Business is not an easy job anywhere in the world. But it is tougher in Bangladesh than any other country. Whatever the government says on an investment-friendly environment, the businessmen know the tough reality. Unfortunately, not only the local entrepreneurs but also many foreign investors gathered horrible experiences that they had never expected. Talk to businesspeople in any social party, you will find everyone has a story to tell. Even one does not need to have chat with a businessman or an investor directly, when finds a lead news item that Managing Director of Korean EPZ sustains serious bullet wounds and an accounts officer of Taiwanese Fu-Wang Group is shot dead in the port city the same day. In this era of cyber communications none can hide such negative impression from the prospective foreign investors.
The Prime Minister can ask the local journalists not to publish reports that “tarnish the image” of the country. But do really the reports tarnish the country's image? Or an incident itself is responsible for that? If the MD of an exclusive Korean Export Processing Zone who is also a retired naval commodore and ex-Chairman of Chittagong Port, the country's main trading hub, is seriously injured or a local official of a Taiwanese company is killed by the snatchers, what signal goes abroad?
If a foreign journalist while visiting Bangladesh sees that a businessman is killed in broad daylight for toll and from his journalistic queries comes to know that such incidents are not uncommon in this part of the world, what will he write? What the journalist will report if his investigation finds ruling party peoples' involvement in realizing ransom after kidnapping a leading Chittagong businessman, who is also a ruling party leader? How can one expect that the reporter will write that Bangladesh is the land flowing with milk and honey if the journalist also comes to know that the kidnapped businessman did not return even after many months despite an order from the Prime Minister herself to rescue him as soon as possible. Will it be proper to expect that a journalist will file a report that an excellent investment-friendly environment is prevailing in the country although he comes to know that the family of the kidnapped businessman is planning to leave the country for their own safety? Or he finds that even the poor vendors are extorted everyday and truckers while carrying garments, country's major foreign exchange earning product, killed on the highway, by the ruling party hoodlums no matter which party is in power? How can be a foreign journalist convinced that an excellent business environment exists in the country if he knows that a leading businessman and his son were not only killed, but their bodies also cut to pieces and spread?
A lot of debates are taking place after the recent story on Time magazine that calls Bangladesh Asia's most dysfunctional country. What is in the report? Nothing but a composition of Bangladesh's present law and order situation, corruption, extortion and political impasse. Interestingly, journalists themselves joined the debate; some heavily came down against the report and finally rejected it. One can understand the reasons behind statements like political parties from the leaders of certain journalists' union and the press club -- their affiliation with the ruling party and thus coterie interests. The same thing would happen had the present opposition been in power; just the statement would come from another group. Apart from the socalled journalists' leaders, some columnists also joined the debate. A columnist in the country's only business daily tried to establish that the Time report was not a true picture of the country. But he was trapped by his own words as he came up with an observation that the Time report is nothing new; everything has been reported in local media. What's wrong to write an article in an international magazine on the matters the local newspapers and nowadays television channels are reporting everyday?
Yes, obviously there are positive things -- macro-economic stability, microcredit programs and readymade garment industry. And international press is reporting those things too. But the success stories do not necessarily mean that the negative things would not be exposed, if there are widespread corruption, massive extortion, serious deterioration of law and order and a journey to an uncertainty due to political instability.
These are the things -- corruption, extortion, terrible law and order and political instability -- making business and investment tough in Bangladesh. Just go through minutes of meetings of chambers and trade bodies, you will find the four issues always dominate the discussions. The business leaders on every occasion tried to raise their voice on the issues, but the situation remained the same. All the four things are making their business costlier, which could make them finally unfit to survive in the global market in this era of globalization and competitiveness.
It is not like that corruption exists in Bangladesh as only the Transparency International Corruption Perceptions Index found Bangladesh as most corrupt country for three consecutive years. It is visible everywhere -- from police stations to corridors of the courts, from the education board offices to hospitals, from Secretariat to any corporation building, from getting a gas connection to having a bank loan.
Just share the experience of a journalist who is now in his mid 30s. “It was 1988, I passed HSC exam from Ananda Mohon College in Mymensingh. When the marks-sheet came, I find there is a minor mistake. They put 138 in total column although the separate marks in two papers showed 70 and 71. Next day I rushed to the board office at Bakshibazar in Dhaka by traveling 120-kilometer from Mymensingh and found hundreds of examinees like me who also came with similar minor problems. I found the right desk to notice the mistake and a clerk received my marks-sheet asking me to see him after 10-15 minutes. As I went to him after 20 minutes, he asked me to come after another half-an-hour. I went to him after 40 minutes and again he asked me to go outside for another hour. I didn't smell anything wrong so far, but now I guessed something wrong. I asked a boy who got his paper corrected within five minutes as to how he could manage it so quickly. He laughed at me and asked how much I paid the clerk. As I replied -- none, the smart boy asked me to pay the clerk only 15 taka and get the job done. Bribe! Yes. I had no other option, but to give the clerk that petty amount of money; and believe me the same clerk who was asking me so far to see him after 10-15 minutes, half-an-hour, an hour, just smiled, went to a restricted room and returned with the small correction within five minutes. I realized that they made the mistakes in the marks-sheets of thousands of students just to have the money.”
This is a miniature example of corruption. Over the years it got an institutionalized shape in almost every sector of the country. Apart from other things, the corruption is badly hindering the business and investment. Many studies found that investment and economic growth would increase if Bangladesh could reduce corruption.
One such recent study was carried out by Bangladesh Enterprise Institute (BEI) of former diplomat and ex-Executive Chairman of Board of Investment (BOI), Farooq Sobhan. The study on “Reducing the Cost of Doing Business in Bangladesh” concentrated on eight major sectors: law enforcement, legal system, power, telecommunication, BOI, gas, ports and taxation. Apart from corruption, it also highlighted other technical aspects in the sectors, which are increasing the business costs in Bangladesh.


