The energy crisis in Bangladesh continues to worsen. As he has learned more and more of the real situation the Special Adviser, a courageous man of ability and integrity, is bringing order to a confused and difficult situation. But time is short and we must pray for his success in the face of long odds. But for most the full depth of the crisis is not being faced. Policy actions have been much better in past few months. After floundering for a year there began to emerge a coherent approach to energy.
For too long those concerned with the energy sector have lived in a fool’s paradise, unwilling to face up to the technical and economic issues that the nation faces and believing in dreams rather than in a reality dictated not by ideology or nationalism, but by science and economics. Donors have focused on the wrong issues and have maximised the returns to their employees careers rather than Bangladesh’s real problems. Two gaps have emerged: One scientific and real, the other one managerial.
Gap 1: Technology, economics and energyThere is an unwillingness in the public sector to master the science and management skills needed to operate a modern energy economy. There is a commitment to ideological or opportunistic approaches, ignoring pragmatic issues of what works. It is not a lack of skilled personnel; there are plenty of highly competent Bangladeshi engineers. Talk to them — you find that they are disgusted with the lack of scientific integrity that characterises the government’s policies. The authorities have a history of wanting to hear only good news; they do not want to face difficult facts. Everyone loves to proclaim the merits of BAPEX as an organisation that is able to handle the exploration and development of gas without outside help. But ask a Bangladeshi engineer about this and one is greeted with laughter. The organisation and financing needed for recovery of the energy sector cannot be achieved within a government organisation.
There are three points:What are the gas reserves? This first point is an engineering question.The estimated reserves claimed for the gas fields need regular revision and testing, analysis of data from the wells. etcetera. Reserve levels are not constants of nature but dynamic, determined by technology, increased knowledge and prices. Improved technology may increase reserves; higher prices increase reserves; knowledge of the gas field gained by experience allows adjustment in reserve levels. This type of review is not being done on a regular basis so that the actual reserve position in the gas fields is, at best, vague. Now as the need for more gas is so urgent truth is emerging. We do not really know the condition of the gas fields owned by the government. The Ministry has not been willing to do the work, recruit the staff, and fund their activities that would provide the needed information. At a technical level this has long been understood, but no one was willing to let this secret out of the bag. Ultimately when the gas field will not produce the reserves that are alleged to be there, reality bursts out. Objectively there are two points: (1) the reserves are more likely to be larger than claimed but the work to establish this is yet to be done. US experience is a gas field provides six times the original estimate of the reserves! (2) The field can be exploited to maximise the total gas from the field or to maximise the current flow. Too often the second is followed resulting in loss of gas.
Swallowing the optimistic claims of the gas reserves, the left wing elements that try to dominate government policy were able to argue against the need to develop the gas fields using private foreign knowledge and capital. Repeating the fairy tale of the gas situation and continuing to project a nationalistic fervour in the place of scientific assessment, the nation was led step by step into the present quagmire. Never without arguments the leftists now claim that the present problems with the gas supply are a conspiracy to move towards private and foreign participation in the energy sector! Wow! What illustrated better their capacity to spin fairy tales? All the myths and misrepresentations do not actually produce the volume of natural gas the nation desperately needs. All the hot air does not generate electricity. Bangladesh’s energy sector is not being properly developed.
Preference for public ownershipThe second factor is the commitment of the bureaucracy to government ownership and rejection of involvement of the private sector. The commitment to government ownership despite thirty years of proof that it does not work exposes the deep cancer inside the energy sector. The increase in gas availability in the past decade has come almost entirely from the private production sharing contracts (PSCs); the increase in electrical energy has come almost completely from the private independent power projects (IPPs). The obvious conclusion that the government must stop trying to construct and operate gas fields and power stations has been rejected over and over. Now the nation is paying the consequences.
To my amazement, in the face of this history of what works and what does not work, the left intellectuals and the bureaucrats continue to argue for government ownership and operations and against the private sector. The bureaucracy and the politicians have favoured government ownership and operational role as this opens the opportunities for rewarding friends and obtaining illegal pay offs. But the intellectuals, as all over the world, cannot bring themselves to face reality — their belief that government resource allocation can improve over that based on the greed of capitalism is wrong, it does not work. The Caretaker government understands the folly of public sector domination of energy production. Their efforts to shift to private participation should win the day.
Achieving Realistic Pricing: Pricing of energy has been unrealistic and results in poor resource allocation and waste. The government feels that prices should be kept low to help the “common man.” This results in waste; often does not provide the alleged support to the farmers and the poor which are instead captured by influence and monopoly; and causes widespread misallocation of resources. The taxes levied on energy are very high but rarely reviewed for appropriate economic consequence. Low prices for electricity benefit largely middle and upper class households; low prices raises demand allowing households to live beyond their means. Gas prices are also low. The government is considering needed increases in gas; the Petrobangla proposed increases will bring revenue much closer to costs. The decisions on price levels to be made by BERC in September are critical to moving towards realistic gas prices.
