Corruption in Electricity Sector

INTRODUCTION Corruption is a topic of interest and concern in academic circles, in the media, among people of different professions, within the civil service, among members of parliament, politicians, government officials, members of the business and financial communities, students, foreign investors, aid agencies and non-governmental organizations. In other words, the term corruption is not new to Bangladesh. A general impression conveyed by the media and by popular discourse is that among ordinary people in Bangladesh; corruption is viewed quite clearly as ‘a way of life'.A recent survey carried out by the Bangladesh Unnayan Parishad reinforces that impression: the survey found, among other significant data, that 95 per cent of respondents believed that the police were the most corrupt department in the land, followed very closely by the customs, the department of excise and taxation, the bureaucracy, and the judiciary. A solid 62 per cent of respondents believed that the pri mary responsibility for corruption in Bangladesh lay in the hands of government officials. Corruption is not identifiable as a single, separate, independent entity which can be isolated and destroyed.Corruption is a complex set of processes involving human behavior and many other variables, some of which are difficult to recognize or measure. Even though corruption manifests itself as a force on its own and often generates its own momentum, it is linked to many other factors, and it is by understanding these factors that we can hope to understand corruption. What is corruption? There are several meanings of the word corruption but when we use the term, we usually refer to a specific kind of exchange, activity or behavior.For instance, corruption could mean a process of physical decay or degeneration; the loss of innocence; a state of moral impurity or moral deterioration; perversion in taste or language; and also the wrongful, negligent or willfully corrupt act of a public official in the discharge of his or her public duties. Corruption is the abuse of entrusted power for private gain. It hurts everyone whose life, livelihood or happiness depends on the integrity of people in a position of authority. Corruption (philosophical concept), often refers to spiritual or moral impurity, or deviation from an ideal.Corruption is not just an economic exchange, generated by a monetary or ‘economic' motive. Neither is corruption an exclusively political activity, motivated by a desire to attain or retain political power. The process of corruption is more than economic or political – it is a social process as well, existing side-by-side with, and sometimes complementing economic and political activity. Historical Background: Power is the key source of productivity and an effective breakthrough to the modernization of the world society.Electricity was first installed at Dhaka in 1901, and in 1948, the Electricity Directorate was established in East Pakistan. D uring that period, the highest plant size was only 10 mw Steam Turbine in Siddhirganj along with other plants in Chittagong and Khulna. Box 1: Historical Background of The Power Sector 1901: Electricity was first installed at Ahsan Manjil, Dhaka City (Generation: 21 MW by Public; Distribution: 17 towns by private companies) 1948: Electricity Directorate (ED) 1959: Water and Power Development Authority (WAPDA) 1960: EPWAPDA statuary org. 972: Bangladesh Water Development Board and Bangladesh Power Development Board 1978: Rural Electrification Board 1991: Dhaka Electricity Supply Authority 1996: Electricity Generation Company of Bangladesh and Dhaka Electricity Supply Company 2002: Ashuganj Power Supply Company Ltd. 2003: West Zone Power Distribution Company Ltd. 2005: North West Zone Power Distribution Company Ltd Source: http://www. bpdb. gov. bd The construction of the Kaptai hydro-electric project with an installed capacity of 40 MW and commissioning of Dhaka-Chittagong 32 KV tran smission line in 1962, was a milestone in the history of power development in this country. Each year the demand is increasing at the rate of 10 – 12 percent or 800-1000 mw and the government is also commitment to meet the MDG (Millennium Development Goal) regarding the access to electricity for all by 2020, the country’s power generation has to be increased by at least 8 per cent each year. Besides, to ensure energy security, there should be an arrangement of 16–22 percent power to be reserved in both of public and private sectors through quality investment†3.Since only 12 percent of the households in the lowest 20 percent of the income distribution have access to power, the need for better access to affordable and reliable electricity to the majority of the people of Bangladesh by 2020. However, the yearly growth of the generation verses the demand for new connections provides the reverse scenario. Therefore, the determination of consumer tariffs and the reliability of power are important issues in terms of the policy formulation, as energy prices should be based on production costs and efficiency, and subsidies should be given on the basis of social and economic need.Overview of the Power Sector in Bangladesh: The Government of Bangladesh is committed to provide affordable and reliable electricity to all citizens by 2020. However, the nation’s 1386 million people, only 42 percent7 have access to electricity, which was only 3 percent in 1971; but per capita electricity consumption is 165 kwh/unit, still one of the lowest in the world, against India’s 561 kwh per. Unfortunately, 79 percent of the connected suffer severe load-shedding, and 60 percent of the consumers face low voltage supply. The power sector of Bangladesh is usually characterized by natural monopolies10.Conventional wisdom states that since natural monopolies threaten competitive pressures, they should be regulated either by the government, through inde pendent regulatory agencies or directly by public enterprises. Table 1: Key Statistics of the Power Sector SectorPublicIPP+Captive Installed Capacity5275 mw2490 mw* De-rated Generation Capacity4582 mw Generation (Effective)Demand* Maximum Generation (sep’ 07)4130 mw5368 mw Minimum (Jan’ 07)2331 mw Transmission Lines (230 and 132 KV in km)4119 Distribution Lines in Km2,64,891 Access of electricity (%)42Per capita generation 165 kwh Per capita consumption 140 kwh Consumer Number including WZPDCL97. 