Industry Analysis: Power Industry of Bangladesh

Industry Analysis: Power Industry of Bangladesh

keywords : Power industry Bangladesh ,Energy sector analysis, Bangladesh electricity market, Power generation trends, Renewable energy in Bangladesh, Challenges in power industry, Investment opportunities power sector, Energy infrastructure Bangladesh, Government policies energy sector, Future prospects power industry, Discover the current state and future prospects of the power industry in Bangladesh with our in-depth industry analysis. Explore key trends, challenges, and opportunities shaping the energy sector.

Introduction

Today, the power sector's greatest issue is providing reliable primary energy at cheap rates and funding the business. Despite the fact that gas still accounts for 72 percent of the country's power output, the government has increased its use of fuel oil. First brought to light in 2006 was the gas shortage issue. There has been a 30 percent rise in oil-based electricity generation since then A major economic risk is posed by the unpredictable worldwide fuel oil market (Jamal and Ongsakul, 2012). This is a risk that the government is fully aware of. They are thus seeking to develop a huge number of coal-fired power plants that are cost-effective, although they have had limited success thus far. The absence of communication infrastructure and ports with the benefit of coal imports is a major factor in this. According to the administration, Payra and Matarbari projects would have their own infrastructure. A comprehensive financial agreement has not yet been reached, and building has not advanced substantially. A number of difficulties also face Rampal Power Plant. Recently, the country's energy industry has seen unparalleled prosperity. From 2009 to 2020, or 11 years, much of this progress occurred. By 2021, just 12 percent of the population will have access to electricity, compared to the 47 percent who had access to power throughout the 39 years of independence.  

The Organization Profile DPDC

Dhaka Electricity Distribution Company Limited (DPDC) is the country's major power distribution firm. It has worked relentlessly for the country's growth and consumer happiness since its establishment. Already, the firm has claimed that it is capable of providing excellent customer service. As of now, Dhaka does not have a lack of electricity, but the supply is enough(Ahmed, Galib, Asadulla Hil and Saha, 2019).

Figure 1 The position of DPDC in power sectors

Figure 2 DPDC organogram

Overview of DPDC

Vision

Through dependable electricity supply in Dhaka city and the Narayanganj area, the government will fulfil its economic, social, and human development goals(Ahmed, 2011). 

Mission

⦁    Delivery of quality power with excellent customer service 

⦁    Power supply based on the geographical region served by DPDC

⦁    Achieving self-sufficiency and profitability by growing revenue and lowering costs.

 

Figure 2 DPDC organogram

Primary energy shortage is one of the key issues of Bangladesh's fast and extensive industrialization. For short-, medium-, and long-term solutions,Bangladesh must rely on imported energy owing to the uncertainties surrounding alternative fuels. 

Financial Analysis

Figure 3 Financial Analysis of DPDC Source: 

 

90 percent of the entire gasoline used in Bangladesh by 2030, according to (Gupta, Sabuj Das, Ferdous and Saleque, 2012), will be imported. Bangladesh must provide a substantial sum of money to this effort. In recent years, the country's electricity industry, on the other hand, has experienced extraordinary success. The majority of this progress occurred between 2009 and 2020, or in just 11 years. Of those who had power during the 39 years of independence (1981-2009), just 12 percent will have it by 2021. (2009-2021). In addition, a key constitutional commitment is being fulfilled. In the 1972 constitution of Bangladesh, it is stated that all citizens of the nation should have access to electricity (Ahmed, Galib, Asadulla Hil and Saha, 2019).

