Thursday, December 24, 2009

Ensuring Reliable Power to Drive Growth
Reliable and affordable power supply is crucial for economic development. Only about 38% of households in the country have an electricity connection. This underscores the magnitude of the challenge facing the Government of Bangladesh (GOB). In this setting, the GOB has ambitious plans to meet increased demand by strengthening network and commercial operations, and improving management and corporate governance to restructure the energy sector.

Discussions recently concluded between the Government of Bangladesh (GOB) and the World Bank for preparation of the South Zone (SZ) Power Distribution Project. Legally established in May 2008, the SZ Company is a 100% owned subsidiary of the Bangladesh Power Development Board (BPDB). BPDB is progressively corporatizing its distribution businesses; this process started with the Khulna-based West Zone company, and was followed by the establishment of the Northwest Zone.

With South Zone’s establishment as a company, three of the four regional distribution businesses have now been established as companies. Ultimately, commercially-focused, accountable distribution companies will help link service providers more closely with their customers, and ensure that the network grows to meet the demand for electricity.

At South Zone, a Board of Directors has been established and is meeting regularly. In collaboration with the parent company BPDB, South Zone has established a Chittagong- and Comilla-based management cell to prepare the project proposal for the South Zone project. The proposed project would be supported by an IDA credit of US$150-million to finance new distribution lines and substations, advanced meters, and for technical assistance.

The Government’s strategy for network distribution companies – including the four regional BPDB-owned franchises, and the two companies that serve Dhaka – is to corporatize them so that the companies can evolve into well-run businesses and attract investment finance. Associated steps to improve performance have produced promising results to date: a reduction in distribution losses, increased collections, and better governance.

Implementation of the GOB distribution reform strategy has not been without challenges, of course. Under-investment in the network has not yet been adequately addressed; and not all data relating to operational and commercial issues is reliable, given the absence of comprehensive and effective metering and other issues. Many of these challenges are addressed in the design of the South Zone project, the components of which are specifically oriented to improve customer service and enhance managerial capability.

The South Zone project will be an important step for the World Bank support of Bangladesh’s energy sector development. It will complement existing projects in rural electrification, power generation, electricity transmission, natural gas pipelines, and private power investment support. The Bank is stepping up its support in the energy sector to help Bangladesh meet its growing needs for gas and power, and expects to support both public and private projects in the sector.

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