The government should reconsider further revision in new and old Power Purchase Agreements where a “no production, no payment” strategy is followed
The Quick Enhancement of Electricity and Energy Supply Act 2010 was extended until October 2021, while the nation's hyper drive to add new power plants under the act proved unplanned as the electricity target has achieved almost double the power it needs.
As per international standards, the ideal power distribution system should not have more than 20 percent of extra power generation capacity.
At present, Bangladesh has 63 percent of unutilised excess power that may grow bigger in winter when power demand naturally drops. Moreover, private investments across the country have not grown in line with power generation and Covid-19 has slowed down economic activity.
The special provision of the Quick Enhancement of Electricity and Energy Supply Act 2010 has disputed subsections. It creates an opportunity to override all other laws, accept proposals among a few selected projects to submit a plan to the cabinet committee instead of the parliament or the parliamentary standing committee, and has the provision of creating a bar to the jurisdiction of the court.
The law ensures rapid uninterrupted power supply and purchase, but cannot ensure integrity, transparency and low-cost supply, which ultimately increases the cost of doing business.
Our electricity production capacity amounts to 20,383 MW from 137 power plants whereas the highest production was 12,500 MW on July 26, 2020, while due to the Covid-19 effect, peak-time electricity demand reduced to 9,099 MW on July 25, 2020. This implies that the production capacity remains unutilised because of low demand, and thereby, unplanned power plants have aggravated the cost burden of the government.
During the last fiscal year, the Bangladesh Power Development Board (BPDB) had to pay almost Tk 9,000 crore to 74 private companies as capacity payments. As a result, in the budgetary allocation, the government paid a huge amount of subsidy to the power board. As per the information of the BPDB, after getting the budgetary allocation from the government, BPDB will repay the dues – a bulk share of which goes for capacity payment, not for electricity generation.
As there is a decline in oil prices in the international market, the cost of electricity production for quick rental power plants after Covid-19 broke out has come down. Hence, the pricing of electricity should be determined in line with the international oil market price. Along with this, the following necessary amendments need to be done in Quick Enhancement of Electricity and Energy Supply (Special Provisions) Act 2010:
Act to override all other laws: As per Section 2, notwithstanding anything contained in the Public Procurement Act 2006 (Act no XXIV of 2006) or any other law for the time being in force, the provisions of this act shall prevail for 10 years. It implies, if any other law contradicts with the condition of the existing law and the interest of the consumer or the government, it will prevail as the final one.
Undertaking plans and accepting proposals without demand gap analysis: According to Section 4 of the act, the government and all enterprises owned or controlled by the government may undertake any plan under this act for quick enhancement of the generation, or import electricity or energy from abroad. There is no citation of demand gap analysis of electricity, energy and power that determines the urgency of the situation. The question therefore arises, who defines at what time without any question such supremacy will be given to the authority of state without any responsibility?
Bargaining with a limited organisation: Under the sub-section 2 of Section 6 of the act, it is stated that notwithstanding anything contained in sub-section (1), the Processing Committee mentioned in Section 5 shall consult and bargain with a single or limited number of organisations about any purchase, investment plan or proposal. It proves that there is little opportunity for fair play in the bidding process of a project. It deprives consumers of low-cost electricity.
Protection of action taken in good faith: Studies show that a higher percentage of corruption prevails in the public sector than in the private sector in third world countries. Given this concern, providing protection of action taken in good faith under (Section 10) of the law is quite questionable, as there is no definition of good faith in the law. As the section cites, no suit or prosecution or any other legal proceeding shall lie against any officer or employee for anything which is in good faith done or purported to be done at the time of discharging his duties under this act.
The supply gap against the demand is huge, while BPDB has to spend extra money from budgetary allocation. As per basic free market ideas, the price of goods needs to be determined based on the supply and demand.
Along with this, the price of electricity does not reflect the fact that oil price during the pandemic has come down. The Bangladesh Energy Regulatory Commission has monopoly powers to decide the price. BPDB bears the cost of the capacity payments to the rental power plants, whose 7,800 MW to 7,900 MW production capacity remains idle.
The government has monopoly control of the market to ensure public interest, not for providing benefits for businesses.
Given these concerns, the government should reconsider further revision in new and old Power Purchase Agreements (PPAs) where a "no production, no payment" strategy is followed. Besides, to reduce foreign currency pressure and current account imbalance, payments should be given in local currency.
Moreover, gas based PPA may not be renewed considering the slim gas reserve and exploration capacity of Bangladesh.
Shams Arefin is a research associate and the deputy secretary, R&D, Dhaka Chamber of Commerce and Industry. He can be reached at firstname.lastname@example.org and email@example.com.