https://powerbangladesh.wordpress.

com/2010/11/10/massive-corruption-in-bangladeshs-power-
sector-foreign-investors-left-in-the-dark/

Massive Corruption in Bangladesh’s

Power Sector. Foreign Investors Left
In the Dark.
By Power Bangladesh

Despite a widespread power crisis in the country which may stand at a shortfall of around 10,000
MW, the Bangladesh Awami League led present government is engaged in massive corruption in the
power sector.

During the past year, major foreign power players and their local counterparts have had hard time in
pre-qualifying for power projects in the country.

Insiders state that the Ministry of Power, is instructing the country’s sole uptaker, Bangladesh Power
Development Board to disqualify qualified bidders so that only companies affiliated with the present
government can participate in the bidding process. The project evaluation process of Bangladesh has
been completely compromised.

Local power company, Summit Power owned by Aziz Khan, the brother of Faruk Khan the industry
minster, has won over 1000 MW within the past two months. The Bibiyana 450MW combined cycle
power project was awarded to Summit the sole qualified bidder.

Recently, the government has passed law that indemnifies all shenanigans in the power sector. More
than a dozen projects have been awarded without tenders in the sector.

The country’s exports are getting impacted due to massive power shortage resulting from failed
projects. Out of 13 non-tendered “Quick Rental” projects only three may eventually see the light
because of failure of inexperienced local players.

Bangladesh’s agriculture output is also dropping due to power crisis and land grabbing by political
interests. The poor country is in no position to import food in case of a shortage of domestic
production.

Foreign players are increasingly moving away from participating in international tenders in the
power sector as a result of intense corruption.
The few domestic power companies enjoy outrages valuations in the local share market. Many of the
projects awarded so far are looking to the share markets for raising funds.

Government backed private power companies may cause collapse of the share markets after floating
unprofitable projects in the sector.

Seems it is business the old fashion way in Bangladesh, especially in the power sector run by the
Prime Minister herself.

http://www.thedailystar.net/business/corruption-still-serious-impediment-investment-137005

12:00 AM, September 03, 2015 / LAST MODIFIED: 12:00 AM, September 03, 2015

Corruption still a serious

impediment to investment
US report on Bangladesh investment climate says
 Star Business Report

Corruption still remains a serious impediment to investment and economic growth in Bangladesh, according to
a report by the US Department of State.

“Corruption is common in public procurement, tax and customs collection, and regulatory authorities.
Corruption, including bribery, raises the costs and risks of doing business.”

The American Chamber of Commerce, Bangladesh (AmCham) released the report -- Investment Climate
Statement 2015 -- at the chamber's monthly luncheon meeting at Sonargaon Hotel in Dhaka yesterday.

By some estimates, off-the-record payments by firms may result in an annual reduction of 2 percent to 3
percent of gross domestic product, the report said.

Corruption has a corrosive impact on the broader business climate market and opportunities for the US
companies in Bangladesh.

Corruption deters investment, stifles economic growth and development, distorts prices, and undermines the
rule of law, the US report said.

While this raised concerns about a short-term effect on the business and investment climate, growth forecasts
for 2015 remain above 6 percent.

The efforts to ease public procurement rules and a recent constitutional amendment that reduced the
independence of the Anti-Corruption Commission may undermine institutional safeguards against corruption,
it said.

There was significant political violence and uncertainty during the first quarter of 2015 following the one year
anniversary of the national elections held in January 2014.

Clashes between supporters of rival political parties and their student and youth wings and even factions within
the same party are frequent occurrences, particularly in the run-up to elections.

General strikes and blockades called by political parties mostly affect businesses by keeping workers away
with the threat of violence and blocking transport, resulting in increased costs and productivity losses.

The US also said some laws have been affecting foreign direct investment in Bangladesh. These include the
Foreign Private Investment (Promotion and Protection) Act of 1980, the Bangladesh Export Processing Zones
Authority Act of 1980, the Companies Act of 1994, the Telecommunications Act of 2001, the Industrial Policy
Act of 2005, and the Bangladesh Economic Zones Act 2010.

Land registration has historically been prone to disputes over competing titles, and scarcity of land is a
significant investment constraint, the report said.

The lack of effective alternative dispute resolution mechanisms and slow judicial processes impede the
enforcement of contracts and the resolution of business disputes.
With more than 6 percent annual growth sustained over the past two and a half decades, a large, young and
hard-working workforce has good potential to be an ideal investment destination for foreigners.

