Bangladesh’s opaque electricity sector raises concerns about widespread corruption.
Stability – whether in political leadership or of power supply – has typically been short lived in Dhaka. No Bangladeshi prime minister has presided over more than one term in office, and no resident of Ganabhaban – or 'People's House', the official residence of the prime minister – has presided over surplus electricity generation until Sheikh Hasina's post-2009 rule, which continues to this day. In many ways, the breaking of these immutable rules converges in one law. It should have expired in October 2021 – but, yet again, it has not.
The Speedy Supply of Power and Energy (Special Provisions) Act 2010 has, over the course of its life, been extended on three prior occasions, and now is set to maintain its stultifying run on the country's law books till at least 2026. The special provisions were supposed to provide temporary remedies and incentives to address the gaping electricity shortfall in the country. When the law was devised in 2010, Bangladesh's electricity generation capacity was around 6600 Megawatts (MW), with the demand some 1400 MW higher. Earlier this year, the country set a record for installed generation capacity of around 25,000 MW, which on paper appears a terrific success: a developmental challenge solved neatly through an act of legislation. However, the length of the purportedly temporary act's stay on the books points to some extra-legal incentives and poses worrying consequences for Bangladesh's governance.
Bangladesh has been much celebrated by international observers and multilateral organisations, who have admiringly noted a surprising trend of record-breaking, consistent GDP growth. This has made the country among the top economic performers in the region, overtaking India for GDP per capita in 2020. These accolades seemed like the perfect way to further burnish the country's emergence after 50 years of independence, rather than projecting it merely as a developmental star, successful largely at the prompting of foreign non-profits.
One of the oddities of Bangladesh's stellar GDP numbers is not only their unwavering, upward trajectory – where each year's performance exhibits neatly, almost artificially so, slightly faster growth than the prior year (barring the inevitable effects of COVID-19) – but also, that it has come despite stagnation in private investment, where its fraction in relation to the GDP has been stagnant since 2013.
The need for more and better energy supplies was earnestly felt that year. I recall overlooking a pile of collapsed concrete and bricks in the satellite town of Savar, some 25 kilometres from the city of Dhaka. Fifty-metres behind what had once been the nine-story Rana Plaza factory complex was a relatively new block of flats. On the fateful afternoon of 24 April 2013, I chatted to residents who recalled how every time the factory put its generators on, seismic reverberations were felt 50 metres away as their building would sway. Meanwhile, the factory gradually cracked and came apart from the vibrations. It did not help the 1100-odd people that the generators were kept on higher floors, despite safety protocols and common sense. Perhaps if not for the shaking generators, those hundreds of young people might still be with us today.
In any case, when those tragic events took place, the special provisions act had already been extended once. And the acquisition of a fleet of new coal plants, as well as stop-gap rental plants, which are highly polluting, expensive and diesel-run, was already underway. For a country deeply exposed to the effects of the climate crisis, the provisions of the speedy supply act proved crucial to 'streamline' many of these coal projects beyond the condemnation and scrutiny of a concerned commentariat and the public. In fact, one of the key provisions in the law is the ability of the government to exclude open tendering. In other words, if the government – or at least the clique in charge of this area, which includes the energy minister who happens to be Prime Minister Sheikh Hasina – wants to build almost anything to do with energy, they can simply write a cheque to their desired contractor.
Flanking Hasina in this enterprise are a handful of advisors and ministers, some of whom are rumoured to have become rich by gaming the contracting process. At the same time, however, they also compete against each other for favour with the boss. This has irked some, not least the country's leading economic think-tank, the Centre for Policy Dialogue, which noted in a 2019 report that a "Lack of transparency in case of contracting out various public contracts to local and foreign companies raise concern regarding the rational choice for selection of enterprises." The report adds: "Lack of competitive bidding process has been causing extra costs in contracts with foreign companies in the energy sector."
Further muddying the waters is the 2010 act's promise of blanket immunity from prosecution for any provision covered by the law. These sweeping provisions have attracted foreign entities, private and even state-run. Notable among them are the Russian and Japanese governments.