33 lac Agricultural Consumers2. 16 lac System Loss (Average Percentile) 21. 3 Source: Power Cell, February 25, 2007 * 1290 mw generation in IPP and 1200* captive power consumption Moreover, allowing another firm would increase cost or inefficiency. The Power sector includes the generation, transmission and distribution of electricity among different holdings including residential, commercial, industrial and service sectors under the guidance of the Power Division of MPEMR.At p resent, BPDB has total installed capacity of generating 4680 MW in 65 units, including the public and private sectors. The Independent Power Producers (IPP) is now producing 1290 mw in 37 units of power plants located at different parts of the country11. In this situation, the GoB drafted an energy policy accounting the increased scope of gas exploration and power generation to meet the future demand for both renewable and nonrenewable energy. Currently, 80 percent of power is non-renewable indigenous gas-based, and 70 percent of the commercial energy is recovered by gas12; the rest 20 percent is from power and 10 percent from coal.Due to poor generation, the maximum demand served was the lowest of 3000 mw at peak hours in January, 2007. Though there was no significant increase in power generation, the transmission network was expanded rapidly by the funding from ADB. However, due to the intervention of vested interest groups, poor co-ordination, the absence of accountability and tr ansparency is perverse. Power shortage hampers the contribution of power to GDP growth and creates huge excesses/unbearable demand.Under these critical circumstances there is an immediate need to identify or diagnose the major reasons for the unavailability of power as well as the low level performance of the power sector. Corruption is one of the major threats to global development, especially in developing countries; for instance, â€Å"corruption is jacking up the cost of power projects in the Philippines, delaying their implementation and providing Filipino households and businesses with expensive but unreliable electricity services†.According to the Household Survey on Corruption in 2005, â€Å"around 10 percent of the consumers are using illegal connections and around 48 percent paid bribes for taking a new connection or meter†. This corrupt practice was first identified in 1956. According to Husainy, â€Å"Dacca Electricity Supply Co. was also nationalized in 1 956 due to virulent corruption in new connection due to excess demand, maintaining uninterrupted power supply; though some improvement was observed but not significant at all during that period. †In terms of distribution of electricity, non-technical loss and pilferage of electricity make the sector more vulnerable and the bribery and harassment of the staff faced by 70 percent of the consumers18 are few of the examples of the mismanagement of this sector. Under the above circumstances, it is necessary to identify the prospect and governance in the power sector. This study tries to find the source of corruption in several issues of procurement, generation, transmission, distribution and human resource management, including the effectiveness of the existing act to combat the corruption and abuse of power.Purpose of the study: Broad Objective: The broader objective is to review the governance system of the power sector and to identify the nature of corruption likely to be presen t in the different division of the power sector. Specific Study: ?To diagnose governance failure and demand-supply shortfalls ? To identify whether any governance failure exists, regarding human resource, administration, finance etc. ?To identify the rate of corruption are occurred in this sector. To identify the actual lose has been occurred in this sector and so forth. ?To identify the sufferings and harassment faced by the consumers, especially by the poor in the commercial services including new connections, day-to-day services, billings load shedding. Methodology: Data Collection Process for Secondary Materials: Literature, articles, periodicals, reports, acts and rules, also electronic journals, documents of power sector, case studies on power generation and distribution have been reviewed. Collection of Primary Information:The primary sources of qualitative data are informal discussions with stakeholders, employees and experts of the power sector and documents on the procurem ent and distribution sides to assess whether any mismanagement or illegal practices such as abuse of power and/or funds and resources took place. Rapport building played an important role in the extraction of the qualitative data. Key informants were sector experts, policy makers, academicians who provided specific case studies and recommendations