Privatising power distribution

The government is learnt to be planning to hand retail-level electricity distribution to private operators. Power, Energy and Mineral Resources Minister Iqbal Hasan Mahmud recently said that the state could generate electricity and sell it in bulk, while private companies should distribute it to consumers. The idea sounds attractive. Private management would improve bill collection, bring investment and reduce the financial burden on government. But electricity is not an ordinary merchandise that a dissatisfied customer can buy from another shop. In an area served by one set of lines, substations and transformers, the distributor is practically a monopoly. Notably, Bangladesh’s power distribution network was built with public money. Six distribution entities now serve over 50 million consumers, around 18 million of them in the lifeline category. The Rural Electrification Board (REB) alone has carried electricity to hundreds of upazilas where service cannot be judged by immediate commercial return. So, would transferring these public assets to private hands make service more efficient and economical? Or would it merely privatise the profitable part while leaving the state to shoulder the social obligations and costly rural expansion?

There is another side. A private distributor facing theft, unpaid bills and political interference might soon complain of losses. Local political musclemen may demand illegal connections, resist disconnection drives or seek rent from contractors. The operator might then clamour for incentives and compensation for its supposedly uncontrollable losses. And whenever its return is threatened, it would seek an upward tariff revision from the Bangladesh Energy Regulatory Commission (BERC). In that case, consumers may end up paying for private inefficiency as well as the old public-sector weaknesses. Recent experience should ring alarm bells. After BERC revised retail tariffs this year, the Power Division requested reconsideration because the new rate would hurt lifeline consumers, low-income and lower-middle-income families. If the government is concerned about them under public distribution, how will it protect them when profit-driven operators enter the field? Poor households and small farmers may be underserved through delayed connections, frequent disconnections, weak complaint response or neglect of remote areas even when the tariff remains regulated.

No doubt, successful examples exist. Tata Power Delhi Distribution Limited, a public-private venture, reduced aggregate technical and commercial losses from 53 per cent in 2002 to below 10 per cent while improving reliability. But Delhi’s success did not come from simply changing the signboard. It was based on loss-reduction targets, investment, regulatory supervision and a system under which efficiency gains helped contain tariff increases. On the other hand, privatisation attempts in India’s Orissa demonstrated that mere transfer of ownership was no guarantee of better service. Bangladesh should learn from both examples, not just the convenient one. To be frank, the government should strengthen BERC’s authority, capacity and independence before inviting private distributors. Tariff applications, costs and related-party contracts should be open to public scrutiny. Every licence should include time-bound targets on system loss, voltage quality, outage duration, new connections and complaint settlement. Failure should bring financial penalties and, in serious cases, cancellation of the licence. Consumers should receive automatic compensation for prolonged outages, inflated bills and unjustified delays.

The government should not guarantee profits, allow automatic cost pass-through or sign secret contracts similar to capacity-payment arrangements in power generation. It may begin with limited pilot concessions while retaining public ownership of the network. Competitive bidding should be based on the lowest distribution cost and best service commitments, not the highest upfront offer. Lifeline tariffs, irrigation support and universal service obligations must be written into contracts, with transparent budgetary subsidies for eligible consumers. Private operators should not be allowed to cherry-pick cities and industrial zones while avoiding chars, coastal belts and poor settlements. Above all, power and energy have to be treated as scarce resources in Bangladesh. Installed capacity may look impressive on paper, but gas shortages, idle plants and dependence on imported fuels make supply expensive and uncertain. A distributor should earn incentives by reducing technical and commercial losses, promoting efficient appliances and managing demand, not by selling more units. Private participation in power distribution may improve efficiency, but unless the regulatory authority is strong enough, the reform may only replace a public monopoly with a private one at the consumers’ expense.

Source: https://thefinancialexpress.com.bd/opinions/privatising-power-distribution