The US also said, with the vibrant private sector, Bangladesh, the world's eighth largest country by population,
offers opportunities for investment, especially in energy, power, pharmaceuticals and information technology.

The other lucrative sectors for investment are telecommunications, and infrastructure as well as labour-
intensive industries such as readymade garments, household textiles, and leather processing.

The government actively seeks foreign investment, particularly in energy, power, and infrastructure projects.

Bangladesh offers a range of investment incentives under its industrial policy and export-oriented growth
strategy, with few formal distinctions between foreign and domestic private investors, the report said.

Bangladesh received $1.5 billion in FDI in fiscal 2013-14, up from $990 million in the previous year, the
report said, referring to Bangladesh Bank data.

This is a nominal amount of investment compared to the total foreign investment that the entire South Asia
region attracted, as India continues to dominate FDI inflows for the region. The government privatised some
state-owned enterprises during the past twenty years, but many SOEs retain an important role in the economy,
particularly in the financial and energy sectors.

Bangladesh allows private investment in power generation and natural gas exploration, but efforts to allow full
foreign participation in petroleum marketing and gas distribution have stalled.

The telecommunications sector was liberalised during the last decade, leading to the development of a
competitive cellular phone market. The government has been slow to allow greater competition for
international connectivity and internet telephony.

In 2007, the government revised the International Long Distance Telecommunication Services Policy to
legalise voice over internet protocol (VoIP), but has not yet implemented this policy, and restrictions remain on
international video conferencing and voice chat.

The government has pursued ambitious plans for infrastructure development, particularly in the power sector,
where it pledged to raise generation capacity to 20,000 megawatts by 2020. As of March 2015, government
figures indicated an installed capacity of 11,600MW.

In 2009, the government began to develop a legal and regulatory framework for public private partnerships. In
2010, due to critical power shortages and chronic delays in implementing power projects, the government
amended procurement requirements to allow unsolicited bids and expedited the approval of power generation
projects.

Bangladesh also aims to formulate a coal policy to encourage investment in developing coal resources and
coal-based power projects. However, administrative approval of the production plan of a foreign-owned, open-
cast coal mine in northwest Bangladesh has remained pending since November 2005 due to local opposition
and political pressure from civil society groups. On January 23, 2014, the prime minister announced six fast-
track large infrastructure projects to address transportation and energy bottlenecks, among them a new self-
financed Padma bridge project.
The landmark project will substantially improve interregional connectivity once completed. Prolonged and
contentious public procurement processes continue to challenge government efforts to develop infrastructure
projects.

While the government has improved the efficiency of the main seaport in Chittagong, the construction of a
four-lane highway to connect Chittagong with the capital city of Dhaka is making only slow progress, the US
report said.

At the luncheon meeting, David Meale, US chargé d'affaires in Bangladesh, said the American government
wants to see strong bilateral commercial relationship to boost commercial interactions and expand commercial
activities between the two countries.

“Our growing ties are visible in recent data,” Meale said, adding that Bangladesh's exports to the US increased
11 percent to $3 billion in the first six months of 2015 compared to the same period last year. The US
investment in Bangladesh is around $1 billion, he said.

https://energybangla.com/40-percent-rural-people-forced-to-bribe-for-power-connection/

