Electricity for All - Access to power in Bangladesh

Why do power sector problems persist in Bangladesh? What can be done to solve them? This report assesses the barriers to accelerated electrification - in particular the barriers to rural electrification – and puts forward practical recommendations. At the time of partition of India in 1947, the total generating capacity of East Bengal was a mere 21 megawatts (MW), all of it privately owned. A half-century later, in 2001, total installed capacity was an estimated 4555 MW – more than a 200-fold increase. This is an impressive achievement. By international standards, however, per capita consumption of electricity in Bangladesh remains extremely low.
The Bangladesh power sector faces several key problems:
• Load shedding and voltage variation.
• Operating Inefficiency.
• System loss.
• Unadjusted tariff structures and ineffective billing procedures.

Why do power sector problems persist in Bangladesh? What can be done to solve them? This report assesses the barriers to accelerated electrification ¬– in particular the barriers to rural electrification – and puts forward practical recommendations.

Recommendation One:

The REB should place a high priority on major expansion of power generation independent of the national transmission grid in off-grid areas.
One of the key factors slowing the rate of electrification in rural Bangladesh is the low quality of the electrical service supplied by the BPDB. The extent of load shedding and voltage irregularity complicates the task for PBSs in imposing tariff structures adequate for cost-recovery: customers strongly resist paying higher tariffs for an unreliable service. It also discourages applications for connections.
Power generation by the REB will indirectly aid the BPDB by lowering the demand by REB customers on BPDB generating capacity. Another benefit from any major expansion of the REB into power generation is that this will relieve pressure on the Government of Bangladesh from oil and gas companies to undertake gas exports. Such exports are not in the best long run economic interest of Bangladeshis and are politically unpopular among the majority. Besides other considerations, institutional reform of the power sector is a must to counter the arguments for export.

Recommendation Two

Establish a regulatory regime capable of assuring appropriate tariffs throughout the REB/PBS network.
The critical point in expanding rural electrification hinges on the ability and willingness of customers to pay.
Significant private investment may not be forthcoming unless the REB can credibly assure investors that they will be able to recover their costs over the lifetime of the projects. If the PBSs substitute power generated by IPPs for power previously purchased from the BPDB at preferential rates, average tariffs charged may need to be adjusted. Raising tariffs will not be easy, but it is important that individual PBSs realise financial self-sufficiency in the long-run.

Recommendation Three

Initiate a more sophisticated relationship between the REB and the PBSs: allow those PBSs that are competent more autonomy and take under temporary trusteeship those with particularly poor financial records.
Given current energy sector trends and advances in generation technology over the past two decades that have allowed smaller generation plants to become economic, it may well be that further decentralisation – in the sense of the REB yielding more financial and managerial power to the mature PBSs – is now required and desirable.
The financially healthy PBSs with positive margins are a valuable source of managerial competence in the Bangladesh power sector. Their role could be expanded. They should be granted greater financial autonomy, and encouraged to undertake more ambitious projects, such as contracting with IPPs, redesigning their tariff structures so as to increase connections, and improving service quality for customer-members.

Recommendation Four
Extend micro-credit to households for the financing of investments in electrical access.
If the rural poor are willing and able to pay electricity tariffs, but are held back by an inability to finance a connection, this represents a policy failure. Either the REB or an existing micro-credit organisation (such as the Grameen Bank or BRAC) should extend credit, with appropriate loan guarantees.

Recommendation Five
Consider various forms of distributed generation alongside grid extension when electrifying a new area. Given that the REB has followed a policy of connecting the most economically attractive areas first, further expansion of service will be to increasingly remote areas with weak loads. Decentralised alternatives such as diesel, biomass, solar and wind may be cheaper than grid extension in these areas, and should be considered as part of the planning process.