For the past many years I have been wailing cries of agony and frustration – at having to pay electricity bills upwards of Nu.9,000.00 per month, during the winter months. For the more than average Bhutanese, that is a whole lot of money. I want to know who can sanely explain that one energy source that is the country’s biggest exportable surplus – is also the energy source that is outside the reach of the ordinary Bhutanese people. Thousands of Bhutanese spend many useful hours – queuing up at the fuel stations – trying to buy energy source that is imported at great cost to our foreign exchange reserve.
From where I stand, it is totally illogical: how is it possible that energy imported at great cost is cheaper than what we say we produce in abundance, at home? Is there something that I am unable to comprehend? What came to mind was a documentary film titled “The Economics of Happiness”. This film also makes the same point that I am making: How is it possible that something produced 15,000 miles away, then trucked and ferried across the seven seas, is cheaper than that which you produce in your own back yard?
Am I so dumb or what? Is there some kind of rocket science involved here that is beyond my fathoming? Before I go completely berserk wondering, and wondering I decided to speak to someone senior in the industry, to try and get a bearing of what the hell is involved. That was a mistake – I came out from nearly an hour of meeting and talking – completely bewildered at the skewed logic of the government.
In plain simple language this officer explained to me as follows:
Bhutan exports 70% to 75% of our electricity production to India
Of the remaining 25% to 30% that is consumed locally, 70% of it is consumed by the industrial sector at Pasakha and elsewhere.
The industrial sector gets power at a subsidized rate of around Nu.2.00/kWH
Domestic and other consumers are charged from Nu.1.28/kWH to Nu.4.02/kWH
I asked this officer two simple questions:
1. The industrial sector is said to consume 70-75% of the domestic electricity requirement. By implication, the largest share of subsidy allocated by the government goes towards subsidizing consumption by the industrial sector. Now consider that this sector has traditionally declared dividends of upwards of 100-300% every year.
Is it possible that the government is able to provide subsidy to the industrial sector, because it is exacting the cost on the poor domestic consumers? Is it possible that the industries are making such huge profits, at the expense of the poor Bhutanese people? Is the common man contributing to the huge profits these industries are able to make?
2. I fall under the LV Block-III Bulk consumer category. This means that I meet all my energy needs from electricity generated in country – I do not contribute to increase in import bill. Why am I being penalized for this by charging me a higher rate? Shouldn’t my subsidy be higher because I am meeting all my energy needs from local energy source? Am I being penalized for NOT using imported energy?
This officer replies; “I do not know.”
I think you have serious lack of understanding of the power pricing system in our country. While I agree that the cost of power, produced in Bhutan is too high, you are putting the blame on the wrong party.
ReplyDeleteThe two power companies submit a price proposal to the BEA, with no subsidy. This comes to Nu.5.89 for LV, Nu.5.82 for MV and Nu.2.24 for HV. For HV and MV (as per BPC's proposal to BEA [this is availible on BEA's website if you are interested to read]), this is a one part tariff. During the actual billing it is broken into two categories, energy and demand charge.
Govt of the day decides the application of subsidy on the LV and MV categories. For eg. PDP govt. gave most of the subsidy as 1st 100 units free to rural areas. HV category cannot be susidies as per the current laws in Bhutan. In fact BPC makes most of its profits from HV category as it is the cheapest to supply. For example 1 ferro factory consumes as much power as Thimphu town. This entire power is carried on one cable, unlike the homes in Thimphu. The cable and substaion is all developed by the consuming company and only one metre is required to bill and the bill can be collected by one person. Contrast this with the supply in Thimphu, BPC has to maintain a fleet of metre readers and vehicles to go around and read metres, also a whole office has to be maintained to collect the bills and to chase down some of the recalcitrant customers. Also all the substation and power infrastructure is maintained by BPC. The cost of supply is even higher in rural areas, where there are limited customers and the cost of supply really sky rockets.
However this does not mean that the BPC should increase the cost of power by close to 10% annually for the last ten years.
Dear Unknown,
DeleteI can sum it up in few words what you are saying. That the delivery and administration costs in the cases of LV and MV is very high and that BPC cannot make profit from these categories of consumers. The answer then is clear: Shut down supplies to these categories .... BPC will stand to make a thousand fold profit.
