Briefer on ADB-funded power projects in Bangladesh

By Bobet Corral, Public Services International Research Unit-Asia (PSIRU-Asia)

Since 1995, ADB has been the lead funding agency in the power sector in Bangladesh, accounting for roughly one third of all the financial assistance from development agencies in the sector. ADB influences institutional and policy reforms through its loan covenants, policy dialogue, and Technical Assistance (TA) programs. Power sector reforms in Bangladesh started in 1994 and has achieved the following: (i) creation of a competitive, diverse market with independent public and private generation companies; (ii) restructuring of the sector by transferring all transmission assets and operations to a new transmission company; (iii) creation of a competitive environment by establishing several sector entities; and (iv) establishment of the energy regulatory commission. There is as yet no private finance in transmission and distribution and little prospect of introducing it in the short term. More recently, Government issued a 3-year road map for power sector reforms, setting out detailed time-bound action plans for the reform process and investment program for 2006–2008.

The unbundling of the power sector started in 1996 with the creation of Power Grid Company of Bangladesh Limited (PGCB) to take over all of BPDB’s and most of DESA’s transmission assets, and Dhaka Electric Supply Company Limited (DESCO) to take over distribution assets in some parts of Dhaka. Other ‘successor’ power entities which are autonomous and commercially oriented have been or are set to be created as companies operating under the 1994 Companies Act.

Several public-private and private sector entities were also licensed to construct and operate generating facilities; in recent years, most generation projects have been undertaken by the private sector, and there is new capacity of 1,290 MW (about 30% of total installed capacity) established by IPPs. ADB played a catalytic role in enabling private finance for generation through its involvement in initial projects at RPC and Meghnaghat.

ADB identifies labor union opposition for fear of job losses — as well as lack of political will and unwillingness to change by entrenched interests – as being contributory factors to the difficulties that accompanied the ongoing reform process. Sector restructuring and the corporatizaton of successor entities include human resource issues such as employee retrenchment plans and retirement or gratuity benefit schemes, which may be unfunded.

PGCB – Transmission activities have been spun off to PGCB. Although the new limited liability company was established in 1996, the first asset transfer did not take place until 1999 and the last transfer was at end 2003. PGCB had to take on all of BPDB employees engaged in transmission activities, and had great difficulties in getting the labor unions to accept new terms and conditions under PGCB contracts of employment. A total of 1,522 employees were placed on lien in PGCB from BPDB, of these 1,289 employees have opted to join PGCB and 147 employees have returned to BPDB. The ADB provided funding of Taka480 million (US$8 million) towards unfunded pension obligations and gratuities to employees who joined PGCB from BPDB. (PSI affiliate PBCBSKU reports that initially the new entity’s management did not intend to absorb all the existing workers. And that management was against the formation of Trade Union. However, after prolonged and difficult negotiations, the union succeeded in reaching agreement for absorption of all employees/workers & formation of Trade Union and finally PGCBSKU was registered, recognized by management and Government in September 2003.)

DESCO – Dhaka Electric Supply Company (DESCO) was created in 1996 to take over some of the service areas in Dhaka from DESA. All employees were recruited directly by DESCO under contracts of employment drawn up by the company. Employees did not have the automatic right to transfer; management of the new company was given the authority to appoint staff under terms and conditions drawn up by the company. Pay scales are higher than those of BPDB and DESA. DESCO has outsourced the functions of meter reading, bill distribution to customers and network maintenance — (i) meter readers are employed on one year contracts, renewable depending on performance, (ii) meter readers are rotated regularly, (iii) bill delivery is by non-permanent messengers, and (iv) a crosscheck mechanism is instituted to test meter reading and bill delivery on random basis.

ASPC – Ashuganj Power Supply Company Limited (APSC) was created in 2003 to take over the Ashuganj power station from BPDB. Employees were transferred from BPDB under existing contracts. APSC took over 703 employees from BPDB, of these 612 remain, including 37 casual staff and the remaining employees have either retired or returned to BPDB. New pay scales and terms and conditions are expected to be implemented shortly.

BPDB – An ongoing ADB TA will help corporatize BPDB and formulate personnel policies, organize transfer of assets and staff to the new company, and organize the voluntary separation scheme for eligible staff of BPDB. The main social issue will be the redeployment of BPDB staff to the new company; this should be tackled with appropriate counseling, and retraining wherever feasible. The TA will suggest a strategy for the voluntary separation scheme for eligible BPDB staff.

Unfunded Pension Obligations and Gratuities – The transfer or retrenchment of employees from BPDB and DESA to successor companies will require settlement of accrued pensions and gratuities. Pension commitments are largely unfunded and actuarial valuations of such commitments have not been undertaken to provide an indication of the size of the burden. (a) PGCB – In the case of PGCB, such costs amounted to Taka480 million (US$8 million) and involving 1,270 employees, equivalent to an average cost of Taka378,000 (US$6,300) per employee. The ADB provided the necessary funding. (b) BPDB and DESA have 24,000 and 3,567 full-time employees respectively. Based on these statistics, one can broadly estimate the likely costs of Taka9.1 billion (US$142 million) and Taka1.3 billion (US$21 million) for BPDB and DESA, respectively; funding for such restructuring costs has yet to be secured. These should be introduced in the balance sheets of BPDB and DESA. Tranche releases of a new ADB policy loan ($60M) is tied to budget allocation by Government of at least Tk1.8 billion for unfunded pension and gratuities for already corporatized entities (including WZPDC, APSC, and NWPDC for first tranche release), and at least another Tk1.8 billion for newly corporatized entities (such as EGCB and DPDC for second tranche release).

Download the complete briefer (PDF).

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