July 5, 2015

40 Percent Rural People Forced to Bribe for Power Connection

EB Reporter

Some 40 per cent of rural people the country are forced to bribe the officials of
Palli Bidyut Samities under Rural Electrification Board to obtain new power
connections, according to a government survey revealed on Sunday.
The survey also showed that some 15 per cent people had to pay extra money
to the officials of the Dhaka Power Distribution Company to obtain new
connections which is four per cent in 21 south and south-western districts under
West-Zone Power Distribution Company.
Being employed by power cell of the government, a private firm MIDAS
conducted the survey on customer satisfaction with the data collected between
October and December in 2014 which also showed that some 85 per cent
consumers were satisfied with the power supply.
Out of five power distribution utilities, MIDAS considered REB, DPDC and
WZPDC for the survey with the opinions of a total of 5,000 consumers of the
categories — households, industries, commercial spaces and irrigation.
A similar survey conducted by the Bangladesh Bureau of Statistics, considering
the data collected in the past winter, showed that nearly 89 per cent people
were satisfied with the power supply to households in 2014 compared to that of
2008 and 2009.
Midas on Sunday presented a summary of the survey report at Bidyut Bhaban in
Dhaka where prime minister’s energy adviser Tawfiq-e-Elahi Chowdhury, state
minister for power, energy and mineral resources Nasrul Hamid and other
power sector officials were present.
Admitting the findings of bribery for obtaining new power connections, the REB
chairman Moin Uddin told New Age that such irregularities were not widespread
in terms of the number of new power connections that were provided in a
month.
He said that the authorities concerned were already in a ‘battle’ against the
much-talked-about irregularities and customer harassments in the rural areas of
the country.
There were no alternative but to bring the entire nation under grid connectivity
in shortest possible time to battle the corruption, he said adding that the REB
was now providing some 3.5 lakh new connections per month.
The survey also shows that some 13 per cent people are not satisfied with the
level of service for restoration of power supply, six per cent people are not
satisfied with the outstanding bills against paid bills, 14 per cent people are not
satisfied with the amount of bills they are charged and 16 per cent people are
not satisfied with the mobile or online bill payment mechanism.
In 14 per cent cases utility personnel do not respond over telephone, in nine per
cent cases metre readers do not perform on regular basis and in 11 per cent
cases people do not receive bills with the deadline of payment, the study shows.
It also shows that the frequency of power outages is reducing and the level of
satisfaction was improving with the overall service.

https://www.theguardian.com/world/2006/aug/30/bangladesh

Six killed in protests over UK mining firm

in Bangladesh
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Randeep Ramesh, south Asia correspondent
Wednesday 30 August 2006 00.06 BSTFirst published on
Wednesday 30 August 2006 00.06 BST
Bangladesh faces a nationwide strike today following the fatal shootings over
the weekend of six people protesting against a $1.1bn (£700m) open-cast coal
mine planned by a British company.

Paramilitary forces had allegedly fired into a crowd of 30,000 people who
tried to storm the local offices of Asia Energy, a London-based mining
company that owns the rights to 570m tonnes of coal in Bangladesh's Phulbari
district.

Six died and 300 were injured in the violence. The deaths have led to days of
rioting, which have seen roads barricaded with burning tyres and train
services cancelled after rail lines were blocked with burning logs. Earlier this
week people ransacked and torched the homes of Asia Energy's officials in the
area.

Opposition parties have been quick to exploit the issue and called for a
national shutdown yesterday. At the heart of the dispute are families from the
Shantal community, who live on the 6,500 hectares of land above the mineral
deposits.

"In Bangladesh, like many developing countries, these tribal people do not
have land deeds so compensation becomes difficult. The government has
really ignored the issue of rehabilitation leaving the locals to fend for
themselves," said Sharyar Khan, a journalist with the Daily Star who has
covered the issue extensively.
Activists claim the mine, near the border with India, will displace 100,000
people. Environmental groups have also warned that mining will destroy
fertile lands growing rice.

The company denies the claims and says that, at most, 40,000 people would
be displaced over a 30-year period, all of whom would be compensated and
relocated. It says that the scheme would bring $20bn of benefits to
Bangladesh and "spur industrial growth, creating new jobs". The protests and
strike were organised by a civil society organisation called the National
Committee to Protect Oil, Gas, Power, Port and Mineral Resources.

According to company officials in London the committee, which has

demanded the mine be stopped, had been described by Bangladeshi ministers
in talks with Asia Energy as an "obscure leftwing group (behind) the rioting".

David Lenigas, a director of Asia Pacific, told the Guardian that the protests
were orchestrated by a "vocal minority with extreme ideas against foreigners
putting money into these projects".
Corruption: The new corporate challenge

By Nick Kochan, Robin Goodyear

Corrup-tion is rife at all levels of life, and is cuased mainly by dynastic politics, a
common South Asian system. In Bangladesh power oscillates between the
Bangladesh National Party and the Awami League. For these parties patronage
plays a crucial role, and thus the parties do their utmost to support their own
backers when they are in power. Expensive election campaigns leave politicians
indebted to their donors, so when they take office they feel obliged to repay
these debts by supplying them with exclusive contracts and employment. ..
[page 109-110].

