Bangladesh Garment Manufacturers and Exporters Association (BGMEA)

PART - A TECHNICAL PROPOSAL

Survey on the Power Sector of Bangladesh and the Impact on the Present State on the RMG Industry

June 2008

--------------------------------------------------------------------------------------------------------------------House 10, Road 135, Gulshan-1, Dhaka-1212, E-bets@betsbd.com

Chapter-1: INTRODUCTION

1.1

Background

Bangladesh with a per capita income of about $500 is one of the least developed countries of the world. Its export base is weak and heavily depends on RMG, from which it earns about 75% of its merchandize export income. RMG also employs about 3 million people, with about 3,600 factories in operation and any negative impact on the operation of this sector shall obviously have a large bearing on national economy. Bangladesh suffers from a chronic shortage of electric power, caused by a large gap its demand and supply. The situation is deteriorating progressively with time, being caused by the natural growth of the demand for power at one hand and retiring of depreciating power generation plants/equipment on the other. A large gap exists between the nameplate capacity of power generation plants, reported at 5200 MW and their actual (operational) capability to generate an average of about 3,600 MW. The peak generation has been reported to be just over 4,100 MW, leaving still a gap of about 1000 MW between the nameplate capacity and the generation. The average life of the power plants in Bangladesh stand at more than twenty years and most of them need rehabilitation / refurbishing to bring out reasonable capacities out of them. Presently, the power situation has further deteriorated, due to a shortfall in supply of natural gas which is reportedly depleting fast. The country is reeling under a daily loadshedding that ranges between 600 - 1,200 MW, the average being of the order of about 1000 MW. On the primary energy side, the present shortfall of natural gas is estimated at about 200 million cubic feet per day. Energy and power, on the other hand, are very basic inputs to industrial production in general and to the Readymade Garment (RMG) industries in particular, in which over 20% of the production costs are on account of the costs for energy. The power consumption in a typical RMG industry is predominantly divided into lighting and sewing operations, both of which are critical to productivity. The cost of power failures/ load-shedding are very high and its impacts are reflected through loss of production, machinery depreciation, cost of alternative (emergency generator) fuels, like diesel, impact on the continuity of production lines and a series of high cost consequential damages, including delays in shipment schedules, loss of commitment and business goodwill, which can often be irreversible. General economic evaluations by power experts are indicative that the cost of not supplying power to the production units can range as high as Tk. 16 - 30 per kWh (not supplied). However, surveys/studies need to be conducted with reference to specific and nationally important production sectors as the RMG, to quantify such economic/financial impacts, which are necessary as valuable feedback for a course-correction for nationally initiating appropriate strategies and action plans to improve such unacceptable power/energy situations. Against this backdrop, it is strongly felt that an integrated study on this issue be undertaken.

1.2

Objective

The overall objective of the proposed study is to analyze the current status of power and gas supply in the RMG sector of the country, its impact and the recommended strategies and corresponding action plans which will pave the way forward.

1.3

Scope of the Study

To identify and quantify the National Demand for and Supply of Power in the RMG Industries. Estimate the power consumption of RMG Industries, based on representative sampling of 25% of the operating RMG Industries. Also, work out the specific power consumption. Typical 24-hour load-profile in the area where the RMG factories are located Typical Electrical load and consumption (with approximate average hours of operation of the following in RMG factories : Lighting (Type of lights, their numbers, type of ballasts used, i.e. whether magnetic or electronic etc.) Electric Motors (with production/sewing machines) Fans / Blowers (e.g. Exhausts, Boiler forced draft fans) Air-conditioners Other Electrical loads

To meet the objectives of the proposed study, the following will be its scope:

Capacity & Consumption profiles of other Primary and Secondary Energy (Natural Gas, Petroleum Fuels, Steam, Hot Water etc.) Natural gas for Captive Power Generation (e.g. Gas Engines) : kW and kWh Diesel (Standby or Emergency) generators - Capacity(kW) and Consumption kW Including the volume of diesel and costs (average litres/costs) Steam requirements / consumption, including natural gas use / cost for same Hot water requirements, if any (e,g, for Washing Plants)

Load-shedding - its frequency and profile (over typical production routine of RMG industries), vis-a-vis national load-shedding and also seasonal profile of loadshedding (e.g. summer/winter, irrigation seasons etc.), based on last 2 - 3 years operational experience. Collect information / data from the sampled RMG operators and analyze/evaluate and study the Impacts of the present Power & Energy supply situation, including, both in physical/technical and/or financial terms : Loss of production caused by power interruption Interruption due to holiday staggering policy in different areas Production & financial losses and machinery depreciation due to use of standby generators Damages of equipment Other consequential losses, such as : Labor and line managers motivation and productivity Loss of goodwill due to commitment failure

