Mobilising funds for more rentals

Dhaka,  Mon,  25 September 2017
Published : 06 Aug 2017, 20:15:11

Mobilising funds for more rentals

The issue of providing sovereign guarantee for the PDB bonds, as proposed by the BB, does also deserve a scrutiny.  Why should the PDB in the first place issue bonds to finance power projects that are owned by the private parties? asks Shamsul Huq Zahid  
Notwithstanding the fact that the country needs to generate more power to meet its ever-growing demand, the government appears to be too generous to the private sponsors of the controversial rental power plants to achieve that objective. 

The government, as part of a quick-fix solution to severe power crisis, passed a law in 2010 to provide opportunity to a fortunate few to build rental power plants bypassing the normal bidding process for a period of two years. The law got extension a number of times since then and is still in force. 

The original idea was that a good number of large coal-based power plants would come up in between the stop-gap arrangement. Following the installation of large power plants, the rental plants would be phased out. But that has not happened. The government has rather become more dependent on the fuel-guzzling rental power plants, thus, forcing the national exchequer to spend a substantial volume of fund as subsidy on account of purchase of power from these plants at exorbitant rates.

Until recently setting up of rental power plants was the headache of the private sponsors concerned. The power division has never bothered about finding out land or finance for the private sector sponsors of rental power plants. 

Lately, the power division has become quite generous to the sponsors of at least 18 new rental power plants having a combined generation capacity of 2,900 megawatt (MW). 

A total of 14 of these proposed power plants would be set up in lands belonging to the state-owned entities, including the Power Development Board and the Bangladesh Railway. 

The division a few weeks back sent a proposal to the central bank to arrange bank loans amounting to Tk 200 billion for these power plants. It even suggested amending the Bank Company Act, if necessary, to extend financial assistance to the power plants the establishment of which is considered very essential ahead of the next general elections. 

Though the available generation capacity is more than the existing demand for power, for reasons, technical or otherwise, a good number of units do remain out of operation very often, leading to frequent power outages. 

But mobilizing such a large volume of fund by the banks is not an easy affair. The central bank being the regulator cannot go out of the way telling the banks to extend loans to somebody. 

That is why the Bangladesh Bank has suggested three measures to help mobilize the funds for the rental power plants in the private sector. 

The banking sector regulator has, reportedly, suggested floatation of Islamic bond with the idle funds of the country's Islamic banks, creating a consortium of banks for large-scale funding and floatation of bonds by the PDB with sovereign guarantee. 

The Bank Company Act does not allow any bank to lend money to a single borrower exceeding 25 per cent of the bank's total capital. So, no particular bank will be able to make available such a large fund to the power projects. Moreover, banks will have to cautiously examine the pros and cons before extending even syndicated loans. Neither the government nor the central bank can coerce banks to put in their money in any project. 

The issue of providing sovereign guarantee for the PDB bonds, as proposed by the BB, does also deserve a scrutiny.  Why should the PDB in the first place issue bonds to finance power projects that are owned by the private parties?  

One particular idea might have been taken into consideration while floating PDB bond issuance proposal. The PDB is supposed to buy power to be generated by the proposed rental power plants. A part of the payment on account of power purchase would be adjusted against the repayment of money to the bondholders along with interest. However, the sponsors of the rental plants would be happy to do that since the PDB buys power from them at unusually high rates. 

The truth is that the developments surrounding the rental power plants are not at all palatable. The benefits that are being extended to these plans in different forms have given rise to a lot of questions about the fairness of the power deals concerned.  

The failure of the ministry concerned to set up large and medium power plants that could make available power in a cost effective manner has led to greater dependence on rental power plants. The latter, no doubt, prove handy to deal with a crisis situation, but the growing dependence on them for more than eight years does not look right, anyway.
Editor : A.H.M Moazzem Hossain
Published by the Editor for International Publications Limited from Tropicana Tower (4th floor), 45, Topkhana Road, GPO Box : 2526 Dhaka- 1000 and printed by him from City Publishing House Ltd., 1 RK Mission Road, Dhaka-1000.
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