Special bonds issued to banks to clear liabilities with power plants

In a significant move to stabilise its power sector, the Bangladesh government has secured Tk 2,062 crore through the issuance of special bonds.

This initiative, aimed at clearing outstanding liabilities to private power plants, involves collaboration with two prominent private banks – City Bank and Pubali Bank.

A comprehensive agreement was inked on Wednesday at the Secretariat, marking a critical step in addressing the financial challenges faced by the power sector.

As per this agreement, the government will issue bonds worth Tk 1,985 crore to City Bank and Tk 77.50 crore to Pubali Bank, as confirmed by the Ministry of Finance.

Sources reveal that the government's inability to disburse subsidy funds had left private power plants struggling to meet their financial obligations, leading some to the brink of insolvency.

To counter this crisis, the government's issuance of special bonds comes with an 8 percent coupon rate, mirroring the repo rate set by Bangladesh Bank. Notably, any future fluctuations in the repo rate will correspondingly adjust the bond interest rate.

At the term's end, the government will settle the bank dues along with interest, subsequently reclaiming these bonds. Unlike typical 15-20 year bonds, these special bonds have a maximum tenure of 10 years, a move tailored to the urgent needs of the power sector.

Key players in the power sector, including Summit Power, United Power, Confidence Power, Baraka, Kushiara, Doreen, and Akron Power, are among the beneficiaries of this initiative. The Finance Division also disclosed plans for phased agreements with other banks, including BRAC Bank and Bank Asia, to further address the sector's liabilities.

Reflecting on the agreement's significance, managing directors of several banks expressed optimism. While banks can leverage these bonds with Bangladesh Bank, it provides the government with crucial financial breathing space.

This strategic financial maneuver stands as a testament to the government's commitment to ensuring the stability and sustainability of Bangladesh's power sector.