to improve the governance of the power sector, including procurement, BERC, generation, distribution and legal practice.Consumer Survey on the Quality of Commercial Service and Billing: A cross section survey among all types of consumers was administered during 5 May to 5 June of 2006 to find out the quality of services provided by different organization including DESA and DESCO. The instrument of the survey, i. e. the questionnaire, was developed by the researcher and then validated through field tests. The questionnaire on consumer survey covers the nature and extent of the corruption and harassment faced by the consumers. Questionnaire for Consumer Survey:The components of the questionnaire were six: i) the basic profile of the consumers with the information on the socio-economic profiles of the consumers/adult respondents, consumption pattern of electricity, ii) the types of connection, the new connection process, problems and harassment faced by consumers, the amount of bribe transacted during the connection process; iii)the quality of electricity service in terms of meter reading and billing process, illegal practices such as collusion with meter readers, fake billing, and other day-to-day service-related problems; iv) load extension, load shedding and voltage variation, losses of equipment due to voltage fluctuation; v) and finally, the consumers’ satisfaction regarding the different commercial services has also been illustrated through this measuring scale. Sampling Technique: A multi-stage stratified sampling technique has been followed to determine the sampling of the consumers for the survey  œ Stage 1: Consumption pattern of DESA DESCO, to put the proportionate weight in determination of the number of the sample for each agency. Then, the proportion of consumers across the distributors is considered in stage 2.Stage 2: Based on this proportion, different types of consumers are considered to select the sampling from each distributor agency. Stage 3: Distribution of Sample Consumers sing the standard formula of random sampling, the precision level or observed probability of corrupt practices was extracted at 0. 7 at a 5 percent level of error. Sample size, 1027 was determined using the design effect and across agencies in regional clusters. Distribution of Sampling Consumers: DistributorDistrict/Area Or Ward D C ISub totalTotal DESA DESCO Dhaka, Mirpur Dhaka, Karwan Bazar 10 10 10 10 10 10 30 30 60 (D= Domestic, C= Commercial, I= Industrial) Governance Failures and Problems in the Power Sector:Under the co-ordination and guidance of the Power Division, BPDB, a holding com pany, is solely responsible for generating, transmitting and distributing power through PDB, DESA, DESCO, WZPDCL and REB/PBSs though out the country. Usually, the Prime Minister is in Charge of the MPEMR and a State Minister runs the Power Division under the guidance of the PM. The PDB Chairman is Chairman of the newly converted holding company of BPDB21 and the Secretary of corporatized companies such as PGCB and WZPDCL. Furthermore, Chairman of DESA is also the Chairman of DESCO. The newly established BERC is to regulate planning, tariff fixing, dispute settlement and licensing.The following Flow Chart-1 shows the functional relationship between the different wings of the power sector. Adverse Power Crises: According to the ADB (2005), â€Å"Consumption of electricity in Bangladesh grew at an average annual rate of 8. 2% from FY 1994 to FY 2004 and forecast is to grow at an annual rate of about 8% for the next 10 years. † Since the early 1990s, the supply of power went down and system loss shot up and the frequency of load shedding increased vigorously by the middle of the 1990s. In this situation, the Government proposed the National Energy Policy in 1995, but this also failed to meet the crisis and finally Power Cell formulated the Private Power Generation policy in 1996 in order to boost the generation of power.Crisis in the power sector or the staggering demand-supply gap has emerged due to several key reasons. Since the generation of power did not increase at the rate of the increase in demand, the gap between served generation and peak demand has increased over the period shown in Figure 1. In mid ‘90, the shortage was almost zero, but the staggering gap and the demand has been increasing, the official figure is at 4250 mw, but the production is only at 2100-2200 mw which resulted in a 2000 – 2200 mw shortfall in generation. According to the PSMP 2006, the real demand was forecasted at 6200 mw in 2007, but at the same time the amoun t of power generation went down to 3,200 mw.It is noted here that the demand for power has been increasing at a rate of around 10 percent per year and furthermore then the total shortage of power would be around 435032 mw in 2010 or even more than the current estimate (shown in figure 4) if the progress of the establishment of the proposed power plants is not completed as per schedule. In estimating demand, the PDB does not usually consider economic growth and the exact demand of the prospective consumers. The crisis also emerged due to the absence of a vision and mission by PDB and DESA as well. Absence of clear organization goals of the PDB and DESA: The Power sector is such a dynamic sector that it requires clear organizational goals or objectives and the strength to take sharp decision. In reality, however, the PDB and DESA do not have clear working paper, organizational goals.As a result, there is always a sense of confusion between policy makers and the management. This hamper s the productive growth