The first gap comprises the failure to develop and support proper technical management of the gas fields; the second is failure to shift the ownership, investment and operation of the energy sector to the private sector; and third to establish realistic prices. These are not points of ideology but points of science and logic. The consequences of this gap are now clear: No one knows how much gas the nation has in existing fields and the reserve figures are uncertain. Until the Caretaker government, the energy ministers proved over and over that these are not able to plan, finance, build power stations or operate gas facilities at a reasonable cost with an acceptable quality. Finally energy prices remain below cost. The Caretaker government has made great progress in all three areas but there is a long way to go.
Gap 2: Implementation failuresThe second gap is slow implementation of three actions that would accelerate the long term development of the energy sector: The development of manpower for the energy sector, building a strong regulatory organisation, and expanding foreign investment in the energy sector. Manpower Development: One essential action in improving the energy sector is to increase the trained manpower. Some one should ask the government what has been done with all of the money that the IOCs, operating under Production Sharing Contracts, have given the Ministry for manpower development. It would very interesting to see how much money has been given and how this has been used. Who has been trained? Where are these persons now? What benefits has the nation gained from the expenditure of these funds? How much has been spent on officials taking trips around the world? What other sources of training funds have been used to improve the skills of persons in the energy sector? Who has been trained and where are they now? How much money has been spent on shopping expeditions in the guise of attending training seminars? Everyone knows this is going on but nothing is done to stop it. There is continuous discussion of the need for training manpower in the energy sector. The government has not told its citizens what they have done in the past with their own funds or with donor funds. The use of training funds by government organisations is one of those scandals that everyone knows about but no ones wants to face. Bangladeshi citizens should be angry at the wastage of funds available for training that are not used to benefit the nation. The performance of the energy sector will be based on the quality of the technical staff available.
Building the Regulatory Commission: The build up of the energy regulatory commission (BERC) has been very slow. It is obvious that the government had opposed the establishment of this commission and stalled in the face of the donors’ insistence. It is ridiculous that the donors are involved in this; surely it is obvious that the government needs to have a strong regulatory organisation that will objectively guide and regulate the activities of the players in the gas, coal, and power sectors. Of course as a regulatory commission develops, the role of government owned energy facilities would decline. The Ministries and the Corporations do not want their power diminished by a strong regulatory commission! That is the point; the private sector brings its superior management skills, its greater technical knowledge, and its ability to mobilise finance. The regulatory commission insures that the public’s interests are protected in pricing, safety, and environment. BERC should regulate the PSCs and IPPs and establish prices for energy products.
Foreign Investment in the Energy Sector: Bangladesh is very unfriendly to foreign investment in the energy sector. The press reports continually a flood of negative seminars, groups, etcetera denouncing foreign investment. There is almost no one explaining the necessity and benefits. It is no surprise that interest in the energy sector in Bangladesh by foreign investors has shrink to almost nothing. There are various aspects of this. The failure to develop the coal resources in a timely fashion is now seen as a disaster. Not starting large scale coal mining along with gas shortage means that there will be little increase in the availability of electricity over the next few years and it may go on as long as a decade if the present dithering and indecisiveness continues. The delay is largely the consequence of group preaching anti foreign investment propaganda.
The poor response to the third bid round in the gas sector signalled the difficulties in attracting IOCs for gas development. The ban on exports of gas reinforces the lack of interest. Petrobangla made no serious effort to examine the factors related to investor attitude. The lack of bids for the Bibiyana power project reflects the scepticism of foreign investors in participating. Once again the Power Cell was not willing to listen, believing terms can be dictated. Finally, foreign investors in gas fields claim price adjustments are needed to meet changing costs. No one listens; foreign investors go away. The nation is caught up in a deep, devastating energy crisis. Unfortunately this crisis will get worse and worse. The availability of electricity will at best increase slowly and may well decline as old plants fall apart and function with less and less reliability. Projects will bog down in court cases that may take as long as a decade to resolve. The legal system was used to block further development of the gas sector, and to prevent private sector projects from going ahead by frivolous challenges to decision after decision. Frankly I do not see any way out. It is like a national suicide. Training resources have been wasted on shopping expeditions; those who have received real training are often no long employed in the sector. The political system is unable to act to develop either the gas or the coal resources. The bureaucracy continues to believe the nostrum that public ownership is the right path. If business as usual continues in the energy sector then the Bangladesh economy will find its growth rate declining and there is only poverty and darkness for the ordinary men and women of this nation.