BEI Study: Power Sector

The government claims that 32 percent of the population has the access to electricity. The World Bank and other sources say it will not be over 18 percent. However, those who have electricity connections normally receive an unreliable supply of poor quality power. “The inadequate and unreliable power supply has an adverse impact on economic activities and constraints economic growth. Extensive loadshedding from time to time, particularly during peak hours, normally disrupts industrial production, thus affecting the country's external competitiveness. Entrepreneurs have been forced to invest in stand-by generators, which raise production costs. Captive generation by the private sector has gone up considerably, reportedly to around 600-700 MW,” said the BEI study.
A World Bank study on “Cost of Electricity Outage” estimated that unplanned outages due to poor maintenance and fluctuations in frequency and voltage due to outdated management infrastructure led to about US$ one billion in lost industrial output annually for about 0.5 percent in GDP growth. “Competitiveness is further eroded by need to maintain backup generators due to unreliable supply,” said the World Bank study.
On the other hand, the Investment Climate Survey (ICS) conducted by the BEI in collaboration with the World Bank found that enterprises in the study reported that they experience power outages and surges about 250 days per year, on average with many firms reporting outages and surges everyday they operate. “These power problems impose real costs on firms.”
The ICS found whereas 72 percent of the local enterprises reported that they had a generator, only 42 percent of firms in Pakistan and 27 percent of enterprises in China reported the same. “Relying on generators, however, is costly, while firms report paying about four taka per kilowatt-hour (KW/h) from the national grid, they plan more than six taka per KW/h to use their own generators -- nearly 50 percent more than that cost of purchasing electricity from the grid. Moreover, generators are not cheap; firms tend to pay more than US$ 20,000 for their generators, though some firms buy very small generators for under US$ 1,000 and a few report purchasing extremely powerful generators for more than US$ 500,000.”
“Thus, even if direct losses from power outages amount to only three percent of production, it is clear that the true costs of a poorly-performing grid are much higher. To maintain production, firms spend large sums both on ensuring that they have their own generation capacity and on using it. These backup systems impose costs on firms that firms in few other countries must bear, quickly undermining cost advantages that they might otherwise enjoy,” said the BEI study on “Reducing the Cost of Doing Business in Bangladesh”.
Similarly the ICS said: Underdeveloped power sector is a serious constraint on business operations and growth in Bangladesh. Only four percent of enterprises reported that electricity posed no constraint on business operation and growth, fewer than in either Pakistan or China. In Bangladesh, the median estimate of lost sales due to power outages was one percent, compared to zero percent in China.
Regression results demonstrate that even controlling for industry's fixed effects and firm characteristics, sales and investment both suffer as the number of power disruptions increases. “Indeed, an average firms report losing more than three percent of their production due to problems from the electricity grid,” the survey added.
It said: unplanned outages are always costlier to the consumers than planned outages. Moreover, advanced industries such as the semiconductor industry require not only continuous electricity supply but also high quality supply where the voltage and frequency of supply are properly maintained. Although, it said, reliable estimates are not available various manufacturers association indicates that production could be about 10 percent higher if power supply was available without disturbance or loadshedding.


