Tuesday, May 07, 2024
Bangladesh-China Power Company Limited (BCPCL) is facing a critical deadline to secure $140 million by June 8 to avoid defaulting on a loan from Export–Import Bank of China (CEXIM). Failure to meet this deadline could result in BCPCL being tagged as a defaulter of CEXIM and hamper the ongoing work of the second phase of the Payra Thermal Power Plant Project.
The power company has expressed concerns over the Event of Default (EOD), which could jeopardise further loans promised by CEXIM for other ongoing projects. Hence, BCPCL sought urgent financial assistance from the Government of Bangladesh through a letter outlining these concerns to the Ministry of Finance through the Power Division on April 22.
BCPCL is a joint venture initiative between the Bangladeshi North-West Power Generation Company Limited (NWPGCL) and the Chinese state-owned China National Machinery Import and Export Corporation (CMC). It has spearheaded the Payra 1320 MW Thermal Power Plant Project, a critical endeavour aimed at meeting Bangladesh's escalating electricity demand.
BCPCL's letter to the Power Division detailed the project's $2.48 billion cost, with $1.984 billion (80 per cent) financed by CEXIM loans. The remaining balance is split between NWPGCL and CMC. Repayment is structured as 23 semi-annual instalments over 15 years and a four-year grace period.
However, a shortage of US dollars in Bangladesh has thrown a wrench into BCPCL's repayment plans. Their designated bank, Sonali Bank, lacks sufficient US dollar reserves and has disclosed that they do not have enough to pay the seventh instalment.
Although the company has stated that it has repaid the previous six instalments totalling some $416 million, missing the seventh instalment could trigger Event of Default, jeopardising the ongoing Payra project and future loan approvals for its planned second phase.
According to BCPCL sources, there were also complications with repaying the loan from CEXIM earlier. Meanwhile, Chinese partner CMC repaid two loans in a row. Later, however, Bangladesh Bank paid that amount to prevent an EOD.
According to BPDB, the electricity generated by the BCPCL is distributed by the Bangladesh Power Development Board (BPDB). However, due to its financial crises, BPDB often fails to pay the power generation companies. At the same time, it is not possible to pay the electricity bills due to the country's shortage of necessary US dollars. In this situation, BCPCL faces a crisis in paying its foreign loans.
To secure the necessary funds, BCPCL has formally petitioned the Power Division under the Ministry of Power, Energy, and Mineral Resources to engage the Forex Reserve and Treasury Management Department of Bangladesh Bank via the Finance Division of the Ministry of Finance. This approach aligns with prior successful efforts wherein Bangladesh Bank supported previous US dollar requirements for loan repayment.
BCPCL said it is imperative to note that the Finance Ministry has issued a sovereign guarantee of approximately $1.0 billion in favour of CEXIM to ensure loan repayment. Moreover, the potential default on the seventh instalment could have cascading effects, impacting the approval and financing of the upcoming second phase of the Payra 1320 MW Thermal Power Plant Project.
The urgency of the situation is underscored by the stipulations outlined in the Implementation Agreement between BCPCL and the Power Division. This agreement mandates prompt action from Bangladesh's government to provide necessary funds for debt servicing.
BCPCL emphasises the need for swift action from concerned authorities.
Securing the $140 million before the June 8 deadline is critical to prevent an EOD, ensure the continued operation of the vital power projects, and safeguard Bangladesh's financial standing in the international arena.