SWOT Analysis of DPDC Bangladesh

Additionally, the diagnosis pointed to a deterioration of energy security. This is due to insufficient oil and gas production, as well as an increase in the importation of gas, gasoline, diesel, and petrochemicals, which has led to a steady decline in the balance of commercial hydrocarbons. Petrochemicals and gasoline are increasingly purchased from outside due to the country's limited refining capacity and better unit profitability. Insufficiencies in hydrocarbon and petrochemical transportation It was found in these analyses that DPDC's fiscal system, which ceased to exist at that time, was a hindrance to its growth. It was noted by the Executing Power that the DPDC regime was complex and inflexible and that, in addition to posing administrative challenges, it failed to take into account the company's operating realities. However, even DPDC had to go into debt to pay their taxes because of the approvals and rights the pastoral was obligated to pay. the fact that DPDC would have to be saved if the tax system was added to the labour responsibility and the resulting lack of investment There was a general consensus that oil revenues were extremely dependent on the import. As one of the primary causes of the aforementioned scenario, the, the, and the parliament itself cited the country's heavy dependency on oil income. DPDC was obliged to raise its hydrocarbon extraction rate in order to meet tax revenue obligations, and its investment had to match the Treasury's expectations, not their own. Diagnoses made during the constitutional reform process brought to light the condition in the power industry. 

Strengths

⦁ Tax concessions and incentives for foreign investors have been proposed as part of the government's efforts to encourage investment in power plants.
⦁ Investors will be exempt from corporate income tax for 15 years.
⦁ These companies may also import machinery and equipment, as well as replacement parts, up to a maximum of ten percent (10%) of its original worth, for a duration of 12 years, without having to pay customs taxes.
⦁ Royalties, technical know-how, and technical help fees will be free from taxation for foreign investors. 
⦁ Exempted from paying tax on foreign loans are foreign investors. 
⦁ Capital gains from the transfer of shares by the investing firm are likewise tax-free for them.
⦁ The strong demand for electricity in Bangladesh is the industry's greatest asset. 

Weaknesses

⦁    The amount of natural gas available to consumers decreases. Natural Gas, coal, and any other fossil fuels are available in very small quantities on the national grid and are not sufficient for supplying the forthcoming gas-based power plants.

⦁    Because even a modest power plant requires a large investment to set up and operate, it is a capital-intensive business. 

⦁    An inadequate and badly maintained energy infrastructure is a major problem for the DPDC. Infrastructure improvements are also non-existent. 

⦁    There is no way that a government can meet its aim of producing more power in the near future with this sort of infrastructure.

⦁    Those that use energy through these unlawful connections do not have to pay a single bill for their use of electricity. 

⦁    Since the government does not get paid for using electric power, it is considered a waste. This is a non-technical loss of system functionality. 

⦁    Most of the electricity costs levied on easy bikes and autorickshaws in our nation are unlawful. This loss or theft is the country's responsibility.

⦁    All power plants have delays in completing projects. The project's completion date has passed, but it has not yet been completed. 

⦁    There is a problem in generation and distribution of electricity as a result of this delay.

Opportunities

⦁    Work is also underway to build the country's first underground substation at Kawran Bazar in Dhaka and transform the existing power distribution network in several areas.

⦁    The government is trying to into a smart grid to ensure uninterrupted power supply and reduce technical losses.

⦁    In order to encourage domestic and foreign investment, initiatives have been taken to ensure uninterrupted power supply through construction of dual source and sub-stations at industrial hubs in Narayanganj.

⦁    DPDC has already implemented Geographic Information System (GIS) to map the power distribution system to the customer. 

⦁    To maintain energy security and establish a sustainable energy supply system in the country, it is intended to cut energy usage by 20 percent by 2030. 

⦁    For energy security, the government has made measures to reduce its reliance on gas as the main fuel for electricity generation while steadily diversifying energy sources. 

⦁    To import power from Nepal, a memorandum of agreement has been reached. As a result of this, the door to mutual collaboration between the two countries was opened. It has already been agreed to import 500 MW of power from GMR's hydroelectric facility. 

⦁    This was owing to the fiscal system adopted by Parliament, which was intended to enhance the finances of all three branches of government. 

⦁    The government was obliged to delay or cancel infrastructure projects. 

⦁    Energy efficiency and renewable energy alternatives may be used to expand power capacity in a cost-effective manner, decreasing greenhouse gas emissions while creating employment and improving human health by reducing air pollution. 

⦁    This is according to a report from the Global Partnership on Low Emission Strategies (LEDS GP), based on an in-depth review of models.

Threats

⦁    An uncertain scenario has recently developed due to Europe's economic crisis and the Middle East's political turmoil. 

⦁    An increase in worldwide oil prices will be a boon to Bangladesh's power industry, as oil is one the primary raw materials for power plants.

