By Fahriba Tasnuva Mahtab
Shamsuddin Ahmed’s career began as a Junior Engineer of Titas Gas (TGTDCL) and progressed to General Manager in 1986. After four years in that position, he proceeded towards other energy sectors beginning his tenure as the Chief Executive Officer of Bakhrabad Gas System Limited (BGSL). Soon after, he started getting involved in numerous projects administered by the Asian Development Bank (ADB) as the senior project officer, (Head, Energy) of the Bangladesh Resident Mission. Since 2007, he has been working as a consultant with ADB in various energy sector projects as a national/international energy sector specialist.
BEFORE THE TURN OF THE CENTURY
“In the 1970s and 1980s, the Bangladesh Power Development Board (BPDB) was the sole national supplier of electricity, responsible for all generation, transmission, and distribution,” he explained. Being a natural monopoly, the supplier soon became inefficient. To combat this problem, in 1991, the Dhaka Electricity Supply Authority (DESA) was created with the responsibility of distributing power in greater Dhaka. However, the assets and personnel of DESA all came from BPDB and the culture and performance were essentially left unchanged. As a result of these shortcomings, they suffered commercial failure.
In Ahmed’s opinion, certain key factors had led to the downfall of the sector: “Unfortunately, since the mid-80s, the power sector was in the midst of a crisis. Tariffs were too low to enable cost recovery, electricity bills were not collected, and system losses were high due to theft.” He further added that the corporate culture was highly politicized and management lacked the incentive to improve their performance. Moreover, financial reporting at that time was misleading and unreliable. “As a result, World Bank (WB) and Asian Development Bank (ADB), the major development partners that supported the sector since the liberation of the nation, suspended new power sector lending from 1989-1995. However, ongoing policy dialogue during that period resulted in a broad agreement with the government to restructure the sector along commercial lines”, Ahmed shared.
THE VOLTS OF A CHANGING SECTOR
An industry can only be reformed when there is a need for change due to national dynamics and necessity: “In the power sector the donor coordination meeting held in December 1992, the concept of collection to generation (CI) and collection to import (CI) ratio stepwise targets for improvement was introduced to utilize loan savings from ongoing operations and pave the path for future loans.” At the same time, the government was also requested to prepare a comprehensive reform plan. “It was a crucial turning point for the industry when the government approved power sector reforms in Bangladesh (PSRB) in 1994. The reforms included: unbundling power distribution, transmission, and generation operations of poorly performing BPDB by setting up commercial entities with clearly defined targets for improving performance; corporatizing BPDB and the power distribution utility DESA; area rationalization between DESA and Bangladesh Rural Electrification Board (BREB); establishing an independent Regulatory Commission; and private sector participation in generation, transmission and distribution.” Since 1995, ADB supported a reform agenda covering sector unbundling and corporatization, greater private sector participation, reducing system losses and upgrading financial management. A series of TAs were used to support privatization, corporatization, and institutional development in new power companies – an initiative that was aided by the ADB. “ADB played an active role and took an integrated approach in financing power generation, transmission and distribution facilities and provided reform link loans,” he added.
ADB became the lead policy dialogue partner and major sector financier during 1994–2008. Being the lead sector development partner, ADB assisted all aspects of the PSRB such as providing technical assistance for vertical unbundling of the power sector entities and setting up new companies with firm commercial basis for power distribution, transmission, and generation; providing investment financing for new companies for rehabilitating the distribution network and augmenting the transmission system. Furthermore, they also promoted private sector investments in power generation through technical assistance to the movement in the solicitation process, and financing of private sector investments through Private Sector Operations Division (PSOD) operations.
Ahmed commended the initiatives that helped ensure that the entire nation has the capacity to generate enough power. “From 1996 to 2000, several changes were made with hopes of better energy provision in our country. Rural Power Company Limited (RPCL) was established in 1994 under the Companies Act with 51% shareholding by BREB and 49% by five cash-rich Pally Biddut Samities (PBSs) to build a 70 MW plant, the first power generation plant outside BPDB. ADB pursued the government to introduce market-oriented pay structure for RPC that would be decided by the Board of Directors of RPC.” The government also agreed to allow RPC to recruit management staff through open completion. Apparently, this was a test case to deliberately break BPDB’s monopoly in power generation, delinking sector entities’ pay structure from the government pay structure and introducing fair practices in the recruitment of qualified and experienced management staff. Ahmed feels proud when he can say that: “All corporate entities that were later created followed the same principle of adopting the same pay structure and recruiting of management staff.”
“In 1996, the Power Grid Company of Bangladesh (PGCB) was established to take over the operation of the high-voltage power transmission network from BPDB,” Ahmed stated. The Dhaka Electric Supply Company (DESCO) was established in 1996 to take over power distribution in parts of Dhaka from DESA. PGCB and DESCO were established on a commercial basis as government-owned companies under the Companies Act. PGCB and DESCO offloaded 25% of their share through the stock exchange.
