Distributive policy

Uninterrupted power supply to industries must be ensured by government policy

The energy crisis facing Bangladesh has affected the productivity, incomes and livelihoods of ordinary citizens and posed multiple challenges to the industry, including increased production costs, underutilized capacity, low production and reduced competitiveness in regional and global markets. This is more serious in energy-intensive industries such as textiles, leathers, RMG, ceramics, metal and steel.

Going forward, it is crucial that we understand the economic and social costs of the energy crisis, as well as its short- and long-term consequences.

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The direct economic costs of the energy crisis stem from interrupted production, increased production costs, spoilage of perishables, and increased system adjustment costs. In addition, there are significant additional costs in the form of expensive backup power, for example via private diesel generators, which are much more expensive than grid-supplied power. This, in turn, increases the operational costs of production. Indirect costs arise from the loss of opportunities of industries, as well as a decline in the level of economic activity in different sectors of the national economy, which has negative repercussions on investment and entrepreneurship.

Small and medium businesses that cannot afford expensive backup systems are most affected in this scenario. When they are forced to shut down operations, it reduces productivity and can sometimes damage equipment and even degrade product quality. More worryingly, the repercussions for them can be instantaneous. For example, according to a news report on the Savar Tannery Industrial Estate, a single shedding can damage 1,000 to 2,000 pieces or 40,000 to 45,000 square feet of leather in the dyeing or coloring stage.

The various chambers of commerce and industry, as well as other industry associations across the country, have reported that the level of production in a number of industries has recently declined. For example, one of the largest apparel exporters in Bangladesh, Team Group, said that three regular hours of offloading on working days last month affected their production schedule and cost them an additional Tk 2 crore in outlay. exploitation.

According to the Bangladesh Textile Mills Association (BTMA), the gas crisis has forced textile mills to cut production since March 2022, and the situation has deteriorated to the point where factories can no longer operate at more than 35 to 40 % of their capacity. . In order to minimize costs, BTMA said it was ready to bear additional costs for reliable gas and electricity supply. In fact, they have also promised that if the government provides them with gas worth $1.2 billion, they will be able to export goods worth $48 billion.

At a time when the economic situation of the country is very worrying, it is essential that the government ensures an uninterrupted and regular supply of energy to the industrial sector. Much of the current crisis is rooted in policy failures and institutional inefficiencies, including limited exploration of local primary energy sources, heavy reliance on primary energy imports, and the pursuit of costly quick rental. The authorities should take measures to improve institutional efficiency, fight corruption, promote competition in the energy sector and reduce losses.

The government should also explore alternative sources of energy imports, such as refined petroleum and even liquefied natural gas (LNG) from Russia or other countries.

Efforts need to be further intensified to import electricity from Nepal and Bhutan via India, as Nepal wishes to export electricity to Bangladesh. It is imperative that the government develops a sound strategy for the integrated development of primary energy, power generation, transmission and distribution systems, as well as for diversifying the supply of energy sources.

Golam Rasul is Professor of Economics at the International University of Business Agriculture and Technology, Dhaka.