Solving the Energy Crisis in Bangladesh

Salman Rahman and Forrest Cookson The nation is now trapped in a cruel energy crisis undermining the quality of daily life, disturbing factory production, making examination studies more difficult, reducing the volume of water available in Dhaka and threatening economic development. These are serious consequences. It is not our intention here to blame anyone for actions taken or not taken. What has happened has happened. However, it is clear to everyone that a strong, action oriented program is needed to overcome the crisis. We have set forth here just such a program. The ideas in this article have been discussed in various forums by many experts. What we offer here is to bring all the threads together into a coherent package. The program outlined can readily be executed with dramatic improvement in the availability of electricity. It is essential to keep focused on the key actions. There is too much wandering around looking for magic solutions. There are none. Programs that come to fruition in ten year or more are of little help in the immediate crisis that has enveloped the nation, a crisis that could last for a decade if determined actions are not taken. We have become very skeptical about what can be expected as there is a long history of false claims and broken promises from the Government organizations responsible for providing gas and electricity to the nation. Our approach is very simple. For the next four years the only fuel available for generating electricity is gas. Diesel can be imported for critical generating requirements or for standby; power and solar power can provide some power for some buildings but it is only natural gas that will provide the large amount of additional electricity. To provide this natural gas a series of actions are necessary: SIX CRITICAL STEPS COMPLETE IN THREE MONTHS 1. Close down all the government owned urea plants and divert the gas released to power and industrial use. This must be done promptly, but systematically, simultaneously increasing urea imports. The Government has under consideration closure of the Chittagong urea plant on a temporary basis. We are arguing for shutting down all urea plants for several years to provide gas to fuel a major increase in power. KAFCO will probably have to remain open but the financing of the plant may be reviewed and refinancing at lower interest rates and for a longer time period sought. If it is impossible to close KAFCO at least one should try to get the best possible price for the urea, linking the selling price to the costs of production, not the international price. Closing the urea plants is the only immediate source of additional gas. Without this extra gas additional electricity cannot be produced. 2. Sign long term agreements to import urea. Now is the time to do so as international price of urea is low. 3. The improvement of the gas pipelines and installation of compressors to increase pipeline pressure should be implemented immediately without concern for whether the ADB portion of the project finances enough of the total cost. Raising the pressure in the gas pipelines is essential.

The PM noted the urgency of this when the project was approved but the completion of the contract is still being worked on. Government should be prepared to finance itself the additional amounts required. Many industries require gas for heating purposes and with the current low line pressures plants face much more difficulty, reducing production and increasing unit costs. 4. The Government should contract for several large barge mounted power plants as was done in the previous AL government; however, these should be short term contracts for only a few years. These barge units will use much of the gas released from the urea plants. These barge mounted plants should be able to supply 600 MWs additional capacity by the end of the year. We believe that aggressive management of the power generation will enable the Government to have an additional 1000 MWs producing electricity by the end of the year using existing generating capacity and rented barge mounted plants. This will ease the power crisis and provide breathing room for a few years while other fuel sources are developed and the required power plants constructed. 5. Instruct Bangladesh Bank to begin to buy additional foreign exchange at the rate of $25 million per week to finance the import of fertilizer. We expect that the total bill for urea might come to one billion dollars per year. 6. Water in Dhaka: The supply of water in Dhaka is significantly reduced as a consequence of power outages and the failure of WASA to provide back-up diesel driven generators. Low water changes, corruption, falling water table, neglect of maintenance for the distribution system have combined to make the water supply system very vulnerable to disruption. There are grand projects to fix these infrastructure problems but action is needed at once to ease the shortages. The Financial Express quotes a WASA official that about Taka 600 million is needed for stand by diesel generators. This is less than US $10 million; the Government should procure these at once and of necessary airfreight them. In the interim WASA should rent or borrow generators from anyone that will spare them. FOUR CONTRACTUAL ACTIONS: There are four complex contractual actions to be achieved. These are all rather urgent and should be completed in six months. This is a very demanding task but completion of these tasks is essential to insure the expansion of gas, electricity and urea after the next four years. 7. Contract for one or two large [about 500MW each] gas fired plants. Once these plants come on line the barges rented on a temporary basis would be sent away. Diverting the gas from the urea factories and improving the capacity of the pipelines will enable gas to be delivered in amounts that will support the private sector and enable the national grid to deliver much more electricity. 8. Contract for new urea plants that are more efficient users of gas. As coal fired power plants come on line in five years the gas can be sold to the urea factories enabling imports of urea to be curtailed. By that time inefficient gas fired power plants can be decommissioned, and there will sufficient gas for the renewed urea production. 9. Contract for open pit mines at Barapukaria and Phulbari and associated coal fired power