The CG has made considerable progress. But based on history an elected government is unlikely to continue these effective actions. Democracy will bring a black out, not electricity.
For too long those concerned with the energy sector have lived in a fool’s paradise, unwilling to face up to the technical and economic issues that the nation faces and believing in dreams rather than in a reality dictated not by ideology or nationalism, but by science and economics. Donors have focused on the wrong issues and have maximised the returns to their employees careers rather than Bangladesh’s real problems. Two gaps have emerged: One scientific and real, the other one managerial.
Gap 1: Technology, economics and energyThere is an unwillingness in the public sector to master the science and management skills needed to operate a modern energy economy. There is a commitment to ideological or opportunistic approaches, ignoring pragmatic issues of what works. It is not a lack of skilled personnel; there are plenty of highly competent Bangladeshi engineers. Talk to them — you find that they are disgusted with the lack of scientific integrity that characterises the government’s policies. The authorities have a history of wanting to hear only good news; they do not want to face difficult facts. Everyone loves to proclaim the merits of BAPEX as an organisation that is able to handle the exploration and development of gas without outside help. But ask a Bangladeshi engineer about this and one is greeted with laughter. The organisation and financing needed for recovery of the energy sector cannot be achieved within a government organisation.
There are three points:What are the gas reserves? This first point is an engineering question.The estimated reserves claimed for the gas fields need regular revision and testing, analysis of data from the wells. etcetera. Reserve levels are not constants of nature but dynamic, determined by technology, increased knowledge and prices. Improved technology may increase reserves; higher prices increase reserves; knowledge of the gas field gained by experience allows adjustment in reserve levels. This type of review is not being done on a regular basis so that the actual reserve position in the gas fields is, at best, vague. Now as the need for more gas is so urgent truth is emerging. We do not really know the condition of the gas fields owned by the government. The Ministry has not been willing to do the work, recruit the staff, and fund their activities that would provide the needed information. At a technical level this has long been understood, but no one was willing to let this secret out of the bag. Ultimately when the gas field will not produce the reserves that are alleged to be there, reality bursts out. Objectively there are two points: (1) the reserves are more likely to be larger than claimed but the work to establish this is yet to be done. US experience is a gas field provides six times the original estimate of the reserves! (2) The field can be exploited to maximise the total gas from the field or to maximise the current flow. Too often the second is followed resulting in loss of gas.
Swallowing the optimistic claims of the gas reserves, the left wing elements that try to dominate government policy were able to argue against the need to develop the gas fields using private foreign knowledge and capital. Repeating the fairy tale of the gas situation and continuing to project a nationalistic fervour in the place of scientific assessment, the nation was led step by step into the present quagmire. Never without arguments the leftists now claim that the present problems with the gas supply are a conspiracy to move towards private and foreign participation in the energy sector! Wow! What illustrated better their capacity to spin fairy tales? All the myths and misrepresentations do not actually produce the volume of natural gas the nation desperately needs. All the hot air does not generate electricity. Bangladesh’s energy sector is not being properly developed.
Preference for public ownershipThe second factor is the commitment of the bureaucracy to government ownership and rejection of involvement of the private sector. The commitment to government ownership despite thirty years of proof that it does not work exposes the deep cancer inside the energy sector. The increase in gas availability in the past decade has come almost entirely from the private production sharing contracts (PSCs); the increase in electrical energy has come almost completely from the private independent power projects (IPPs). The obvious conclusion that the government must stop trying to construct and operate gas fields and power stations has been rejected over and over. Now the nation is paying the consequences.
To my amazement, in the face of this history of what works and what does not work, the left intellectuals and the bureaucrats continue to argue for government ownership and operations and against the private sector. The bureaucracy and the politicians have favoured government ownership and operational role as this opens the opportunities for rewarding friends and obtaining illegal pay offs. But the intellectuals, as all over the world, cannot bring themselves to face reality — their belief that government resource allocation can improve over that based on the greed of capitalism is wrong, it does not work. The Caretaker government understands the folly of public sector domination of energy production. Their efforts to shift to private participation should win the day.
Achieving Realistic Pricing: Pricing of energy has been unrealistic and results in poor resource allocation and waste. The government feels that prices should be kept low to help the “common man.” This results in waste; often does not provide the alleged support to the farmers and the poor which are instead captured by influence and monopoly; and causes widespread misallocation of resources. The taxes levied on energy are very high but rarely reviewed for appropriate economic consequence. Low prices for electricity benefit largely middle and upper class households; low prices raises demand allowing households to live beyond their means. Gas prices are also low. The government is considering needed increases in gas; the Petrobangla proposed increases will bring revenue much closer to costs. The decisions on price levels to be made by BERC in September are critical to moving towards realistic gas prices.
