When the British colonial rulers left leading to the partition of the subcontinent in 1947, the power generation and distribution of this part of the country were in the hands of some private companies. The total generating capacity of East Bengal was a mere 21 megawatts. The generation capacity of the power utility companies together was only 7 MW and there was no transmission system. The power supply to then 17 provincial districts was limited within the townships. The generation voltage was 400 volts. Power used to be supplied to most of the districts during nighttime only. Only exception was Dhaka city where power used to be supplied by two 1500 kW generators and the generation voltage was 6600 volts and this was the highest supply voltage. There was no long distance transmission line. Besides, power used to be generated by some industries (tea, sugar and textiles) and railway workshops. Dhakeswari Cotton Mills, Pahartali railway workshop, Saidpur railway workshop and sugar mills were among them. 

In 1948, according to the official website of Bangladesh Power Development Board (BPDB), Electricity Directorate was created in order to plan and improve power supply situation. In 1959, Water and Power Development Authority (WAPDA) was created and the power sector really started working satisfactorily. In 1960, Electricity Directorate was merged with the WAPDA. The basic philosophy was to give more autonomy to an organization for development of this basic infrastructure.

At that time relatively higher capacity plants were built at Siddhirganj, Chittagong and Khulna (highest plant size was only 10 MW Steam Turbine at Siddhirganj). At the same time Kaptai dam was under construction under Irrigation Department. Unit size of Kaptai was 40 MW, which for that time was considered to be a large power plant. Side by side construction of Dhaka-Chittagong 132 KV transmission line was in progress. Construction of Kaptai dam and commissioning of Dhaka-Chittagong 132 KV transmission line in the year 1962 may be taken as milestone of power development of this country. 

In 1972, after the emergence of Bangladesh through a bloody War of Liberation as an independent state, Bangladesh Power Development Board (BPDB) was created as a public sector organization to boost the power sector. 

During mid 1970s government emphasized the rural electrification for achieving a desirable social uplift in the country. A different approach and a new model was considered for undertaking a comprehensive scheme. Thus the government created Rural Electrification Board (REB) in October 1977. Later in 1991 Dhaka Electric Supply Authority (DESA) was created basically to operate and develop distribution system in and around Dhaka (including the metropolitan city) and bring about improvement of customer service, collection of revenue and lessen the administrative burden of BPDB. As DESA failed, the Dhaka Electric Supply Company (DESCO) was formed in 1996. In the meantime, as part of power sector reform program, Power Grid Company Bangladesh (PGCB) was launched as a transmission company so that the BPDB can concentrate only on generation.


Key Problems in Power Sector

By international standards, per capita consumption of electricity in Bangladesh remains extremely low as the power sector faces many problems. The problems altogether made the sector vulnerable, unreliable and often caused public unrest even leading to tragic bloodshed of common people who want electricity. Rose Murphy, Nuruddin Kamal and John Richards in a report prepared for Center for Policy Research of IUBAT (International University of Business, Agriculture and Technology) identified some key problems persisting in the country’s power sector:

• Load shedding and voltage variation: The state-owned BPDB, which controls nearly three-fourths of the total generation capacity in Bangladesh, has resorted to load shedding as a means to reconcile demand to the available capacity.

• Operating inefficiency: The power sector does not fare well in terms of operating efficiency. For example, Bangladesh requires considerably more employees per customer served than is the case in many countries.

• System loss: System loss occurs both for technical reasons and for reasons of inefficiency and corruption in administration. Exact figures of loss are unknown but, at approximately 30 percent, the net country-wide system loss is probably among the highest in the developing world. The losses incurred differ dramatically across the various utilities. 

• Unadjusted tariff structures and ineffective billing procedures: Many countries have been unable to establish tariff structures and billing procedures that enable the power sector to be financially self-supporting. The resulting losses require subsidies from government or donor agencies that divert revenue away from other important programs, such as education and public health. This problem has afflicted the Bangladesh power sector entities to varying degrees.


Non-Economic Factors

Any ordinary person understands the state of electricity in Bangladesh. Load shedding has risen dramatically, doubling (in connected load dropped at peak) every year for three running years. A record 2,800 MW was shed in one day in September last year, out of imputed peak demand of about 5,000 MW. The country has added no dependable capacity since early 2002, and most recent, publicly financed power plants are highly unreliable. In the second half of 2006, some 20 units in the system, comprising over 1,000 MW of capacity, consistently tripped or been out of service completely -- a quarter of installed capacity in the system.

In fact, power sector financial and operational performance has been deteriorating in Bangladesh over the past few years. Operating losses at the BPDB have exploded, and are on track to exceed Tk 12 billion this financial year, quadruple the previous year operating loss. The main reason for an unreliable power system and poor condition of the BPDB is dominance of the non-economic factors in the sector.


