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COLUMN

Can new govt re-energise economy?

IFTY ISLAM
As we digest the new cabinet appointments and their implications for future economic policy, it is worth reviewing one of the key economic commitments made in the AL manifesto namely 'generating 5000 MW electricity by the next three years and 7000 MWby2013'.
The strong commitment that the newly elected Awami League government has made to prioritising tackling Bangladesh's energy crisis is clearly to be welcomed. However, translating these goals into reality will take bold and focused decisionmaking, persistence and a recognition that a failure to quickly resolve the power generation deficit will be unacceptable to an electorate that has clearly demonstrated its ability to articulate its desire for economic change. If there is one area where the new government should utilise its overwhelming parliamentary and mandate, it is in tackling politically difficult decisions in the energy sector early on.
Here is a six-point action plan:
Coal
The immediate policy priority should be the rapid passage of the National Coal Policy. The government in December 2005 published the first draft. Since then, the draft policy has undergone many revisions on the basis of discussions with various stakeholders and experts and still has not been finalised. Along with this, we need a decision on what terms the government feels is equitable for both the taxpayer and the local people in Asia Energy's development of Phulbari. Developing the country's coal reserves has environmental consequences that need to be mitigated. The people need fair and equitable compensation both financially and in terms of re-settlement and new employment. But there is almost no way we can generate 5000 MW in the next three years, or even five or six, without a quick decision on Phulbari, and indeed the development of the other coal fields. If the decision was taken next week to develop Phulbari and also simultaneously build a coal-fired power station there, we would not see any new power generation coming on tap for 3-4 years.
To facilitate a more rapid increased power generation capacity, the government can set up some small coal fired power plants and can import coal from India on a temporary basis before developing our own coal mines
New Gas Exploration
The government needs to focus on new gas
field exploration to fuel the existing gas based power plants. The recoverable proven remaining reserve of gas is around 8.1 TCF (trillion cubic feet), which will start depleting after 2012. The maritime boundary dispute with India and Myanmar is a major barrier to offshore gas exploration, and should be resolved as soon as possible. The government should declare the next 5 years' plan of action for BAPEX. In the recent FBCCI economic roadmap report, it was suggested that the government set up at least 6 exploration wells every year, and should start the work of at least one exploration well in the first 100 days. If needed, energy bond or levies should be charged to raise funds.
Rental Power Plants
More Rental Power Plants (RPP) need to be installed to overcome the short-term power crisis. In RPP, project developers arc allowed to install second hand engines, thus shortening the project implementation time, which is currently 120 days as set by the government. RPPs are usually costlier as the contract period for these projects is three years. The government needs to attract more local/ foreign investors to increase the competition in the tendering process.
which will eventually reduce the tariff. Along with that, the government needs to closely supervise the implementation of the project to ensure timely commencement of power generation.
Realistic Energy Prices: The government also needs to recognise the need to move tariff prices paid to new power generation companies to more realistic market levels. In order to be self-propelling and to ensure sustainability of uninterrupted supply of power, investment in the sector must be commercially viable. The real cost of power is always cheaper and better than no power. The analogy for companies would be the need to focus on profit-maximisation over cost-minimisation. If we can expand production of exports and higher value products with more energy even at higher but more realistic prices, that is the right thing for the country to do rather than to have a power shortage due to commercially unattractive prices. The near 70 percent fall in oil prices from last year's peak is an ideal opportunity for tire government to normalise energy prices.
Reduce System Loss
Bangladesh should prioritise on reducing system loss in the power sector. From
1994 to 2005, Tk 189.30 billion was lost< through distribution leakage and pilferage. A reduction of one percent system loss can save around 45 MW of power. Nothing less than complete transformation of the existing generation and distribution utilities into public limited companies under the provisions of Companies Act 1994 with the government and private sector participation can ensure appropriate technical and commercial management to eradicate the legacy of mismanagement, inefficiency, corruption and the resultant system loss.
Infrastructure Investment Promotion Agency There seems to be a perennial myth in the energy and infrastructure debate within Bangladesh that there is no shortage of funds. A Deutsche bank report has suggested India needs S 450 billion of infrastructure spending in the next 10 years. If Bangladesh's GDP is 1/12 of India, this suggests we need $ 37.5 billion of investment or $3.75 billion per year. Bear in mind the largest syndicated loan deal so far is $44 million so this is a tall order. But on a positive note, the World Bank and ADB are likely to provide 80 percent long-term debt financing. In order to generate the equity commitments, we need a new infrastructure investment agency that will proactively market infrastructure opportuni-ties to overseas investors and energy com- • parties. The Bangladesh opportunities are compelling but we still need a dynamic and focused strategy to persuade global infrastructure funds to consider opportunities here. But such an agency should also encourage a wider range of local corporates to participate in infrastructure projects either through syndicated deals or even the development of specialised institutional funds.
In conclusion, while the progress in recent years on adding energy capacity has been disappointing, we should all be encouraged by, and supportive of, the new government's renewed initiatives to tackle one of tire major constraints on growth that the country faces. Infrastructure is tire one area where AL’s overwhelming political mandate can lead to a real economic breakthrough. Let us translate this optimism into time bound policy actions.
The wnter is the managing partner of Asian Tiger Capital Partners and welcomes feedback at ifty.islam@at-capital com.