Impact of power tariff hike

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Offline Jeta Majumder

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Impact of power tariff hike
« on: March 23, 2014, 04:14:37 PM »
Ready-made garment (RMG) factory owners voiced deep concern over the recent power tariff hike. A statement issued by Bangladesh Garment Manufacturers and Exporters Association (BGMEA) said the recent 6.96 per cent increase in power tariff will result in the reduction of competitiveness of the export-oriented industry.
The BGMEA claimed that factors such as the increase in the RMG production cost by 13 per cent over the recent past and the rise in the value of the taka by 8.0 per cent against the dollar have already constricted the export profit, it added.
The RMG sector is also under a tremendous pressure, both at the national and the international levels, to invest in the remediation and retrofitting of the factory buildings, particularly after the tragic incidents of Tazreen fire and Rana Plaza collapse.
Various left-leaning fronts have warned of vigorous agitation if the government does not back off from raising electricity rates, describing the latest power tariff hike as 'unfair' and 'anti-people'. Power prices have been raised 11 times since the Awami League-led government took office in 2009. This month, the tariff was further increased by 6.96 per cent on an average. The main opposition party, the Bangladesh Nationalist Party (BNP), and the left fronts held separate rallies in Dhaka near the energy ministry to protest the hike.
Energy experts fear that the persistent trend of tariff increase will aggravate inflation leading to extenuating living conditions for the public. They also dread that the government will need to increase power tariff further in order to cover the huge production costs of oil-fired rental power plants.
It is a fact that electricity is dubbed as the engine of growth for any country as it helps rapid industrialisation, accelerates the pace of socio-economic development and reduces poverty. Like any other developing country around the globe, electricity demand has been rising sharply in Bangladesh as the country's economy has been growing at an average rate of 6.0 per cent a year since 2003 outpacing the energy supply.
Country's business leaders expressed mounting concern over increase in electricity tariff which, they said, might jeopardise the country's industrial growth. A sudden and significant increase of electricity tariff would be detrimental to industry as well as the consumers, they pointed out.
Energy experts say cost increases should be reasonable, appropriate and within the context of the state of economy. It must take into account the impact on the economy, inflation and employment. A steep increase in tariff would provide greater incentives for theft and pilferage, they added.
However, before the announcement of the tariff hike, the Bangladesh Energy Regulatory Commission (BERC) commission called for a public hearing to hear the arguments and opinions of the stakeholders in the power sector, including consumer rights groups before giving verdict. During the public hearing, most of the participants were opposed to the proposed hike. They wanted drastic reforms in the sector first, before considering any proposal for giving approval to a hike for power tariff. However, the outcome of public hearing was never taken into cognisance by the authorities and this time as well there is no exception to that.
Power sector experts have suggested that the BERC should also look into consideration the outcome of the previous tariff hike before mulling further hike in electricity tariff. The commission should set standardised benchmark like systems loss, efficiency level of power plants of the state-owned entities before enhancing power tariff. They were critical over the wide variation of systems loss of the state-owned power entities pointing out the systems loss of Dhaka Electric Supply Company (DESCO) at 9.0 per cent, while that of West Zone Power Distribution Company at 22 per cent. The distribution costs of the state-owned power entities also vary from Tk 0.50 per unit to Tk 1.26 per unit due to wide gap in efficiency level of such entities, they added.
On its part, the government claimed that the decision to hike power tariff was taken to contain mounting subsidy as the cost of electricity generation is skyrocketing with the installation of high-cost rental power plants to be run by diesel and furnace-oil. It has allowed building power plants by local and foreign firms on unsolicited proposals avoiding tendering process in an unusual move to face the country's worst-ever power crisis.
Despite all these moves, inadequate steps from the government coupled with insufficient supplies of natural gas, the main fuel for the country's power generation, have been delaying installation of the much-needed power plants. Year's of apathy from the donor agencies in funding necessary power plants also aggravated the country's overall electricity crisis. Nagging electricity crisis all over Bangladesh has recently become an issue of concern of the government as the power sector is deemed by critics as among the worst performing sectors of the government. Expensive diesel and furnace-oil run rental power plant, which was nil until 2008, has already accounted for over one-third of the country's total power plants with the operation of 14 plants out of 40 operational plants
While the pilferage problem was hardly addressed, subsequent governments did not adjust power tariff in line with investment costs, pushing the PDB (Power Development Board) to a perpetual loss-making situation. Analysts believe a tariff hike should be undertaken only after exhausting all other options for increasing power revenue. These options, as there is enough reason to believe so, have not been explored to their entirety. The price of one megawatt of electricity lost due to PDB's inefficiency is estimated at Tk 200 million.
This is also true that power tariff-hike may be necessary to ensure stable and sustainable supply at a given time.. And the government can also choose to do so, as and when necessary, provided it is for public welfare. However, the move for a fresh hike to power tariff has now come at a time when the entire power sector remains chronically inefficient due to years of neglect. Without improving the situation in power sector, it will not be a rational choice to force the citizens to pay for a service that they seldom get.

Source: The Financial Express

Offline gour2010

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Re: Impact of power tariff hike
« Reply #1 on: April 01, 2014, 11:35:28 AM »
Really good post sharing as we are facing the  tremendous pressure in RMG sector .

Offline Shahnoor Rahman

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Re: Impact of power tariff hike
« Reply #2 on: April 01, 2014, 02:30:54 PM »
Informative post.thanks

Offline shahanasumi35

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Re: Impact of power tariff hike
« Reply #3 on: April 01, 2014, 07:49:51 PM »
Good one.

Offline munna99185

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Re: Impact of power tariff hike
« Reply #4 on: April 04, 2014, 01:21:54 PM »
Valuable information.


Sayed Farrukh Ahmed
Assistant Professor
Faculty of Business & Economics
Daffodil International University