Prepayment Metering in Bangladesh

The initiative

The first step was taken by BPDB. “In 1995 BPDB, together with the German Development Bank KfW, decided to investigate the concept of prepayment as an option to reduce system losses and reverse the financial drain on the utility.” They carried out a feasibility study, and “in 1999 KfW sent a project proposal to the German Ministry for Economic Cooperation and Development requesting the required funds, which were approved the same year”.[4]

The next step was to define the scope of the system and contract with a chosen supplier. “In May 2000, BPDB selected Fichtner, a Stuttgart-based consulting firm, to help define the scope of the prepayment metering system, select a supplier of the meters and a private operator, create a new tariff structure, carry out a one-year test phase, and deliver training and capacity building.”[5]

The test phase was successful and so, after an unnecessarily long delay, the implementation began. “Once the contract for supply and services of the prepayment metering system had been signed could the rest of the project be implemented quickly. The first stage of the prepayment metering system was operational in the last quarter of 2007. In October of 2008 ownership was completely transferred to BPDB.”[6]

The project's objectives included the following:

• “Replace conventional meters by installing 8,500 one-phase and 450 three-phase prepayment meters.
• “Rehabilitate the parts of the distribution grid which connect the prepayment metering system.
• “Install control meters in order to register the amount of electricity fed into and passed through the distribution grid.
• “Install up to 10 vending offices, in which magnet cards or number codes could be purchased in order to activate the prepayment meters.”[7]

The challenge

In the 1990s, Bangladesh had a major problem, particularly in Chittagong, its second-largest city. “The Bangladesh Power Development Board (BPDB) used to lose millions of dollars a year to electricity theft, a practice facilitated by corrupt meter readers and metering technology that made it easy to illegally tap power lines. These losses prevented the company from operating and maintaining the system properly or making new investments.”[1]

This detrimental effect was more serious than just the financial losses. “High levels of theft of electricity in Chittagong, Bangladesh's second-largest city, prevented the utility from operating and maintaining the system properly or making new investments. Insufficient power generation to cover demand and low plant efficiency resulted in erratic power supply and blackouts.”[2]

The shortcomings in the power supply had a significant negative impact on the economy. “Disruptions of electricity supply were a daily occurrence in Bangladesh, holding back economic development and costing the country an estimated 1 percent of GDP a year. Manufacturing companies were not able to meet delivery dates and had to pay their workers during power outages and for extra hours in order to catch up on production shortfalls.” The situation had to be resolved by tackling the problem at its source: the theft of electricity.[3]

The public impact

The project exceeded the original objectives and installed 12,300 one-phase and 1,045 three-phase meters. “The project also installed 195 control meters, in order to monitor the feed-in and distribution of power in the distribution grid and identify any losses caused by theft.”[8] However, this was only the beginning: “at present, 91,885 of the country's total 17.5 million power consumers have prepaid meters”.[9]

The wholesale introduction of prepayment maters enabled the project achieved its primary objective. “The programme completely eliminated the theft of electricity, gained acceptance by groups that originally felt threatened by the programme (customers and meter readers), built the capacity of the utility, and ended up costing less than originally estimated.”[10]

The project contributed to a more reliable and more accessible power supply. “At the start of the project, only 16% of the population was officially connected to the power grid. However, by 2015 about 68% of Bangladesh's people had access to electricity.”[11]

Stakeholder engagement

There were many internal and external stakeholders aligned to support the objective. BPDB was the main stakeholder. The German government, through KfW, financed the initial pilot project, which was then supported by BPDB.

Consultants, such as Fichtner, played a crucial role in designing and implementing the pilot project. “Implementation of the project began with a tender (limited to German companies) for selection of the implementation consultant. In May 2000, BPDB selected Fichtner, a Stuttgart-based consulting firm.”[12] Local firms, Secure Meters UK and KCJ & Associates Ltd (KCJAL), Bangladesh, formed a joint venture to conduct the pilots during the design phase.

The OECD and the Asian Development Bank (ADB) played a crucial role. “A measure financed by the OECD supported intensified controls that reduced system losses by 7 percent in study areas. With support from the ADB, a computer-based centralised invoicing system was introduced in Dhaka and Chittagong for a total of 20,000 customers.”[13] The World Bank assisted with the approach to outsourcing (see Measurement below).

