Overview of Legal Issues in Regulatory Reforms : Bangladesh Power Sector November 11-15, 2002

1. Overview of Legal Issues in Regulatory Reforms : Bangladesh Power Sector November 11-15, 2002 Hyderabad, India Country Paper Presented by : Bangladesh Team

2. Outline • Introduction • Country Profile • Power Sector at a glance • Current structure of power sector • Current status of regulation • Regulatory reform measures undertaken : An overview • Future reform programmes • Establishment of Energy Regulatory Commission & its salient features

3. Introduction • Electricity essential ingredient for economic and social development • Power the most important pre-requisite for attracting both domestic and foreign investment • GOB committed to providing with affordable and reliable electricity to all the citizens by 2020 • Scarcity of resources as well as the inefficiency of the utilities hinders development of the sector

4. Country Profile • The Country : The People’s Republic of Bangladesh • Capital City : Dhaka • Area : 147,570 Square km. • Population : 130 Million • Per Capita income : 315 US$ • GDP Growth Rate : 5.16%

5. Power Sector at a glance • Installed Capacity Total : 4,710 MW BPDB : 3,420 MW IPP & Mixed Sector : 1,290 MW • Generation Capacity : 3,750 MW • Peak Demand : 3,218 MW • Transmission Lines (230 & 132 Kv) : 3,764 KM • Grid Sub-station Capacity (230/132 Kv) : 3,250 MVA • Grid Sub-station Capacity (132/33 Kv) : 6,585 MVA • Distribution Lines (33 Kv, 11 KV & 0.4 Kv) : 1,93,196 KM • System Loss (T&D) : 29.60% • Consumer Number : 6.54 Million • Access to Electricity : 30% • Per Capita Generation : 136 kWh

6. Current Structure of Power Sector Owner & Regulator : • Government (Power Division) Generation : • Bangladesh Power Development Board (BPDB) • Independent Power Producers (IPPs) • Rural Power Company Ltd. (RPC) - A mixed sector power company

7. Current Structure of Power Sector (contd.) Transmission : • BPDB • Power Grid Company of Bangladesh Ltd. (PGCB) Distribution : • BPDB • Dhaka Electricity Supply Authority (DESA) • Dhaka Electric Supply Company Ltd. (DESCO) • Rural Electrification Board (REB) through Rural Electric Co-operatives called Palli Bidyut Samity (PBS)

8. Power Sector of Bangladesh MPEMR (Ministry of Power, Energy and Mineral Resources) Power Cell BPDB (Generation) EA & CEI IPP PBSs PGCB (An enterprise of BPDB) BPDB (Transmission) REB DESA DESCO BPDB (Distribution) Administrative Link Power Flow Link

9. Current Status of Regulation Regulatory Functions : • Power Division on behalf of Govt. functions as a Regulator • Formulates policies • Approves investment program of the public sector entities • Approves Tariff • Resolves disputes • Electrical Advisor & Chief Electric Inspector’s office and Power Cell perform some regulatory functions in electricity sector on behalf of Govt.

10. Current Status of Regulation (contd.) Performance Based : • No effective performance based regulation • Have some kind of incentive regulation for the consumers mainly through tariff and tariff structure for load management perspective • Penalty to consumers for low Power Factor

11. Current Status of Regulation (contd.) Tariff : • Government approves tariff • Tariff is not cost reflective • Two-part metering tariff - peak & off-peak • No provision for stakeholders participation like public hearing in the tariff approval process • No scope of appeal to the Court against Govt. decision • Provision of subsidy to domestic and agriculture consumers

12. Involvement of Judiciary in Power Sector Regulation • Provision of punishment under The Electricity Act, 1910 • Theft of electricity • Malicious use of electricity • Damages of electrical equipment, line materials, etc. • Recovery of bills - • Public Demand Recovery Act, 1913