In 2016, the Japanese aid agency, Japan International Cooperation Agency (JICA), helped Bangladesh write its 'Power System Master Plan', which laid out plans for Bangladesh to promulgate a wholesale shift to coal energy. Unsurprisingly, this included the engagement of a good number of Japanese firms. Of note was the plan for an energy station and deep-sea port hub in the Matarbari area, which lies near the southern city of Cox's Bazar. Japan offered funding for coal power plants in the hub, which they admitted did not include open tender. It might, therefore, not be a coincidence that a Japan-based company like Tokyo Electric Power Company (Tepco) gained contracts as consultant engineer on Matarbari 1 coal power plant and was a consultant for drafting the 2016 energy master plan. It is worth noting that the Japanese utility company had only recently faced serious losses, even before March 2011's massive tsunami caused the devastating nuclear catastrophe at Tepco's Fukushima Daiichi nuclear power plant. The following year, Tepco was bailed out to the amount of 1 trillion yen (USD 12.5 billion) and effectively nationalised by the Japanese state. Matarbari was one of the first major projects to be covered by the Speedy Supply of Power and Energy (Special Provisions) Act. It also appears a convenient way to subsidise a loss-making, legacy entity with almost 30 million Japanese customers, which was viewed as too big to fail. The Matarbari 1 plant is reported to be years behind schedule and nearly 50 percent more expensive than planned.
Another major plank to the Matarbari energy hub project has also been the importation of liquefied natural gas or LNG. Bangladesh has traditionally run its energy infrastructure on natural gas. However, according to the CPD report from 2019, "The country's existing gas reserves of around 12 trillion cubic feet will run out by 2038 if no new exploration and discovery takes place." Bangladesh currently lacks the know-how or market conditions to enable exploitation of potential off-shore reserves in the Bay of Bengal. So imports became essential to safeguard projected power demand.
Even before the current government took power, a US-based company named Excelerate Energy had started exploring the possibility of building LNG importation facilities in Bangladesh. The complexities of such a project are great and are magnified inexorably by the country's maritime topography and the extremely challenging shifting sands of the Ganges delta. As a result, Excelerate, among the world leaders in their field, took over a decade to get their floating regasification terminal, known as an FSRU, up and running. It eventually commenced operations in 2018, as part of the Matarbari energy hub.
However, an identical FSRU developed by a local conglomerate, the Summit Group, began its operations in April 2019, only a few kilometres up the coast. According to one consultant familiar with the projects, the new FSRU was built a year after Excelerate Energy's, but without the decade of preparatory works that the latter needed. Importing gas is a monopoly in Bangladesh and thus all which passes through the FSRUs is controlled by PetroBangla, the state-owned oil company. Importantly, Excelerate was required to provide the plans for their project's approval to PetroBangla. "All the confidential stuff that Excelerate passed to Petrobangla was passed on from Petrobangla to Summit," the consultant alleges, adding, "The only way summit could have gotten this was from Petrobangla because Excelerate didn't give it to them. It's 100 percent copy paste."
The Summit Group is one of a number of local conglomerates that have prospered under the current government and are politically linked to the current ruling party, something that "everyone knows," as Iftekhar Zaman, the head of the anti-corruption group Transparency International Bangladesh, says.
The twin FSRUs now enable the importation of around a billion cubic feet of gas per day through the same five-kilometre stretch of coast. Its record for consumption is about 600 million cubic feet per day. While overcapacity in general may seem a prudent way forward, the floating technology that was implemented and then allegedly copied, is not the most reliable, and can be hampered by the tides, or storm surges. Just like Japan's tsunami-prone coast, Bangladesh's coast is highly turbulent. Regular storms and vast tidal activity make it a logistical nightmare.