plants. These contracts would target to production of 12 and 15 million metric tons of coal per year displacing coal imports [currently about 5 million mt] and providing ultimately 18 million mt to the power plants [enough for 6000 MWs] and exporting high value coking coal. Contract for three coal fired power plants each for 1000 MWs planned to come on line in about four to five years. When these plants are available gas is switched to new efficient urea plants and peaking plants for the power sector and for direct industrial use. 10. Accelerate the exploration for gas. Conserve electricity and natural gas by raising the price of both to households and by installing meters on gas connection as rapidly as possible. Price hike of electricity and natural gas may seem to be an unpopular move in the short term but in the long run these steps will prove to be good for the country. SEVEN PROGRAMS TO IMPROVE THE ENERGY AVAILABIOLITY: These programs are complex and require major efforts; these are important complements to the major actions covered in points 1-10. 11. Conserve electricity and natural gas by raising the price of both to households and by installing meters on gas connection as rapidly as possible. In addition, existing industrial meters should be checked and monitored to reduce corruption. Further, the government should promote LPG as a residential cooking fuel by raising the price of natural gas and insuring the build up of the availability of LPG. There have been numerous proposals to improve energy conservation including use of energy saving bulbs; these should be implemented. Conservation will pay off but all of this takes time, and will not ease the crisis but by starting now in a major way after three or four years we should see a significant impact lower as demand. 12. The price of electricity and gas must be raised to insure that production costs including a reasonable return to capital are fully covered. This is essential to encourage conservation. Most actions taken recently encourage use not promote conservation. But it is also essential that the taxation of the sector should not be excessive. 13. Improve the electricity distribution systems in Dhaka. More than 10% of the electricity generated is lost in the transmission and distribution system. Fixing this is a major undertaking but much can be done in the next two years to reduce heat loss in sub-stations. A systematic program is needed to clean up the network of cables, wires, transformers, and illegal connections. Much progress has been made; it must be accelerated. 14. The progress made during the Caretaker Government to reduce system losses in gas and electricity must be continued by aggressive administrative and police action. We have learned how much corruption existed in the Governments energy enterprises. Efforts to stop this corruption and improve the performance of the distribution companies must be implemented. 15. Government policy should focus on regulation and sound policies. The history of the Republic has demonstrated that the Governments operational involvement in the sector is wasteful, inefficient and corrupt. While privatization may be premature, a policy of no new public power plants is urgently needed. It is hard to understand why an approach to the power sector that has failed should continue to be supported and encouraged. A major manpower

development is urgently needed for the sector. 16. Renewable energy: Renewable energy investments will ease demand for electricity. Efforts to use solar power on tall buildings and factories should be promoted with low cost loans while insuring duties and taxes on solar equipment are kept at zero. These efforts should include retrofitting buildings if owners find this economic. 17. Nuclear power for electricity: Exploration of nuclear energy should go forward. This is long complex process but it is essential to begin. It will not impact the next decade but thereafter this could become an important source of energy. There are also available nuclear batteries self contained generating units that provide 25-50 MWs. These are expensive but could be used in some instances to provide power to key Government operations. This program would transform the energy sector in Bangladesh. It would provide the basis for massive increases in manufacturing and job creation; it would provide the electrical power needed for most households and small businesses through the power grid. The essential points of our program are: Solve the short run problem---power during the next four years---by directing gas to high priority uses and import urea during this transition period. Use large barge gas fueled power plants for production of electricity right now. Carry out a major multi billion dollar investment program: Start open pit coal mining Expand the power system to use coal for the base load and gas for peaking power. Rebuild the urea factories to achieve efficient plants. Build the transmission, distribution systems for gas and electricity that will be needed to complement the production of energy. Accelerate the exploration for gas. Mount a major program to develop the manpower needed for this massive energy development program. Implement the pricing, conservation, and ownership policies that the energy sector so badly needs. Bangladesh stands before a tremendous economic and social hazard. Without bold, decisive action the nation will face years and years of power shortages. The wear and tear on the generation and distribution system may lead to a slow steady reduction in the availability of electricity. Just staying even will prove difficult. Without our program these shortages will cumulate making things worse: equipment will burn out, power plants will be over stressed and collapse from inadequate maintenance; we will become used to power outages of 8 hours per day; and there will be little growth of the manufacturing sector. Never have so many persons been trapped like this. The ideas we have set out here have been thought about by many persons. There is no other solution that will produce prompt results with a high probability of success. Continuation on the present path will lead to national disaster.