Impact and lead time

Potential Threats to sustainable growth of RMG sector due to lack of power Relevant Policy Analysis in the light of interest of the RMG sector Recommended Strategies and Action Plans for improving the Power & Energy supply situation (energy security) in the RMG sector : Fast-track (short term) solutions (example : Energy Efficiency) Medium Term measures (example : Cogeneration - captive power and steam / hot water from waste heat of captive power plants Long term solutions / best practices (Industrial Parks/Mono-economic Zones)

1.4. Tentative Indicators: Based on the scope of the assignment, the following tentative indicators have been identified: Year of establishment Type of establishment Number of operators and other categories of personnel employed RMG items produced Type of raw materials used Countries of origin of raw materials Value of materials procured Countries where exported Volume of export by countries, by items and by value Production capacity: number of machines and equipment Electrical load Demand for power: o Number of bulbs o Type of ballasts used o Electric motors o Fans, air conditioners Other electrical appliances used o Capacity and consumption issues Sources of primary energy used Capacity of gas engines Generation of captive power by diesel engines Steam requirements Hot water requirements Availability of power in the national grid for use in the factory Gap/shortage Loss of production Interruption due to holiday staggering policy Depreciation of machineries Financial losses

Damages of equipment Number of times the firm was in difficulty to make the delivery and its consequential losses Recommendations and suggestions

Chapter-2 Methodology
Methodology is the most important component in any study proposal since it explains the procedures and methods through which a particular study will be carried out. This chapter includes a discussion on study population, sample and its size, stages of sample selection, etc. 2.1. Data Requirements:

Data are the raw materials for any study project. Relevant data for the proposed study will be collected from both secondary and primary sources (Figure-1). Secondary data/reports will be collected from BGMEA, BKMEA, Bangladesh Bank, Bangladesh Bureau of Statistics (BBS), GTZ, Bangladesh Institute of Development Studies (BIDS), Center for Policy Dialogue (CPD), South Asian Regional Initiative (SARI), Power Development Board (PDB)/ Dhaka Electricity Supply Authority (DESA), Titas Gas Transmission and Distribution Company (TGTDC), Petrobangla, etc. These will reviewed and analyzed in the office by the consultants. The consultants will also review all sorts of RMG/ industrial operation, impacts due to power interruption, scope for improvement and measures to be undertaken for it. Figure 2.1: Data Collection Requirement
Data Requirements

Secondary Data

Primary Data

Check list

Quantitative

Qualitative

Survey

KII

FGD

Primary data will be of two types quantitative and qualitative. Quantitative data will be gathered from survey with active RMG manufacturers using systematic sampling procedures, while qualitative data from Key Informants Interviews (KIIs) and Focus Group Discussions (FGDs) with owners/laborers, office bearers of associations such as Washing

and Dying Association, Corrugated and Paper Packaging Association, other stakeholders like BKMEA, BTMA, PDB, TGTDC, and think tanks. The following is basically the discussion of primary data collection mechanism.

2.2.

Study Population

The study population for the proposed study will be the garments manufacturers. They may be BGMEA members or non-members. As of June 2008, there are about 4,614 members of BGMEA. Out of them about 64% are woven manufacturers, 22% knitwear manufacturers, and the remaining 15% sweater producers (BGMEA, June 2008). But all these members are not active. It can be mentioned here that about 56% of them are active. An active exporter of garments products are generally the member BGMEA because of some benefits provided by it. Active BGMEA members will constitute one of the components of study population. Another component will be the non-members, who can be the RMG producers, washing and dying enterprises and packaging enterprises providing services to garments exporters. It is very difficult to ascertain the number of active non-members in this stage. The following figure will show the process of screening study population (Figure-2).
Figure 2.2 : Composition of Study Population

BGMEA Member

BGMEA Non Member

Knitwear

Woven

Sweater

RMG

Washing & Dying Active Non Member

Packaging

Inactive Member

Active Member

Study Population

2.3.

Study Area

The RMG firms constituting study population are mostly located in and around Dhaka and Chittagong (Table-2.1). In Dhaka region, the districts of Dhaka, Narayanganj, and Gazipur are the concentration of RMG firms, whereas, Chittagong is the only district in Chittagong region where there is a good concentration of RMG firms. The following table has been prepared according to the address provided in the BGMEA Members Directory prepared by BGMEA. The table shows the concentration of BGMEA members both active and inactive in Dhaka and Chittagong regions. About four-fifths of the BGMEA members are located in Dhaka region consisting of Dhaka, Gazipur and Narayanganj districts, while about one-sixth in Chittagong region. Table 2.1-Number of BGMEA members in Dhaka and Chittagong Regions Districts Woven Knitwear Sweater Total