USAID Study

Here is one more study.
A US agency found that power outages cost Bangladesh US$ 778 million in lost industrial production a year. The USAID-sponsored study, titled "Economic Impact of Poor Power Quality on Industry, Bangladesh", observes that the loss translated into 11.54 percent of the industrial sector GDP or 1.72 percent of the national GDP in fiscal 2000-01.
South Asian Regional Initiative for Energy (SARI/E) and Nexant, a US-based research organization, jointly conducted the study for the United States Agency for International Development (USAID).
It found 94 percent outages unplanned and 6 percent planned, and thus nearly 14 percent of the industrial sector's electricity demand could not be met by the utilities. On average, the study report says, 64 percent of the industrial installations in the country have standby generators, mainly diesel-fired. "Assuming that the standby generation facilities are in operation throughout the grid-supply outages, the additional financial burden on the industrial sector is estimated to be about US$ 4.5 million a year."
Under the study, investigation was carried out using a detailed nationwide survey sample of industries consisting of 208 installations, covering main categories of industries contributing to the country's gross domestic product (GDP) growth. "Although 95 percent of the participating industries felt they overpay for the quality of power they receive, 50 percent of the samples still would be willing to pay even more for higher power quality," the US agency for development said. Also, more than half the sampled industries would have invested more in electricity-dependent industries if the quality of power supply were better.
According to the study, industrial sector's losses attributable to unplanned electric power interruptions, averaged 0.83 US$/kWh, while only 0.34 US$/kWh for planned outages. "Thus the unplanned interruptions result in economic losses that are nearly two and one-half times those of planned interruptions.” Further, voltage fluctuations can cause major problems in certain industries, such as manufacturing and chemicals, while others, such as wood and cork industries, are completely unaffected.
The study found the frequency of unplanned interruptions during the year (2001) having averaged nearly one interruption per day, lasting about two hours. By contrast, the number of planned interruptions is about one in two months, but each lasting about seven hours. "Therefore, 94 per cent of the total unserved energy resulting from interruptions is due to unplanned outages, but only six percent is attributable to planned outages. Overall, nearly 14 percent of the industrial-sector electricity demand cannot be met by the utilities due to planned and unplanned interruptions."


Power Tariff

According to the BEI study 55 percent people think that the power tariff rate is high in the country.
“Because of the old, worn out supply lines and mismanagement in power generation, loadshedding has risen enormously. The price of electricity per unit has also gone up. The consumers are paying more but the supply situation has deteriorated continuously. As a result, the costs of doing business in Bangladesh are going up, which especially affects the productivity of the manufacturing sector,” said the study.
According to a study of Japan International Cooperation Agency (JICA), the PDB is incurring a loss of several billion takas every year due to pilferage and a faulty transmission and distribution system that is the cause of high system loss. It found that transmission and distribution system loss is 40-45 percent although PDB claims that the system loss is running at 5-6 percent in transmission and 25 percent in distribution system. Despite having skilled technical manpower, the PDB is incurring the losses due to faulty metering and billing systems.


Corruption in Power Sector

Not only the dilapidated power system is responsible for causing losses in business. Also corruption has a role.
According to a BOI publication, an industrial consumer who wants electricity connection must submit two copies of an application along with a number of documents. Required documents include a complete set of plans for the proposed industry, comprehensive drawings of the electrical installation and equipment, and the proposed connection of substation and lines up to the delivery point. The BOI publication says that an applicant can obtain the letter of consent from the representative of PDB/DESA within 15 working days from the date of submission of a complete application.
In reality, the story is far different. After an application is submitted, the BEI study found that inquiries and requests for supplementary information continue for many months, which delays approval and impose a significant financial cost on the applicant.
The BOI investment handbook shows that the applicant should get a permanent electric connection within five working days from the submission of proof of the security deposit through the BOI's one-stop service center.
However, entrepreneurs who were interviewed by the BEI in the ICS told a different story. Most narrate stories of delay, harassment and unnecessary queries by the PDB/DESA personnel, designed mainly to extort money,” said the business cost study. “Moreover, allegations of requests for personal payment arrangements prior to providing a regular connection are common at the field level.”
According to the BEI, 55 percent of respondents stated that extra payments were required to obtain new electricity connections although 30 percent did not face any problem. On quality of electricity they receive, 65 percent said it was poor or very poor.
“The general public perception of the power sector is that corruption is rampant,” the study said referring to 65 percent respondents who said PDB people are dishonest, corrupt and inefficient. They believe that problems persist due to dishonesty and corruption of people working in the power sector.
The latest examples of harassment and bribing were noticed when a large number of entrepreneurs went for setting up CNG filling stations in the capital and sought electric connection. Several investors alleged that they each had to pay Tk 1-1.5 lakh for getting electricity connection.


