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Mega power projects in Bangladesh create $2b debt a year

Jan 4, 2023

| Emran Hossain

Power sector mega projects are producing a hefty debt bill of $2 billion annually for Bangladesh, including interest, further worsening the ongoing dollar crisis. Of the $2 billion debt, $1.5 billion is due in principle and interest in the public sector, while the remainder is in the private sector, according to Power Development Board officials.

The PDB and its subsidiaries owe roughly $9 billion to overseas lenders, who invested in the power sector with a sovereign guarantee, implying that the government guaranteed the security of their investment. The private power companies, on the other hand, have an outstanding loan of $4.4 billion.

Energy experts noted that the power sector’s liabilities are set to mount over the next few years with massive power generation projects, many of them based on liquefied natural gas, coming into operation. ‘The year 2023 is going to be a terrible year financially,’ energy expert Mohammad Tamim told New Age, adding that power would become even more expensive.

Bangladesh could have tackled the crisis had the PDB not sold electricity at a subsidised price, he said. In the decade until 2021, the PDB accumulated a loss of nearly $9 billion, according to a report by the Bangladesh Working Group on External Debt. The loss was covered by government subsidies. ‘At the end of the day, government liabilities are increasing,’ said Tamim, recalling instances in which many governments, embroiled in an economic crisis, defaulted on paying back loans. Bangladesh has already been struggling to supply the dollars required to pay foreign lenders while also importing fuel to run existing power plants.

In a letter to the power secretary on December 22, Bangladesh-China Power Company Limited feared that coal crisis could disrupt operations at the Payra power plant unless outstanding coal import bills were immediately paid. The BCPCL could not pay coal import bills for six months, and the accumulated overdue from coal imports stood at over $150 million at the end of December. ‘We hope to clear the outstanding bill by this month,’ said AM Khurshedul Alam, managing director, BCPCL.

The PDB in December requested the power ministry to take measures so that $46.84 million is released from the Central Bank for paying outstanding loans for its three projects – the extension of the Barapukuriya coal-fired thermal power station, Ghorasal gas-based power station establishment, and the Bangladesh-India Friendship Company Limited.

The PDB letter said that they had enough local currency to repay their loans but that the dollar crisis stood in the way. Eight PDB mega projects setting up over 2,280MW installed capacity have an outstanding loan of roughly $1 billion, according to the PDB, after nearly half of its initial loan was paid. Another $2 billion was invested in extending the national transmission grid for evacuating power from power plants such as Rampal and Payra.

The rest of the outstanding loans are due under different power generation projects taken by BIFPC, BCPCL, China-based Norinco, and Northwest Power Generation Company. The PDB needs to pay $1.5 billion annually, including $750 million in interest. The global dollar crisis amid the war between Russia and Ukraine increased interest many times between December 2021 and December 2022. The London Interbank Offer Rate, the global interest reference for borrowers from international banks, rose to over $5 in December 2022 from less than $0.5 in December 2021.

Hasan Mehedi, member secretary, BWGED, said that Bangladesh would need half a billion dollars for importing fuel to keep in operation four of the coal-based power plants implemented or being implemented under the mega projects. ‘Fossil fuel investment has become a great burden and a major source of foreign currency expenditure,’ said Mehedi.

The renewable investment could have saved the leaking of dollar reserves for there is no need for fuel import, energy experts said. Consumers Association of Bangladesh energy adviser M Shamsul Alam said that the government was caught in a situation that frequent electricity price hikes could not solve. ‘Whether it is possible to acquire the capacity to pay back such massive amounts with interest remains to be seen,’ said Shamsul Alam. He said that the loan burden would increase in 2024 with new power plants being added to the national grid. ‘Uninterrupted power and energy supplies are highly unlikely,’ he said. The PDB is also burdened with capacity payments. In the decade until 2021, the PDB paid $8.54 billion in capacity charges, a payment ensuring profit on power generation investments whether or not power is produced. Power secretary Habibur Rahman could not be reached for comment over the phone.

News Link: Mega power projects in Bangladesh create $2b debt a year

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