Sector-aid

International aid organizations are highly diverse in their structure and

organization, but a common thread is that they work in regions where
government has to some extent failed and the country has in essence broken
down. [page 110]

Corruption in Bangladesh is a serious problem, and the aid sector is not

immune. The military influence compounds the problem, as senior officers take
a high-profile roel in extracting bribes from public projects.

https://books.google.at/books?
id=PnomkSnmvnQC&pg=PA109&lpg=PA109&dq=corruption+in+gas+and+oil+s
ector+in+bangladesh&source=bl&ots=RXY7HgFaoc&sig=Tu5GsUwYG4L1_jlY6B
VhGOL9hFg&hl=en&sa=X&ved=0ahUKEwj_2butsMPXAhWMthoKHdAvDGkQ6AEI
aTAJ#v=onepage&q=corruption%20in%20gas%20and%20oil%20sector%20in
%20bangladesh&f=false

https://thediplomat.com/2014/11/bangladesh-asias-new-energy-superpower/

Bangladesh: Asia's New Energy Superpower?

After a favorable UN settlement in June, Bangladesh stumbled upon a wealth
of energy. Will investors buy in?
By Jack Detsch

November 14, 201

Imagine you are a major energy magnate, poring over maps to find the world’s next
natural gas superpower. Where would you invest?

Even though Bangladesh just hit an energy mother lode in July – winning the rights to
20,000 square kilometers of natural gas-rich waters from India in a U.N. territorial
arbitration, chances are you probably wouldn’t think of it. To most, the territory still
looks like a high-risk investment, given the political tenisions, pervasive poverty, and
highly subsidized economy which undermines growth and limits spending on energy
infrastructure. Dhaka and Chittagong, swathed in slums, are a world away from the air-
conditioned shopping malls of Riyadh, Doha, and Dubai.

Yet, looking the part isn’t everything: Nigeria, Chad, and Venezuela have fared well in oil
markets despite endemic poverty and violence; but Bangladesh’s troubles could help
explain why investors haven’t been biting. In fact, quite the opposite; Australia’s
Santos pulled the plug on Bangladesh’s only offshore gas field last year, citing poor
production. With the help of KrisEnergy, a Singaporean company, Santos plans to begin
drilling in shallow waters later this year. PetroBangla, the national oil
company, attracted just two bidders in a 2012 auction for offshore drilling rights: India’s
Oil & Natural Gas Corporation and Houston-based ConocoPhillips.

Enjoying this article? Click here to subscribe for full access. Just $5 a month.

Interest in “dispute-free” offshore oil blocks, which PetroBangla opened for auction last
April, has proven sparse. Companies have complained about the lack of access to
onshore blocks, and the terrible terms for drilling offered by PetroBangla. Earlier this
year, Conoco and Russia’s StatOil paired up to bid on three of Bangladesh’s deepwater
oil blocks, 30,000 feet below sea level. Conoco later attempted to win an agreement on
two more deepwater blocks. Yet outside of these handful of companies, few are betting
on Bangladesh.

It might be a smart time to place a wager. With its new territory, Bangladesh’s natural
gas reserves are now estimated at 200 trillion cubic feet, the largest supply in the Asia-
Pacific. PetroBangla will auction off 18 new oil and gas blocks by the end of the year.
“Assuming Bangladesh could recover all of that, it would make it one of the largest
natural gas producers in the world,” says Neil Bhatiya, a Policy Associate at the Century
Foundation.

That’s a big if. Robin Mills, head of consulting at Manaar Energy, says there’s no way to
be sure what’s there. “We just don’t know whether 100 to 200 trillion cubic feet, or
indeed anything at all, will be discovered in the new area.” Bangladesh’s gas reserves
are probable, not proven, so that estimate is a fifty-fifty proposition, based on existing
geological and engineering data.

Bangladesh needs a comprehensive plan to survey and derive this energy, but the
government lacks basic competencies to drill in deep water, from trained
oceanographers to laws that safeguard against spills. Bangladesh’s Petroleum and
Exploration Company has done experimental gas drilling, but it lacks the money and the
energy infrastructure needed to explore the new territory.
Drilling also presents an environmental risk: cabinet secretaries have promised to
deploy the government’s few tools to guard against environmental disasters, but they
will need to import talent from energy majors to prevent methane leaks into the bay.
Bhatiya says that problem can be mitigated using production agreements with Conoco
and StatOil to extract the gas safely.

