South Asia Energy Regulation Partnership Executive Exchange Program October 7-9, 2002

1. South Asia Energy Regulation Partnership Executive Exchange Program October 7-9, 2002 Thimpu, Bhutan. Power Sector Regulation and Regulatory Policy in Bangladesh An Overview Presented by : 1. Md. Mokhlesur Rahman Khandker, Director General, Power Cell, Power Division, MEMR, Govt. of Bangladesh 2. A.S.M. Alamgir Kabir, Director(Planning & Tariff) Power Cell, Power Division, MEMR, Govt. of Bangladesh 3. K.H. Masud Siddique, Deputy Secretary, Power Division, MEMR, Govt. of Bangladesh.

3. Present Structure of Power Sector Owner & Regulator : • Power Division, Ministry of Energy & Mineral Resources Generation : • Bangladesh Power Development Board (BPDB) • Private Power Generation Companies (IPPs) Transmission : • Bangladesh Power Development Board • Power Grid Company of Bangladesh Ltd. (PGCB) Distribution : • Bangladesh Power Development Board • Dhaka Electricity Supply Authority (DESA) • Dhaka Electric Supply Company Ltd. (DESCO) • Rural Electrification Board through Rural Electric Co-operatives

4. Bangladesh Power Sector : Present Structure

5. Present Power System • INSTALLED CAPACITY : 4260 MW • GENERATION CAPACITY : 3300 MW • MAXIMUM PEAK DEMAND SERVED : 3218 MW • TRANSMISSION LINES (230 & 132 KV) : 3799 KM • GRID SUB-STATION CAPACITY (132 & 66 KV) : 6595 MVA • DISTRIBUTION LINES (33 KV & BELOW) : 1,93,196 KM • SYSTEM LOAD FACTOR : 66% • SYSTEM LOSS (T&D) : 29.60% • CONSUMER NUMBER : 6.54 Million • AVERAGE GROWTH (LAST 10 YRS.) : 8% • PER CAPITA GENERATION : 136 kWh • GENERATION MIX • GAS : 90.16% • HYDRO : 4.56% • LIQUID FUEL : 5.28% • CONSUMPTION • INDUSTRIAL : 44% • COMMERCIAL : 7% • DOMESTIC : 42% • OTHERS : 7%

6. Current State of Electricity Regulation • GOB/Power Division Functions as Regulator under Electricity Act 1910 • Approves investment program • Monitor performance of the public sector entities/utilities • Approves Tariff • Appoint key personnel of the utilities • Appoint Electrical Advisor and Chief Electrical Inspector

7. Current State of Electricity Regulation (Contd.) • Chief Electrical Inspector perform duties as regulator on behalf of the govt. in the following areas : • Provides supply license • Provides approval for captive generation • Setup security & safety standards and approves electrical installations’ in respect of safety measures • Performs testing &inspection function of electrical installations in respect of security & safety • Presently no provision of stake holders participation like public hearing in the tariff approval process by the Govt. • No scope of appeal to the court against Govt. decision

8. Key Constraints of Power Sector Development • Scarcity of resources hinders development of the sector • High system losses and accounts receivable affecting the financial viability of the utilities • Lack of clear goals, adequate financial and commercial autonomy and adequate incentive hinders development • Lack of differentiation of responsibilities for generation, transmission and distribution is hindering segment specific corrective measures • Lack of cost and asset accounting system by units and absence of effective performance evaluation • Existing Tariff lower than cost reflective tariff

9. Reform Measures in Recent Years • GOB has undertaken a series of reform measures: • The National Energy Policy was prepared and adopted in 1996 • Power Cell was created in 1995 to design, facilitate and drive reform measures • Private Sector Power Generation Policy was developed and adopted in 1996, to introduce competition, induct foreign private capital and increase power supply • Policy has been adopted in 1998 to promote small-scale generation in the private sector • REB/PBS started buying electricity from private sectors

10. Reform Measures in Recent Years (Cont.) • Ashuganj power station corporatization process started • Govt. approved Haripur (99 MW) & Baghabari 100 MW Power Station to convert into Strategic Business Unit (SBU) • Draft legislation for setting up of a Regulatory Commission approved by the Cabinet • Government adopted a well specified power tariff formula to protect the tariff in terms of real value • Power Cell completed tariff study and its under consideration of the govt • Under the Company Act 1994: • Power Grid Company of Bangladesh set up • DESCO set up as distribution company • Mixed sector generation company RPC set up • SBU activities adopted in 47 nos. distribution divisions of BPDB and DESA • As a part of reforms and restructuring West Zone Power Distribution Company under BPDB

