Distortions in the power sector impose a total economic cost of roughly $11.2 billion (around Tk 93,000 crore) or 5 per cent of Bangladesh’s gross domestic product, on the country’s economy in a year, according to a World Bank publication.
The greatest source of the fiscal cost occurs in the upstream gas sector as selling gas at artificially low prices costs Bangladesh an estimated $4.5 billion a year, said the publication released on December 12.
The regulatory cost of gas underpricing could be even higher if its adverse effect on long-term growth were considered, said the report titled In the dark, how much do power sector distortions cost South Asia .
The global lender estimated the cost for the fiscal year 2016 and said that the analysis applied generally conservative assumptions.
The cost of distortions in the power sector was $86.1 billion in India in FY 2016 and $17.69 in Pakistan in FY 2015.
In Bangladesh, the second largest source of distortions is households and firms lack of reliable access to electricity and it is estimated to cost the economy $3.3 billion or 1.5 per cent of GDP a year, it said.
This cost consists of both the income foregone by the approximately 8.2 million households that still live without access to grid electrify and the revenue loss by firms that suffer from lower productivity and higher production costs as a result of electricity outrages, the report observed.
It also said that the cost of electricity subsidies to consumers was $0.33 billion in the year.
Power shortages also negatively affect education, health and women s empowerment but these effects are difficult to quantify and are not included in the estimation.
The cost of lack of access to electricity could therefore be much higher than estimated, it added.
Cost of inefficient dispatch of electricity is estimated at $1.65 billion a year, according to the report.
Other large costs stem from the social cost of excessive gas consumption, estimated at $355 million a year, and the inefficient allocation of gas, estimated at $130 million a year, the report said.
The report, however, has ignored some distortions including transmission constraints, social cost of electricity transmission and distribution and the impact of electricity cross-subsidies on industry competitiveness due to data limitations.
Overall, the estimate may represent a lower bound of the actual cost of power sector distortions, it said.
The Global Competitiveness Report-2018 placed Bangladesh at 101th in the ranking of the reliability of electricity supply.
Over the decade ending in 2016, Bangladesh more than doubled its power-generation capacity but less than 80 per cent of available capacity was operational most of the time.
The report said in manufacturing and services combined, the total losses in annual output attributable to power shortages amounted to $1.1 billion in 2016.
It said Bangladesh could reduce about 50 per cent of its unserved energy demand with no new investment in generation capacity if the power plants eliminated their operational inefficiency.