Increasing power tariff won’t help overcome losses or increase sale of huge unsold power

The government looks at the enormous losses of the power sector as the result of the high cost of power generation and low sales tariff. To solve this, the government believes it needs to amend a law that restricts adjustment of power tariff just once a year. If approved by the parliament, the amendment will allow the government to increase power tariff many times in a year. Should this solve the main problem?

The answer is no. The power sector's losses today do not stem from the high cost of production and low power tariff. The tariff is already very high considering our purchasing capacity.

The problem is over-investment in power generation and unplanned and poor performance in sales—a problem that the government has not yet admitted or taken any strategy to resolve.

The problem also is the power ministry's indifference to the possible long term economic impact of coronavirus on the power sector. Unlike in other years, power demands have not grown by 10 percent. Like June 2019, we still have the highest demand of 12,000 megawatts power this month. But it was supposed to grow by at least 1200 megawatts (while the power development board expected this month to have the highest demand of 15,000 megawatts- a 3,000 MW jump from last year).

Accordingly the sales of power is suffering.

But this was not the issue in the power ministry's Bangladesh Energy Regulatory Commission (Berc) Amendment Bill (2020) that was tabled at the parliament last week that seeks to empower the Berc to "adjust" the price of power more than once a year.  

State minister for Power, Energy and Mineral Resources Nasrul Hamid justified the bill by saying, "the price of energy changes continuously in the international market, and the government needs to adjust the price in the local market accordingly. And that is why the amendment was proposed."

Why has adjusting with international market rate suddenly become important in Bangladesh? Are we talking about fixing power tariff based on what India or the USA charge? The power tariff varies very widely at customer level—and there is no single international power tariff reference.

Then we can consider the international price of raw material for power generation.

The majority of power generation comes from local gas (including a huge amount of gas produced by Chevron under a pricing formula). A part of the gas comes from imported Liquefied Natural Gas (LNG) from Qatar under an unfriendly and very pricy agreement. Therefore the international LNG price cannot be applied here. Another part of power is generated with imported fuel oil—maybe this would be the only issue, if there is any.

We have never heard in our lives that the government had ever reduced power tariff since the country's independence. Therefore, the adjustment is actually hiking the already unbearably high tariff.

For an example, Bangladeshi industries pay a few bucks more than the American-Canadian industries. While America's average power tariff is around 13.28 cents (Tk 11.3) per kilowatt hour and Bangladesh's Tk 5.17 for the same-- American industries pay 6.4 cents (Tk 5.4) while Bangladeshi industries pay Tk 8.45 per unit.

This is so because the USA-Canada and successful economies charge domestic users more; while charging bulk customers less. That way society's production cost remains low and cost of power remains affordable.

In Bangladesh, domestic customers—those who consume less—enjoy the lowest tariff. But even that tariff is very costly for many families—because the cost of living, including house rent—is way higher in Bangladesh compared to individual income.  

Then how should the government address the financial loss in the subsidy burning power sector? The solution is simple: the government now has huge excess power. It needs to increase sales by lowering tariff and improving the power supply quality.

For the last couple of years, the government is paying dozens of private power companies more than Tk 9500 crore a year to keep them idle because we have excess power generation. The government is also paying for huge power import which we do not need now. The government is also paying huge money for huge import of LNG which we need to reduce. The government is still carrying out power projects which would not have customers in the next three-four years. These need to be addressed first.

More than half of Bangladesh's power customers are domestic. Close to 30 percent are industrial and 12 percent are commercial. But we know a large number of industries generate their own power for their factories as they cannot rely on the unpredictable national grid. They need to be brought under the national grid by improving the distributing system.

Any businessman knows that they make profit from buying at the right price—and not just selling. The government had been very lenient in awarding power projects and many of them are highly overpriced. As a result, the national average power generation cost has increased. Presently its average price is over Tk 5 per unit. A decade back, it was half this cost.

Therefore, knowing that our customers cannot afford such costly power much, the government should also focus on reducing the power generation cost.

Increasing power tariff repeatedly would only penalise existing customers—and will not encourage utilising it for increased productivity. Each time we increase energy price, we actually hurt consumption and thereby hurt production. It's time for the government to find the perfect price by assessing the economic situation, so that the tariff is a win-win for both the government and the public.