of the sector as well as its day-to-day services. New Connection Process and harassments faced by the consumer: The staff is responsible for completing the several tasks associated with a new connection. In a particular holding, no more than one residential connection is provided, with each flat considered flat as a separate entity. Requirements need to be fulfilled as per tariff rules and pro-poor documentation. In reality it is quite tough for an applicant to complete the process by himself due to harassments by the staff and agents or media.According to the survey, on average, 27percent of the consumers (the highest figure being 42 percent) face the harassment during the new connection process. A new connection process and the tyranny of â€Å"media† or â€Å"broker† According to the 2006 survey, among the applicant for a new connection, 94. 2 percent took the new connection through an agent in order to avoid the hassle and to save time; only 4. 3 percent of the consumers got the new connection by themselves. According to the consumer survey in the case of both LTI and HT connections, 94 percent of the applicants took the help of brokers or agents such as meter readers, MLSS/Fourth class employees, or electrical Contractor. Process of new connection IN DESA;Average bribe of a new connection: Reduction of bills at cost of bribe in DESA: The S & D Office disconnected the line with an outstanding amount of Taka. 3,00,000 and filed a case against ‘x’ consumer of Lalbagh S&D. The Meter Reader proposed a bribe of Taka. 1, 50,000 to settle the case. The concerned consumer agreed to the proposal in order to become benefited and to avoid harassment. Finally, the case was dismissed and office issued the reduced bill for only Taka. 28, 000 for the following month. It is noted here that the meter reader did not provide any bank receipt to the consumers, just a paper upto clearance. This is a reflection of the DESA†™s management system.Average bribe to reduce meter change Delay in Providing New Connections: According to the 2006 survey findings, if any consumer does not pay a bribe then the consumer can get connection even before the deadline of around 30 days; the longest delay in DESCO for providing a new connection was 103 days, but at the payment of bribe the connection took only 6 to 7 days for getting a new connections in DESA and RDB respectively. Interestingly, the PBS, through efficient in maintaining the desired import-collection ratio, also makes delays in getting new connection if the consumers do not bribe to the officials (Table 9). Complexities in File Processing:Bureaucratic dilemma/delay is a regular phenomenon in Bangladesh; and it is also practiced during the provision of a new connection, as application files pass through around 36/38 hands/tables before an applicant get a connection. Though the office claims that the delay is due to the insufficiency of MLSS and inadequa cy of the required documents, the real cause of the delay is illegal practice152 or the paying of bribes to speed up the process. Bribe for meter change: Office staff takes monthly bribes to reduce the electricity bill of the consumers by issuing a minimum bill against the huge bill of the power consumed (which are remaining unadjusted and stored in the meter).When the cumulative amounts of the unpaid bills, especially of HT consumers, become high, the meter reader proposes to change meter claiming to be concerned amounts showing the damage. Taking a handsome bribe, officers change the meter claiming to be concerned about the clients showing the cause of the consumer’s safety and GoB loose huge amount of revenue. Consumer, on average, pays an extra Taka 2056 as bribe to the meter reader, lineman, foreman or the Gatish of the meter reader if he/she wants to change the damaged meter. Interestingly, the highest amount has to be paid (i. e. Taka 8685 and Taka 2748) by the consume rs of the corporatized or said to the efficient organization REB. PBS and DESCO161. Erroneous and/or false billingOn average, 39 percent of the consumers of all the distributor agencies claimed that they received excess bills and the meter readers with the help of ledger keeper and the billing section. In case of the unavailability of receipts, consumer has to pay the bill with a fine including a surcharge; the significance of the chi-square value162 justifies the allegation on the wrong meter reading. It supports the presence of erroneous and bogus billing in the PDB, DESA and PBSs as well. If any honest consumer, particularly, is the small industries category (such as cold storage, cinema halls etc. ) where refrigeration plants, air conditioners had standard loads, does not agree To conclude with meter reader and wants to pay the correct bills, he is likely to be in serious trouble.Conclusion and Policy Recommendation: A number of efforts have been made by the present caretaker go vernment in order to mitigate the power failures. These efforts include the following: Cancellation of the tendering process of small power plants addressing the allegation of nontransparent process and attempt for re-tender. Identification of major targets to rehabilitate and maintain the power station, and sign of treaties to establish both public and private power plants. Unfortunately, it is alleged by local power company that the aid providing agencies have put several clauses in the bid manual so that they cannot submit the bid papers fulfilling the conditions.Approval of five IPPs (three foreign companies) of 1,930 mw capacity, increasing the share of IPPs in the total power generated up to 