The need of policy reforms and energy security
The Gas Act 2010 didnt address pressing issues of gas exploration, reserve and supply. The act mostly addressed the pecuniary and non-pecuniary punishment measures and their settlement
AKM Asaduzzaman Patwary
Energy is the greatest strength of our industrial and economic growth. Countrys electricity generation capacity reached 23436 MW bringing 94% people into electricity network with the significant private sector effort under the visionary leadership of current government. Once the country was in deep electricity crisis, private sector made revolutionary change with the provocation of relentless economic growth in late 2008 backed by Speedy Supply of Power and Energy Special Provision Act. Since 2010, government emphasized power generation under the PSMP target. Revised PSMP targeted 82000 MW until 2041 impractically assessed by the JICA. Private power agreement cost governments subsidy larger and caused frequent tariff hike and 7-round hike experienced since 2010. Power sector allocation in national budget consistently increased later 2010 for generation growth.
The budgetary allocation in power and energy sector in FY2020-21 was TK. 26,758 crore with ADP but budget did not indicate any power sector cost cutting strategy nor gas reserve enrichment strategy. Sourcing this amount is apparently challenging in current economic trouble. The countrys daily grid gas supply and demand gap is on the rise. The national budget indicated project of LNG storage which may not help energy cost minimization or its strict regulation. Budget should have logically balanced resource allocation of power and energy divisions.
Plan of drilling 108 gas wells goes very slow and hope is getting slim for local gas supply rise. The natural gas tariff increased by 32.8% last year on average due to LNG blend and industry faced 34.5% hike and 7 round gas tariff hike recorded in last 8 years. International Energy Association (IEA) forecast the natural gas decline and 60% global coal use decline till 2040 against soaring demand of green energy. We require coal utilization for industrial needs keeping environmental harm minimum. The coal policy was initiated in 2007 but remains stagnant due to huge criticism. Government targeted 50% maximum coal use through increased coal power projects till 2021 but it is still unachievable as the coal policy does not exist. Consequently, coal import increased and all coal-fired power plants turned expensive adding pressure on foreign exchange reserve. In local coal exploration, the joint venture investment may be encouraged. India is emphasising now local coal usage to reduce cost and external dependence in pandemic state.
Our energy sector regulations including regulatory act were relatively less tuned to cater the changing ambiance of sector and economy. It is the high time that the government went for low-cost and sustainable energy security. BERC Act was amended in 2010 but it still needs change. The following are some critical observations on key features of main regulations in this sector:
The Gas Act 2010 didnt address pressing issues of gas exploration, reserve and supply. The act mostly addressed the pecuniary and non-pecuniary punishment measures and their settlement. The condensate exploration and reserve were largely unattended. However, it is essential to align this act with other acts to better improve the gas reserve in the country. The punishment measures of misuse of gas and illegal connection and use may be replaced by more stringent measures. The existing gas act should be streamlined with the BERC act to enable BERC to interject into deviations in distribution, transmission and usage process.
The BERC Act 2003 amendment bill was brought in the budget session to adjust energy price more than once in a year against the vulnerable energy tariff and market. And, cabinet earlier amended it in 2019. The frequent energy tariff hike keeps pushing cost of doing business and inflation higher destabilizing industrial competitiveness. Since Bangladesh is branded as the low-cost production factory globally, any price hike rationale due to energy cost will remain unheeded. The private sector expects positive effects of amendment like reduced tariff in line with low-tariff trend in global market.
We require home-grown and low-cost alternative solution in energy mix. Local coal can substitute fuel import to the some extent. Large and fuel efficient power plants and home solar for rural electrification can be followed. In solar power, grid connected solar plants can be followed with no production, no payment deal alongside micro-level home solar. Since skills in power plants in operations and maintenance are scarce and pricey, we can gradually use big data and artificial intelligence for economizing solar power tariff though solar is cheaper than coal and diesel-backed power. For energy sector development, BERC should act independently considering the local and global energy market trend. The market intelligence and research wing is needed in BERC for research backed tariff determination. The amendment should incorporate capacity building of BERC and interim amendment does not serve far-reaching welfare, so the reform should be for long-term.
