The government is in a dilemma on how to handle the power situation with contracts of 28 rental power plants nearing end. These 28 power plants generate a quarter of the total consumed power.
Tenure of four rental plants with generation capacity of 512MW will expire within this year and 12 with 914MW capacity would end by the next year. Contracts of another two with a capacity of 77MW would expire in 2015, two others with capacity of 141MW will end in 2016 and remaining four with 300MW capacity will end in 2017.
The dilemma intensified with the government's failure to set up 69 power plants with 12,190MW capacity within 2017, which were supposed to accommodate the fall in supply from these temporary alternatives shutting down.
Only 55 of them, with a total capacity of 3,870MW, were established in the last four and half years from 2009, falling far from the targeted addition of 8,465MW to the national grid by 2013. Officials say that the base loads power projects would not be operational until at least 2016.
As a result, the government is forced to contemplate whether to extend the tenures of the costly rental plants or turn those into Independent Power Producers (IPP), which may help to reduce losses the state have to count in subsidies.
A total of 23 rental power plants of three to five-year tenures were set up during the incumbent government's rule without any tender under the Power and Energy Quick Supply (special provision) Act. The rest were set up during the previous caretaker government.
"We are in a dilemma as to what decision would be proper," State Minister for Power, Energy and Mineral Resources MuhammedEnamulHuq told the Dhaka Tribune adding that a seven member committee, headed by Additional Secretary Mofazzel Hossain, was formed on April 17 to sort out the issue. "We would take decision after the committee submits its report".
However, the committee had already failed the May 15 deadline and is still undecided on when it can give its report.
Explaining the dilemma they are in, Mofazzel Hossain said the existing laws enacted for setting up the rental power plants do not allow converting the rental plants to IPPs. So the committee is contemplating on whether to request applications for extending contract tenures. "We will take decision after reviewing the efficiency of the machines and use of fuel."
The committee has primarily identified nine power plants that could be converted into IPPs or their tenures can be extended considering their performance and efficiency levels, a power division official said requesting anonymity.
He added, "We strongly opposed the proposal to convert 12 projects into IPPs considering their operational faults, low technical performance and legal complexity. There is no logic behind extending contracts of six power plants as generation costs are too high as they are equipped with old machineries."
He also hinted that their report might support extending contracts of efficient power plants.
Director General of Power Cell Mohammad Hossain also voiced support for extending contracts, "The entrepreneurs would get a chance to survive if the tenures were extended and the government would also be relieved as they produce around 1500MW daily.
"Since only a few of the larger power plants are coming into operation soon, the rental plants should stay."
Pointing out the economy of the country has boosted due to the operation of rental power plants, Chairman of Desh Energy Limited AnisulHuq said, "We have started this business with high risk and we should be given opportunity. If not, the local investors in the sector would disappear."
However, experts have pointed power generation costs at these plants are very high and such extensions would be suicidal. They pointed the government has to pay around Tk90-100bn annually to subsidise power purchase from these plants.
"Extending tenure of the rental power plants would be suicidal for the PDB and the national economy," said Professor ShamsulAlam, energy advisor of Consumer Association of Bangladesh. "Costly oil-based rental plants have put the country's financial condition under serious pressure as the PDB has to bear the huge burden of subsidising high-priced power purchase from these plants."
Meanwhile, DrIjaz Hossain, a professor of Bangladesh University of Engineering and Technology (BUET), recommended extending tenure of the plants after ensuring that the tariff is lowered since the plants are already operating and does not have establishment costs.
He, however, pointed the process for rental power plants and IPP is different as the second process requires tenders where efficiency of the plants are considered. "As the rental plants were mostly set up without tenders, many things did not come under consideration."
Meanwhile, the PDB on March 27 had recommended to the power division to not extend the tenure of a 55MW oil-fired rental power plant in Chittagong's Shikalbaha as it was harming the environment.
The plant approved by the caretaker government was in operation for three years. The extension proposal by its owner, Energies Power Corporation Limited, was scrapped on April 11.
However, the government also did not stick to the policy of not extending power purchase agreements with rental power plants. The Power Division had already extended deals with three gas-fired plants approved by the caretaker government.
Energyprima owned the two 50MW plants at Kumargaon and Shajibazar whose contracts were to end in 2011, but were extended by another three years. The other plant is a 33MW plant at Bhola owned by Venture Energy, whose tenure was to expire in July 2012 but was similarly given a two-year extension.