various factors that must be addressed immediately.
He believes coal power projects like the 1,320 MW Rampal plant or two 600 MW Orion power plants are unlikely to begin commercial operations before late 2018.
“Once the government signs a contract with a company for a project, it should look at that project as a partner and should not leave the contractor on its own. This will help the government understand the problems with the implementation,” Kabir observed.
He added that all private power investors were facing problems getting low interest international finance. The government may not give all of these investors “Sovereign Guarantee”, but it can still help them in many other ways to get these international finances.
He said the government might also open an Insurance Fund of $3-4 billion from its foreign exchange reserve that would provide the international financiers insurance for giving loans to these power projects. The government also needs to redesign its other financial arms like IDCOL with the same philosophy.
Another aspect that needs urgent government attention is that every project implementation in recent years has faced resistance from the locality to get as much money as possible from the contractors for land or sub-contracts. This can stall a project for months.
Experts observe that the government has created too many companies in the power sector and many of these are not being run by efficient people. The government should merge some of them and put in efficient people who understand the power business as the sector was becoming massive.