BERC, as the regulator, can be allowed exercise authority from energy exploration to distribution management. Tariff determination process between IOC and Government and imported energy tariff can involve BERC for inclusive and rigorous decision which is now limited to ministry. All exploration and power generation companies should have accountability to BERC regarding production cost, operation and tariff. Each power plant requires permission of BERC for operation but the act hardly exercise authority to coordinate tariff. The licensing authority of BERC without reporting authority from the service providers seemingly limits independence of a regulator. Alongside tariff decision of electricity and gas, petroleum tariff fixation should be justified by BERC considering the energy market sentiment and trend. Since primary energy sourcing price are associated with electricity production and tariff, intervention of BERC seems rational in all fuels. The energy sector master plan- PSMP and GSMP revision can be in participative manner considering climate change agenda with the guidance of BERC. Thus, BERC can emerge as the effectively independent oversight body. The objective of regulatory amendment should be optimum welfare in terms of low-cost and uninterrupted utility for local manufacturing, export market competiveness and for people. With this ideal, amendment of BERC act and other relevant regulation should take place.
Covid-19 pandemic unprecedentedly smashed our economic order. Electricity demand sharply declined against usual production leaving many power plants redundant. India reduced gas tariff by 25% during pandemic and few other countries. But, energy sector is not financially strong enough to adjust tariff rather added bill burden on clients due to exorbitant private plants cost and limitation of BERC act for multiple tariff review. In the changing economic landscape, new power plants should not be considered until focused plan is fixed in near future. Consistent energy budget growth creates contingent liability of the government. Special Act 2010 for speedy power generation needs reforms to hold back the government expense. Indeed, our upset economy demands austerity in power sector to cut the government subsidy. The successful private power generation companies may be engaged in distribution and transmission work through win-win deals. Proposed private sector LNG import policy needs revision of its need and effect before it is approved.
While Bangladesh is struggling with low-cost energy supply, other challenge emerges due to SDG and COP endorsement. These global agenda demand renewable energy for people and planet safety though our energy sector heavily depends on non-renewable energy. Renewable energy cannot afford our growing energy need. The debate of renewable energy transformation or economic prosperity vice versa cannot be resolved amidst our current economic and natural resource context.
We must always bear in mind that we need shared interest of people, prosperity and economy. To retain their balanced interests, critical regulatory reforms and regulatory guidance of BERC in coordination with the ministry and energy sector stakeholders are needed. Taking into account entire energy sector gamut, BERC has much to do like helping government expenditure cut, facilitating pro-business tariff, energy infrastructure and industrial investment growth aligning with the cherished economic trajectory: developed economy transformation in 2041.
Energy is the greatest strength of our industrial and economic growth. Countrys electricity generation capacity reached 23436 MW bringing 94% people into electricity network with the significant private sector effort under the visionary leadership of current government. Once the country was in deep electricity crisis, private sector made revolutionary change with the provocation of relentless economic growth in late 2008 backed by Speedy Supply of Power and Energy Special Provision Act. Since 2010, government emphasized power generation under the PSMP target. Revised PSMP targeted 82000 MW until 2041 impractically assessed by the JICA. Private power agreement cost governments subsidy larger and caused frequent tariff hike and 7-round hike experienced since 2010. Power sector allocation in national budget consistently increased later 2010 for generation growth.
The budgetary allocation in power and energy sector in FY2020-21 was TK. 26,758 crore with ADP but budget did not indicate any power sector cost cutting strategy nor gas reserve enrichment strategy. Sourcing this amount is apparently challenging in current economic trouble. The countrys daily grid gas supply and demand gap is on the rise. The national budget indicated project of LNG storage which may not help energy cost minimization or its strict regulation. Budget should have logically balanced resource allocation of power and energy divisions.
Plan of drilling 108 gas wells goes very slow and hope is getting slim for local gas supply rise. The natural gas tariff increased by 32.8% last year on average due to LNG blend and industry faced 34.5% hike and 7 round gas tariff hike recorded in last 8 years. International Energy Association (IEA) forecast the natural gas decline and 60% global coal use decline till 2040 against soaring demand of green energy. We require coal utilization for industrial needs keeping environmental harm minimum. The coal policy was initiated in 2007 but remains stagnant due to huge criticism. Government targeted 50% maximum coal use through increased coal power projects till 2021 but it is still unachievable as the coal policy does not exist. Consequently, coal import increased and all coal-fired power plants turned expensive adding pressure on foreign exchange reserve. In local coal exploration, the joint venture investment may be encouraged. India is emphasising now local coal usage to reduce cost and external dependence in pandemic state.
