New sources of funds needed for power projects: study

Bangladesh needs to explore various sources of financing beyond the existing ones as the country would require $35 billion worth of investment in the power sector by 2041, according to a new study report.

The current global financial market provides an opportunity to consider many options for financing, which can be explored in the context of Bangladesh, according to the report “Transforming the Power Sector in Bangladesh”.

International accounting firm PricewaterhouseCoopers and the Bangladesh Independent Power Producers Association jointly prepared the report, which was launched at a programme at the capital's Pan Pacific Sonargaon hotel yesterday.

Speaking at the programme, State Minister for Energy Nasrul Hamid said the government plans to draft a guideline to involve the private sector in the distribution and transmission of power.

“Though the private sector participation in transmission and distribution could bring investment and better service, a sudden switch from the public sector to the private sector is not an easy task.”

Most power generation now comes from the private sector. “But in the distribution and transition, we are venturing how to go private.”

Hamid also said the government would provide the subsidy to the sector for another five to seven years. “If we produce electricity at lower cost, the subsidy will decrease,” he added.

The government plans to increase the installed power generation capacity to 24,000 megawatts by 2021, about 8,000km of new transmission lines and 120,000km of distribution lines.

There is a need to develop a more efficient, transparent, deregulated and competitive power market for the supply of reliable and cheap power, according to the report.

The report suggested a number of options that Bangladesh could use to attract funds from external sources. 

The issue of local currency denominated bonds in overseas markets can be a debt financing option as well as various green funds.

The report also said the listing of Bangladesh's profitable public power utilities in overseas markets can also be looked at.

“Strategic divestment of the government's stake in the public power utilities can be explored as an option to raise equity.”

The report called for the formation of specialised financial institutions to cater to the power sector's specific needs.

Given the investment requirement in the power sector, private participation will be crucial, according to the report. 

“This requires a clear framework and greater clarity for private investors. Also, private participation needs to be adequately incentivised,” the report added.

Bangladesh's power sector is one of the fastest growing in South Asia and will play an important role in helping the country achieve its socio-economic goals, said Mamun Rashid, managing partner of PwC Bangladesh.

However, there are constraints stemming from low energy access, rapid urbanisation, vulnerability to climate change and natural disasters, and limited availability of land, he added.

Globally, power markets are undergoing a phase of disruptive transformation, said Yogesh Daruka, partner for power and utilities at PwC India.

The continuous interaction of various political, technological and economic forces is catalysing what could be the most dramatic change for the sector in the past century.

“This is the case with Bangladesh as well. With the government's aggressive efforts, continuous support from the developing partners and effective implementation of policies, the country has shown remarkable progress in its journey so far,” he added.

There are certain issues concerning regulation, financing and technology prevalent in the private power generation sector today, said Latif Khan, president of the BIPPA.

“Bangladesh's power industry today needs to address these to attain our shared goals,” said Khan, also the vice-chairman of Summit Group.

Naser Ezaz Bijoy, CEO of Standard Chartered Bangladesh, said unprecedented success in the power sector in the last eight years is a testament to the investment-conducive environment offered by the government of Bangladesh.

However, the scale, complexity and nature of projects are rapidly changing wherein the role of commercial banks is likely to be financial adviser and arranger through export credit facility, syndication of commercial loans, hedge bank, facility and security agent, he said. 

Bijoy said the financing sources need to be broad-based through access to private equity, venture capital, multilateral funding, and vendor equity.

He said Bangladesh needs to consider issuance of sovereign bond to help discover the benchmark pricing of debt products.

“There is also strong merit for dilution of shares in the country's sole transmission entity to experienced global players as a first step, which many countries have already done.”

The global economy is becoming knowledge-intensive and the development is more acute in case of the power sector, said Kazi M Aminul Islam, executive chairman of the Bangladesh Investment Development Authority.

“So, knowledge and technology are very significant for the sector,” he added.

The report said the workforce's skills upgrade and capacity building are keys to sustaining the growth of the power sector in Bangladesh.

This is in addition to new generation sources, a changing generation mix and increased operational efficiency.

There is a need for robust government policies, increased private sector participation, alternate sources of funding, incentivising adoption of clean energy sources and greater use of new age technologies, it said.

M Masrur Reaz, senior economist and programme manager of the International Finance Corporation; Abdul Wadud, managing director of Summit Power; and Md Shabbir Ahmed, first secretary for tax policy at the National Board of Revenue, also spoke.