Clandestine Users

However, there is other side of the story too.
Official documents of the PDB show that pilferage, theft and unauthorized use regularly deprive it and DESA of a huge amount of revenues. One primary way this occurs is through connections that are not officially recorded. The unauthorized connections, in most cases getting better services than the legal connections. A nexus consisting of power sector employees, trade unionists and a section of industrialists are responsible for such clandestine connections. Also the manipulation in meter reading deprives the power companies of due revenues. Who does not know the lavish lifestyle of the meter readers!
Former Chief of Caretaker Government Justice Latifur Rahman in his book “The Days of the Caretaker Government and My Views” presented a dismal picture of the sector. He had ordered a line disconnection drive for defaulters and clandestine users. A total of 8,474 lines were disconnected in the DESA area alone during August-October, 2001. Of the lines snapped, 6,094 were illegal users and 2,380 of the defaulters. Following collection in fines and realization of past due amounts, the revenue income of DESA increased by Tk 110 crore during July-October, 2001.
The accounts receivables for PDB is currently about Tk 37 billion, equivalent to almost 12 months sales revenues. DESA alone accounts for 74 percent of PDB's account receivables. On the other hand, private consumers account for 69 percent of DESA's account receivables.
Due to the dismal picture in the power sector, the ultimate sufferers are the true consumers. They pay more, but get poor electricity. And for the businesspeople their cost rises.


BEI Study: Gas Sector

According to Petrobangla, about 58 percent of gas produced is used for power generation, 24 percent for fertilizer production and remainder for small industrial, commercial and domestic consumers. A World Bank study shows that access to gas in Bangladesh is limited to nine percent of the households, mostly in urban areas. However, the gas demand of captive power generation can not be accurately estimated.
“While the issue of gas export and its economic benefit to the country is being fiercely debated, access to domestic gas, particularly for entrepreneurs in the manufacturing sector, leaves much to be desired. Inefficient gas sector operations and corruption at different levels impose a high cost on manufacturers, for whom gas is a key input in the production process,” said the BEI study on cost of business.
In contrast to electricity generation, the study opined, the low price of fertilizer in international market raises question about using the natural gas for this purpose. “Residential use of natural gas is also problematic, because of the low specific consumption of households together with the high fixed cost, and because of irrational pricing of gas, the subsidy accrues to high income groups.”


Gas Connection: Not so Easy

Obtaining a gas connection is not so easy in Bangladesh, even not in an industrial zone. Small industrialists in Kanchpur BSCIC, adjacent to the capital, had to wait months after months to have gas connection after setting up their units. During the period they had to pay the bank interests although there was no production due to the absence of gas. Finally State Minister for Energy AKM Mosharraf Hossain himself had to interfere, but still there were some problems. Asked by the minister, Titas officials and employees who earlier had been reluctant in giving the gas connection for understandable reasons finally went to bring the BSCIC under gas network. But they found that they need permission from the Roads and Highways Department to take gas pipeline over its land. Now the entrepreneurs rushed to the concerned department only to face more bureaucratic hassles. However, they were lucky enough to know certain powerful officials at the Prime Minister's Office, and thanks to personal initiative by the PMO officials, Kanchpur BSCIC finally got the gas connection. But how many small entrepreneurs are there in Bangladesh to know so powerful people whose interference is required for gas connection for an industry, ultimately which will have a role in the national economy, whatever small amount it is.
The BEI study said: businesses encounter many difficulties in obtaining gas connections. Procedures to receive a connection are lengthy, not very transparent.
According to the BOI, an industrial consumer who wants gas connection for a project is required to submit two copies of the prescribed forms along with as many as 14 documents. These documents include registration, boiler certificate and solvency certificate. “The procurement of each document serves to multiply the hassle, expense and delay that businesses face,” said the BEI report.
The Energy and Mineral Resources Division has recently simplified the gas connection procedures. But none expects that the orders will be carried out in the field level as the simplified procedures will “deprive” the corrupt officials of handsome amount of bribes.
The ICS revealed many stories of harassment and expense in procuring and maintaining gas supplies. The operating director of an enterprise angrily pointed out that in spite of his best efforts for one year and after spending over Tk 60,000 it had not been possible for the company to convert a residential gas connection at a rented house into an industrial connection. Even the residential gas connection that was being used for trial production was cut off because the gas company said it was being used for industrial purpose. Although the enterprise had followed procedures in applying for a change in the type of service since industrial production was in trial stage, in the end they were punished for doing so and were left with no gas connection. Gas company officials asked for a bribe to restart service, which resulting in a disruption of trial production operations.
Another entrepreneur with a manufacturing plant at Savar told the BEI interviewers a similar story. “It took 23 months to complete the formalities for a gas connection at the factory for trial production, which was a big setback for our planned operations and a heavy financial loss at the beginning.”