That would be a really stupid mena? It's not a solution to the problem and its something I definitely do not agree with and am not advocating.
DeleteFirstly the whole cost plus model which is the MO in the hydro power sector, encourages the investors -currently the various project authorities- to overspend to get higher prices. That may be a huge part of the reason for the cost escalation for the current projects.
Secondly BPC and DGPC are monopolies and they work very hard to take advantage of their monopoly status to enhance their revenues and thus their profits. This comes at a cost to the consumers as you have pointed out so wonderfully in your article.
Thus the way they calculate their costs and expenses must be monitored closely and vetted carefully to ensure they do not charge extremely high prices. For example BPC and DGPC make plans for huge investments per tariff cycle (three years) and spend only a fraction of it. This is planned investment is recovered by adding the the depreciation to the power tariff. This thus raises the tariff. However both DGPC and BPC have consistently invested less than their BEA approved plans over the last five tariff cycles. This under spending has never been refunded to the electricity consumers as by law the over or under-spending cannot be adjusted in the next tariff period.
Also BPC makes plans which are like white elephants, such as the over-investment in power transmission to Samtse, Sarpang, etc. where the demand for electricity is just a fraction of the supply capacity. However BPC can always balance its books or even make huge profits by just adding these costs to our energy tariff. This is all recovered from HV category consumers.
Similarly the investments in rural power supply, which will never break even because of the sparse population in rural areas is charged to LV and MV category customers.
FYI
ReplyDeleteYour winter bill of Nu.9000 per month is equivalent to 2661kwh. You can confirm this by checking your bill, the energy consumed will be listed there. As 1 kwh is equal to 3,412.14 BTUs, you have consumed 9,079,709 BTUs or British Thermal Units which is a unit of energy.
1kg of LPG =46,452BTUs
So 1 cylinder of LPG which has 14.2kgs of LPG has 659,618.4 BTUs (=14.2kg of LPG x 46,452)
To get 9,079,709 BTUs which is the amount of energy you consumed in a winter month from LPG you would have consumed (9,079,709 /659,618.4)= 13.77cylinders of LPG or 14 cylinders. This at the current rate of Nu.656 per cylinder would have cost you Nu.9,184.
Therefore you are correct, unsubsidised LPG which is imported from afar is cheaper than subsidised electricity produced in Bhutan. This is a sad state of affairs and reflects the thinking of our esteemed government officials.
Dear Yeshey,
ReplyDeleteI agree with the Unknown's comment on the need of additional expenses in providing and maintaining transformers and transmission system for LV users but it is too generic and simplistic. Let me elaborate by addressing Unknown.
Dear Unknown,
When you refer to two power companies, I guess you are referring to the Generator (DGPC) and the Distributor (BPC). For the Generator, the cost and sale prices for all types of users are the same, so we can take it out of the discussion among LV, MV and HV. The export versus the domestic sale prices may concern DGPC. Further in the cost + model, the inefficiencies of the project execution and operation and maintenance may escalate the power supply cost at the source of generation.
For BPC the cost of transmission and distribution add up. Further I believe the BPC submits proposal to BEA which not only includes cost of production ( i.e. buying price from DGPC) and transmission & distribution but other expenses and that is where we need to analyze. Thus if power companies are inefficient, the cost of their inefficiency is billed to us. Also while building staff quarters in remote areas is necessary there needs to be a review on very lavish guest houses in the style of erstwhile Dak bungalows of the Indian Babus, high entertainment budgets, doubtful CSR budgets, etc of the power companies. Additionally, what I can't understand is in this digital age why you need a fleet of meter readers and vehicles. BPC can use electronics to read meters remotely which can save unnecessary expenses.
In spite of their inefficiencies, both DGPC and BPC are among the highest profit generators among the DHI companies. There is room for cost plus tariff in domestic market which addresses the writer’s enigma. The company management often argues the profit is ploughed back to people through dividend and taxes. The balance we need to find is between direct benefit by lowering tariff and indirect benefit by adding revenue to state.