Our energy sector regulations including regulatory act were relatively less tuned to cater the changing ambiance of sector and economy. It is the high time that the government went for low-cost and sustainable energy security. BERC Act was amended in 2010 but it still needs change. The following are some critical observations on key features of main regulations in this sector:
The Gas Act 2010 didnt address pressing issues of gas exploration, reserve and supply. The act mostly addressed the pecuniary and non-pecuniary punishment measures and their settlement. The condensate exploration and reserve were largely unattended. However, it is essential to align this act with other acts to better improve the gas reserve in the country. The punishment measures of misuse of gas and illegal connection and use may be replaced by more stringent measures. The existing gas act should be streamlined with the BERC act to enable BERC to interject into deviations in distribution, transmission and usage process.
The BERC Act 2003 amendment bill was brought in the budget session to adjust energy price more than once in a year against the vulnerable energy tariff and market. And, cabinet earlier amended it in 2019. The frequent energy tariff hike keeps pushing cost of doing business and inflation higher destabilizing industrial competitiveness. Since Bangladesh is branded as the low-cost production factory globally, any price hike rationale due to energy cost will remain unheeded. The private sector expects positive effects of amendment like reduced tariff in line with low-tariff trend in global market.
We require home-grown and low-cost alternative solution in energy mix. Local coal can substitute fuel import to the some extent. Large and fuel efficient power plants and home solar for rural electrification can be followed. In solar power, grid connected solar plants can be followed with no production, no payment deal alongside micro-level home solar. Since skills in power plants in operations and maintenance are scarce and pricey, we can gradually use big data and artificial intelligence for economizing solar power tariff though solar is cheaper than coal and diesel-backed power. For energy sector development, BERC should act independently considering the local and global energy market trend. The market intelligence and research wing is needed in BERC for research backed tariff determination. The amendment should incorporate capacity building of BERC and interim amendment does not serve far-reaching welfare, so the reform should be for long-term.
BERC, as the regulator, can be allowed exercise authority from energy exploration to distribution management. Tariff determination process between IOC and Government and imported energy tariff can involve BERC for inclusive and rigorous decision which is now limited to ministry. All exploration and power generation companies should have accountability to BERC regarding production cost, operation and tariff. Each power plant requires permission of BERC for operation but the act hardly exercise authority to coordinate tariff. The licensing authority of BERC without reporting authority from the service providers seemingly limits independence of a regulator. Alongside tariff decision of electricity and gas, petroleum tariff fixation should be justified by BERC considering the energy market sentiment and trend. Since primary energy sourcing price are associated with electricity production and tariff, intervention of BERC seems rational in all fuels. The energy sector master plan- PSMP and GSMP revision can be in participative manner considering climate change agenda with the guidance of BERC. Thus, BERC can emerge as the effectively independent oversight body. The objective of regulatory amendment should be optimum welfare in terms of low-cost and uninterrupted utility for local manufacturing, export market competiveness and for people. With this ideal, amendment of BERC act and other relevant regulation should take place.
Covid-19 pandemic unprecedentedly smashed our economic order. Electricity demand sharply declined against usual production leaving many power plants redundant. India reduced gas tariff by 25% during pandemic and few other countries. But, energy sector is not financially strong enough to adjust tariff rather added bill burden on clients due to exorbitant private plants cost and limitation of BERC act for multiple tariff review. In the changing economic landscape, new power plants should not be considered until focused plan is fixed in near future. Consistent energy budget growth creates contingent liability of the government. Special Act 2010 for speedy power generation needs reforms to hold back the government expense. Indeed, our upset economy demands austerity in power sector to cut the government subsidy. The successful private power generation companies may be engaged in distribution and transmission work through win-win deals. Proposed private sector LNG import policy needs revision of its need and effect before it is approved.
While Bangladesh is struggling with low-cost energy supply, other challenge emerges due to SDG and COP endorsement. These global agenda demand renewable energy for people and planet safety though our energy sector heavily depends on non-renewable energy. Renewable energy cannot afford our growing energy need. The debate of renewable energy transformation or economic prosperity vice versa cannot be resolved amidst our current economic and natural resource context.
We must always bear in mind that we need shared interest of people, prosperity and economy. To retain their balanced interests, critical regulatory reforms and regulatory guidance of BERC in coordination with the ministry and energy sector stakeholders are needed. Taking into account entire energy sector gamut, BERC has much to do like helping government expenditure cut, facilitating pro-business tariff, energy infrastructure and industrial investment growth aligning with the cherished economic trajectory: developed economy transformation in 2041.
The writer is Additional Secretary, RD Dept., DCCI
