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2015 was a year of positive news in power sector

2015 has been a year of positive news in the power sector after years of discouraging news.

Last year we received the following good news -

  1. Rampal power plant tendering completed
  2. Matharbari  site uncertainty resolved
  3. Payra power plant progressing smoothly
  4. LNG terminal contract ready
  5. 2400 MW nuclear power plant deal signed

It appears that after dilly dallying for more than 3 years the imported coal fired power plants are back on track.

If things go according to plan these will be reality in 4-5 years time. Rampal (2 x 660MW Maitree Super Coal-fired Thermal Power Plant) Project was experiencing difficulty in finding financing because of objections from environmentalists.

In the new tenders that were floated, companies were asked to bid along with financing. The bids have been evaluated, but the final outcome has not been revealed to the public.

The Matharbari Japan International Cooperation Agency (JICA) funded imported coal power plant project encountered a big problem with land development. It has now been resolved, but at a cost enhancement of $1 billion.

The 1,320MW Payra power plant is supposed to be advancing smoothly, and the energy minister is so hopeful about it that he believes it may be commissioned before either Rampal or Matharbari.

This is good news, but certainly makes the other two projects look way out of line with regards to timely implementation.

"When diesel demand reaches say 5 million tons from the present 2.5 million tons and the oil price per barrel exceeds $100, would the Government be able to subsidize the diesel price to a point which will not create unrest." 

   

The nuclear power deal has been signed - a GREAT news for the nation, but everyone was surprised to hear the price tag - 12.65 billion dollars.

For 2400 MW such a high cost would imply that the price of electricity will no longer be THAT cheap. Nuclear power plants are notorious with respect to construction delays and cost overrun.

Many analysts believe the final construction cost could exceed 20 billion dollars, and the delay could mean the first unit of 1200 MW coming on-stream sometime in 2025, and the other unit in 2030.

The good news from the power sector is completely overshadowed by the bad news from the energy sector, or more specifically from the primary energy sector.

It appears the energy ministry is in the doldrums. They have no clue it seems how to speed up gas exploration.

The gains in sea boundary has become meaningless with deep sea exploration at a standstill. In fact no exploration is ongoing, and the new bidding round is yet to be finalised.

In the onshore, The "BAPEX OR NOT" dilemma has not been resolved. BAPEX lovers it appears are prevailing, and onshore exploration is progressing at a snail`s pace.

If gas exploration is not strengthened, and no gas is found, then dependence on LNG will grow thus deepening the energy security crisis in the country.

It appears the Government is comfortable in the belief that supply of gas can be ensured with LNG. The question is at what price.

Can the Bangladeshi industries afford such expensive gas? Maybe, the low energy consuming industries can bear the shock, but what about the energy intensive industries? Can industries such as steel rerolling, cement, and ceramic survive?

Are we going to see the decline and eventual death of energy intensive industries in Bangladesh?

There are other energy sector issues that needed attention during 2015. Some of these are -

            1.         Rationalize price of oil products

            2.         Formulate a gas extraction policy

            3.         Integrated pricing policy for all fuels

International oil prices have been going down for more than a year. Yet the Government has stuck to a price that corresponds to an oil price of around $90-100 per barrel.

Lately the price has become the lowest since 2003. Such drastic fall in oil prices must be reflected at the consumer level otherwise price distortions can lead to undue consequences.

The fundamental question that arises is how long will administered prices prevail in Bangladesh. India has in the last six months deregulated the last two oil products, i.e., kerosene and diesel.

Allowing diesel prices to correspond to international market prices will bring great benefit to the government because providing subsidy to such a large market was indeed a challenging task. In fact, oil prices have gone down to such a low level that even the old subsidized price recorded a fall when it was allowed to correspond to the international oil price.

If the policy makers of the Government of Bangladesh think they will be able to continue with the administered price system they will be making a mistake because the cyclical nature of the price of oil implies that price increase is inevitable.

When diesel demand reaches say 5 million tons from the present 2.5 million tons and the oil price per barrel exceeds $100, would the Government be able to subsidize the diesel price to a point which will not create unrest.  

The country desperately needs a natural gas extraction policy. Two things are important. First is the abandonment pressure.

"Most importantly, a rationalized price structure of all fuels forces industrialists to become energy efficient especially when using an expensive but convenient fuel."

   

At present it is 1000 psi. This needs to be changed to 500 psi, and that will involve adding compressors so that more gas can be extracted before a field is declared exhausted.

Of course this will add cost, but is certainly cheaper than importing LNG. The second issue is the rate of extraction from any field.

We are observing Petrobangla pushing the limit in all fields. Simply by adding wells we have gone up to 2700 mmcfd from remaining reserve of less than 15 Tcf. 1 Tcf of annual extraction from a reserve of 15 Tcf need to be carefully analyzed. Most importantly it should be based on sound reservoir management practice.

Experts have long argued that a price rationalization of fuels is needed to ensure good competition among fuels.

If this is not done consumers will naturally gravitate towards the cheapest and most convenient fuel. With natural gas being heavily subsidized, there is very little incentive for industrialists to look at alternative fuels.

In India all fuels depending on availability in any particular location is used for industrial activity. There are industries that use firewood as the principal source of energy. In many cases even diesel is used.

Most importantly, a rationalized price structure of all fuels forces industrialists to become energy efficient especially when using an expensive but convenient fuel.

Price rationalization also creates a level playing field for entrepreneurs in different parts of the country. Presently, with the distorted price structure it is practically impossible for a Rangpur industry to compete with industries in Comilla.

Dr Ijaz Hossain is an energy expert and Professor of Bangladesh University of Engineering and Technology (BUET).

 

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