Political commitment

The Government of Bangladesh contributed to the project by supporting foreign and private sector involvement. “Government plans to permit the private sector for producing and marketing prepaid meter.”[14]

The German government was instrumental in funding the programme under an agreement on German-Bangladesh Financial Co-operation. “BPDB lacked the institutional, technological, and human capacity to deal with the problem. To address the challenge, in 1999 KfW, on behalf of the German Federal Ministry for Economic Cooperation and Development (BMZ), launched a pilot cooperation project with BPDB.”[15] It played a committed role throughout the project.

Public confidence

Clarity of objectives

The objectives defined at the outset were consistent throughout and were largely measurable. The main aim of the project was:

• “To reduce non-technical losses
• “To implement a plan for 100% cash collection in advance
• “To improve the services to consumers
• “To provide access to affordable and reliable electricity to all by the year 2020.”[16]

The primary objective was to introduce prepayment and, as a direct result, eliminate the theft of electricity. This in turn would lead to a more reliable and widely available power supply in the country. These were duly achieved, although the delivery was somewhat delayed. (see Public Impact above).

Strength of evidence

There was an initial feasibility study. “Feasibility studies incorporating site surveys, financial analyses and tariff impact studies were prepared. Based on these studies, BPDB received a grant from the German government through KfW under German-Bangladesh Financial Co-operation for the cost of a prepaid pilot on a Rehabilitate, Operate and Maintain (ROM) basis for a five year operation period.”[17]

Based on the surveys conducted by the consultants, the policymakers laid the evidence for KfW-financed project. “The consultants conducted a comprehensive survey and compiled a detailed bill of quantities. An operating contract was developed and bid documents were issued in 2002. In August 2003 BPDB instructed the consultants to reissue the bid, since none of the three bids received were fully responsive. The new bidding documents are now available, and the bid will close early in 2004.”[18]

The policymakers referred to similar policies in other countries, such as South Africa and Tanzania, to design an effective policy. They did so in one instance by using South African consultants with experience of delivering prepayment meters. “In 2001 Fichtner, in association with Utility Design Services of South Africa, were selected as consultants to BPDB for a pilot project in Chittagong.”[19]

The pilot project in Chittagong was an essential source of evidence, with two alternative technical approaches, the unit transfer system and the currency transfer system, being tested. “A pilot cooperation project with BPDB that replaced regular power meters with prepayment meters (meters that must be charged through payment in advance and automatically disconnect once the paid amount is exhausted) in three areas of Chittagong.”[20]

Feasibility

Several feasibility checks were conducted by the policymakers and stakeholders (such as BPDB, German government through KfW) to evaluate the policy. BPDB conducted site surveys for financial analysis and to analyse the current situation of tariffs. Consultants hired by the BPDB also evaluated the financial constraints. Technical feasibility was addressed by the feasibility studies and the technical pilots (see Strength of Evidence above).

Financial feasibility was addressed initially by there being sufficient funding from the German government. Thereafter, it was important that the project should be self-financing. “The groundwork laid by the consultants in the KfW-financed project convinced BPDB to self-finance a number of prepayment initiatives. BPDB has issued self-financed bids for the supply, installation and 12 month maintenance of prepaid meters in areas such as Bogra, Chittagong, Rajshahi and Sylhet.”[21] The OECD and the ADB also provided funding to the initiative.

The feasibility depended also on human factors, principally the willingness of electricity customers and meter readers to accept and endorse the principle of prepayment meters. “Acceptance of the prepayment metering system was achieved and resistance from meter readers, their union, and electricity consumers was overcome through a holistic approach that focused not just on installation and operation but also addressed the concerns of those who could be negatively affected.”[22]

Management

There was a mechanism designed by the policymakers to combat corruption, which was ongoing for years in BPDB, especially among the meter readers. The prepayment method reduced corruption generally and, in particular, the theft of electricity.