Corruption in Billing

Billing system in gas supply is another chapter where exists rampant corruption. In the ICS, very few enterprises did not complain about the billing practices of the gas companies. The survey revealed that there is an organized system for extracting extra money from commercial and industrial users of gas, forcing them to spend extra money just to maintain their gas connection and continue their regular production processes.
An entrepreneur alleged that they had not been supplied any bill for nine months and had to come to an unofficial arrangement with the officers of the gas company to settle the outstanding bills, which amounted to several hundred thousand taka. “This extra amount was not included in the initial planning of the production scheme.”


Evil Nexus

Like power sector, clandestine connections also exist in the gas sector. Many customers prefer private deals with the gas company officials. A taskforce unearthed clandestine gas connections in and around industrial belts in Dhaka, Narayanganj, Tongi, Ghorashal and other parts of the country. There are also many examples that some entrepreneurs damage the meter reading to avoid payment of actual bills. But here too presence of gas employees is found. Without involvement of corrupt gas officials and employees, the entrepreneurs cannot go for such malpractice. Court injunction is another weapon that some industrialists opt to maintain gas supply to their units despite non-payment for months after months. The State Minister for Energy AKM Mosharraf Hossain on various occasions tried to settle the cases outside the courts for making an early realization of arrears, but the move did not see any success as again the corrupt gas officials and employees do not want to see the settlement for their personal interests. In fact, these are the people who help the dishonest entrepreneurs in maintaining illegal gas connections and non-payment of bills months after months.
In regards to clandestine gas connections and non-payment of bills, the trade unions have a major role. Appointment of meter readers and other employees take place as per desire of the trade union leaders who make such arrangements in exchange of cash. Again the trade union leaders have to pay their senior leaders affiliated with the main political party. That is why the present administration could not succeed in bringing the interference of the trade unionists into the management to an end.
Because of the corrupt officials and dishonest entrepreneurs, the ultimate sufferers are the genuine businesspeople and investors as well as the government. The system loss in Titas is now 10 percent. Interestingly there is no system loss in regards to bulk supply of gas to power stations and fertilizer factories. All the system loss takes place in the non-bulk sector, meaning it is clearly a theft. How can one believe that when no system loss takes place in making 82 percent bulk supply to power and fertilizer sectors, huge system loss is taking place in supplying only 18 percent to the industrial, commercial and domestic consumers. One will wonder to see the simple arithmetic. If 100-MMCFD gas is supplied, no system loss occurs in supplying 82-MMCFD, but 10-MMCFD is lost in delivering only 18-MMCFD. So, when largest gas distribution company Titas, responsible for over 70 percent gas supply of the country, says its system loss is 10 percent, one must understand it is over 50 percent in the non-bulk sector as there is no system loss in the bulk supply.
As Titas has become a den of corrupt officials and employees, the Energy and Mineral Resources Division has planned to turn three distribution companies into five to ensure better customer services, especially in the private sector, ensure proper realization of revenues and checking gas theft in the name of system loss. But this bid too did not see success due to interference from some ministers out to serve interests of a coterie.


Business of Government

The unreliable power system, hassles in the gas connections and widespread corruption in the two sectors are not only making private business costlier, also government's own businesses are being affected. Being deprived from revenues is an added headache for the country's energy sector, which is hungry for huge required investment. How can the government ensure better service for the private entrepreneurs in lower tariffs to make their products competitive in the world market if it incurs losses due to corruption?