Impact of Governments Fiscal, Monetary & Competition Policy on Ashuganj Power Station Company Ltd.

Ashuganj Power Station is the second largest power station in Bangladesh. The present total power (electricity) generation capacity of its 9 units is 674 MW. As a part of the Power Sector Development and Reform Program of the Government of Bangladesh (GOB) Ashuganj Power Station Company Ltd. (APSCL) has been incorporated under the Companies Act 1994 on 28 June 2000. Ashuganj Power Station (APS) Complex (with its Assets and Liabilities) had been transferred to the APSCL through a Provisional Vendors Agreement signed between BPDB and APSCL on 22 May 2003. All the activities of the company started formally on 01 June 2003. From that day the overall activities of the Company along with operation, maintenance and development of the Power Station are vested upon a Management Team consisting of the Managing Director, the Director (Technical) & the Director (Finance). According to the Articles of Association of the Company, 51% of total shares is held by BPDB and the rest 49% is distributed among Ministry of Finance, Ministry of Planning, Power Division, MOPEMR & Energy Division, MOPEMR of GOB. Electricity generated in this power station is supplied to the national grid and it is distributed to the consumers throughout the whole country through the national grid. This power station plays a significant role in the national economic development by generating more than 10% of total demand for electricity in the country. In this power station, Natural Gas from Titas Gas Transmission & Distribution Company Ltd. is used as fuel. Water from the Meghna is used through in-take channels for steam generation and cooling of generated steam and used water (for cooling) is again thrown into the Meghna through discharge channels. Huge water from the discharge channels are used for irrigation in the dry season. It is known that about 36,000 acres of land of Ashuganj are irrigated by this water.

Ashuganj as Power Generation HUB: At present 4 power plant projects of APSCL are in progress. Beside this there is a master plan to construct more power plants in future. At Ashuganj several IPP and Rental Power Plants are also situated. These IPP and Rental Power Plants evacuate power through National Power Grid connected to APSCL. Additional land acquisition is required for future power plant projects. 220 acres of Government land located western side of Ashuganj Fertilizer and Chemical Company Ltd. can be a probable site for future power plant project. It is very urgent to reduce dependency on gas as fuel for power generation. In view of that a 1300 MW Coal Based Power Plant can be constructed on that 220 acres of land. APSCL is going to implement news projects in view to become power generation HUB.

Importance of the Meghna River for existing and future power plants: The existing 9 Units of Ashuganj Power Station Company Ltd. consume a large amount of water every day for generating steam and cooling purpose. The only source of the consumed water is The Meghna River. The Meghna River is very crucial factor of power generation. Most of the future power plant projects are Combined Cycle Power Plant (CCPP). The ST unit of CCPP requires adequate supply of water. Institute of Water Modeling (IWM) completed a Bathymetric Survey work of The Meghna River under the supervision of Atlanta Enterprise Ltd. to find out the capacity of the river. Objective Enhance the stations dependable capacity in order to cope up with the governments target to provide electricity for all by 2021 and increase overall thermal efficiency of the station by installing high efficient new plant Government Vision for the Power Industry Electricity is a key ingredient for the socio-economic development of the country. The government has given top priority to development of the sector considering its importance in the overall development of the country. The government has set the goal of providing electricity to all citizens by 2021. Adequate and reliable supply of electricity is an important pre-requisite for attracting both domestic and foreign investment. As the power sector is a capital-intensive industry, huge investments are required in order to generate addition to the capacity. Competing demands on the government resources and declining levels of external assistance from multilateral and bilateral donor agencies constrained the potential for public investment in the power sector. Recognizing these trends, the government of Bangladesh amended its industrial policies to enable private investment in the power sector. The Power Cell, created under the Power Division of Ministry of Power, Energy and Mineral Resources, received the mandate to lead private power development. The government is strongly committed to attract private investment for installing new power generation capacity on build-ownoperate basis. (Lo1.2.2) Impact of Current Fiscal & Monetary Policy On Power Sectors Fiscal policy means the adjustments of public expenditure and taxation so as to shape the cumulative demand. Facilities and Incentives for Foreign Investors There are number of facilities and incentives would be provided to the foreign investors. Some of them as follows:

Tax exemption on royalties, technical know-how and technical assistance fees, and facilities for their repatriation.