PetroBangla’s chief, Hossain Monsur, echoed that notion in a statement released just
after the U.N.’s decision in July. But to achieve this, Bangladesh must first make nice
with international oil majors, reconciling disputes that Petrobangla has enflamed over
the price of gas, which Prime Minister Sheikh Hasina has fought to keep down.
“Bangladesh may be willing to fast-track pricing reform if they think it’ll lead to the
large-scale extraction of these resources,” Bhatiya says.

In the Bengal Delta, where poverty is pervasive, pricing reform may prove unpalatable.
Families that depend on government subsidies to keep the lights on and put food on the
table will not be able to stomach higher bills. If Dhaka pays the bumped-up tab itself,
those expenses could wreak more havoc on the belabored economy: boosting inflation,
hiking the trade deficit, and chewing up big bites of tax revenue. Energy subsidies
alone cost Bangladesh $1.9 billion in 2013, and much of the food subsidy has
been choked away by corruption in recent years. By going further into the red to
subsidize its poor, Bangladesh would tack onto its budget deficit, a mess that the tax
base couldn’t possibly clean up.

With foreign investors clamoring to get involved in the gas industry, and the presence of
corruption lurking throughout Bangladesh’s ministries, rated some of the worst in the
world by Transparency International, much of the energy, and revenue won from the
U.N. settlement may not get back to the poorest citizens. That means the pain of energy
shortages could persist, abetted by corruption in the state sector, and cause lasting
damage. Political instability is also a grave threat: hundreds died in violence leading up
to January’s election, the bloodiest campaign since Bangladesh declared independence
in 1971. With Prime Minister Sheikh Hasina and the rival Bangladesh National Party
still at loggerheads, that tumult could flare up again.

More money begets more problems. Still, Bangladesh’s new territory also puts it in an
advantageous position to win concessions from China and India, its two primary
benefactors, who are both increasingly hungry for new sources of energy. China has
already invested a significant amount of money to build an airport at Cox’s Bazar, just
south of Chittagong, a tab that continues to increase. Bangladesh remains a key part of
Beijing’s strategy of encircling India with development money, and the infusion of
natural gas should reaffirm that status.

Major energy finds in the Bay of Bengal could make a huge difference in pushing the
economy forward, sending a rush of foreign investment into the country and helping
growth rebound. “With natural gas consumption expected to grow worldwide, but
particularly in the developing countries in South Asia, there is likely to be a strong
market for the gas,” Bhatiya notes. Bangladesh’s oil riches are its best opportunity to rise
from poverty, creating an equitable distribution of wealth to stabilize the government
and the country. Dhaka must seize the moment.
Jack Detsch is a writer, radio journalist, and researcher in the San Francisco Bay
Area. He can be found on Twitter @JackDetsch.
Bangladesh Country Study Guide Volume 1 Strategic Information and Developments

By IBP USA

[page 215-216]

Bangladesh’s two major seaports, Chittagong and Mongla, handled over 14.5 million metric tons
of cargo in FY2000, Chittagong, by far the larger port, with two container terminals, handled
over 80% of the cargo. The Chittagong port suffers from inefficient space management, a
shortage of handing equipment, corruption and congestion. The BDG approved a private
container project in FY 2007 worth approximately $440 million proposed by a U.S. company,
stevedoring Service of America (SSA), but the project has been stalled for lack of a signed
implementation agreement with the government. SSA’s project would include the construction of
two container terminals, one in Dhaka and one in Chittagong, linked by a barge line. The
implementation agreement was still not signed when of the Awami League parliament stepped
down in July 2001.

Bangladesh’s 36,000-kilometer primary road network is in relatively good condition (although it

did receive extensive damage in some regions due to floods of summer 2007), giving rise to a
substantial prive trucking industry. The Jamuna Multipurpose Bridge, a mammoth $1 billion
engineering and construction project with spans the Jamuna river, connecting east and west
Bangladesh for the first time was completed in June 2007. Inland waterways are extensive and
inland water transportation accounts for about 65.0% of domestic cargo transportation and
about 38% of inter-district passenger traffic, despite seasonal situation problems and
inadequate inland port facilities. Bangladesh’s 4364-kilometer railway system is in poor
condition, hobbled by a mix of track gauges, widerspread ticketless travel and aged equipment.
The Bangladeshi government has modernized the Chittagong airport and has plans to expand
the Sylhet airport. Government-……………………

