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Special Article
Electricity Sector Problems &
Solutions-2
Shamsul Islam
Financial Problem
For a utility to conduct efficient operation and to undertake adequate timely maintenance followed by required development activities, financial viability is essential. Primarily for the following reasons the larger electricity undertakings namely Power Development Board (PDB) and the Dhaka Electric Supply Authority (DESA) are not financially solvent anymore. On in depth scrutiny it may be evident that the REB is also not financially sound organization. Subsidization can be sustained for many years. Then again the beneficiary or electricity supply is only a small percentage of the entire population. Theoretically the electricity consumers ought to have better purchasing power than those having no benefit of electricity supply.
a. Major percentage of electricity sector investment is made in convertible and hard currency as it is not possible to produce most of the capital machinery within the country. Borrowing from different sources is a normal practice. Repayment of the loan/credit creates additional, unpredictable financial burden on the borrower organization through SLA from the GOB. The exchange rate variation risks are bourn by the utility. In some cases the exchange rate variation combined with high interest rate, the effective borrowing rate becomes much higher than LIBOR rate. This can not be a good financial management. Electricity is not an end product itself. It is used to produce goods and services.
This industry should not be considered a money making industry like many others. The rate of return in this industry is never very high even in highly developed country. It is very capital intensive and requires almost regular injection of substantial additional capital to sustain growth. Application of exchange rate variation clause for grants from external sources is a very wrong decision. Correction of this anomaly is not difficult or illegal. Whereas immediate action would improve financial situation of PDB and DESA.
b. Purchasing electricity from private producers at a higher rate and selling at a lower rate naturally creates enormous problem for utility. Again payment in foreign currency requires more and more additional Taka than estimated. Renegotiation of some of the contracts may be a viable option. In future such investors may be encouraged to come through the stock market.
c. Area coverage of rural electrification is a popular method of gaining votes in election. Selective coverage of high value adding activities like small agro industries and irrigation pumps is more beneficial for job creation and other benefits. Where large number of deep tube wells and shallow irrigation pump and surface water pumps are to be used the entrepreneurs may be encouraged to have their own generation of electricity. The demand for irrigation is seasonal and it further aggravates the gap between supply and demand during peak hours. Again the nagging question of subsidizing electricity rate for irrigation seem to persist the mind of political leaders and others. Reluctance to pay the electricity bill in time by such consumers is again a very vexing problem.
d. Purchasing of power plants and major capital equipment at exorbitant cost. Even now no standard tender document for purchase of power plants and major substations have been adopted for strict compliance. Discretion is a major source of mal practice and higher cost. Unsolicited bids must not be accepted. Free and fair competition must be adhered to for all major procurement actions.
e. Operation of oil fuel based power plants must be discouraged. Supply during peak hours need be charged at appropriate accounting costs plus reasonable rate of return.
f. Accumulation of old and unusable assets has created problems. Any store material that was not used for 10/15 years may be checked, declared surplus and sold through public auction. This is true for small unused power plants.
g. Rationalization of manpower:
Requirement of manpower with proper qualification and training need be reassessed. Objective is to create suitable, better paid and motivated manpower. Modern technology requires younger, better trained manpower. At least the need and requirement should be identified forthwith and the accepted recommendations may be implemented in phases.
h. Demand During Off Peak Hours: From 12midnight till 5am in the morning the demand goes down so much that it becomes difficult to keep larger generating units in operation. Export of electricity those hours or exchange of electricity need be considered.
Creation of Suitable, Motivated Manpower
Operation and maintenance of power plants is not a very attractive job. For them separate financial package is necessary. In this country there are several private sector company producing and selling electricity. The public sector power plants need to have employees with comparable pay scales.
At the time of recruitment the technical and other employees must be clearly told that they are to be recruited for working in power plants and subsequent transfer to a more comfortable office job is not permitted.
None would purchase an expensive car and employ a low paid driver to drive the vehicle. After spending huge amount of fund for establishment a power plant, we are entrusting operation and maintenance of those to people with very poor salary. Naturally availability of such plants is much lower than expected.
Buying the Cheapest
Purchasing equipment of comparatively new design at cheaper price can not be suitable for generating plants. Only proven equipment with a history of manufacture and operation over a number of years shall be procured. Subsequent amendments of tender document, technical and financial must be discontinued. Generally this is done at the request of pressure groups.
(In Part I of this paper we discussed several issues in brief. In the present article we intend to discuss some of the factors creating a difficult situation for the sector and we suggest some of the corrective measures)
Shamsul Islam: Former Chairman, Bangladesh Power development Board. |