Dhaka Narayanganj Gazipur Subtotal: Dhaka Chittagong Others Total In %

Source: BGMEA Member List

1,769 34 73 1,876 521 67 2,464 60.5

657 70 48 775 86 19 880 21.6

535 11 67 613 73 45 731 17.9

Number 2,961 115 188 3,264 680 131 4,075 100.0

% 72.7 2.8 4.6 80.1 16.7 3.2 100.0 -

2.4. Sample Size For survey there will be two types of sample: members and non-members. According to the Terms of Reference (TOR), the survey should cover at least 25% of the active RMG manufacturing factories at Dhaka and Chittagong. Also, it is mentioned in the TOR that there are about 3,600 factories in operation. Hence, the number of sample RMG factories would be 3,600x.25 = 900. However, it is difficult to trace an active factory. A factory is to be traced through an active RMG member, who owns it. It can be mentioned here that an active member can own more than one factory. Thus a sample factory is to be traced through RMG member owning factories.
The number of active BGMEA members is about 2,600. Hence, the sample will be 2,600 x 0.25 = 650. It can be mentioned here that a sample member may own more than one manufacturing factory. In this case the number of sample factories would be more than 650. It is estimated that a sample member owns, on an average, 1.4 RMG manufacturing factories. In this case the number of sample factories would be 650 x 1.4 = 910 or around 900. After consultation with BGMEA, BKMEA and other knowledgeable agencies/firms, the sample of active non-members will be determined. Let us assume that the number of nonmember would be about 50. It is also true that in the survey there will be some nonresponses due to various reasons. For adjusting non-responses, a total of 1,000 samples of members and non-members is proposed.

2.5.

Allocation of Samples

The samples for the survey will be selected in two stages (Figure-2.5). In the first stage a list of active BGMEA members by woven, knit and sweater, will be prepared for Dhaka and Chittagong regions in consultation with BGMEA and BKMEA. In the second stage 25% of the listed active members will be selected using stratified random sampling procedures. In the survey stratum will be woven, knit and sweater. The sample for non-members will be selected using the same procedure. The distribution of sample by Dhaka and Chittagong regions will be done according the number of firms functioning there.

Figure-2.5: Stages of sample selection

List of Members

1st stage

RMG Firms

2nd stage

2.6. FGDs and KIIs A total of 12 Focus Group Discussions (FGDs) will be organized- 6 from Dhaka region and another 6 from Chittagong region. The FGDs will be equally organized between three RMG sectors: woven, knit and sweater. Also 6 sessions will be organized with owners and another 6 with the laborers currently working in different RMG sectors. However, the exact number of FGDs will be determined after consultation with BGMEA. It is to be noted here that it would be difficult to organize FGD sessions with RMG owners without the active support from BGMEA/BKMEA. The following table will show the distribution of FGDs by sectors and locations: Table 2.6: FGDs by Sectors and Locations Location Woven Knit Owners Dhaka 1 Chittagong 1 Total 2 Laborers Dhaka 1 Chittagong 1 Total 2 Grand Total 4 Sweater 1 1 2 1 1 2 4 1 1 2 1 1 2 4 Total 3 3 6 3 3 6 12

In addition, about 25 Key Informants Interviews will be administered with association leaders of BGMEA, BKMEA, Washing and Dying, Corrugated and Paper Packaging, BTMA, and other associations related to RMG export. President /General Secretary or any responsible person on behalf of the associations can provide required information. Stakeholders like Power Development Board (PDB), Titas Gas Transmission and Distribution Company, Bakhrabad Gas Transmission and Distribution Company will also be included in the study. Government policy decision making agencies like Ministry of Energy, Ministry of Jute and Textile, Ministry of Finances, Ministry of Industries, Bangladesh Bank, etc can be included in the study to provide policy issues regarding the future development of the sector. Think tanks such as Bangladesh Institute of Development Studies (BIDS), Center for Policy Dialogue (CPD), Dhaka University, etc. Researchers working in the area from these institutions will be requested to give their opinion. 2.7. Instruments to Used The consultants will prepare the following instruments: Checklist provides pointers to the type of information being sought. Also can be used to check compliance with certain procedures, where 'yes or no' answers can be given. Survey Questionnaire is useful for straightforward situations. It is best to include open or close ended questions to allow for a full response rather than be restricted to 'yes or no' answers. Observation helps watching how a process can provide a more realistic picture of the extent of compliance with a specific procedure than could be obtained simply by asking an

individual how a process is performed. However, this should never be used in isolation as it may not provide enough detail or may lead to incorrect assumptions if further investigations are not made. Focus Group Discussion: A total of 12 FGDs will be organized with owners and workers of RMG manufacturers. The following is the distribution FGDs: Key Informants Interviews will involve collection of information by interviewing knowledgeable persons in various fields associated with RMG export.