Bangladesh’s public power sector is inadequate and rife with corruption. Over 40% of electricity
distributed to urban areas is never paid for. Overloading and a lack of maintenance cause
frequent outages. Necessary planned blackouts, called ‘loadshedding’, are common
occurrences throughout the country. Damaged equipment, investments in standby generators
and lost production time caused by power irregularities and failures have cost some firms up to
30% of their value of production. American companies also have a big stake in the nation’s
electric generation. Three 100+ MW berge-mounted plants (2 US one owned by Coastal
Energy/Summit, the other by EIPaso/Ogden/Wartsila) currently sell power to the national grid,
while US company AES is building two land-based plants outside Dhaka that will add 810 MW
to the nation’s power supply upon completion.

https://books.google.at/books?
id=itGX6j2pK1AC&pg=PA69&lpg=PA69&dq=bribes+in+bangladesh+energy+and+p
ower+sector&source=bl&ots=7v3Zl_LA5n&sig=SLjkPgF-
81JYMiqfuqKaNcg3Y2A&hl=en&sa=X&ved=0ahUKEwiJy8a-
qsPXAhVM6xoKHQt0Cnc4ChDoAQhDMAQ#v=onepage&q=bribes%20in
%20bangladesh%20energy%20and%20power%20sector&f=false
 http://www.thedailystar.net/supplements/24th-anniversary-the-daily-star-part-
3/energy-pricing-dilemma-and-the-culture-subsidy

HomeSupplements24th Anniversary of The Daily Star (Part-3)

03:37 AM, March 12, 2015 / LAST MODIFIED: 03:47 AM, March 12, 2015

Energy pricing dilemma and the

culture of subsidy
0
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 M. Tamim

Proper price and market structure is the key for ensuring the uninterrupted quality supply of any product. If an
appropriate commercial framework of business is not in place, market distortion, price fluctuations and supply
disruptions are bound to happen. The energy market in Bangladesh is no exception.

International Gas Union (IGU) in its survey of wholesale gas price found that 43 percent of the total 3480 bcm gas
consumed in 2013 in the world was based on Gas on Gas (GOG) competition. Forty two countries in the world have
this price mechanism in one form or other spread over all regions except Africa, but mainly dominated by North
America and part of Europe. The other dominant price mechanism (19 percent) mainly used in the Far East is Oil
Price Escalation (OPE). Most of the long term LNG contracts in Japan, Korea, India, China, and Taiwan use this
formula. Regulated price mechanism comprising 33 percent of the consumption are divided into three segments –
Cost of Service (12 percent), Social and Political (14 percent) and Below Cost (7 percent). A small portion of the gas
is supplied at no cost, Net Back or Bilateral Monopoly contract basis.

A company named EnergyQuest did a review of governmental intervention in domestic wholesale gas market in
three North American (USA, Canada, Mexico), three OECD (Holland, Norway, UK) and 14 non-OECD countries
(Russia, China, India, Algeria, Egypt, Oman, Qatar, UAE, Indonesia, Malaysia, Thailand, Argentina, Brazil and
Peru). Together these countries produced 74 percent of the world gas in 2011. The free market pricing allowed the
explosion of Shale gas in USA driving the price down. The liberalised OECD market has a higher price than USA
but lower than Asia despite a strong tie with OPE. These two markets have minimum government intervention.
Majority of the non-OECD countries fall under the three categories of government administered Regulated Price
structure and the following was the conclusion of the report about these countries:

“Most of the non-OECD countries have government interventions aimed at controlling wholesale gas prices. While
these policies may produce low headline prices, they artificially stimulate demand and tend to restrict supply,
leading to gas shortages and imports of gas from other countries at high prices. There is little incentive for energy
efficiency and often governments must decide on the allocation of scarce gas to particular industries, picking
winners on political grounds. These policies are often associated with government ownership or control of
downstream industries and controls on exports to avoid leakage of the subsidies provided by regulated gas prices.
Many of these countries are experiencing upward pressure on domestic gas prices, in some cases to import parity.
However, it is typically politically difficult to increase prices once they are regulated.”

