1. 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.

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

4. 4 Bangladesh Power Sector : Present Structure

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

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

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

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

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

10. 10 Reform Measures in Recent Years (Cont.) n Ashuganj power station corporatization process started n Govt. approved Haripur (99 MW) & Baghabari 100 MW Power Station to convert into Strategic Business Unit (SBU) n Draft legislation for setting up of a Regulatory Commission approved by the Cabinet n Government adopted a well specified power tariff formula to protect the tariff in terms of real value n Power Cell completed tariff study and its under consideration of the govt n 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. 11 Long term goals for the power sector n To make electricity available for all by 2020 n To ensure reliable and quality supply of electricity n To provide electricity at a reasonable price Government’s Vision

12. 12 Reforms Objectives To bring entire country under electricity service by the year 2020 n Making the power sector financially viable and able to facilitate economic growth n Increasing the sector’s efficiency n Making the sector commercial n Improving the reliability and quality of electricity supply n 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 n increasing private sector participation to mobilise finance n ensuring reasonable and affordable price for electricity by pursuing least cost options n promoting competition among various entities

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

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

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

16. 16 Industry Structure of Power Sector After Reforms

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

18. 18 Market Structure of Power Sector After Reforms

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

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

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

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

23. 23 The tariff setting be consistent with the financial requirements of the power sector institution u Meets operating expenses  Earns adequate return for self investment in future expansion The tariffs take into account- u Load Management and energy conservation  Efficiency improvement The GOB’s policy objectives be addressed in tariff setting and recommendations especially on social commitments. u 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 Proposed Electricity Pricing Policy

24. 24  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 Proposed Electricity Pricing Policy (Contd.)

25. 25 Impact : u Make public sector utilities financially viable u Increase ability of the public sector utilities to self-finance u Reduced requirement of GOB assistance/subsidies for development of the sector u 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. Proposed Electricity Pricing Policy (Contd.)

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