Power in Bangladesh

Enhancing productive investment in Bangladesh’s power sector by reducing incentives for rent capture.

Summary:

Productive investments in the power generation sector have been minimal, while less efficient and more costly investments have multiplied. There has been significant corruption through rent capture because incentives for long-term productive investments have declined over time. By changing some of these incentives and combining them with feasible improvements in contracting and procurements policies, we will see more productive outcomes in the sector.

The corruption issue

The incentive structures in Bangladesh’s power sector combined with the overall governance and political context of the country drive out technically-efficient bids, instead attracting politically-connected bids where rent-sharing is the primary business model.
If this problem is not addressed, the budgetary commitment of $1 billion to the power sector (which currently supports costly and poor technology generation) is likely to grow and become unsustainable. It is thus imperative to change rent capture incentives so that serious bidders can enter the power sector and generate energy more efficiently.

Our Theory of Change:

  • IF the profitability of productive investments in power generation can be raised by combinations of policies affecting the cost of long-term financing and making fuel policy more predictable with changes in procurement and contracting rules
  • THEN the supply of serious productive bidders for power projects with more efficient technical bids will increase
  • BECAUSE the credibility of contracts for bidders with the relevant technical and financial capabilities to participate in competitive bidding will increase and they will support the enforcement of more transparent procurements and contracting rules in their own interest.

Research Methods

We will use a number of econometric methods to gather the data. We expect hard data will be hard to obtain at the outset, given the political sensitivities and the threat of exposure that firms may perceive. We are thus working with our in-country partners to develop the right relationships alongside viable proxy variables, and alternative approaches and methods for data collection.

Partners: Mushtaq Khan (SOAS) and Sultan Hafeezur Rahman, Wahid Abdallah (BIGD)

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