⦁    In terms of political influence, the electricity business is in for a big treat. Bangladesh's bidding process for tenders and Concern Company's selection process are both influenced by politics. 

⦁    Due to political interference, donor agencies withdraw their donations for certain projects. Because of this political influence, some donors withdraw their donations even in the last stages of the selection.

⦁    Oil or coal-based power plants constitute the majority in Bangladesh, despite Bangladesh's limited offshore and onshore reserves of oil and coal. 

⦁    Bangladesh's power plants are unable to run on oil and coal from this little resource. An oil and coal power plant shortage due to this limited reserve might occur.

⦁    Power plants for factories are sometimes built by large enterprises or businesses. Government power supply is inadequate, so they create their own mini-power plants. 

⦁    Power producers in the nation might benefit from this trend.

Five Forces Model DPDC

Figure 4 Five force Model Criteria

 

Porter's five forces model is a market analysis technique that takes into account the five dimensions on which the company DPDC can act in order to optimize its competitive advantage: rivalry among competitors; the threat of new entrants; the threat of substitute products; the bargaining power of clients; the bargaining power of suppliers, to which is often added the role of the State (standards, laws). It is used in terms of strategic analysis and to determine the axes of innovation.

DPDC charges based on consumption and has a customized connection mechanism. So, for example, they provide one type of connection for the industry, while providing another type of connection for residents and those living in luxury apartments. Place to place, the amount of power provided varies as well (Ali and Islam, Md Rakibul, 2018). There are some areas in Dhaka where they must maintain a constant level of power. A high rate has also been charged for Industry usages. On the other hand, residents were charged a lower cost. As the circumstance changes, so too are customers' attitudes. In the case of power generation, the current policy of the government is to produce low cost electricity. To produce more expensive electricity. The power sector is heading for an unbearably dangerous financial situation due to non-compliance with the austerity policy. It has been proposed to increase the price of electricity to meet this obligation.

The threat of new entrants on the market: all the means used by competitors make entry more difficult for a new company is very low in this case so DPDC has competitive advantages in this regard; The bargaining power of suppliers: DPDC’s Suppliers' capacity to impose their terms on a market, whether in terms of cost, quality, or time, has a direct impact on the space for maneuvering and profitability of the enterprises involved. In this regard the bargaining power of suppliers is high. Ffurnace oil is used as a fuel for power generation. PDB compulsorily buys this furnace oil from the government company BPC (Bangladesh Petroleum Corporation) at Rs 42 per litter. As a result, the price of electricity produced by PDB from Furnace Oil falls to Tk 12 per unit. The price of this oil in the international market has come down a long time ago. The Bangladesh government has not adjusted the price of this oil. As a result, PDB has to buy this furnace oil at the rate of Tk 42 per litter. There is no way out for the PDB. But the government rentals in the private sector, buying electricity from quick rentals or other power plants has allowed them to buy furnace oil at market prices.   

The negotiating power of clients: The major customer impact in the market is demonstrated by its capacity to bargain; its effect on the pricing and selling circumstances (payment terms, related services) influences the market profitability; In this case DPDC has very highly competitive advantages as the bargaining power of the consumer is very low. 

Substitute Products: The replacement products do not form part of the market, but are an alternative to an offer which may be quite attractive. 

The rivalry of current competitors: Concentration, competitive diversity and power balance might be easily reversed between firms. Competitors must fight to expand their position within the sector or just to retain it.

