Dr M Alimullah Miyan and Dr John Richards: Energy Policy for Bangladesh, Summer, 2004, Center for Policy Research, IUBAT—International University of Business Agriculture and Technology, Dhaka, Bangladesh (ISBN 984-861-001-4)
In May 2004 the Government of Bangladesh released a draft National Energy Policy (NEP). The NEP refers to “the importance of energy in socio-economic development” (GOB 2004). We agree. It is hard to exaggerate the importance of adequate supplies of energy for the future prosperity of Bangladesh. The government deserves credit for acknowledging the gravity of problems that exist in the energy sector – and the need for good policy to overcome the identified shortcomings.
ENERGY RESOURCES OF BANGLADESH
Many observers have attempted to persuade Bangladesh that there exist multiple energy sources available at reasonable cost and that, accordingly, the government should approve the export of natural gas. That is not our conclusion. We are more cautious, and after a review of various estimates of energy resources and future energy demand, we recommend against gas exports. In summary, here are the conclusions.
There is only a limited prospect for increasing the sustainable supply of biomass fuels. For certain biomass sources, it is crucial to reduce present exploitation rates, in order to reduce environmental degradation.
The most important commercial source of energy in Bangladesh is natural gas. Estimates of remaining recoverable reserves are in the range of 11 – 16 trillion cubic feet (TCF). Estimates of undiscovered reserves are necessarily speculative. Even if optimistic undiscovered reserve estimates become justified, projected domestic needs for natural gas – primarily in power generation – are very large.
Domestic coal deposits can play a role in supplying energy needs, primarily in power generation. Excluding the Jamalganj field, recoverable coal reserves are equivalent to about 8 TCF of natural gas.
There is a small potential to expand domestic hydropower. Reliance on imported hydropower from Nepal poses serious risks, both political and geological.
For geopolitical reasons and lack of available financing, there is no prospect for development of nuclear power.
New renewable energy sources, such as PV power and wind power, have very limited potential.
Consumption of imported petroleum will increase. However, use of compressed natural gas (CNG) for transport has considerable potential and can limit the need for imported petroleum.
MANAGING THE ENERGY SECTOR
In all countries, managing the energy sector is a demanding activity for governments. It entails coordinating the activities of various government agencies and of the relevant state-owned enterprises (SOEs). There is also an important role for private firms in the energy sector. While implementation of major reforms is difficult both administratively and in terms of reconciling interest groups, the nature of required reforms can be described succinctly:
Hire well trained managers able to make efficient decisions, and protect them from undue political interference. This means that SOEs engaged in production and distribution of energy should be expected to cover costs. SOEs engaged in exploring for and producing primary energy products, such as natural gas, must realise reasonable unit costs and transfer surpluses to the government.
Invest in better safety nets for employees displaced from SOEs, and thereby lessen political pressure to maintain inefficient employment levels.
Enable a much larger level of investment in the energy sector. To the extent the SOEs can realise reasonable efficiency and the government can obtain financing on reasonable terms, such SOEs should be encouraged to increase their investments. However, the level of investment required to achieve reasonable energy supply is too great to be financed by government or by donor agencies.
Greater openness to private investment is required.
Create a credible regulatory authority able to provide a stable, predictable legal framework for the energy sector. A regulatory authority should supervise both SOEs and private firms in the energy sector. It must assure investors that they can invest with confidence, and assure customers that both private and state-owned firms will behave responsibly with respect to prices charged and reliability of service.
Enable the judicial system to address corrupt practices in both private and public firms in the energy sector.
ENERGY POLICY GOALS
A successful energy policy must satisfy many goals. Here, we state them in general terms:
Energy policy must be concerned not only with current supply, but with the country’s long term needs. For example, in assessing any surplus of natural gas available for export, it is important to consider domestic energy needs long into the future, for a period of, say, 50 years.
Energy policy must be concerned with efficiency of production and distribution, as well as quantity. The energy sector is among the most complex sectors of the economy. It raises problems of managing state-owned enterprises and regulating private sector participants in the energy sector. In general, customers should pay the cost of the energy they consume. Government subsidy to supply energy below cost is an inappropriate use of government revenue. In the past, corruption in certain energy sectors - such as meter reading - has eroded public faith in the possibility of creating an efficient energy sector, and has encouraged customers to rely on “second best” options such as captive power generation.
Energy policy must enable improvements in energy access among all Bangladesh citizens. Most government energy investments have favoured urban over rural areas. An efficiently organized energy sector can bring immense benefits to both rural and urban citizens, to the poor and those with higher incomes.
Energy policy must reduce the pressure placed on the country’s physical environment. Low-income countries rely heavily on biomass fuels to meet their energy needs. The energy demand from a growing population is threatening the country’s physical environment. Sustainable development requires wide distribution of commercial forms of energy that will enable the population to ease the pressure placed on over-exploited biomass energy sources. More efficient use of biomass fuels is also required.
Realising these goals requires several clear strategic decisions by the Government of Bangladesh. We do not attempt an exhaustive list of specific recommendations. We restrict ourselves to six crucially important policies.
Given what is known of natural gas and other mineral reserves, the Government of Bangladesh should not approve natural gas exports. It should designate natural gas for domestic energy needs, of which electrical generation is the most important. It is important that the Government instruct Petrobangla and the Geological Survey to undertake continued exploration of potential energy resources in Bangladesh.
For many purposes, the most useful form of commercial energy is electricity, and the very low per capita supply of electricity is a major constraint on national economic development. Natural gas is the optimal fuel for electricity generation in Bangladesh, and available reserves should be designated for a programme of accelerated investment in generating capacity, not for export or for expanded fertilizer production.
In order to make rational policy decisions over the strategic use of energy resources, the government needs reliable geological information. To get this information, continued exploration is important.
The Government of Bangladesh should place a very high priority on establishing the credibility of an energy regulatory commission.
Bangladesh’s need for investment in the energy sector is acute, and neither the government nor donor agencies can provide adequate investment funds. It is crucial to establish a regulatory regime that encourages private investment, while still assuring customers that prices remain reasonable and supply remain reliable.
The government should encourage the Rural Electrification Board (REB) to develop a network of small-scale (10 – 100 MW capacity) gas turbine plants whose power would, on a priority basis, be distributed independent of the national grid.
The REB has a record of administrative competence that makes it an ideal agency to undertake experiments in investment by independent power producers (IPPs). To the extent the REB can obtain public financing, or the more successful local cooperatives (Palli Biddyut Samitees) can arrange financing, gas turbines may be publicly financed. However, the scale of new power capacity required in rural areas is very large. Private investment will be required. The REB customers would be expected to cover the costs of generation, transmission, and distribution. In exchange, they should have priority access to the power generated. Any power surplus to local needs would be sold to the national grid.
The government should encourage the sale of coal for domestic cooking in rural areas. This would also require the distribution of suitable stoves.
This innovation has the potential to reduce the health problems associated with indoor pollution, and to relieve pressure on forest resources.
The government should continue to facilitate substitution of CNG for liquid petroleum fuels.
The government can consider modest subsidies to encourage owners of automobiles and commercial vehicles to convert to CNG. If use of CNG is to be extended to large numbers of vehicles, there is a need for further expansion of CNG filling stations. More can be done to increase safety of use: standardise fueling connections, assure adequate training among those supplying CNG, and so on.
The government should undertake high profile social marketing activities intended to improve utilisation of biomass fuels in rural areas.
As we have discussed, there is a potential to increase adoption of more efficient stoves and expand forest plantations. These are examples where government public education activities can have a meaningful impact on energy policy.