KfW launched a project and installed prepayment meters with the help of other stakeholders. There were skilled consultants hired to implement the pilot projects and conduct feasibility checks. “The implementation consultant played a significant role in supporting BPDB, closing capacity gaps and assisting with successful implementation of the project.”[23]

At regular intervals, the policymakers took the pragmatic approach (for example outsourcing of prepayment system to private company) to resolve the issues. “Outsourcing the operation of the prepayment system to a private company contributed to the efficiency and success of prepayment metering.”[24]

The deployment of the prepayment was system was improved in a number of ways, for example through technology and training:

• “To improve the system of invoicing (which will further help in reducing the corruption and theft), the policymakers, with support from the ADB, introduced a computer based centralised invoicing system in Dhaka and Chittagong for a total of 20,000 customers...
• “Fichtner helped resolve problems and promote efficiency and acceptance of the new metering system. It also trained BPDP staff and helped increase the utility's capacity, to enable it to manage the interface with KJCAL.”[25]

However, due to delays in decision-making, the project was implemented much later than could have been the case, and this also contributed to higher costs. “However, the contract with the implementation consultant rose from about €1 to €1.25 million, mainly because of the need for a more comprehensive analysis in order to define the exact scope of work required and because of the lengthy delays caused by BPDB and Bangladeshi government institutions.”[26]

Measurement

The policymakers defined the sets of indicators that need to be measured, such as the non-technical losses, to monitor the progress of the project. “One approach — in which meter reading, invoicing, and collection of payments were outsourced to private companies in four cities — was carried out with support from the World Bank. It reduced nontechnical losses from 35 percent to 25 percent in the pilot cities and was expanded to other cities. A measure financed by the OECD supported intensified controls that reduced system losses by 7 percent in study areas.”[27]

Metrics were very important in gauging the success of the pilot project. “[The] success of the project was to be based on the achievement of two indicators by 2003: reduction of distribution losses from about 34 percent to 20 percent and reduction of arrears on power invoices from 35 percent to 5 percent.”[28]

The control meters (see The Initiative above) were vital to the measurement and monitoring process. “The project also installed 195 control meters, in order to monitor the feed-in and distribution of power in the distribution grid and identify any losses caused by theft.”[29] A further indicator was “to reduce arrears on power invoices from 35 percent to 5 percent. In 2007/08 actual arrears represented just 3.1 percent of invoiced amounts. Arrears have since been effectively reduced to zero".[30]

Alignment

All the actors engaged actively in the policy. Beginning in the 1990s, the Bangladesh government and BPDB were involved in making the process of electricity payment transparent. BPDB in association with KfW conducted several pilots in different regions of Bangladesh. “BPDB, assisted by KfW, have decided to pilot the PPP approach - where operators provide turnkey solutions - and contrast it with self-financed pilot projects where BPDB takes over a site after successful commissioning.”[31]

The Bangladesh and German governments worked well under the German-Bangladesh Financial Co-operation agreement, and on the German side this was achieved principally through BMZ and KfW. This then fed into the relations with the private sector, such as the German company, Fichtner, which provided consultancy and trained BPDB staff and worked with the Bangladeshi firms such as KJCAL (see Management above).

Organisations like the OECD, the ADB and the World Bank were actively involved in monitoring and contributing to the implementation of the project. For example, the ADB arranged for workshops as part of the project “the workshop, organised by Power Cell with support of the ADB, was also addressed by the Power Division Secretary, Monowar Islam, and the Country Director of Bangladesh Resident Mission of ADB, Kazuhiko Higuchi”.[32]

Bibliography

Prepayment Metering in Bangladesh: How to Improve Electricity Delivery and Eliminate Theft, Tim-Patrick Meyer, August 2016, Global Delivery Initiative

(http://www.globaldeliveryinitiative.org/sites/default/files/case-studies/k8576_prepayment_metering_in_bangladesh_cs_p4.pdf)

Prepayment in Bangladesh, 31 December 2003, Metering and Smart Energy International

(https://www.metering.com/prepayment-in-bangladesh/)

13.4 million prepaid power meters to be installed, Aminur Rahman Rasel, 5 October 2015, Dhaka Tribune

(http://archive.dhakatribune.com/bangladesh/2015/oct/05/134-million-prepaid-power-meters-be-installed)

Government Lets Private Sector Produce Pre-Paid Meter, 26 November 2015, Energy Bangla

(http://energybangla.com/government-lets-private-sector-to-produce-pre-paid-meter/)