Small power plants

Bangladesh lacks investment ability and requires foreign investment in infrastructure sector, specially power. As foreign investment pours into the energy sector the challenge is how to pay for them in foreign currency, how to transfer the technology to local companies thereby enabling the indigenous private sector. Paying is US dollars where the revenue is in local currency poses a major risk, knowing that developing countries are susceptible to depreciation in exchange rates. Also, important in a capitalistic or free market economy is the local entrepreneurs, local capital market (stock exchanges) and debt market (banks). To alleviate the apprehension of all these, small power plants hold out hope, as the right solution for Bangladesh and South Asia.

In Bangladesh REB's purchase of electricity from small private generators have proved to be most successful.

Lead time
Any day without electricity is a huge loss to our productivity. Time lost and the productivity lost will never return. Small power projects can be implemented within a year as demonstrated by a 100 percent Bangladeshi company, Summit Power Co. for REB. Quite to the contrary a large project typically takes four years. This allows implementation of small power plants to existing demand rather than waiting for years.

Electricity demand curve of Bangladesh
The demand of electricity in Bangladesh has a 40 percent difference between peak demand and off peak demand. At 8 pm, at night demand is about 3600 MW, compared to 2160 MW during, say, 3 am at night. Small plants can be shut on and off in tandem with the demand curve. Large power plants on the other hand can not handle this variation in demand, resulting in huge inefficiency. Large power plants can only work as base load plants with continuous operation.

Less need of transmission
Small power plants being situated at the load center does not require transmission lines, vis a vis huge investments and time necessary for transmission of electricity produced by centralised large power plants. London Economies' report of 1996 estimates cost of transmission system at US$ 0.55 per mwhr in Bangladesh. Further system loss during transmission is also high, according to Dhaka Electricity Supply Authority (DESA) transmission system loss is 6.5 percent. Maintenance of transmission line is also expensive. These are saved with small power plants.

Gas grid or power grid
Government of Bangladesh (GOB) has rightly put emphasis on gas transmission. In our National Energy Policy (NEP), as is being implemented, we see gas network will be extended all over Bangladesh. To our satisfaction gas has now gone west to Sirajganj. As (i) we have a huge reserve of gas (ii) gas transmission is much more economic (iii) all the areas of Bangladesh deserve gas for their various usage and should get gas (iv) there is little or no system loss in gas transmission and (v) less maintenance is necessary for gas transmission lines, we must all hope and believe gas network will be expeditiously implemented all over the country. However large power plants require more electricity transmission capacity and stability at huge cost and expenditure. A parallel electricity transmission network with a gas transmission network is certainly a waste. It will be inappropriate to transfer two easily convertible energy in parallel. A good solution for Bangladesh is to set up small power plants along the gas network. This is also suitable from the socio political economy of Bangladesh. Let us take:

Enterprise
The basic factors of production, land, labour, capital and enterprise. For small projects in Bangladesh, we have the entire aforementioned ingredients available in Bangladesh. A 30 MW power plant would require about US$ 20 million, for which equity is available within our private sector, debt is available from our banking system. Whereas for the large projects these are not available as they typically require huge investment, large projects are implementable typically by multinational companies.

Sense of belonging
Smaller power plants being distributed around the country brings in a sense of belonging to the villagers around the plant and provides a ripple effect on the local economy. This will not only provide impetus to growth but also provide customers encouragement to pay their bills.

Equal opportunity to local entrepreneurs
Infrastructure such as electricity is very sensitive and our governments should provide if not more, equal opportunity to local entrepreneurs to get involved in this sector. Unfortunately, today the bidding process followed by government of Bangladesh not only supports foreign companies but often effectively bars local companies from participation in the electricity sector. For example GOB discounts prices received over a period of time at 12 percent whether the offer is in taka or in US dollars. This is unjustified as taka interest rates are 12 percent vs 5 percent for dollar. In our country, US dollar also appreciates by about 7 percent per annum. These should be considered in the evaluation process of a tender.

Recent GOB initiative for 30 MW power plants
Small power plants with appropriate bidding process can provide opportunity to local entrepreneurs and provide benefit to GOB by making the cost of electricity affordable and payable in taka. Presently GOB's step in tendering for about 20 power plants with 10 MW-30 MW capacity is a commendable decision. Appropriately managed these can provide 600 MW of electricity to the national grid in under 18 months. That is about 18 percent increase in electricity supply. These distributed electricity will be available in taka from the local electricity companies for the local people.

Taka vs dollar and stock market:
Entrepreneurs investing in taka will seek their equity return in taka. Should the local banks provide fund the debt repayment would also be in taka. There is another dimension to it. If part of the equity comes from the stock exchange, the local stock market will get a boost from these quality stocks, therefore the infrastructure of capital market itself will improve. On the other hand, debt provided to these generating companies are of best quality, and local banks will have better loan portfolios. Local bank's understanding of the business and project financing will improve the country's overall banking sector. As a consequence utilities will be able to buy electricity in taka and relieve the pressure on foreign exchange reserve.

Conclusion
Bangladesh needs power, which is a basic infrastructure. Still the constitution promises electricity to all the citizens of Bangladesh (Article 16 of the constitution of The People's Republic of Bangladesh), only 30 percent of Bangladesh's population has access to electricity. It is a shame to say we have about 30 TCF gas and our people do not have electricity. Through small power plants we can achieve socially and environmentally sound economic growth providing electricity for all by 2025 if not 2020.

Muhammed Aziz Khan, Chairman, Summit Group of Companies, is President, Bangladesh Energy Companies Association.