So while the country has huge potential capacity for importing, it is not the only area in which capacity is deceptive. Groups like Summit have been handed large numbers of contracts to build power plants around the country under the special provisions law. They are paid on the basis of the plants' generating capacity regardless of whether they actually provide electricity to the grid. As a result, and given the opacity that the special provisions law provides, the country now has a coterie of phantom power plants: newly built power plants, whose constructors and operators are paid for their capacity, but which do not produce any electricity. In some cases, these plants simply do not have the supply of the imported coal they were supposed to run on. Or they lack the transmission cables to distribute electricity. More often, the power plants are just surplus to requirements, as supply dwarfs demand.
According to Khondaker Golam Moazzem, an economist from the Centre for Policy Dialogue (CPD), the government is currently paying a huge amount in 'capacity charges' – payments made by the Bangladesh Power Development Board (BPDB) on a contractual basis to Bangladesh's independent power producers (IPPs) for not using a 'minimum amount of generated capacity' of a power plant. A 2021 CPD report observes that "since IPPs comprise 43 per cent of total installed capacity for power generation and a substantial part of the capacity remains unutilised due to poor demand, BPDB is obligated to pay the 'capacity payment 'of a substantial amount to the IPPs every year." Moazzem adds, "I have shown that capacity payments are almost the same amount as what the private sector has received as subsidy, [in 2019] it was about 9000 crore taka… they are finding it quite difficult because of fiscal constraints."
Even before the pandemic, utilisation of the power capacity on the grid was well below 50 percent. This figure is likely falling as more and more power plants are built. One benefit of such a construction boom for the government is that it stimulates GDP growth, a figure that is buoyant despite a dearth in growth in actual private investment and thus energy or electricity-intensive business operations. Thus not only can government ministers accrue kickbacks and patronage by distributing state capture – ie, payments made from tax payers – to chosen business persons, but they also help produce headline-grabbing, record-breaking macroeconomic statistics. This is even as the private sector does not see the conditions to expand on its own.
While it is impossible to truly predict future electricity demand, a 2021 report from the US-based Institute for Energy Economics and Financial Analysis estimated that power-generation growth would need to increase by at least 10 percent per year to prevent utilisation rates from dropping even further. It added, "However, the [Bangladesh Government's Eighth Five Year Plan] states that power demand growth will be 8% over the Plan period to 2025. This scenario is likely to see overall power capacity utilisation decline further."
Public losses, private gains
Given these problems, it might appear odd why Dhaka would repeatedly reinstate the emergency legislation to rule energy politics by decree. However, providing contracts to powerful business families is a successful method for buying political loyalty. Summit Group, perhaps the leader in the power field, saw their revenues increase by around 90 percent between 2013 and 2018; in 2019, they made public their aim to generate one-fifth of the country's electricity. "They've thrown out competition, so without that you can't have quality cost-effective responses," notes a former civil servant, speaking on condition of anonymity. Those awarded the project, the civil servant adds, are either themselves politicians or politically connected business people.
In general, when Bangladesh has a loss-making public entity, such as the Bangladesh Power Development Board, the government usually requires a state-owned commercial bank to simply loan it money to help cover its losses. These banks are then regularly topped up with capital by the government. While these state-owned banks have been used as a method to subsidise loss-making state institutions or enterprises, they have also been subject to fraudulent loans taken by politically connected individuals and businesses, giving the country an astonishingly high non-performing loan ratio, which was close to 10 percent in 2019.
In this sense, the companies building power plants or projects under the cover of the special provisions law are the ultimate vehicles for state resource capture, moving wealth from the public into private hands. Some of these funds then find their way abroad, with an average of over USD 7.5 billion siphoned out per year through misinvoicing alone.
Bangladesh will inevitably need more energy in the future for its 170-million large population. Asia's swiftly changing energy landscape has recently come into sharp relief as China and Japan, among Bangladesh's most important foreign donors in this sector, have both announced that they will cease or slow involvement in the development of new coal plants abroad. Fossil fuels have shown their unpredictability with recent surges in prices, and Bangladesh cannot realistically afford to be profligate, environmentally or financially, with energy prices and capital expenditure. Most importantly, Bangladeshis need to be able to know and debate what their tax money is being spent on. As it stands, the special provisions law makes that an impossibility.
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