13. Overview of legal framework : An example Electricity Act 1910 ( amendment `93) Electricity Act 1910 Section • Provision of penalty for users including officer / employee of the utilities • Imprisonment for a term of maximum 5 years or fine maximum Tk 10,000 or both penalties No provision of penalty for abettors 44 A Penalty for abettors in certain offences

14. Regulatory Reform Measures Undertaken : An Overview • Power Sector Reform started in 1977 through the creation of Rural Electrification Board (REB) to expedite and strengthen rural electrification program • DESA created in 1991 as a part of distribution unbundling process to supply electricity in Dhaka metropolis

15. Regulatory Reform Measures Undertaken : An Overview (Contd.) • To introduce competition, induct foreign private capital and increase power supply “Private Sector Power Generation Policy” developed and adopted in 1996 • 1290 MW IPP power plants contracted & it is under operation • GOB has approved “Policy Guidelines for Small Power Plants in Private Sector” to develop power plant up to 10 MW capacity. • Already a 10 MW Power Plant established and some are in progress under this policy

16. Regulatory Reform Measures Undertaken : An Overview (Contd.) • As a part of unbundling process - • PGCB created in 1996 to take over transmission business from BPDB. It already taken over about 63% of the transmission assets from BPDB • DESCO established in 1996. It is currently functioning at Mirpur area of Dhaka Metropolis • Corporatization of Ashuganj Power Station implemented • Cabinet approved constitution of the “West Zone Power Distribution Company” under BPDB on September 2002

17. Example : Power Purchase Provision from IPPs BPDB • No provision of power purchase from IPP in Presidential Order (P.O. 59 of 1972) P.O. amended in April 2001 as follows : • The Power Board may purchase power from any person or entity authorised to generate electricity by the appropriate authority at such rate as may be determined by the Government

18. Example : Power Purchase Provision from IPPs (contd.) REB • REB Ordinance (LI of 1977) : Shall receive supply of electricity from BPDB at such rates and on such terms and conditions as may be determined by the Government • REB Ordinance amended in April 2001 as follows : Shall receive supply of electricity from BPDB and any power generating station run by any person or entity under a contract with the Government at such rates and on such terms and conditions as may be determined by the Government

19. Example : Power Purchase Provision from IPPs (contd.) DESA • No provision in DESA Act (Act 36 of 1990) • DESA Act amended in April 2001 as follows : DESA may purchase power from any person or entity authorized to generate electricity by the appropriate authority at such rate as may be determined by Government

20. Future Reform Programs Generation • Bangladesh Power Development Board (BPDB) be converted into a holding company under Companies Act • The existing generating stations of BPDB be converted into a number of corporatized entities under BPDB holding company

21. Future Reform Programs (contd.) Transmission • PGCB remains responsible for transmission business in the whole of Bangladesh

22. Future Reform Programs (contd.) Distribution • BPDB distribution segment be converted into a number of subsidiary companies under BPDB Holding Company • DESA be converted into a company under Companies Act, 1994 • Palli Bidyut Samities will continue its business in their distribution areas under Rural Electrification Board

23. Industry Structure after Reform

24. Power Market after Reform • Single Buyer Model be adopted • Single Buyer purchases all the power/energy from the generators and sells to different distribution companies. • Multi-buyer and Competitive Pool may be adopted when the market becomes mature and stable

25. Market Structure after Reform (contd.)

26. Future Reform Programs Independent Regulation • An independent Energy Regulatory Commission (ERC) be established for regulating electricity, gas and petroleum sector

27. What’s the Intent of Future Regulatory Reforms • Govt. wears too many hats i.e. owns, operates & regulates • Intent is shifting of Govt. regulation towards Independent regulation Ownership Govt. Control Market Control Regulation

28. Legal Issues • A legal framework is required for establishment of ERC • Initially a draft legislation was prepared for establishing an ERC for regulating Electricity Sector • Cabinet approved the draft • February 2002, Govt. decided to establish a single ERC for regulating Electricity, Gas & Petroleum sector • With this aim, draft act prepared & expected to be enacted soon by the Parliament