Financial performance analysis 

DPDC had always been able to reach all of its yearly performance goals, but this year, because to Covid-19, it was unable to meet some goals. Even during the lockdown/corona period, meter reading, power bill distribution, and postpaid customer collecting activities have been significantly affected. Other project goals were not met on time. The DPDC's after-tax profit for the 2019-20 financial year is Tk 113.7 crore, which is Tk 72.7 crore less than the previous year. Due to Covid-19, this year's power usage was lower than last year's, resulting in lower power sales. A decrease in power usage owing to Covid-19 has resulted in a reduction in power sales of Tk 128 crore. Due to a rise in operating expenditures and a drop in non-operating revenue, post-tax earnings have also decreased from the previous fiscal year (Deeba, Shohana Rahman, 2013). No dividend was recommended for the 2019-20 fiscal year due to the impact of Covid-19 and lockdown, cumulative losses, self-financed initiatives, etc. The G2G project, which aims to extend and reinforce the DPDC's power distribution infrastructure, is presently in full swing. Once implemented, the distribution system for the territories covered will undergo a radical transformation (Ahmed, Galib, Asadulla Hil and Saha, 2019). To extend and enhance the electricity distribution infrastructure in the DPDC area, the G2G project is now under way. Successful completion of this project will result in a revolution in the distribution system in the DPDC service regions. The construction of substations utilizing gas-insulated switchgear (GIS) technology maximizes land usage. We at DPDC are dedicated to using ICT to ensure openness and accountability. Software and apps that DPDC has created include Accounting, Asset Management, Human Resources (HR), a mobile application (app), training and auditing software for workshops, and a case management system, among others. This is a project that DPDC is working on. A national integrity strategy guides the work of the DPDC (Basak, Hussain and Azad, 2010). All types of corruption have been stopped with great success. The Power Department awarded DPDC's Managing Director, Engineer Bikash Dewan, the Integrity Award for the financial year 2019-20. ERP (Enterprise Resource Planning) and a paperless office are being implemented as part of DPDC's transition to an international standard organization (Higano, Yabar and Kamrul, 2012).

Recommendation

⦁    It is necessary for the government to upgrade the distribution and transmission network of the electric power grid as a result, the country's distribution and transmission processes are optimised (Bakhtiar, 2012). 

⦁    In order to do this, electricity producers must engage in an open and transparent tendering and selection process. Donor agencies make loans to non-profit organisations.  The government of Bangladesh should guarantee that there is an adequate supply of gas and oil for the power plants. 

⦁    Boost the number of plants to increase productivity. It is recommended that the government get into joint ventures with the Indian government and other international investors(Ali and Islam, Md Rakibul, 2018). 

⦁    The government of Bangladesh should attract international investors by offering additional incentives for them to invest in Bangladesh. Incentives are enticing. In order to increase output, the sector needs more private investors to step in. 

⦁    Gigantic, privately owned this is an industry that should be explored by business groupings. Maintaining and repairing existing power plants is vital. Increase the production of goods and services.  Other power producers, other than BPDB, should be more involved and expand their participation in the process (Gupta, Sabuj Das, Ferdous and Saleque, 2012). 

⦁    BPDB will be less dependent on production as a result of this. There are several ways in which the Bangladeshi government may enhance the country's energy infrastructure. Imports of around 9,000 megawatts (MW) of power from neighbouring countries are planned as part of the long-term master plan for power generation through regional and sub-regional cooperation activities (Deeba, Shohana Rahman, 2013). 

⦁    In the legal framework in place at the time of the discussion, private energy generation in modes that were not deemed public services, as well as in locations with a strong potential for renewable energies, was not taken into consideration as in the case of DPDC, the parliament has a similar role to play (Gupta, Sabuj Das, Ferdous and Saleque, 2012).

⦁    About 35% of the customers have already been covered under the prepayment metering system for the purpose of using affordable electricity and paying electricity bills easily. At present, work is underway to bring the remaining customers to smart pre-paid meters through.

Conclusion

Power sector growth in Bangladesh is regarded to have reached its first major milestone with the construction of Kaptai Dam and the commissioning of Dhaka-Chittagong Transmission Line. From 1982 to 1991-92, Bangladesh's electricity generation capacity was 2350 megawatts (MW). Because the Bangladesh Power Development Board had a weak transmission and distribution infrastructure, the Bangladesh government split the two systems on November 21, 1996, and established Power Grid Company of Bangladesh. the power grid company of Bangladesh took over the 230 kV transmission line in 1996, when it had a total length of 636 circuit kilometers. 230 kV transmission line had a total length of 636 circuit kilometers and 132 kV transmission line had a total length of 4655 circuit kilometers when the Power Grid Company of Bangladesh took control in 1996. In Bangladesh, the rate of total power sector development slowed dramatically towards the dawn of the 21st century.

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