Our Finance Minister always remarks that his task is merely to distribute pots of money, and unless those pots are made larger every year, his hands are tied.
What we have seen over the last six budgets is that roughly $1.2bn have been allocated to the energy and electricity sectors.
Is the allocation adequate, given the fact that energy is the engine of industrial growth?
Energy is a complicated business and consists of primary and secondary energy. Natural gas, oil, coal, hydro and biomass are referred to as primary energy. Power plants, natural gas processing plants, oil refinery, LNG regasification plants are facilities that convert primary energy into secondary energy or some usable forms. In the case of Bangladesh, gas and electricity infrastructure are the critical elements, but others are becoming important as our gas reserves dwindle; for example preparation is underway for the construction of a nuclear power plant, a LNG regasification plant and a coal unloading facility; the strong commitment to import coal, having abandoned domestic coal, implies that a deep sea port is urgently needed. In electricity infrastructure, there is generation, transmission and distribution. For gas, it is exploration, development, transmission and distribution. As is easily appreciated, there are more than 10 subsectors that need funding. Without assigning weightage, the $1.2bn distributed amongst these competing demands means that less than $120m can be allocated to each subsector. Thus, less than Tk1,000 crore is available for development of transmission network during the next fiscal year, whereas the real need is probably Tk3,000 to Tk5000 crore.
When high government and BPDB officials are asked about the problems of the electricity sector, they, without hesitation, say financing is their main problem. Therefore, one has to assume that the government is failing to attract financing for their large energy infrastructure projects. In the last six and a half years, the government has not built a single large power plant entirely from its own funds. All the pubic power plants have been financed by donor agencies. There is nothing wrong in financing through local private investment and donor funds as long as projects are completed in a timely manner and adverse terms and conditions on the loans are not imposed.
We have seen how local investors failed miserably to build even a small 300MW coal-fired power plant. Since coal is considered to be the worst of the fossil fuels from the global warming perspective, the World Bank, IFC and ADB cannot finance a coal project, however bankable it may be. Therefore, the responsibility of financing a coal-fired power plant lies mainly with the government. When one considers the fact that to build a 1,000MW coal-fired power plant it takes $1.5bn, the allocation of $1.25bn for the energy and electricity sectors is miserably low.
Loadshedding is back! After six and a half years of intense development efforts by this and the last governments we are still being plagued by load shedding. Of course it is not as bad as in 2009, but certainly it is a cause of growing concern for consumers. Electricity rates have been doubled with the promise of loadshedding-free Bangladesh. According to the BPDB plan and the government promises, the price of electricity was projected to go down gradually as cost effective power plants are added to the grid. Instead, what we see is a renewed effort to hike electricity prices. In the early part of the year a public consultation was completed by BERC to increase the price of electricity. It is only the political turmoil that prevented BERC from implementing it. Therefore, one is forced to conclude that either the power plant augmentation plan drawn out in 2010 was greatly flawed or projects simply aren’t moving ahead because of insurmountable barriers. The low annual budgetary allocation can easily be identified as a key barrier.
Of course the finance minister knows full well that the allocation for energy sector is woefully inadequate. The government strategy is to use the budget allocation to leverage funds from local investors and international donors agencies. Some funding have of course being managed but lack of investor confidence in the present political state of affairs is seriously limiting capital inflow into the country and the energy sector is the hardest hit because for such large investments investors demand security and other airtight guarantees.