How much energy security has WB’s risk-sharing model delivered for Bangladesh?

A World Bank-backed financing model introduced to reduce investment risks in Bangladesh’s private power sector is raising a broader question for public finances: how much risk can the state continue to carry to keep payments flowing to private power producers and imported fuel suppliers?

The story begins in Haripur.

The World Bank supported the 360MW Haripur gas-fired power plant as part of efforts to attract private investment to Bangladesh’s power sector.

The contractual structure developed for the project was later adopted as a model for other private power plants.

More than two decades later, similar payment-security and guarantee mechanisms are being used to support financing for imported LNG.

In 1997, the government invited private power producers to bid through a competitive tender. According to World Bank documents, Haripur was the first major land-based private power project developed under the framework.

The plant was built by AES Haripur Private Limited, a Bangladeshi subsidiary of AES Corporation.

The World Bank’s International Development Association (IDA) provided a US$60.9 million Partial Risk Guarantee (PRG), protecting private lenders against losses arising from failures by government agencies to meet contractual obligations.

The government, Bangladesh Power Development Board (BPDB), Titas Gas and the project company signed 22-year implementation, power purchase and gas supply agreements, backed by government guarantees.

The private investor therefore assumed the commercial risks of building and operating the plant, while significant risks arising from payment or contractual defaults by state agencies remained within the public system.

The World Bank said one objective was to transfer commercial and operational responsibilities to the private sector while limiting the government’s direct investment risks.

But the arrangement raises a fundamental question: where is the line between reducing risks for private investors and transferring those risks to the state?

The significance of Haripur extends far beyond its 360MW capacity.

The World Bank’s project completion report says its power purchase agreement (PPA), gas supply agreement (GSA), land lease agreement (LLA) and implementation agreement (IA) were subsequently used as “model documents” for tenders for most private power projects.

A risk-sharing structure designed for one plant thus became an institutional template for the expansion of private power generation.

At the time, Bangladesh relied largely on domestic natural gas for power generation. That energy landscape has since changed dramatically.

According to 2025 World Bank data, imported LNG now accounts for more than one-quarter of Bangladesh’s gas consumption, while the power sector consumes around 42% of the country’s gas.

Under a World Bank programme, a $350 million IDA guarantee was designed to mobilise up to $2.1 billion in private capital over seven years for LNG imports.

In May 2026, the World Bank approved another $350 million in additional financing, bringing total guarantee-backed support under the programme to $700 million.

The programme provides payment security for Petrobangla’s LNG imports, including emergency payment guarantees and short-term credit facilities.

The structure is as significant as the amount. At Haripur, guarantees helped reduce risks for private financing of power generation. Today, guarantees are being used to facilitate private financing of imported LNG.

The World Bank says the mechanism will strengthen Petrobangla’s ability to access financing and meet payment obligations.

But easier financing also makes LNG imports easier to sustain, while the ultimate obligation to pay remains within Bangladesh’s state-run energy system.

A guarantee does not eliminate risk. It reallocates it.

For banks and private financiers, a sovereign-backed guarantee reduces repayment risk.

For Bangladesh, the arrangement can increase exposure to foreign-currency requirements, volatile international LNG prices and long-term liabilities of state-owned entities.

World Bank documents from 2026 also acknowledge that heavy dependence on imported LNG exposes Bangladesh to global energy-market volatility while putting pressure on foreign-exchange reserves and public finances.

From payment security to capacity costs

As private generation expanded, capacity payments became another major financial burden.

Power producers receive capacity payments for keeping plants available, even when they do not generate electricity. These costs increased significantly after 2010 as generation capacity expanded faster than demand.

The Bangladesh Energy Regulatory Commission (BERC) estimated capacity charges at around Tk5.12 per unit for the current fiscal year and projected them to rise to Tk5.46 per unit in FY27. Private generation now represents a substantial share of the power system. BPDB data show total installed generation capacity stood at 28,919MW as of 31 January 2026, including 10,582MW from private independent power producers (IPPs).

The issue, therefore, is no longer simply whether private investment helped Bangladesh expand electricity generation.

It is whether the structure of payment guarantees, capacity charges and long-term contracts has gradually transferred a substantial share of financial risk from investors to the public sector.

Dr Zahid Hussain, former lead economist at the World Bank’s Dhaka office, said the situation changed substantially after 2010 as excess generation capacity, unnecessary contracts and dollar-denominated capacity payments left BPDB paying plants even when electricity was not generated.

Haripur, he said, was designed as a model for an individual power plant, but the framework later evolved into a contractual system that protected investors’ income while requiring the state to pay even when electricity was not taken.

He described this as the power sector’s biggest financial trap.

Dr Khondaker Golam Moazzem, president of the Knowledge Hub Institute, said capacity payments initially had a reasonable justification because private investors needed payment certainty.

Problems arose when the mechanism expanded without adequate consideration of demand forecasts, competitive pricing and fuel availability.

The Haripur legacy

According to internal World Bank information, BPDB paid around Tk3,508 crore, or about $506 million, to the owner of the Haripur combined-cycle plant between FY04 and FY13.

Over the full contract period, from December 2001 to November 2023, payments are estimated at $1.1 billion to $1.2 billion – around 19 to 20 times the original $60.9 million guarantee.

During the period, the plant consumed an estimated 320 billion to 360 billion cubic feet of domestic gas and emitted around 18 million to 20 million tonnes of carbon dioxide.

The World Bank rated the project “Highly Satisfactory”.

Haripur also supplied relatively low-cost electricity. But the broader issue is not the performance of a single plant. Its significance lies in the contractual model subsequently adopted across the sector.

After that model expanded, BPDB’s annual spending on electricity purchases from private plants increased from $87 million in 2008 to more than $1 billion annually in 2015 and 2019, with government subsidies helping cover the costs.

Bangladesh has since moved from a power system largely fuelled by domestic gas towards growing dependence on imported LNG.

Hasan Mehedi, member secretary of the Bangladesh Working Group on Ecology and Development (BWGED), said the country is already paying heavily for that dependence.

According to figures he provided, Bangladesh pays $454,000 a day in terminal fees to two private floating LNG terminals, including when LNG is not being regasified. Since 2018, the government has spent $25.65 billion on LNG imports, he said.

Mehedi questioned why similar financial support could not be directed towards affordable, decentralised renewable energy.

He argued that World Bank loans and guarantees make expensive LNG imports easier to finance and could prolong Bangladesh’s dependence on imported fuel, while liabilities created through such arrangements may ultimately fall on public finances.

Development financing, he said, should therefore be assessed not only by how much capital it mobilises but also by the future financial obligations it creates.

Dr Moazzem similarly questioned whether development partners have paid sufficient attention to the long-term fiscal implications of such arrangements.

He also asked why Bangladesh does not receive comparable support for domestic gas exploration and renewable energy while substantial financing is available for LNG imports and related guarantees.

Dr Hussain said Bangladesh currently has limited scope to avoid LNG imports because domestic gas production is declining while many existing power plants depend on gas.

However, he said imported LNG should serve as a short-term bridge rather than a permanent alternative.

Bangladesh’s power sector now faces excess generation capacity, capacity payments, declining domestic gas production, growing LNG dependence and mounting pressure on public finances.

The risk-sharing model that began with a private gas-fired power plant at Haripur has now evolved into mechanisms capable of mobilising billions of dollars for imported LNG.

More than two decades later, the central question remains: when guarantees make financing safer for investors and lenders, who ultimately carries the financial risk?

And as Bangladesh becomes increasingly dependent on imported gas, how much of that risk can the state afford to carry?

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