A scarcity of US dollars has led many domestic banks to refuse to open Letters of Credit (LCs) that are crucial for importing fuel for the country’s power stations, leading to serious issues for independent power producers (IPPs) and sparking concerns about potential financial losses and electricity supply disruptions.
Bangladesh Independent Power Producers Association (BIPPA) has already rang the alarm bells and stressed the urgent need for immediate steps by authorities concerned to tackle the crisis.
BIPPA President Faisal Khan penned a letter on May 8 to the chairman of the Association of Bankers, Bangladesh Limited seeking immediate action. The Business Post has obtained a copy of this letter.
Additionally, BIPPA has made the same plea to the state minister for power, energy, and mineral resources, the Bangladesh Bank (BB) governor and the senior secretary of the Power Division.
According to the Bangladesh Power Development Board (BPDB), the country currently boasts 145 power plants, with a total generation capacity exceeding 26,000 megawatts (MW). At least 85 of these plants are privately owned, making up the majority of the nation's power generation capacity.
However, these private plants are facing criticism on various fronts, including Power Purchase Agreements (PPA), installed capacity, billing systems, energy efficiency and capacity payments.
A recent analysis by the Centre for Policy Dialogue (CPD) has unveiled that IPPs have received over Tk 10,000 crore in capacity payments over the last decade. These payments, covering construction costs and bank interest, are reimbursed by the government over the lifetime of the power plant, regardless of actual power generation.
CPD has attributed BPDB's increased liabilities to purchase agreements for excess electricity from the private sector. This, combined with higher production costs in the private sector, has led to a surge in BPDB's liabilities to private power plants.
State Minister for Power, Energy and Mineral Resources Nasrul Hamid on May 7 informed parliament that power generation companies, both domestic and international, would receive Tk 33,000 crore from BPDB. Outstanding dues to IPPs amount to over Tk 15,500 crore.
Amid the economic crisis, the government has resorted to issuing bonds against liabilities to clear outstanding debts of power plants. Nasrul told parliament that bonds worth Tk 17,553 crore have been issued against the liabilities of private power companies.
The LC conundrum
However, most power plant owners are hesitant to accept bonds against their liabilities. Without receiving actual funds, they cannot maintain the necessary dollar reserves to operate power plants effectively, said BPDB sources.
BIPPA has emphasised that banks are reluctant to open LCs due to the shortage of dollars in the current circumstances.
In its letter, BIPPA highlighted that IPP members are facing significant challenges with the issuance of LCs by scheduled banks, particularly for importing heavy fuel oil, lubricating oil and spare parts. Moreover, even when LCs are successfully opened, IPPs struggle to settle them at the foreign exchange rates legally mandated by BB.
This puts member companies at risk of incurring operational liquidated damages from BPDB and, in some cases, facing bankruptcy, claimed BIPPA.
BIPPA emphasised that under the terms of project agreements with BPDB, IPPs are obligated to maintain a steady supply of electricity following the demand of the National Load Dispatch Centre (NLDC). Failure to do so exposes IPPs to operational liquidated damages and significant losses, which could ultimately shut down these projects.
To avoid these penalties, IPPs must secure LCs and facilitate payment settlement at the published exchange rate for importing essential raw materials needed to meet NLDC demand, it said.
BIPPA has urgently requested the concerned authorities to come up with a prompt and effective solution to address these critical issues.
Former BIPPA president Imran Karim told The Business Post, “Due to the dollar crisis, we are currently facing various crises. Banks are not opening LCs and we are not receiving genuine borrowed money from BPDB. As a result, energy imports are facing obstacles. Consequently, operating power plants are becoming very difficult.”
