Gas for growth

To maximise the role of natural gas in greasing growth (and in reducing poverty), both public and private sector agencies have to work with right earnest and hand in hand. Foreign assistance in creating infrastructure has to be sought in the light of meagre domestic resource availability. The sooner, we believe, the better it is. Unfortunately, however, the energy sector -- comprising production, transmission and distribution of electricity and gas -- is, allegedly, groaning under grievous mismanagement and bad governance. This results in high system loss, low capacity utilisation and over and above, slower economic growth and erosion of competitive edge. Lack of investment funds, on the other hand, tends to hinder exploration, transmission and distribution of the energy inputs. The trend, hitherto unabated, is telling upon a country where (a) annual per capita electricity consumption is 110 kilowatt/hour, (b) one-third of the total population has access to electricity and (c) only 6 per cent of households are connected to gas facilities. It is estimated that power shortage alone reduces industrial output and GDP growth by 0.5 percentage point each year. In other words, had the growth rate been up by 0.5 percentage more, the level of poverty would have gone down by more than one percentage point each year over the decade we passed.

The gas-growth nexus has rarely been realised in the past. The very high capital intensity of exploration and transmission might have led to lukewarm attitudes towards realising its potential. However, of late, the interests of the government and donors induced a new dimension to the development of the gas sector. As we are told, Petro-Bangla is poised to provide piped gas facilities to northern-western part of the country. To this effect, half a dozen or so projects have already been tabled for foreign funding. Quite obviously, the network of transmission and distribution so proposed would warrant huge investments crossing domestic capacities. Heartening news is that, the Energy Division of the Asian Development Bank (ADB) has reportedly agreed to undertake a Gas Sector Development Study in the proposed project areas to assess techno-economic-environmental- social and institutional impacts of the projects. We are of the view that supply of gas could generate its demand rather than the other way round. We hypothesise that like the gas itself, its demand has to be explored via public sector investments. If government comes forward with facilities for fuels, there should not be any shortage of demand at household, enterprise or commercial levels.

Tap here to add The Daily Star as a trusted source

Take the case of gas in particular. It gears up growth by supplying gas to power plants and fertilizer factories. Both power and fertiliser are important inputs to agricultural and industrial production. As we are informed, these two sectors absorb the largest chunk of the gas supplied. Supply of gas also helps other industries through access to gas based activities. But bear in mind, the price of gas has to be fixed economically. A subsidy to gas would mean a subsidy to fertiliser factory rather than the farmers. Likewise, a lower gas price goes to help only the richer section of the population with a fortune to have access to the fuel.

Such developments could help both agricultural and industrial growth and poverty reduction. First, availability of electric pumps would reduce cost of cultivation for the poor farmers. Second, it would augment farm income through increasing gross cropped areas. Thus, land poor and landless households would benefit from employment generation. Gas supply could increase number of industries operating in a particular area or help preservation of environment by allowing a substitution from coal or wood based fuel to environment friendly natural gas.

At household level, the impacts are immense. For example, it saves the time spent in collecting firewood and thus allows that time to be devoted to other works. Empirical studies tend to show that in areas with access to electricity, children spend more hours on studies than those in areas without such access. Also women tend to work more hours at night in areas with an access to electricity. Famous economist Yujiro Hayami observed that in his sample village in the Philippines, access to electricity has direct bearing on the reduction of fertility ! Gas supplies to rural areas could help health centres with lighting, freezing arrangements for vaccines and help surgery arrangements (all assuming that doctors are there!).

Areas already having access to electricity or gas could benefit from uninterrupted and regular supply. One of the most important bottlenecks in industrial development is load shedding. The government has to increase generation of electricity as well as ensure regular supply. Taking gas to distant areas would enable the creation of growth centers in pockets of poverty. The expansion of the network might reduce migration to towns, as economic opportunities would be created through gas-based growth of economic activities.

One of the key indicators of underdevelopment is per capita energy consumption. Bangladesh, barring Nepal and Bhutan, is far behind other South Asian countries in terms of per capita consumption of energy. But unlike some of them, it has natural endowments of gas which, if properly placed, could inject multiplier effects and forward and backward linkages to put the economy on an even keel.

Only appropriate polices and institutional arrangements pertaining to gas sector could go a long way in greasing growth and alleviating poverty. This assumes parting with the existing institutional arrangements, say with the power sector, and devising an innovative pro-poor gas sector development strategy.

Abdul Bayes is a Professor of Economics at Jahangirnagar University