The first gap comprises the failure to develop and support proper technical management of the gas fields; the second is failure to shift the ownership, investment and operation of the energy sector to the private sector; and third to establish realistic prices. These are not points of ideology but points of science and logic. The consequences of this gap are now clear: No one knows how much gas the nation has in existing fields and the reserve figures are uncertain. Until the Caretaker government, the energy ministers proved over and over that these are not able to plan, finance, build power stations or operate gas facilities at a reasonable cost with an acceptable quality. Finally energy prices remain below cost. The Caretaker government has made great progress in all three areas but there is a long way to go.
Gap 2: Implementation failuresThe second gap is slow implementation of three actions that would accelerate the long term development of the energy sector: The development of manpower for the energy sector, building a strong regulatory organisation, and expanding foreign investment in the energy sector. Manpower Development: One essential action in improving the energy sector is to increase the trained manpower. Some one should ask the government what has been done with all of the money that the IOCs, operating under Production Sharing Contracts, have given the Ministry for manpower development. It would very interesting to see how much money has been given and how this has been used. Who has been trained? Where are these persons now? What benefits has the nation gained from the expenditure of these funds? How much has been spent on officials taking trips around the world? What other sources of training funds have been used to improve the skills of persons in the energy sector? Who has been trained and where are they now? How much money has been spent on shopping expeditions in the guise of attending training seminars? Everyone knows this is going on but nothing is done to stop it. There is continuous discussion of the need for training manpower in the energy sector. The government has not told its citizens what they have done in the past with their own funds or with donor funds. The use of training funds by government organisations is one of those scandals that everyone knows about but no ones wants to face. Bangladeshi citizens should be angry at the wastage of funds available for training that are not used to benefit the nation. The performance of the energy sector will be based on the quality of the technical staff available.
Building the Regulatory Commission: The build up of the energy regulatory commission (BERC) has been very slow. It is obvious that the government had opposed the establishment of this commission and stalled in the face of the donors’ insistence. It is ridiculous that the donors are involved in this; surely it is obvious that the government needs to have a strong regulatory organisation that will objectively guide and regulate the activities of the players in the gas, coal, and power sectors. Of course as a regulatory commission develops, the role of government owned energy facilities would decline. The Ministries and the Corporations do not want their power diminished by a strong regulatory commission! That is the point; the private sector brings its superior management skills, its greater technical knowledge, and its ability to mobilise finance. The regulatory commission insures that the public’s interests are protected in pricing, safety, and environment. BERC should regulate the PSCs and IPPs and establish prices for energy products.
Foreign Investment in the Energy Sector: Bangladesh is very unfriendly to foreign investment in the energy sector. The press reports continually a flood of negative seminars, groups, etcetera denouncing foreign investment. There is almost no one explaining the necessity and benefits. It is no surprise that interest in the energy sector in Bangladesh by foreign investors has shrink to almost nothing. There are various aspects of this. The failure to develop the coal resources in a timely fashion is now seen as a disaster. Not starting large scale coal mining along with gas shortage means that there will be little increase in the availability of electricity over the next few years and it may go on as long as a decade if the present dithering and indecisiveness continues. The delay is largely the consequence of group preaching anti foreign investment propaganda.
The poor response to the third bid round in the gas sector signalled the difficulties in attracting IOCs for gas development. The ban on exports of gas reinforces the lack of interest. Petrobangla made no serious effort to examine the factors related to investor attitude. The lack of bids for the Bibiyana power project reflects the scepticism of foreign investors in participating. Once again the Power Cell was not willing to listen, believing terms can be dictated. Finally, foreign investors in gas fields claim price adjustments are needed to meet changing costs. No one listens; foreign investors go away. The nation is caught up in a deep, devastating energy crisis. Unfortunately this crisis will get worse and worse. The availability of electricity will at best increase slowly and may well decline as old plants fall apart and function with less and less reliability. Projects will bog down in court cases that may take as long as a decade to resolve. The legal system was used to block further development of the gas sector, and to prevent private sector projects from going ahead by frivolous challenges to decision after decision. Frankly I do not see any way out. It is like a national suicide. Training resources have been wasted on shopping expeditions; those who have received real training are often no long employed in the sector. The political system is unable to act to develop either the gas or the coal resources. The bureaucracy continues to believe the nostrum that public ownership is the right path. If business as usual continues in the energy sector then the Bangladesh economy will find its growth rate declining and there is only poverty and darkness for the ordinary men and women of this nation.
The CG has made considerable progress. But based on history an elected government is unlikely to continue these effective actions. Democracy will bring a black out, not electricity.
The independent, Bangladesh
Date : 18/08/08
Link: http://www.theindependent-bd.com/archive.details.php?nd=2008-08-18&nid=94100
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