ADB also supported the government with technical assistance and loans through public and private sector windows in implementing Meghnaghat 450 MW power plant by independent private power producer (IPP) through a transparent solicitation process.
Ahmed asserts that in order to mend that issue, captive generation in the industrial sector surged and, is now standing at around 2,200MW. “Although several privately owned power generation projects were also established during this period as independent power producers (IPPs) selling electricity to BPDB, power shortages increased during 2002–2008 due to insufficient public sector investments in power generation and the failure to attract new private sector investment.”
Ahmed noted that: “From 2001 to 2008 more distribution zones in Dhaka were transferred to DESCO from DESA.” The Northwestern Power Distribution Company Limited (NWPDCL) was created in 2005 (renamed as Northern Electricity Supply Company Limited [NESCO]) to take over power distribution from BPDB in the northwestern part of the country, and the Dhaka Power Distribution Company (DPDC) was established in 2005 to take over the remaining operations of DESA.
During 1995-2007, ADB approved seven reform linked project and program loans for a total amount of $1.3 billion for implementation of sector structural reforms and for construction of new power plants, replacement of old inefficient plants with new efficient plants, expansion and upgrading transmission and distributions systems for implementation through newly created corporate entities. Ahmed believes that ADB’s contribution played a critical role in the reformation of the country’s power sector.
CHANGING THE WIRING: REFORMS FOR PERFORMANCE
Certain observations had been made by him, one of them being: “As a result of the reform, significant progress in sector performance had been made. While still not commercially viable, newly corporatized and private sector entities had demonstrated that affordable power supply at financially viable prices was actually possible.” The country’s energy sector has been able to reduce power transmission and distribution losses from 37% in 1994 to 13% in 2017, stabilizing bill collection and the operational performance of transmission and distribution systems. As a result, the sector’s commercial performance has improved notably. Ahmed substantiates the benefit of corporatization through a thorough period of monitoring. “DESCO and PGCB have been consistently profitable, having collected substantial cash reserves in their balance sheets. They are both runs on commercial lines.”
During 2010-2017, ADB approved four projects for $1.8 billion for the construction of power stations at Ashuganj by APSCL and Khulna by NWPGC, expansion and upgrading transmission and distribution systems and grid interconnection between India and Bangladesh. The government’s vision 2021 targets to provide electricity to all, and to meet this goal the government has taken up a plan to enhance generation capacity to 25,000 MW by 2021. Documents for Meghnaghat plant have been used as the model for attracting the private sector in power generation. Power generation capacity increased from 2,900 MW in 1995 to 13,800 MW in 2017 with it accounting for nearly 50% of total generation. (Table 1)
There are initiatives to build capacity as Ahmed points out. “Power plants having a capacity of 13,771 MW are under construction of which over 4,000 MW is gas and gas/diesel fuel based. Nineteen projects having the capacity of 20,732 MW have been planned for completion by 2026, and the remaining plants are mostly based on imported coal.” In this context, three coal-based power plants having the capacity of 3,800 MW are under construction and will be commissioned during 2019-2023. (Table 2)
However, Ahmed believes that there is a major obstacle which requires instantaneous resolution. “One of the major problems as of now is the fuel crisis and to overcome it, several measures have to be taken. The government has already begun importing 600 MW electricity from India, and plans to import another 2,300 MW by 2022.” Ahmed proudly shared that it was the ADB that initiated the idea of electricity exchange between India and Bangladesh and provided technical assistance in 1995. ADB also financed the construction of the first interconnector and associated 500 MW substation in Bangladesh and also financed the expansion of the substation to reach 1,000 MW capacity. It plans to further finance other proposed interconnection facilities too. Increased power import from India, commissioning of 3,700 MW coal-based plants during 2019-2023, commissioning of 2×1,200 MW Rooppur nuclear plant in 2024-25 and construction of planned coal-based power plants in the future will reduce the power sector’s dependence on natural gas, according to Ahmed.
The Circuits that Connect the Future
“The government is progressing well in meeting power generation needs by implementing power plants in both the public and private sector and on a joint venture basis.” Although Ahmed feels that the government’s role has been quite remarkable, he believes that there is still an inevitable need for close monitoring of demand growth patterns, alongside updating growth projection realistically to avert the risk of ending with generation overcapacity. “When looked at from the energy security point of view, energy generation balance should be maintained in both the public and private sector.”
Substantial investment will also be needed for the construction of new power plants and the evacuation of power from new power plants with high voltage transmission lines. Existing transmission system with high-cost advanced technology based high capacity conductors at a high voltage also needs to be updated. The distribution system also needs to be expanded and upgraded to meet the demand of consumers, ensuring reliable and quality power supply. Capacity enhancement of existing transmission lines by restringing with advanced technology based high capacity conductors will be necessary to avert construction of new lines. He further explains that power distribution entities will require substantial funding to expand and upgrade distribution systems for uninterrupted distribution of generated power to the consumers, reducing technical losses.
“Balanced development of generation, transmission and distribution segments is essential in optimizing the distribution of generated power,” Ahmed concludes.