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COLUMN IFTY ISLAM

Bangladesh: Running on empty?
While there are many reasons to believe that Bangladesh can emulate the Foreign Direct Investment (FDI) success story of other Asian countries like India or Vietnam, one factor that could de-rail even a perennial Bangladesh optimist like me is the escalating power crisis gripping the country
As an economist, I have read all sorts of statistics; such as that the current power generation capacity is 4000 MW versus a required 5000 MW (excluding captive power plants). I have read that for every percentage point increase in growth above 7 percent we need to add 2000MW of power generation. But what made the stats "real” for me was the experience last week when we experienced 10 power cuts in one day in the AT Capital office.
Our IPS backups failed and I saw 25 young, energetic IBA/BUET students, some of Bangladesh’s brightest, sitting around doing nothing and feeling dejected and deflated as their computer screens were dead and their backup laptops out of power, as was their optimism and enthusiasm.
I pulled all of them into our library and we handed out finance books. I told them if we
needed to buy candles, then that is what we would do. But surveying the scene from my office got me thinking about what a loss of output and productivity other businesses large and small across Dhaka and the rest of Bangladesh must be suffering as a result of the power crisis. Indeed, the next morning I saw the head of the Knitwear manufacturing association warn of a 20 percent output cut if their gas was rationed. Isn't textiles/RMG the key exporter and a critical wheel in the Bangladesh economy?
So where has the power crisis originated? I think there are several sources.
1) Many power plants are idle due to the gas supply shortage. Despite all the opti-mis tic projections from experts about Bangladesh sitting on a vast reservoir of gas just a few years ago, it might be argued that previous governments did not take enough initiatives to develop new fields. Petrobangla offered its offshore bidding round on March this year while the previous auction was 11 years back in 1997.
2) High system loss in Bangladesh is another challenge for the power sector. An inefficient transmission and
distribution system by state owned companies are the main factor behind this high system loss. A reduction of 1 percent system loss can save around 45 MW of power.
3) Another factor is the lack of political and environmental consensus to tap Bangladesh's coal resources. We have a probable coal reserve of 3.3 billion tones, which is around 5 times higher than our current proven
gas reserve in terms of its heating value. A1000 MW coal fired power plant was supposed to be installed by Asia energy, a project that was delayed due to demonstrations by the people of Phulbari. If this power plant could be installed it could alone meet around 20 percent of the total country's demand whereas currently only 3 percent of generation is coming from coal fired power plants.
There is no dispute that displaced locals need fair and equitable compensation and assistance. But it is critical to find a solution that leaves them satisfied and also gives Bangladesh the raw fuel it so desperately needs.
4) A lack of transparency in power generation procurement and tendering in the past. In 2007, the 450 MW Sirajganj power plants along with seven rental power plants and ten small power plants were re-tendered. The 100 MW Sylhet power plant was first tendered in 2002 and its fourth tenders received in July 2007!
But one thing that we need to move away from as a country is the constraint of our intrinsic energy reserves, whether they be gas or coal. When I hear about Bangladesh's power crisis being a function of running out of gas, I would argue that many economic success stories Japan, Taiwan, Singapore, Korea have almost no natural mineral resources but we don't hear of them having ongoing "brown-outs”. They have a clear strategy of importing the oil/coal/gas they need coupled with efficient large scale generation. They all clearly have an efficient export
machine to generate the foreign exchange to pay for those imports. Bangladesh can increase reserves markedly by diversifying its exports, driven in part, I believe, by FDI and private equity inflows. Those inflows can also play a critical role in solving the power crisis. India had $ 15bn of private equity inflows in 2007, of which S 5bn was for infrastructure funds alone!
Policymakers need to recognize the suffocating cost of allowing the power crisis to persist. Short-term solutions may involve importing fuel to run smaller rental power units. But long-term, developing an effective public-private part* nership, transparent procurement and clear incentives for foreign investment along with greater integration with Burma, India and the Asian energy' network should be an absolute priority for this government and the next. Bangladesh has a bright future as Asia's next economic tiger but not if the lights keep going off]
*
Ifty Islam is the Managing Partner of Asian Tiger Capital Partners and formerly Managing Director and Head of Global Macro Strategy at Citigroup. London.
Ifty.islam@at-capitai.com