WHILE there are many reasons to believe that Bangladesh can emulate the FDI success story of India or Vietnam, one factor that could de-rail even a perennial Bangladesh optimist like me is the escalating power crisis gripping the country. I have read all sorts of statistics, such as the current power generation capacity of 4000 MW versus a required 5000 MW (excluding captive power plants). I have read that for every percentage point increase in growth above 7%, we need to add 2000MW of power.

What made the stats "real" for me was the experience one day last week when we had 10 power cuts in one day in the AT Capital office. Our IPS backups failed, and I saw 25 young, energetic IBA/Buet students sitting around doing nothing and feeling dejected and deflated as their computer screens were dead, their backup laptops were also out of power, as were their optimism and enthusiasm.

I told them if we needed to buy candles for them to read by when our back-up power failed, that is what we would do. But surveying the scene from my office got my thinking about the loss in output and productivity other businesses, large and small, across Dhaka and the rest of Bangladesh must be suffering as a result of the power crisis. Indeed, the next morning I saw the head of the knitwear manufacturing association warn of 20% output cuts if their gas was also rationed. Isn't textiles/RMG the key exporter and critical wheel in the Bangladesh economy?

So where has the power crisis originated? The AT Capital infrastructure research group highlighted the following factors:

1) Many power plants are idle due to the gas shortage (natural gas contributes 86% of total generation). Despite all the optimistic projections from experts about Bangladesh sitting on a vast reservoir of gas, it might be argued that previous governments did not take enough initiative to develop new fields. Petrobangla offered its offshore bidding round in March this year, while the previous auction was in 1997.

2) High system loss is another challenge for the power sector. The situation is improving though, as it is around 20 % now versus 28.5 % in 2001. The inefficient transmission and distribution system of state owned companies is the main factor behind this high system loss. A reduction of 1 % system loss can save around 45 MW of power, which can at least reduce the frequency of black-outs.

3) Another factor is the lack of political and environmental consensus to tap Bangladesh's coal resources. We have a probable reserve of 3.3 billion tonnes, which is around 5 times higher than our current proven gas reserve in terms of its heating value. This can support 4000 MW power generation. A 1000 MW coal fired power plant was supposed to be installed by Asia Energy, a project that was delayed due to demonstration by the residents of Phulbari. If this power plant could be installed it could meet around 20 % of the country's demand where, currently, only 3% of generation is coming from coal-fired power plants. There is no dispute that displaced locals need fair and equitable compensation and assistance, and a solution that leaves them satisfied

4) A lack of transparency in power generation procurement and tendering in the past was a major problem. In 2007, the 450 MW Sirajganj power plant, along with seven rental power plants and ten small power plants, were re-tendered. The 100 MW Sylhet power plant was first tendered in 2002, and its fourth tender was received in July 2007! The delays in the evaluation process of the tender were also a reason for excessive delay in the power plants becoming operational.

When I hear that Bangladesh's is facing a power crisis because we are running out of gas, I would argue that many economic success stories -- Japan, Taiwan, Singapore, Korea -- have almost no natural mineral resources, but we don't hear of them having regular "black-outs." They have a clear strategy of importing the oil/coal/gas they need, coupled with efficient large-scale generation. They all, clearly, have an efficient export machine to generate the foreign exchange to pay for those imports. Bangladesh can increase reserves markedly by diversifying its exports, driven in part, I believe, by FDI and Private Equity inflows. Those inflows can also play a critical role in solving the power crisis. Note that India has $ 15billion of Private Equity inflows in 2007, of which $ 5billion was for infrastructure funds alone!

Institutions like IDCOL and IIFC can, and are, playing an increasingly important role. But policymakers need to recognise the suffocating cost of allowing the power crisis to persist. Short-term solutions may involve importing fuel to run small rental power units. But, in the long-term, developing an effective public-private partnership, transparent procurement, and clear incentives for foreign investment along with greater integration with Burma, India and the Asian energy network, should be an absolute priority for this government and the next. Bangladesh has a bright future as Asia's next economic tiger, but not if the light bulbs keep going off!

Ifty Islam is a freelance contributor to The Daily Star.