Honorable Energy Advisor, Secretary Power Division, Ladies and Gentlemen;
I am deeply honored to address this ICC sponsored Conference on Energy and Growth. This topic could not be more timely, and at the very outset I would like to confirm that the World Bank remains a committed partner in Government’s energy sector development. Over the years, the Bank has supported numerous investments in the sector, and we plan to continue that support for the foreseeable future.
Bangladesh is in the grips of a serious energy crisis with multiple dimensions:
From the customer’s perspective
• Electricity supply meets less than 75% of peak demand
• Gas supplies meet less than 85% of daily demand
• Only about 47% of households have access to electricity.
• Industry reports that power shortages severely affect profitability
From the supply perspective
• The power sector bears the brunt of gas curtailments (85% of plants being gas fired), exacerbating peak power shortages
• Neither gas nor power tariffs cover sector costs and financial restructuring of the sector has not been completed
• Most short term power generation solutions are costly
• Permanent solutions require large, long-term investments which span election cycles. For example, an estimated $1.5 billion per year or more is needed for gas and power sector investments over the next 10 years.
To address these serious issues, it is important to ensure that the energy sector is structured and led on sound technocratic principles, has adequate financial and human resources, and is governed with transparency. Although challenges remain, Government is making important progress in all these areas.
Sector structure: Reform, commercialization, and private participation
With respect to sector structure, Bangladesh has proceeded methodically with sweeping reforms which are aimed at promoting commercial discipline and attracting private actors and finance. For example, Government has commercialized numerous entities on both the supply and demand side of the power sector. These are independent entities, established at arms-length from Government. Even so, as the owner Government must ensure that the board and management accountability structures operate as expected. Commercialization is an appropriate and useful step, but requires diligent follow up at all levels to yield its expected benefits. One very positive development along these lines has been BERC’s rise (regulatory agency) in both strength and stature. This applies commercial pressures on corporate management. A parallel focus on board performance would reinforce a virtuous cycle of accountability.
In the area of private sector development, Bangladesh has had some notable successes in development of its energy sector, including the development of two of the world’s best Independent Power Producers – Haripur and Meghnaghat. These IPPs now account for 20% of Bangladesh’s generation capacity and have proven to be reliable and cost-effective. The Bank is proud to have supported these projects, and would like to support more. In particular, we look forward to the rapid and successful conclusion of the procurement processes for both the Siddhirganj and the Bibiyana I power stations. We also are following with interest the recent launch of additional power station procurements as well as developments on cross border power exchange. In addition, rehabilitation of existing low-efficiency power stations offers an important opportunity for making better use of current gas resources.
Along with Government, we also are acutely aware of the need to ensure that development of the gas supply and power transmission networks keep pace with new generation investments and demand growth. In parallel with immediate investments, a deliberate, coordinated gas and power plan – accounting for a range of possible future scenarios – is fundamentally important to attaining a robust, least cost future for Bangladesh’s energy sector. This will also lend confidence to investors and financiers that their investments will have a long, productive future. Updating and coordinating the gas/generation/transmission plans should not be a lengthy exercise, but it must be done well.
Financial and human resources: Tariffs, production (including LNG), efficiency
Government is well aware of the private sector’s key role in raising the required $1.5 billion annual sector investment and renewing the sector’s human resource base. To commit its own resources, the private sector must know that risks are acceptable, and rewards are commensurate with the risks. This raises substantial issues such as transparency and efficiency in procurement, tariffs, stability of the sector structure, and sector governance/oversight. Government has made encouraging strides in all of these areas, and we look forward to future progress. Specifically, Government has prepared a financial restructuring plan. Implementation of this plan will be an important step to put key institutions on a sound financial footing and will ease pressures for tariff increases. Similarly, BERC has begun adjusting tariffs to achieve the delicate balance between affordability on the one hand, and cost recovery on the other. The current below-market tariffs are a strong deterrent to the investment needed to meet current and future demand. Future tariff adjustments, coupled with pressures toward ever greater supply efficiency, will be needed to achieve this balance. In its recent road show to attract new energy sector investors, Government expressed confidence that this balance would be achieved within five years.
In parallel, a major push is underway to inject new gas into the network. We are pleased to support Government in its development of a floating Liquefied Natural Gas (LNG) terminal. This is the quickest means of augmenting the gas supply. Loss reduction and improving end-use efficiency are also quick ways to make more gas and electricity available to customers. We will continue to support energy efficiency activities as appropriate, and also would like to support needed investments in gas and power transmission as well as rehabilitation of older, inefficient power stations. In parallel, we encourage Government to redouble its efforts on new exploration and production of domestic gas resources.
Governance: Transparency and efficiency
Along with reform and financial recovery, an environment of transparency and efficiency is a key element needed to attract private actors and finances to the sector. A stronger regulator and successful small power procurements offer hopeful signs that this environment is growing in the sector. A successful large power procurement, echoing Government’s successes with Haripur and Meghnaghat, is the next step. Meeting the requirements of private actors and financiers will be a solid demonstration of achievement.
In spite of the long-standing problems afflicting the energy sector, Bangladesh’s economy has been growing at an impressive 6% rate over the past decade. This has contributed to poverty reduction and progress towards meeting the Millennium Development Goals (MDG’s). Many factors will determine Bangladesh’s ability to accelerate growth to the 8 percent needed to reduce poverty and reach middle-income status by 2021. But it is no exaggeration to say that solving the energy crisis is among the most essential.
Despite best efforts today, the reality is that solutions will be counted not in days or weeks, but in months or years. We believe that overall, Government is proceeding in the right direction, with a mix of short and longer-term solutions in a reforming environment aiming towards transparency and efficiency. For our part we wish to continue our partnership to accelerate progress in this vital sector. We stand ready to assist, with advice, facilitation, and financial resources, in close cooperation with other development and private sector partners.