Special Correspondent :
A recent report by Institute for Energy and Economics and Financial Analysis (May 18, 2020) a US non-profit backed by the Rockefeller Family and the likes has sounded alarm claiming Bangladesh’s power sector is heading for financial disaster.
The report titled, ‘Bangladesh’s Power System Headed for Financial Disaster Due to Overcapacity in Coal, LNG Power,” claimed 57 percent of current capacity of power stations across the country remains idle with significant projects remaining in the pipeline.
Bangladesh is one of the few countries in the world today where Power Purchase Agreements (PPA) come with guaranteed capacity payments from the government in US dollars. This clause guarantees investor profits and mitigates financial risks even if the power stations remain idle.
According to local media reports, for every 100MW, government pays over two million USD in capacity charges monthly. Currently over 10,000 MW is sitting idle. And with large power stations in the pipeline, we will be approaching 30,000 MW capacity by 2030 against current demand of around 8000 MW.
Most of the power projects in the past decade have been awarded without international tenders to fast-track implementation in an effort to address acute load shedding in the country that was prevalent before the current government took office. The shortage of power at the time severely curtailed our export potential.
However, despite being one of the largest apparel exporters in the world, Bangladesh runs a deficit in its current account. Meaning the value of our imports is substantially higher than that of our exports. The margins in the apparel sector has diminished substantially over time as newer generation of westerners consider clothing as fashion items much less than their predecessors. People today are spending a substantially lower percentage of their disposable income on clothing as gadgets like iPhones have become the primary fashion items.
As such, the huge outflow of US dollars in the power sector is possible because of the inflow of around 18 billion US dollars sent by our migrant workers annually. Government receives remittance in hard currency such as USD, from migrant workers abroad, and hands over their families Bangladesh taka of equivalent value. This foreign currency gives government massive discretionary spending power.
While this arrangement makes the economy robust to carry out fiscal policies as Bangladesh does not have to rely on local economy to finance government spending driven GDP growth, it has made our economy susceptible to the vagaries of global oil prices.
After all subsidies, the breakeven price for oil for Saudi Arabia today stands at USD 77 per barrel. However, oil is trading below USD 30 today. Even before the corona pandemic oil prices were not that much higher. Unquestionably, there is a glut of oil. US produces more oil today than Saudi Arabia at around 17 million barrels a day accounting for nearly 18% of global demand.
Latin America is considered the new destination for oil companies with production costs as low as 9 USD per barrel. There has been major shifts in the developing world towards renewable energy. The biggest consumer of oil, the transportation sector, is expeditiously moving towards electric vehicles. Undoubtedly, oil prices will remain low for the foreseeable future.
The remittance earnings that power Bangladesh’s economic growth today may not last for long as most of the oil producing countries have already initiated austerity measures.
The West however has an ageing population and is fighting low population growth. Bangladesh on the hand has a large young population base that can be quickly transformed into a global source of skilled labor. If we train our youth with the right skills, Bangladesh can expeditiously become a global technology powerhouse.
For this initiative to succeed, we really need to let the private education sector thrive just like India has done. Already international freelancing is among most popular vocations among our youth. They are earning foreign exchange, doing work for global businesses sitting at home. We need few world class private universities to take the lead to make this transformation happen.
We need to make digital Bangladesh happen by cutting the dollar-bleeding in the power sector. There are better alternative uses of our hard-earned remittance income. Let technology intensive industries thrive in the country.
