Excerpts of ADB Evaluation Study (Oct 2009) – “Bangladesh – Energy Sector”:
Power shortage has persisted and there is a critical shortage of base load capacity; no new, low-cost baseload capacity will be available before 2013. The policy of expecting independent power producers (IPPs) for base load capacity while providing donor support for peaking plants has not proved successful;[1] reasons cited include – poor investors climate for foreign investments following 1997 Asian crisis and the failure of large IPP investors such as Enron; governance issues; uncertainties over gas supply; and lack of capable domestic private sector investors.
Corporatization of BPDB's generation function and power distribution in the northwestern zone has not resulted in the expected outcomes. The full benefits of corporatization are realized over many years and there can be initial setbacks. BPDB's generation function requires a significant restructuring to improve its operational performance (i.e., plant efficiencies and availability). BPDB also requires a major financial restructuring, including a write-down of outstanding liabilities to the Government. [The World Bank is providing assistance to the Government on this area.]
The recent attempts to corporatize the remaining operations of BPDB have not been successful due to increased resistance from the stakeholders. ADB provided technical assistance in 2005 to undertake comprehensive restructuring of BPDB's remaining functions. However, the Government has not yet made a final decision on the acceptability of the TA consultant's recommendations. BPDB, together with residual DESA holding its financial obligations, requires a major financial restructuring, including a write-down of outstanding liabilities to the Government. The World Bank is providing assistance to the Government on this matter.
Improved corporate governance, managerial autonomy, and performance-based incentives can significantly change institutional performance even if there is no change in ownership and personnel. The improved operational and managerial performance due to the commercialization and corporatization of Power Grid Company of Bangladesh (PGCB) and DESCO has demonstrated that full privatization alone is not an essential requirement for improved performance; appropriate incentives and a corporate culture must be provided.
Continued ADB involvement in –
(The ADB report further suggested that) the public sector financing of baseload power generation sector be considered as an option while continuing to support the solicitation of private sector investments in power generation. However, given the poor track record of BPDB in operating the existing power plants, any assistance to public sector power generation should be provided through the newly created public sector power generation companies operating under commercial basis.
To address energy security, ADB should support the public sector gas companies to maintain the production levels of existing gas fields while supporting policy reforms to attract new investments to develop new gas fields.
ADB is ideally positioned to advice the government on environmentally and socially sustainable development of the coal sector as means of promoting fuel diversity and the energy security of Bangladesh.
ADB Should Put Increasing Emphasis on Promoting Regional Trading in
Electricity. Regional trading in electricity will enable Bangladesh to benefit from the
hydropower resources in neighboring countries. ADB is ideally positioned to assume the role of honest broker in facilitating power transmission connectivity between India and Bangladesh. ADB could also provide technical assistance to finalize the commercial and technical arrangements to enable Bangladesh to take part in the India power market.
Recommendations (for 2011-2012):
Increase efforts to attract new investments to power generation
(i) Increase efforts to promote commercialization of the generation operations of BPDB and to promote public private partnerships in power generation
(ii) Consider financing public sector baseload power generation plants using more efficient technologies to compliment the on-going efforts to solicit private investments subject to government agreeing to commercialize the generation operations of BPDB
(iii) Consider advicing the government on environmentally and socially sustainable
development of the coal sector as a means to promoting fuel diversity and energy security in Bangladesh
Promote regional trading in the power sector
(i) Increase emphasis on promoting regional trading in electricity to enable Bangladesh to benefit from the hydropower resources in neighboring countries
(ii) Take advantage of ADB’s position to assume the role of honest broker in facilitating power transmission connectivity between India and Bangladesh for mutual benefit
http://www.adb.org/Documents/Reports/SAPE/BAN/SAP-BAN-2009-36/SAP-BAN-2009-36.pdf
[1] The generation capacity of the private sector as of 2009 is 1,727 MW, consisting of (i)
six IPPs having a total capacity of 1,271 MW, supplying power to BPDB under long-term power purchase agreements; (ii) six small-scale IPPs (less than 30 MW) having a total capacity of 99 MW; and (ii) 252 MW of generation capacity procured on short- to medium-term basis under rental arrangements. [The installed power generation capacity has increased to 5,600 MW and the derated generation capacity is about 5,050 MW as of mid-2009. Due to maintenance outages of plants, the maximum availability of generation capacity is in the range of 4,000 MW, and this is further reduced to around 3,600 MW due to gas supply shortages.]