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Gas supply shortage, price hike plan, policy of promoting grid power line- what would be the future of captive power plants?

captive-power-plantReady Made Garments (RMG) sector has emerged as the blessing for Bangladesh which is contributing the most in country’s economy. It is now the biggest earner of foreign currency and creates more than 4.2 million employments, where most of them are women, and contributes significantly to the GDP. It was not easy for RMG sector to reach this position rather it has overcome many difficulties and at the same time it enjoyed some incentives and policy supports as well. Recently the sector is facing acute shortage of gas supply and on the ohrer hand the plan of gas price hike for captive power plants and also for the gas used in heating at stenter and boilers. When gas was the key advantage on which textile manufacturing built here and now without gas the mathematics of the sector has changed completely.

As gas was cheaper here in Bangladesh and the government provided lower rate for captive power plants in the factories, many such power plant have been set in textile and other industries. So far these manufacturing factories were enjoying generation electricity for their own use at an affordable cost. Now with great supply shortage many of those plants are running under capacity and many of them are standing still. On the hand with repeated price hike of gas for captive power plants are making such plants out of competitiveness when the cost of power has been calculated.

Recent power policy suggests that there would be no more captive power plants in future. But the question is what is the answer for huge existing investment behind the existing plants. Who is to compensate them if the lost their competitiveness.

Recent gas price hike initiative:

Bangladesh Energy Regulatory Commission (BERC) has started an initiative to increase gas price for captive power plant users by 130 percent and has completed mass hearings from August 7, 2016. Different mainstream media reported that the gas distribution companies of the country had submitted their proposal to BERC to increase gas prices by an average of 87.66 percent.

According to the below chart commercial units price have been asked to make from Tk. 8.36 to Tk. 19.26, that means increasing 130%. In September 2015 gas price was increased that has made power more costlier already and again if it goes up by another 130%, textile and RMG sector’s survival will be very difficult. A few days ago Tapan Chowdhury, President of Bangladesh Textile Mills Association, said that the textile sector, where around Tk 8,000 crore has been invested so far, would face a major setback if gas tariff is hiked again. Many industries could be shut off, industry associations have mentioned. Bangladeshi high power consuming textile sections like spinning and weaving are facing severe competition from India & China. So this gas price hike will increase the cost of production that will reach Bangladesh in a level where its textile manufacturers will simply lost its business affordability.

Proposed price structure in table 1 suggests that government policy now is to discourage gas based captive power plants. Gas price for these plants are already quite high and if it goes up further most of the captive power plants may just go out of operation. It is to keep in mind that industrialist invested huge amount of money in installing captive power facilities in their premises and contribution of these plants was amazing while the country was in sheer power crisis.

Table : Current tariff structure of natural gas for different user bands and the increment target.

Product Current Rate (Taka) Proposed Rate (Taka) Increased (Taka) Increased (%)
Single Burner 600 1100 500 (83%)
Double Burner 650 1200 550 (85%)
Household Meter 7          (per unit) 16.80 9.80 (140%)
CNG 27        (per unit) 49.50 22.50 (83%)
Industry 6.74     (per unit) 10.95 4.86 (72%)
Commercial 11.36 (per unit) 19.50 8.14 (71%)
Electricity generation plants 2.82     (per unit) 4.60 1.78 (63%)
Fertilizer 2.58     (per unit) 4.41 1.53 (59%)
Captive power 8.36     (per unit) 19.26 10.90 (130%)


What would be the alternative?

Tapan Chowdhury, on behalf of RMG factory owner, urged the state minister to implement the new gas tariff for captive power generation in phases with a 25 percent hike in each year. But it is totally unknown whether this demand will take into account or not. If the demand does not be considered then what would be the alternative?  Will the factory woner convert captive power plant to grid line, as the government announced that factories will enjoy 24 hours power supply from national grid line? Already a huge amount of money has been invested to make captive power plant, if the factory woner manage power from grid line, what would be the future of this captive power plants?

A few days ago Prime Minister’s Energy Advisor Tawfiq-e-Elahi Chowdhury notified that gas reservation of the country will be run out within 10 years. The reconstituted Bangladesh Oil & Gas Corporation (BOGC) has given same message too. If it is occurred then government will import required gas from abroad that will be much costlier, so the textile and RMG factory owners may not be able to continue power production by captive power plant. Government is moving towards LNG import to cope up with the gas crisis and so it is building infrastructure for LNG (Liquefied Natural Gas) processing and distribution. A US company will set countries first LNG processing terminal in Chittagong’s Moheshkhali as the country will start LNG import by 2018. The capacity of the plant will be to supply 500 mmcfd imported gas to the grid. However that LNG import, regasification and supply will be more expensive than our remaining cost for gas.

What would be the consequences?

A terrible consequence is waiting for textile and RMG industry, if the proposal of gas price hiking for captive power plant is accepted, the textile industry will lose its bright opportunity and can not rise up again. Already around 2,000 small and big textile industry owner have reached a new level of crisis as no factory is getting new connection for gas before 2018. This decision comes to them like a bolt from the blue since they invested millions of dollar making their gas based captive power plants.

Below are some of the impacts of proposed gas price hiking in the textile and RMG industry.

First of all, Production cost will increase  as their production depends on energy and power, they run spinning, weaving, dyeing and finishing units using gas based captive power plant. The price of raw finished goods will increase due to the hike in gas tariff but the millers will not get additional prices from the buyers.

Secondly, the textile and RMG industry of Bangladesh is being popular day by day mainly for its low production cost , buyer could buy their RMG product at a reasonable price, but in coming days millers can not sell their product  on that price due to their higher production cost. As a result, buyers may withdraw their ‘order’ from Bangladesh and set the ‘order’ into others country which will demolish all hope for RMG sector being 50 billion industry by 2021.

Thirdly, to get high voltage grid line textile factory owner need huge amount of fee and security money to pay the government. Moreover, the factory will have to bear the cost of supply line and they have to build their own step down sub stations. That means for grid electricity factory woner have to invest higher than their captive power plant, although, the industry owners borrowed high cost money from banks and invested on gas based captive power plants over the years. That’s why most of the factory owners will not be able to continue their business, experts said.

Fourthly, if gas tariffs are hiked again, private sector investment will be discouraged, which now remains almost slothful over the past few years. In recent times, some investors, including China, are taking initiatives to come and invest here in textile and garment sector as Bangladesh has lots of low-wage workers whereas wages of worker in China is about 5 times higher than Bangladesh. Such hikes help to push back this foreign investment, RMG leaders opined.

Finally, gas price hiking will destroy the biggest export earner textile and RMG sector’s golden future. On the other hand, grid line has to take more pressure, though grid line is facing various difficulties to cope up with existing pressure and so ultimately factories that will be able to take electricity from grid line may also fall in problem.

Government is the guardian, who always stands by the textile industry to make the country’s economy more growing. So government should rethink about gas price hiking and resolve gas and electricity supply problems to help the industry, otherwise, the present gwoth of economy, the country’s export growth is nearly 9%, will be hampered. Government should not forget that if the present export growth continues, Bangladesh will be able to fetch $50 billion exporting apparel products by 2021, which is linked to the government’s vision 2021, to make the Bangladesh middle income country.







If anyone has any feedback or input regarding the published news, please contact: info@textiletoday.com.bd

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