How rural electrification is transforming Bangladesh
Electricity is a key component in the socio-economic development of any country. A reliable supply of electricity is a prerequisite for ensuring economic growth. The government of Bangladesh has thus given top priority to the sector, considering its importance in the overall development of the country.
Most importantly, the government has set itself a goal of providing electricity to all its citizens by 2021. Policy focus has been on providing electricity not just to the urban but also to the rural areas, which account for over 60% of the country’s population.
In 1977, the Bangladesh Rural Electrification Board (BREB) was created under a Government Ordinance with the responsibility of ensuring electricity to rural Bangladesh. Electricity is sold to the consumers by the “Palli Bidyut Samity” (PBS) or “Rural Electricity Cooperatives.” Subsequently, the Rural Electrification Board Act, 2013 was enacted to look after the workings of BREB.
At present, there are 77 PBSs providing electricity to their consumers. Rural electrification has gained tremendous momentum over the past three decades. Annual sales in 2015-2016 were Tk12.9 crore, which was 18% higher than the previous fiscal year. The objective of this article is to discuss the workings of BREB and PBS, highlighting some of the major issues and concerns which need to be considered.
The PBSs with the support and guidance from BREB are working on developing a reliable channel of distribution to attend to the country’s rural electricity requirements. The distribution network now covers over 58,000 villages, has over 315,000km distribution lines, and 757 substations. Total consumers currently stand at almost 16 million, growing at an average rate of about 18% over the past four years.
From 2007 to 2016, rural coverage grew by about 28% and distribution lines increased by about 52%.
Help with funding
This infrastructural growth has received funding assistance from several international agencies such as the World Bank, the Asian Development Bank, CIDA, and JICA. BREB receives all project funding, both equity, and loans, from the government of Bangladesh. Loans carry a 2% interest.
BREB constructs the distribution network with this money and then writes over the amount to the concerned PBS, charging it 3% interest. The difference of 1% is BREB’s revenue. Loans to BREB are for 30 years, including an initial grace period of eight years; loans to PBS are for 25 years with a grace period of five years.
Regular investments are made to further augment and improve the distribution network. For this purpose, several new project proposals are submitted to the government each year. During 2015, a total of 12 new project proposals were sent to the government for approval. Out of these, three projects aimed at extending the distribution lines have already been approved, with a planned expenditure of approximately Tk4.7cr.
Under these projects, 29,000km of new lines will be set up or renewed and 137 sub-stations will be constructed. This upgradation will enable the addition of 1,150,000 new consumers. Other projects are also planned for reducing systems loss which currently stands at about 12.48%. Planning is an ongoing process in any organization, and it is diligently carried out in BREB.
How are service deliverers functioning?
With this commitment and zeal and infrastructural support, rural electrification in the country could not be on firmer grounds. So how are the service deliverers ie, the PBSs functioning? To better understand this, we have to look at how these communities popularly known as samities, are set up.
Each PBS is based on the cooperative principle of consumer-member ownership to ensure maximum participation of the beneficiaries and democratic governance. The samities purchase their electricity from Bangladesh Power Development Board (BPDB) at Bulk Supply Tariffs and sell it at retail tariffs -- both approved by Bangladesh Energy Regulatory Commission or BERC.
Each PBS is an independent cooperative body, responsible for the successful construction, operation, and maintenance of its electricity distribution system. It has its board, consisting of not more than 15 members, who are members of the samity. Directors can serve for up to three years.
Details of directorship are laid out in the “Rural Electrification Board” by-law, which lay down certain stringent criteria about who can become a director of a PBS. Some of the major eligibility criteria mentioned in Section 8 of the by-laws are:
• The person must be a resident of the area and a bona fide member of the samity
• The person is not a government service holder
• The person is not a candidate for a public office
Running at a loss
All this development aside, serious concerns remain with the financial viability of the PBSs. At present, most of the samities are running at a loss. Out of 77 PBSs, only 12 are financially solvent. Only those PBSs with a large proportion of industrial consumers and high population density are profitable.
The profitable PBSs provide subsidies to the loss-making ones, as regulated by BERC. While this is helpful for the sector as a whole, it does not allow the “rich” samities to spend money on maintenance of their network. In fact, this “redistribution of wealth” does little to motivate employee morale.
The rate of recovery of loans disbursed to PBS by BREB remains low. Looking at the many reasons behind the financial problems of the PBSs reveals the following:
• Consumer “mix” consists of “low” revenue consumers such as irrigation and domestic users. These two categories make up about 90% of the total
• PBSs have a large number of “lifeline” users with a maximum monthly consumption of 50 units. About 40% of domestic consumers fall into this category and they buy approximately 10% of electricity sold during the year• Bulk Supply Tariff ie the cost of power purchase from BPDB, is higher than the rate at which it is sold to “lifeline” and irrigation consumers. For irrigation consumers, the tariff has remained unchanged for more than five years• Low consumer density
• High O&M costs
• Many of the bulk users get connected to other distributors, violating the Power Division’s instructions on the matter, thereby depriving the samities of substantial revenue
• Systems loss is an endemic problem. Average systems loss is about 12.5%; however, in some PBSs it is over 20%
However, a list of 20 Performance Target Agreements aimed at improving the financial and distribution performances of the “samities” has been charted. Some of the relevant PTAs are:
• System loss reduction
• Low accounts receivable
• Payment of Debt Service Liabilities (DSL)
• Decrease in O&M costs
These are some of the areas that will need to be looked into. A detailed analysis of the tariff regime aimed at recovering costs will improve the health of many of the PBSs. Also, the proportion of bulk users who pay higher per unit tariff should be brought under the rural electrification system, as envisaged in the relevant power division regulations.
The financial management of the rural electrification system remains a key concern. Now that most of the country’s villages have been brought under electrification, the focus needs to fall on ways of improving the internal systems of both BREB and the PBSs, so that all this developmental work can be kept going.
BREB is a large organization with its jurisdiction and works extending throughout the country. Yet many of its internal systems are manual and thus slow. Financial record-keeping and recording of fixed assets are all areas that need to be greatly improved. Internal audit too needs to be strengthened so that many of the issues related to malpractice can be timely identified and prevented by having effective internal control mechanisms.
This is important not just for better asset management and decision making, but also vital for instilling donor confidence.
Similarly, PBSs need to have better control over the security of their fixed assets. At present, there is an efficient web-based asset recording system for store inventory. However, the focus here also needs to be on developing a recording and tracking system for its fixed assets, which represent a huge amount of national resources. Internal audit is another area where improvement needs to happen.
In conclusion, rural electrification has brought about tremendous economic and social achievements over the past years. Perhaps it is the most important and noteworthy achievement that has to do with food production. Today, a large number of electric pumps have revolutionized irrigation. In the dry months, farmers are dependent on these pumps for their “boro” paddy production. And the number of pumps in operation has grown from less than 4,000 in 1984 to about 225,000 in 2015.
In addition to this, commercial activities in the rural areas have received a tremendous boost from this ongoing electrification. Increase in the number of rural industries such as dairy, fishery, rice mills and other types of small and cottage industries have all contributed to the qualitative improvement of rural life.
Another direct consequence of this has been a tremendous increase in the area of rural mobile communication. Thousands of mobile connectivity towers powered by this electricity can now be seen all over the country, making it possible to use mobile phones even in remote areas, and that has been the true litmus test of the success of rural electrification in Bangladesh.
Sumaiya Noor is a development sector research professional. Her areas of interests include RMG Automation, Energy & Environment, Green Finance and Sustainable Development. She can be reached at [email protected]