Under-Priced Power

The power and energy sector in Bangladesh was never driven by commercially, rather unrealistic decisions, influenced by so-called political factors, put the power situation into a horrendous condition. Until 1997, the power generation, transmission and distribution --everything was controlled by the government. The government never determined the price of electricity commercially, rather it tried to maintain so-called support of voters no matter where the wrong decision takes the power sector to. But, the ultimate sufferer is the government. It tried to keep people’s confidence on it by not raising power tariff and when it became one of the factors of a poor electricity system, people got anger and took to the streets.

The government in one side kept power tariff low through executive orders and on the other it could not realize the dues due to corruption and system loss. In 80s the system loss reached the level that the government got payment for only 60 units after selling 100 units. Now the realization rate is 75 percent. Many experts say that the non-technical system loss in Bangladesh is in many times higher than the technical system loss. The non-technical system loss takes place for inefficiency and corruption. The huge corruption in the power sector is possible that the policymakers are corrupt and these corrupt politicians patronize the corrupt trade unionism.

As the BPDB was heading towards becoming a bankrupt organization causing massive power shortage, the government invited private investments for power generation. With private sector joined the power generation, started a new chapter. BPDB purchases electricity from the independent power producers (IPPs) and sales at a lower rate. Also, the BPDB purchase takes place in dollars and sales in taka. The phenomenon caused dual damages. It in one side affects foreign reserves and on the other hand causes further losses for the BPDB. The losses now stood at Tk 12 billion.


Low Gas Price

Experts said that the power is chronically under-priced in Bangladesh, with the result that available supply has not been able to satisfy peak demand for well over a decade. Unreliable power supply forces Bangladeshi industry to operate backup generation; while in many countries this is significantly expensive to run, in Bangladesh most backup industrial generators run on natural gas, which the government also under prices, compared to international comparators. It has a positive aspect. Experts said that following low-priced gas, industry has been able to make a major contribution to economic growth despite power, infrastructure and trade logistic headaches, and the related productivity losses.

According to the experts, the de facto policy of using gas supplies to substitute for power has political economy rationale but a fatal medium-term flaw -- Bangladesh is running out of natural gas, for policy rather than geologic reasons; gas is under-priced, therefore much in demand, but in parallel the government has not attracted enough exploration ad production investment in gas to ensure that supply keeps up with demand over the medium term.

“Without significant power and gas sector reform, the country will experience major gas shortage early next decade. Recent operational and financial deterioration in the power sector, however, has called into question even the short-run sustainability of these policies,” said an expert.

The average price of per thousand cubic feet of gas in Bangladesh is US$ 1.4. If oil is compared with the tariff, the price of per barrel oil stands at only $ 9.0. This is also causing losses to Petrobangla, the state-run oil, gas and mineral corporation. The Petrobangla is also losing its investment capacity. 

Political Economy of Power Sector

The political economy of the power sector is of central importance in understanding the discrepancy between the degree of palpable crisis and the weak policy responses seen so far. Political economy is the intersection of political forces on economic policy -- and in all countries, policy development is driven by the underlying socio-political circumstances and consensus. In the Bangladesh power sector, the question is less, what are the political economic influences on policy, since these are, for the most part, well known and openly discussed.

The experts said that the more important question is: Why in Bangladesh do the interactions of energy sector stakeholders produce such extraordinarily bad outcomes? Even the successes in the energy sector, such as Rural Electrification Board (REB) and some of the independent power plants, are in danger of being dragged down.

“And while corruption figures prominently -- indeed it permeates the policy and service delivery culture in Bangladesh’s power sector -- it is not the only important aspect of the political economy,” said a World Bank expert.

For A Reliable Power Sector

Bangladesh’s energy sector became crippled as it had been run at the dictates of executive orders for last 35 years. As a result, adequate supply of electricity is not being possible, gas shortage will be experienced in the next decade. Specially, the sector witnessed so much of political interference during the BNP-Jamaat alliance government in last five years that it is on the verge of collapse.

The government has to decide and take pragmatic steps now to overcome the present dire situation. The first task is allowing the sector to run commercially. If the government wants to give subsidy for agriculture it has to be given directly, in no way it should be determining tariff at the executive order. Experts say that the power and gas tariff should be in line with the neighboring countries.

At present the price of per barrel oil in international market is $ 60 and per thousand cubic feet of gas $ 6.0-8.0. The gas price in Bangladesh should be on that basis. At the same time a part of revenue earned through gas selling should be invested for new exploration.

Also, the power sector should not get gas at a reduced rate. And the price of electricity should be in lieu of gas tariff. Experts said that if the selling price of gas is $ 3.0-4.0, the tariff of per kilowatt hour power should not be below five cents.

According to the experts, the non-economic factors should be removed for overall development of the energy sector. The World Bank is contemplating to make recommendations after gathering opinions from all concerned quarters. The recommendations are expected to be submitted by May next. The government should seriously look into the recommendations.