Power tariff hike hostile to industries and growth

It is like the old phrase of robbing Peter to pay Paul. The consumers have to pay more for power because the Bangladesh Energy Regulatory Commission (BERC) is paying penalty to power producers.

The commission increased the power tariff by 5.3 percent in March at a time when the power tariff could have been reduced through policy interventions.

Berc had to increase the tariff because the Bangladesh Power Development Board (BPDB) was incurring huge annual losses. But the tariff hike would not really address the cause of the problem – why the BPDB was incurring the loss.

The BPDB's loss of around Tk9,000 crore is caused by its paying penalty to various private power companies for not buying their power and keeping them idle.

The board's real problem is, it cannot sell all the electricity that is being produced. It now has 19,000MW electricity for sale, whereas its highest sale last year in a day was around 12,500MW.

Lower winter demand is another source of sorrow for them. The board could at best sell 7,000MW last winter, according to power board data.

Domestic customers buy 53 percent of electricity from the power board, while industries buy 30 percent.

Industries prefer their own power

But a large number of industries prefer not to buy power from the BPDB because of the highly unreliable quality of its power supply.

Using cheap gas and captive generators, they produce 4000MW of power.

If the industries could be converted into national grid customers, the BPDB would have never had to count losses.  

The power board's loss will spike up further, despite Berc's tariff increase because the country will add a significant number of power plants in the coming years. Forty-two new power plants under construction are expected to add 21,856MW of electricity when they come on line in the next few years.

It is expected that a further 1,953MW of power will be added in the current year.

Berc will continue to lose money if it cannot increase power sales to large consumers, according to experts.

Power tariff not industry friendly

Berc's power tariff hike is penalising existing customers and it is not going to solve the problem of excess electricity and the power board's poor sales performance, experts say.

Power tariff structures in Bangladesh and the rest of the subcontinent are not friendly to industrial or commercial clients – the frontrunners of economic growth, as much as they are friendly in the USA or Canada.

Bangladeshi industries pay around 56 percent more for electricity than, for instance, the US industries. Per kilowatt-hour industrial electricity in the US costs just 6.37 cents (Tk5.4) while Bangladesh industries pay Tk8.45 for the same.

Bangladeshi consumers of electricity are forced to pay a price higher than the US consumers even though the per capita income in Bangladesh is nowhere near that of the USA.

Industry insiders say power cost represents around 6 to 10 percent of production cost of various industrial goods – from cement to readymade garments.

In the USA or in Canada, homeowners pay the highest rate for electricity because of the high installation and service cost compared to the monthly consumption per customer. An industrial customer with a single connection consumes many times more power than a domestic customers, they say.

The difference between the rate for home and industry is about double in the USA: homes pay 12.69 cents per unit, as against industrial rate of 6.37 cents, according to the US Energy Information Administration.

However, Bangladesh follows an opposite policy where home customers pay the lowest tariff. The lowest home users pay Tk3.75 per unit; while the highest home users have to pay Tk6.34 for the same.

A rational power tariff for the industries would help demand grow as well as make Bangladeshi production more competitive in the export market. With exports slumping in recent months, policymakers urgently need to look at this issue, industrialists say.  

However, the Berc authority says it is in no situation to make any changes at the moment in its tariff policy.

"Industrial electricity price is higher than domestic because a share goes to domestic users in a form of subsidy. At this moment we cannot formulate something comparative to the US tariff policy," said Md Mizanur Rahman, member (Electricity) of Berc.

How to increase industrial power consumption

Since the industrial power tariff is already very high, it makes sense for industries to use captive power, which is cheaper and more reliable for them.

For instance, a 5.5MW captive gas generator costs Tk60 lakh per month to run or Tk7 crore per year for a certain garments factory at Dhaka. Its cost could rise further depending on the capacity and the size of the generators, industrialists say. 

Maintenance and manpower for such a generator can cost an additional Tk2-3 crore annually. 

Despite this, industrialists find captive power plants cost-effective for running a business. 

"Low voltage electricity from national grid damages the industries' equipment and machinery. It is easier to maintain the quality of captive power and it helps the company to be more productive with better quality. Considering the business outcome, captive power is cost-effective for the businesses," said Kutubuddin Ahmed, chairman and founder of Envoy Group.

Moreover, captive power generation cost is cheaper if it is generated from gas, he added. 

According to available data, captive power is the second biggest consumer of total gas consumption. 

Currently, the sector is consuming 16.35 percent of the national gas annually which is equivalent to 160 bcf or 160,000 mmcf, says Petrobangla data.

It also means that the sector usage almost 438 mmcf gas per day, the same amount is being imported from the LNG terminal. This gas is expensive and it has resulted in increase of gas tariff.

Experts say instead of using this gas for captive power generation, this should be used in other productive sectors like fertilizer.  

Energy experts say its time industries are encouraged to take power from the national grid. But for that, the government should urgently improve the power distribution system in the industrial zones. Power tariff should be made more industry friendly to increase its use. At the same time industries should be discouraged to use captive power.

Professor Nurul Islam, a former professor of Bangladesh University of Engineering and Technology (Buet), says, "Gas and fuel, which are the primary energy to produce captive power, need to be expensive so that industries give up producing it [captive power] and are encouraged to prefer grid electricity consumption."