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In a major policy shift, the government would not issue any state sovereign guarantee in favour of privately-owned power plants, discouraging foreign direct investment (FDI) in power generation, sources said.
As part of the move, the government has decided not to ink implementation agreements (IAs) with the future power plant sponsors, according to the sources.
The government will then not shoulder any responsibility to pay the power plant owners in case the state-run Bangladesh Power Development Board (BPDB) fails to clear the dues, market insiders said.
“We don’t require inking such IAs as we have moved out of the independent power producer (IPP) model,” Energy and Power Adviser Muhammad Fouzul Kabir Khan told the FE on Saturday.
He made it clear that the government would not ink IAs with the privately-owned power producers as a strategy to reduce the payment burden.
The government is currently struggling to make payments and clear the arrear bills to existing power plant owners, he added.
Investors of the privately-owned power plants already raised concern over the issue at a meeting last week.
They came to know about the government’s policy shift when the BPDB floated tenders last month to implement 12 power projects having a combined generation capacity of 323MW without inking any IAs.
The BPDB has planned to sign a power purchase agreement (PPA) for a period of 20 years at a fixed tariff rate once the projects are set up and become operational.
The BPDB also invited bidders last week to implement 10 more power projects with a combined capacity to generate 500MW without the provision of inking IAs.
Bangladesh Independent Power Producers’ Association (BIPPA) already wrote to the power division secretary for inclusion of the IA provision in the tender invited by the BPDB.
“We would like to highlight that the IA, as part of the contract between the independent power producers (IPP) and the government, is a very important and significant part for obtaining finance from both local and foreign banks and financial institutions,” stated a BIPPA letter, signed by its newly elected president KM Rezaul Hasanat.
“Absence of an IA will also increase the tariffs, which will be a heavy financial strain and burden on our economy,” it adds.
The issues would hinder development of the power sector, including renewable energy sources.
“Financiers seek an IA to secure the revenues from the government in case the BPDB is unable to pay,” said immediate past BIPPA president Faisal Khan.
“It might be difficult to attract bidders if the terms and conditions of the tender are not bankable,” he added.
The BPDB incurred net losses worth Tk 87.64 billion, Tk 117.65 billion and Tk 32.32 billion in the FY 2023-24, FY 2022-23 and FY 2021-22 respectively.
The BPDB is already burdened with unpaid bills amounting to Tk 300 billion.
Given the current adverse financial condition of the BPDB, which is failing to make payments to power plant owners with skyrocketing arrear bills, it will be extremely difficult to obtain financing both locally and internationally for these projects, the BIPPA letter bemoaned.
Such adverse financial figures will render the BPDB externally risky as an “off-take guarantor’ both locally and internationally.
In the absence of an IA, the BPDB will be perceived ‘insolvent’ by lenders in which case obtaining financing for the projects will become extremely difficult, the BIPPA letter stated.
Moody’s in its latest International Credit Rating on November 19, 2024 termed Bangladesh’s outlook to be negative. Other international credit rating agencies have also downgraded Bangladesh’s credit rating.
This will make international financing for such projects even more challenging, it noted.
Countries like Indonesia, South Africa, Pakistan, India, Sri Lanka, Angola, and Senegal who have credit ratings higher or similar to Bangladesh still include an IA or a very similar sovereign contract to supplement the PPA, the BIPPA letter stated.
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