We need smart policymaking, not smart blame games in the energy sector
Smart politicians often project an image of strength and competence. When something goes wrong, they blame either fate or external shocks, especially in the energy sector. The capacity to shift blame onto factors seemingly beyond their control is viewed by these politicians as a display of smartness. The government's justification behind increasing electricity prices is an example of this "smart blaming." I term this tactic "smart blaming" because it allows the government to once again reveal its selective vulnerability to external shocks without assuming any accountability for its actions.
Why this selective vulnerability, though, when Bangladesh appears to be shining with the glow of development everywhere? Even one year had not elapsed since the prime minister's announcement of universal electricity coverage in 2022 when load-shedding and a surge in electricity prices began to strain the economy. The electricity price increased again in March 2024—another step in the ongoing price adjustment intended to last over the next few years. The state minister repeatedly defended price hikes as a necessary measure for these price adjustments due to escalating costs attributed to the increase in the prices of coal, liquefied natural gas (LNG) and US dollar. The tone of defence appears to exude helplessness. Is the government really so helpless?
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The people of the country are smart, too. They habitually discern that the government isn't truly powerless; rather, it's a strategy it employs to use people's money to favour private electricity suppliers. Much has been written and discussed as to why price increase is projected as a necessary measure, when in reality it is a conscious policy choice to shift the burden on the consumers and invite an inevitable crisis. Some of the domestic policies contributing to today's crisis include: i) electricity liberalisation through allowing independent power producers; ii) selection of rental and quick rental options without competitive bidding; iii) excessive capacity payment requirements at peaking power plants; iv) inadequate coordination in balancing energy supply and demand among existing power plants; and v) escalating energy import dependence.
In this column, I aim to shed light on some overlooked truths that have recently escaped widespread discussion. Two news items recently caught my attention, both highlighting new uncertainties in the LNG market. One concerns Japan's surplus LNG and its quest to find new markets in Southeast Asia for resale. The other is on the US's approval to limit LNG exports. How do these developments affect Bangladesh?
Firstly, it's worth noting that the construction of two LNG terminals in Bangladesh received technical assistance from the US-based company Excelerate Energy. One of these terminals is owned by Bangladeshi company Summit Power, which has ties to Japan—it sold a portion of its shares to a Japanese company called JERA Co Inc. Could this connection veer to the realm of conspiracy theories? It may seem so without delving into history. The connections of US and Japanese companies with the LNG infrastructure in Bangladesh are actually incomplete without understanding how the LNG market expansion began.
With the surge in shale gas exploration in the US during the 2010s, the potential for LNG export expanded significantly. Concurrently, when Japan International Cooperation Agency (Jica) formulated Bangladesh's power system master plan (PSMP) in 2010, it anticipated the necessity of adopting LNG under the pretext of the country's depleting gas resources. This period also witnessed international oil companies expressing interest in exploring deep-sea gas reserves in the Bay of Bengal. However, strong opposition from Bangladeshi civil society against gas exports compelled the government to eliminate the export provision clause in the model production-sharing contract (PSC).
Why did Bangladesh need to develop its master plan with Jica's assistance? Did we lack the capacity to devise our own plans? Were we unaware of the contents of the master plan? Can the government absolve itself of accountability by denying that the master plan itself foresaw an increase in LNG prices? Can it refute the 2005 PSMP, which explicitly recommended the country to update its own plan, citing that the Power Grid Company of Bangladesh (PGCB) and Bangladesh Power Development Board (BPDB) have the capability to do so?
Meanwhile, the US grew increasingly interested in bolstering global reliance on LNG, partly motivated by the European Union's escalating dependence on relatively inexpensive Russian piped gas. Russia's dominance in the gas market posed geopolitical concerns for the US. Hence, establishing new markets for LNG and enhancing global reliance on LNG infrastructure technology emerged as a deliberate geopolitical strategy for the US.
Due to the global expansion of LNG, we witnessed South Asian countries constructing LNG terminals to import LNG during the 2010s. An intriguing case is Myanmar which, despite its abundant gas resources, started to import LNG while simultaneously exporting its own gas to China. During my last visit to Myanmar in 2014, I observed residents of Yangon grappling with power outages and cooking gas shortages. This discrepancy left me pondering, and it also reaffirmed my belief that Bangladesh likely made the right decision by abstaining from allowing gas export provisions at that time.
Over the past decade, Bangladesh's reliance on LNG has increased. The government's failure to explore new gas fields during this time suggests intentional neglect, likely aimed at creating opportunities to import LNG. Encouraging long-term LNG demand became a strategy to promote greater dependency on LNG. LNG contracts typically involve long-term commitments, and breaching these contracts midway can result in severe penalties.
While Bangladesh grapples with importing expensive LNG to meet domestic demand, Japan has transitioned into an LNG surplus nation due to declining demand attributed to the increased utilisation of renewable and nuclear energy sources. Now, in a bid to avert financial losses, Japan is seeking new markets to resell its LNG at elevated prices. Notably, last year Bangladesh procured LNG from the spot market through JERA. Although initially sourced from Qatar, Bangladesh also commenced LNG imports from the US in 2023. This underscores the country's emergence as an LNG market for both the US and Japan. US firms have provided LNG technology, while Jica, through making the 2010 PSMP, has paved the way for LNG dependence by incorporating LNG imports as an option to meet Bangladesh's demand.
This begs the question: why did Bangladesh need to develop its master plan with Jica's assistance? Did we lack the capacity to devise our own plans? Were we unaware of the contents of the master plan? Can the government absolve itself of accountability by denying that the master plan itself foresaw an increase in LNG prices? Can it refute the 2005 PSMP, which explicitly recommended the country to update its own plan, citing that the Power Grid Company of Bangladesh (PGCB) and Bangladesh Power Development Board (BPDB) have the capability to do so? (PSMP 2005, Pp 1-29) Presently, think tanks and NGOs are scrutinising the Integrated Energy and Power Master Plan (IEPMP) 2023, likely fuelled by increased funding availability.
The National Committee to Protect Oil, Gas, Mineral Resources, Power and Ports (NCBD) has been diligently reading the PSCs and plans and warning the policymakers without any consultancy fee. They have been the public voice for a long time now. Recently, the government invited international tender for offshore bidding to extract gas. This time, the PSC has the export provision. Now, that Bangladesh has signed long-term contracts to import LNG from abroad, will it be able to get its gas at a cheaper price under the new PSC? Or will it have to export LNG at a future cheaper price while importing at the current higher price? If that happens, how ironic it would be!
Who should be blamed for it, then? Have we not been asking the government to build our own capacity for offshore gas exploration? The smart policymakers would probably say they were helpless or didn't know it before. The blame could potentially be shifted to future low LNG prices (when exporting) instead of the current high LNG prices (when importing). As more countries embrace renewable energy, the demand for LNG may decrease, leading to price declines. The smart politicians of a "smart" country might argue that they cannot be faulted for other countries adopting renewables when Bangladesh did not.
How long will this blame-shifting game go on?
Moshahida Sultana Ritu is associate professor at the Department of Accounting and Information Systems in the University of Dhaka.
Views expressed in this article are the author's own.
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