Tax exemption on interest on foreign loans. Tax exemption on capital gains from transfer of shares by the investing company. Avoidance of double taxation case of foreign investors on the basis of bilateral agreements. Exemption of income tax for upto three years for the expatriate personnel employed under the approved industry. Remittance of up to 50% of salary of the foreigners employed in Bangladesh and facilities for repatriation of their savings and retirement benefits at the time of their return. No restrictions on issuance of work permits to project related foreign nationals and employees. Facilities for repatriation of invested capital, profits and dividends.

Fiscal Incentives for Private Power Companies To promote high and stable levels of growth and employment in power sector Bangladesh government has implemented the following fiscal policies. A number of fiscal incentives are provided to the private power companies. Some of them are as follows:

Exemption from corporate income tax for a period of 15 years. Allowed to import plant and equipment and spare parts up to a maximum of ten percent (10%) of the original value of total plant and equipment within a period of twelve (12) years of commercial operation without payment of customs duties, VAT and any other surcharges as well as import permit fee except for indigenously produced equipment manufactured according to international standards. Repatriation of equity along with dividends allowed freely. Exemption from income tax for foreign lenders to such companies. The foreign investors will be free to enter into joint ventures but this is optional and not mandatory.

Power Industry Development Plan In order to realize the governments vision to provide electricity to most of the population at a reasonable price and to achieve overall socio-economic development of the country, the government of Bangladesh has initiated a Power and Energy Sector Development Roadmap (20102021) which targeted to produce 8,500 MW by 2013, 11,500 MW by 2015 and 20,000 MW by 2021. However, to ensure overall and balanced development of this sector government has taken various plans in terms of duration. The plans have been developed based on a techno-economic analysis and a least-cost option. These plans include balanced development in generation, transmission and the distribution system to achieve a desired level of reliability of supply.

(Lo1.2.1) Bangladesh Governments Effort To Allocate Resources Effectively In The Power Sectors Bangladesh government follows The Mixed Economy System through maintaining a balance between market forces and state involvement. With this view certain activities need to be coordinated by the state while others can be left to the control of market.

Impact of Competition Policy 2.1. To introduce competition, induct foreign private capital and more importantly, to increase power supply to alleviate the acute shortage, Private Sector Power Generation Policy was developed and adopted in 1996. To implement the policy, detail security documents were prepared for solicitations and till now, through competitive bidding, 1158 MW of capacity has been contracted offering some of the lowest tariffs in the world and private projects totalling 1080 MW are under negotiation. 2.2. Policy has also been designed to promote small-scale generations in the private sector particularly to serve non grid areas, pockets of continued power shortage and provide opportunity for sale of excess power from captive generation to consumers in the neighbouring areas. REB/PBS is nearing finalization of contracts for 3 (three) 10 MW plants in the private sectors. 2.3. A mixed sector power plant of initial capacity of 70 MW with ownership divided among REB, PBS and eventually private sector is also under implementation. 2.4. Recently, decision has been taken to corporate one of the major publicly owned power generation centers at Ashuganj (724 MW) and develop as a profit center another set of installations at Haripur (99 MW). These measures will separate generation at these places from other operations, provide opportunity for improving performance through management autonomy, incentives and competition.

Monetary policy attempts to influence economic activity through adjustments of interest rates, exchange rates, control of money supply & controls over bank lending and credit.

The major constraints from this policy on power sector were (ii) The unavailability of long-term domestic capital for financing investments, (iii) Limited foreign exchange debt service capability in the economy

References: http://www.apscl.com/about.php http://www.apscl.com/admin/download/APSCL%20Power%20Generation%20Plan%202012.pdf http://boi.gov.bd/key-sectors/power-industry http://www2.adb.org/Documents/Tranche-Releases/BAN/36205-BAN-PRSTR.pdf http://www.apscl.com/admin/download/RFP%20Document.pdf