11. Government’s Vision • Long term goals for the power sector • To make electricity available for all by 2020 • To ensure reliable and quality supply of electricity • To provide electricity at a reasonable price

12. Reforms Objectives • To bring entire country under electricity service by the year 2020 • Making the power sector financially viable and able to facilitate economic growth • Increasing the sector’s efficiency • Making the sector commercial • Improving the reliability and quality of electricity supply • Using natural gas as the primary fuel for electricity generation and exploring the possibility for export of power to augment and diversify foreign exchange earnings • increasing private sector participation to mobilise finance • ensuring reasonable and affordable price for electricity by pursuing least cost options • promoting competition among various entities

13. Reform Strategy • Segregation of generation, transmission and distribution into separate services • Corporatization and commercialization of emerging power sector entities • Creation of Regulatory Commission • Private Sector Participation • Introduction of cost reflective tariff structure • Development of demand management including energy efficiency measures to conserve energy • Development of alternative/ renewable energy sources

14. Reform Strategy (Contd.) Generation : • Separating out all existing power generation units through a corporatized entity • Under construction and future power stations may be incorporated as independent company • Generation projects be selected at least cost option • Generation capacity would be sought through a mix of public & private source Transmission : • Transmission network will be owned, operated, planned and developed by a corporatized entity in the public sector

15. Reform Strategy (Contd.) Distribution : Highest in the agenda is to improve the commercial and financial performance of different entities. Specific measures to be considered are : • Introduction of consumer voice and organizational accountability in the form of citizen/ client charter • The existing distribution system of BPDB and DESA be transformed into a number of new corporatized entities • Private capital and management participation in distribution companies • The rural electric co-operatives (PBSs) under REB to continue functioning and additional PBSs to be formed as and when

16. Industry Structure of Power Sector After Reforms

17. Single Buyer Model • Single buyer model be adopted as market structure • The Single Buyer shall be a public sector entity • Planning of least cost generation expansion • Arrange establishment of private power generating stations as per generation expansion plan • Purchasing electricity from generators (both public and private) and selling to distributors under Power Purchase and power Sales Agreements • Power system operation including economic dispatch of generation

18. Market Structure of Power Sector After Reforms

19. Regulation of the power sector after establishment of the Energy Regulatory Commission • Establish an independent Regulatory Commission • The Regulatory Commission cover electricity, gas and petroleum sector • The Regulatory Commission to : • Protect consumers interests • Protect industry interests

20. Regulation of the power sector after establishment of the Energy Regulatory Commission (Contd.) • The Commission’s functions : • Approval of the utilities tariff proposal following GOB’s policy directives • Set & Enforce Codes & Standards of Operation • Issue, repeal & amendment of licenses - • Generation (Electricity) • Transmission • Distribution • Supply

21. Regulation of the power sector after establishment of the Energy Regulatory Commission (Contd.) • Approval of expansion & investment plan of the utilities to ensure least cost options • Ensure better customer service and protect consumers interest • Promote competition by ensuring level playing field

22. Regulation of the power sector after establishment of the Energy Regulatory Commission (Contd.) • Tariff • Commission will approve the Tariff on the basis of the policy directives issued by the govt. • Public hearing will be made during tariff setting • Appeal against the decision of the Commission • Aggrieved person may appeal against the decision of the Commission to the High Court Division of the Supreme Court

23. Proposed Electricity Pricing Policy • The tariff setting be consistent with the financial requirements of the power sector institution • Meets operating expenses • Earns adequate return for self investment in future expansion • The tariffs take into account- • Load Management and energy conservation • Efficiency improvement • The GOB’s policy objectives be addressed in tariff setting and recommendations especially on social commitments. • Tariff to each Consumer class reflects the cost of supply • PBSs be subsidised by direct transfer from the GOB with the aim of promoting rural development

24. Proposed Electricity Pricing Policy (Contd.) • Gradual withdraw of subsidy for agriculture consumers • Gradual withdraw of subsidy for domestic consumers except those fall in the life line slab (0-100 units presently) • In the interim subsidies to domestic and Agriculture Consumers be supported through the national budget • Automatic price adjustment due to change of the following using a well specified formula : • Exchange Rate • Consumer/industrial price index • Fuel price

25. Proposed Electricity Pricing Policy (Contd.) • Impact : • Make public sector utilities financially viable • Increase ability of the public sector utilities to self-finance • Reduced requirement of GOB assistance/subsidies for development of the sector • Brings competition and increase private participation both foreign and local Note : Tariff increase/rationalization be made along with the recommended power sector reform/ restructuring, otherwise it can’t bring desired financial viability of the sector.

26. THANK YOU C:/Parvez/Kabir Sir/2002/Country Paper/Energy Regulation in Bangladesh-For Bhutan.ppt