29. Nature & Extent of the Proposed Regulation • Independent Regulation • High level body vested with adequate powers to discharge responsibilities which embrace • Executive functions - within the broad Govt. policy relating to the sector • Issue licences • Set Tariff • Set & enforce of standards of performance • Promote Competition • Advisory functions - Advise Govt. on all matters connected with energy • Quasi judicial functions - Dispute resolution

30. Nature & Extent of the Proposed Regulation (contd.) • Extent of regulation is a quantum of regulation for the sector • What type regulation required • Soft hand or • Hard hand • Our intent -- Medium hand regulation

31. Why Independent Regulation • Power Sector Reforms already started & it’s a continuous process • Private power generation started (about 1290 MW which is one third of present installed capacity) • Separation of commercial business from network business is under way and private participation be encouraged in commercial business • By the year 2006 and 2012 generation capacity to be enhanced by 6,789 MW & 9,564 MW respectively for which (including T&D network development) investment needs about 3.68 b US$ & 6.70 b US$

32. Why Independent Regulation (contd.) • Not possible to fulfill this huge amount of investment by Govt. alone • Private sector participation is essential • To increase confidence of private sector investors • Independent Regulation essential in the sector to take corrective action in a timely manner & to ensure level playing field for both public & private sectors

33. Establishment of ERC delayed? • Yes, delayed • Preparation started in 1996 • To give legal framework Power Cell Working on it • Establishment of Independent ERC is delayed due to : • Suspicion • Lengthy bureaucratic process • Sometimes Donors’ pressure • Lack of political commitment

34. Salient Feature of the Energy Regulatory Commission Act, 2002 Constitution of the Commission Chairman - 1 Members - 4 • Appointed for 4 years and may be extended for another term subject to satisfactory performance

35. Salient Feature of the Energy Regulatory Commission Act, 2002 (contd.) Appointment of the Chairman & Members • Appoint by the Govt.

36. Salient Feature of the Energy Regulatory Commission Act, 2002 (contd.) Removal of Chairman & Members • For removal of the Chairman or Members of the Commission, a Committee will be constituted by the Govt. comprising a Judge of the Supreme Court

37. Salient Feature of the Energy Regulatory Commission Act, 2002 (contd.) Funding • All the expenses of the Commission will be met from the annual budget of the Govt. • Fees, charges etc. • Surplus money be deposited to the consolidated fund of the state

38. Salient Feature of the Energy Regulatory Commission Act, 2002 (contd.) Powers of the Government • Govt. will issue policy directives for overall development of the power sector

39. Salient Feature of the Energy Regulatory Commission Act, 2002 (contd.) Resolution of disputes between the Commission & Govt. • If any conflict of interest arises between the Commission and Government, Government’s decision is final

40. Salient Feature of the Energy Regulatory Commission Act, 2002 (contd.) Tariff • Commission will approve the Tariff on the basis of the policy directives issued by the Govt. • Public hearing will be made during tariff setting

41. Salient Feature of the Energy Regulatory Commission Act, 2002 (contd.) Appeal against the decision of the Commission • Orders of the Commission are appealable before the High Court.

42. Salient Feature of the Energy Regulatory Commission Act, 2002 (contd.) Rules • Govt. may make rules by Gazette notification

43. Salient Feature of the Energy Regulatory Commission Act, 2002 (contd.) Regulations • Commission may make regulations by Gazette notification

44. Salient Feature of the Energy Regulatory Commission Act, 2002 (contd.) Proceedings of the Commission • All the proceedings before the Commission shall be deemed to be a judicial proceeding within the meaning of sections 193, 219 and 228 of the Penal Code (XLV of 1860) and the Commission shall be deemed to be a Civil Court

45. Thank You C:/P\LF\2002\Amzad\Regulatory Reforms -- India (Hydrabad)-3.ppt