Regulated pricing has the same history in every country that produced/used gas. The study done by the market report
mentioned here did not include Bangladesh but the conclusion made in the study is a scenario we are experiencing
right now in the gas sector. The phenomenon started in 2010 in the electricity sector when imported oil based power
production started. The electricity is getting closer to the import parity price which would be about Tk 8/kWh.

The price of gas in 1974 for both power and fertilizer was Taka 3.7/Mcf. The price of oil was USD 10.41/bbl and the
dollar-taka exchange rate was taka 8.08. In terms of energy parity, 1000 cubic ft (1 Mcf) of gas is equivalent to
0.1765 bbl of oil. Using all these numbers it can be concluded that the price of gas in Bangladesh was about USD
0.46/Mcf for the power sector and in terms of equivalent price for oil this was USD 1.83/Mcf. For generating
electricity, the alternate or replacement fuel for gas is furnace oil or heating oil where no other fuel is available.
Assuming the cost of furnace oil being 70 percent of crude price, the alternate fuel price is USD 1.28/Mcf - a net
saving of over 170 percent. The following table gives these numbers for the subsequent years until 2009 when the
last tariff was fixed.
PHOTO: STAR ARCHIVE

In the early seventies, gas became the focus of international oil companies due to the sudden increase in oil price.
Bangladesh started feeling the pain of increasing oil import bills and decided to switch to fuel. Chittagong steel mill,
re-rolling mills, several power plants started switching from the early eighties. By 1990, most of the power plants
and other industries completely converted to gas in the eastern part of the country. When the use of gas during 1970-
80 was only 0.3 tcf, it jumped to 1 tcf during 1980-90. Today, the yearly consumption is 1 tcf. Due to lack of vision
and understanding of economics, Bangladesh lost the opportunity to raise the gas price to the level of price of the
fuel it was replacing. Instead, it supplied it at 1/6 of the replaced fuel price (1985 oil price is indeed the average for
the decade) and hence the beginning of subsidy. It definitely reduced the import bill but at what cost? Within a
decade the generation efficiency plummeted to 25 percent, some of the fertilizer factories were using 1.5 to 2 times
more gas than a more efficient newer plants, the domestic sector was using gas for drying clothes and even room
heating! The slide could not be checked even by doubling the real price of gas in 1990 from the 1985 rate (see
table). By looking at the table, it can be seen that the gas price has remained virtually constant since 1990 in nominal
dollar terms without considering inflation. The average generation efficiency has now increased to 30 percent due to
the introduction of 1200 MW of combined cycle (50 percent efficiency) IPP power plants.

The case of gas price for electricity generation was picked up for comparison because that sector is the most heavily
subsidised and the highest gas user (about 50 percent) in Bangladesh. Despite the system loss (pilferage and
technical), the subsidy in electricity tariff along with the gas subsidy did not allow to save any money for even
maintaining a reasonable service, let alone adding new generation. Gas was not a tradable commodity yet. Unlike
oil, the local price was not dictated by international price yet. The gas price is typically determined by its
opportunity cost. The four most common ways of determining local gas price is by- a) cost of service b) border
price c) long run marginal cost (LRMC) and d) alternate fuel cost. The cost based pricing includes the actual cost of
providing the service (exploration, development and production, transmission and distribution) and a reasonable
profit so that the companies can reinvest for future service and expansion. This is based on financial analysis.
Because gas is not traded internationally, the 'border' price of export is another way of finding its true economic
value. LRMC is the cost of supplying a unit of energy (i.e. 1 Mcf of gas) if the consumption is sustained indefinitely
in the future.

The alternate fuel approach has already been discussed for electricity generation. Today we can see that when one
dollar gas is producing electricity at Tk 2.3/kWh, furnace oil used plants are producing the same unit at Tk 16. The
domestic gas is supplied at Tk 450/two burner/month at an estimated use of 85 m3/month. The imported LNG at
USD 15/Mcf will cost Tk 3700/month/two burner just for the molecules. Even a limited supply of two bottles of
LPG will cost at least Tk 2500 every month. CNG gas is supplied at Tk 30/m3 whereas even at today's international
market price of 65 USD/b (55 USD/b crude oil), gasoline will cost Tk 65/liter. The gas based captive power
(generated locally by individual industry) produces electricity at Tk 2.4/kWh whereas the industrial supply from
Grid is Tk 7/kWh. These comparisons show the dismal situation for competitive fuel in a regulated market based on
social and political consideration. No practical or commercial solution is possible in such disparate market either
from public or private sector.