3,190 mw (62%). Unfortunately, no significant decision has been taken yet to identify the leakages and rampant theft of power. Appointment of two members for the BERC and development of several guidelines along with the methodology of the determination of power tariff. However, in this met hodology, the peak and off-peak demand was not considered. Besides, there is no vivid guideline from BERC on how submitted documents and information by applicant IPPs would be cross-checked and the previously completed contracts between PDB and IPPs are out of the proposed formula.This study was undertaken with the aim to diagnose the problems prevailing in this sector. The scope of this study includes review the state of governance in this sector, demand-supply shortfalls, the current procedure of power plant procurements and identifying the nature and extent of corruption, accountability of the staff, investigate the sufferings and harassments faced by the consumers, day-to-day services, billing, load shedding, and rural-urban disparities. Information from both primary and secondary sources has been used in preparing the report. Sources of secondary information included acts and rules, published articles, periodicals, reports, as well as official documents.Primary sources of infor mation include a consumer survey, informal discussion with stakeholders, employees, and experts of the power sector. The consumer survey covered the nature and the extent of corruption and harassments faced by the consumers. The cross section survey among all types of consumers (1027) was administered to find out the quality of services provided by different organization including PDB, REB/PBSs, DESA and DESCO. Adverse power crises and governance failures The PDB’s official report shows a shortfall of generation of around 2000 – 2200 mw. However, according to PSMP 2006, the total shortage of power would be around 4350 mw in 2010.The reasons for power shortages are identified below. Policy Level Failures: The government failed to put adequate emphasis on the power sector; there has not been any clear and specific guideline to estimate the real demand and supply; there have also been violation of the PSMP in the form of politicization of the location, size and types of p lants, emphasis on short-term planning, inadequate autonomy in making financial and administrative decisions, appointment of foreign consultants for rent-seeking purpose despite the availability of local hands, and imbalanced expansion of distribution lines for rent-seeking purposes Limitations and malpractice within the procurement process:The procurement process in power sector has been distorted due to unwanted intervention in the procurement process, complexities of the bidding process, wrong evaluations, absence of uniform Technical Evaluation Committee (TEC), delay in hiring consultants and resolving disputes due to bureaucratic dilemma, corruption such as putting specific condition, nepotism, extortion by vested interest groups, collusion between the bid officials and bidders, false experience certificate submitted by bidders, appointment of contractors for maintenance and rehabilitations without any tender, abuse of funds by plant and policy-level staff, supply of low qualit y machinery violating the contract, and power purchase agreements made at high rates. As a result, around Tk 4,007 crore or US$ 688 million (from purchase of the 6 power plants and outsourcing the maintenance and rehabilitation works to a foreign company) during 1996-2005 have been abused.Inadequate financial capacity: Around 17000 crore Taka is required to meet the demand for power of 8000 mw by next 2010; but the concerned organizations have inadequate financial capacity due to i) cumulative increase of unpaid bills and unaccountable indebted organizations, ii) poor rate of collection (caused by high T&D losses, legal shelter taken by large bill defaulters, low density of consumers in several PBSs of REB), and iii) instantaneous increase of financial burden due to contract with IPPs at a floating exchange rate, iv) contract, under PPA, with IPPs at high tariff arte, v) high input cost of diesel based generation plants. References:Analysis of the Sustainability of the Electrical Po wer Sector, Advanced Engineering Associates International (AEAI), February 2003, Asian Development Bank, 2005, Sector Assistance Program Evaluation of Asian Development Bank Assistance to Philippines Power Sector. Asian Development Bank, â€Å"Special Evaluation Study on Cost Recovery in the Power Sector Operation and Evaluation Department†, SS-55, April 2003 Bacon, R. W. and Besant-Jones, J. , 2001,’Global Electric Power Reform, Privatization And Liberalization Of The Electric Power Industry In Developing Countries’ The International Bank of Reconstruction and Development, The World Bank. Washington. D. C. Bangladesh Energy Regulatory Commission Act 2003, BG press, MPEMR, GoB, 2003, DhakaBose, Sudhansu, Poor collection efficiency of Indian state owned power distribution companies: causes and remedies, White Paper, Wipro InfoTech Complexity of Electric Power Distribution Governance†, Journal, 26 (3), 1-39, 2004 Dr. Hardiv H Situmeang, June 1, 2005, THE CHA LLENGE OF FINANCING POWER PROJECTS. Jakarta Fiany, Ronald, et. al. July 2003, Governance Problem in the Brazilian Power Sector, Oxford University Gilbert, Richard and Kahn, Edward et al, 1996, International Comparisons of Electricity Regulation, Cambridge: Cambridge University Press. HYPERLINK†http://www. stenmar. com/oil_and_gas_sector. asp† http://www. stenmar. com/oil_and_gas_sector. asp