2.8. Dissemination Meetings/Workshop The consultants will present the status of the study to BGMEA and GTZ in different phases of its implementation. In addition a national workshop will be organized to share the key findings of the study with the stakeholders of the sector. Chapter-3 Implementation
For implementation, the study will consist of 4 broad activities: planning, field work, data management and report writing. Planning stage will include recruitment and training of field staff; design, pretest and finalization of instruments, and determination of study samples; field work will show the data collection and quality control; data management stage consists of registration of filled in instruments in the office, editing of filled in instruments, preparation of data entry format, data entry and its verification, and data analysis.

4.1.

Planning

4.1.1. Design, Pre-test, and Finalization of Survey Instruments

Study instruments (survey questionnaire, FGD guidelines and KII checklist) will be designed after giving due attention to the objectives and scope of the study. Before design the consultants will review the similar studies undertaken by different agencies including BGMEA and BKMEA. After design the instruments will be sent to BGMEA/GTZ for comments. The instruments will be pre-tested with some of the non-sample RMG factories near Dhaka. After incorporation of feedbacks from pretest and comments from BGMEA/GTZ, the instruments will be finalized and printed in required number.

4.1.2. Recruitment and Training of Field Staff In order to undertake field work, a total of 18 enumerators and 3 supervisors will be recruited in Dhaka and Chittagong regions for a period of 5 weeks including training period. There will be 3 teams, each consisting of 6 enumerators and 1 supervisor. Each team will be led by a supervisor. Recruitment will be done by the consultants team. The enumerators will be recruited from among graduates with 2/3 years experience in similar work, while supervisors from masters with at least 5 years experience. For conducting FGDs, two teams consisting of two FGD facilitators and two note-takers, will be formed. Thus, each team will consist of one facilitator and one note taker. Note takers will be recruited from among the graduates with some experience, while FGD facilitators will be

semi-professionals working in survey research. Key Informants Interviews will be administered by the supervisors and the consultants The Consulting Firm will organize an orientation and training course for the field staff (enumerators, supervisors, facilitators and note takers) describing the objectives, importance and methodology of the study. The training shall also be conducted on collection, identification, verification, and recording of data on questionnaire/instruments prior to sending the field staff to the project areas. The trainees shall be guided to arrive at solution of filling up questionnaire, compilation and to fetch real information from the survey population using personal skills and expertise. After completion of the training, the field enumerators and supervisors will be led to the project areas to carry out test for identification, verification, acquisition and recording of data on the questionnaire. 4.2 Field Work

The field staff will collect data according to the set programme by personally visiting, observing, interviewing and recording data from relevant respondents/participants. They must not deviate from the set program. In case of unavoidable reasons like natural disaster, serious illness, the enumerator or his partner in the team must inform of any change that may occur in the program and get approval telephonically by adjusting with remaining program. The collected data will be sent to the office every week, where in turn each filled in instrument will be checked for consistency. Errors if detected will be rectified. The survey coordinator will be responsible for quality control. Besides, the consultant team members will also undertake some field visit for quality checks. 4.3 Data Management Data management will consist of 4 activities, which will be performed under the leadership of Data Management Specialist. Team leader will provide some guidance. Data management activities are as follows: Recording of filled in instruments in the office Editing of filled in instruments Preparation of data entry format Data entry Data analysis 4.3.1. Recording of Filled in instruments Each filled in questionnaire/instrument will be duly recorded in the office of BETS Consulting Services Ltd in Dhaka in a record book according to enumerator, date of interviews, status of interviews, etc. 4.3.2. Editing of Filled-in Questionnaire Editing is the checking of filled-in questionnaire/checklist for detecting any error or inconsistency, if any. There are two types of such editing: field edit and office edit. Field edit is done by the enumerator administering the questionnaire with support from supervisor. Verification of information is also conducted by survey coordinator. Office edit is done in the office by a person other than the enumerator. Each and every filled in questionnaire will be checked for error and inconsistency in the office. For serious error if detected, the questionnaire/checklist will be re-administered. Two editors will be

recruited for a period of about one month each. For open-ended responses the editors will assign code numbers. 4.3.3. Preparation of data Entry Format The data entry format will be prepared with the help of MS ACCESS, a versatile data entry software. The format will take care of the check numbers, which will ensure correct entry of data. 4.3.4. Data Entry Data from the filled in questionnaires will be entered by the trained entry operators according to data entry plan. At the end of the day s/he will hand over the data to the Data Management Specialist, who will prepare up to date situation for information. Using some consistency check, data entry will be verified. 4.3.5. Data Analysis The data analyses will be carried out with the help of SPSS. The team leader will prepare the format of output tables and the Data Analyst will bring out the analytical output in tabular as well as graphical form where required. 4.4. Reporting One copy of the draft final report in hard copy will be submitted to BGMEA/GTZ before the end of the project. The report will be finalized after the incorporation of comments from BGMEA and GTZ, if any. The hard copy of the final report will be submitted in 3 copies. In addition the soft copy will also be provided along with data base and questionnaires.