Kerosene and diesel has always been subsidized in Bangladesh like many other developing countries. The kerosene
use has been minimum and mostly by the poor but always kept at par diesel price to avoid adulteration. Diesel has
been under blanket subsidy in the name of agriculture use although the usage of the fuel in irrigation is no more than
30 percent. Petrol has always been kept at above market price as a means of cross subsidy. In the time of high oil
price government has provided as high as Tk 7000 as subsidy in a year for keeping the fuel price low. The pressure
on the government exchequer increased when the country started importing additional furnace oil of over 2 million
tons to feed the oil based power plants. Currently due to oil price drop, BPC is making money from all its products.
As a result, people are asking for reduction of oil price without realising that it would not benefit the general public
as much. Profit by reducing the diesel price will be gobbled by the transport owners as there has not been a single
incident of fare reduction in the history of Bangladesh. In the agriculture sector, the extra money will go into the
pockets of irrigation pump operators. Octane/petrol can play its role as a way of cross subsidy. Reduction in the
furnace oil will definitely benefit the general public indirectly as it will offset the pressure of power tariff hike and
that should be done. All extra profit must be earmarked and kept aside for future subsidy ensured by BERC. The
larger question is whether Bangladesh should switch to market based oil pricing? In principle it should be done and
now is the best time to do it when all prices will go down. The biggest challenge remains to administer a transport
fare formula that would adjust predictably according to the change in its fuel component. The arbitrary and captive
nature of the transport sector must be regulated before commencing a market based oil pricing formula. A pre-
determined safeguard for the consumers for a very high oil price must be in place as well.

Price control, subsidy and energy security

The most expensive energy is no energy. In almost every instance, price control has created shortage, rewarded
wastage, and sometime promoted environmental damage. In 2005-6, Bangladesh faced a short term diesel crisis.
Hundreds of farmers were looking for diesel even at Tk 40/litre when the regulated price was only Tk 30/litre. A
massive bailout by government through public borrowing saved the country from a major supply disruption.

Short term subsidies are easy to formulate and also easy to withdraw. If the country has a long history of subsidy, it
is very difficult to phase it out. Strong resistance from the civil society, trade unions is put up to protect the poor. It
requires tremendous political will to take tough decision that results adverse short term effect. The so called 'price
shock' due to energy subsidy withdrawal is very much like going 'cold turkey' when quitting smoking. The sweating
and suffering is really bad in the short run but very good for the long haul. The people who get used to cheap energy
cannot be blamed when they react violently to major energy price increase. If the goal of price control is to help the
families who cannot afford the market price of energy, the help should be provided directly, effectively and for a
specified time period. Any universal subsidy program is not sustainable.

Many countries have successfully managed to phase out subsidies by targeted compensation. Srilanka in 1979
tripled kerosene price by introducing a kerosene-stamp program that allowed low income households to receive 6
litres of free kerosene per month. The quota was not increased during subsequent increase in demand although the
overall consumption decreased by 25 percent. The financial gain was far more than the administrative cost of
identifying the families and supplying the quota. Vouchers or cash compensation is another way of helping the
targeted section and removing overall subsidy. The difficulty is in identifying the targeted group. The first task is to
define them clearly that may actually turn to be the most difficult job for Bangladesh. Does the government really
know the people who are getting the benefit of the present subsidies in the country? Whom do they really want to
target? Once this is done, a method can be devised to help them directly. If a decision is made, energy related
questions can be included in the census or during the enlistment of voters. Once the data base is complete,
implementing any policy would not be that difficult.

Apart from targeted compensation, another way of removing subsidy is transparent rate making through public
awareness campaign. If consumers understand every aspect of the cost involved in a product, they are more likely to
accept the changes as long as it is clear and rational. Public trust in a political government is the key of success for
such approach. This approach was very successful in Indonesia and Nigeria recently.

In a mixed economy like Bangladesh, energy price perhaps cannot be left at the mercy of market only at this stage.
The parity with market price has to be brought in gradually. Phased removal of subsidy, allowing price variation
within an adjustable range related to benchmark price (until market price can be introduced) and introduction of a
powerful and competent regulator have the best chance of ensuring energy security in Bangladesh.

The writer is Professor, Petroleum Engineering Department, BUET & Former Advisor, Caretaker
Government.