Why should Matarbari project cost $4.4b?

Bangladesh's biggest development partner Japan on Monday signed a $1.18-billion loan agreement with Bangladesh, one fifth of which would be spent on a $4.4-billion coal-fired 1,200 megawatt power project on Matarbari Island in Cox's Bazar.
The Japan International Finance Agency (Jica) will gradually provide the majority fund for this massive power project, which is scheduled to start generating power from imported coal in 2022.

This is a significant development considering Matarbari as the first major coal-fired project to have financing for implementation.
The government has awarded contracts for several private coal power projects and is negotiating with different countries to finance a few more state-owned massive ones, but none of them has ensured such financing.
Other such projects include Rampal 1,320MW project by the Indo-Bangla Friendship power company (owned by two national power companies of India and Bangladesh) and two 600MW plants in Dhaka and Khulna by the private company Orion.
The Rampal project is now looking for finance with an aim to appoint its constructor by the end of this year. Orion, however, has paid in advance from its own resources to international turbine manufacturers to begin building the power plant's major equipment and has been waiting for the government to give it environmental clearance.
Orion says once it gets government clearance, it will get international finance.
For other major coal power projects, the government has signed two memoranda of understanding (MoU) with China and one with Malaysia and is negotiating with the Asian Development Bank (ADB) and other multilateral agencies.
These developments show how extensively the government is relaying on coal-based power to secure the country's future electricity. Bangladesh's cheap gas is facing an existential crisis and coal is inexpensive mainstream alternative to gas.
The Matarbari project is also significant from another aspect: its location. Matarbari, Maheshkhali and Sonadia islands in Cox's Bazar are practically separated by canals and are in the same belt.
As per the government's vision, the Maheshkhali Island is set to become the country's energy hub. It will have coal power plants generating 10,000MW power, a major liquid natural gas (LNG)-based power plant, and an LNG terminal. The Matarbari plant will add yet another 1,200MW power, while the Sonadia port and its channel will facilitate the import of a huge quantity of coal, preferably from Indonesia.
Matarbari is also significant in terms of the detailed feasibility study that Jica undertook in 2011-13, touching upon all aspects of implementation of this project.
The project will be on 1,500 acres of land, keeping in mind its future expansion. The cost of this land has been estimated at Tk 350 crore.
However, the project appears to be very costly. It is significantly costlier than any power projects in this country or elsewhere. With the $4.4 billion, two 1,000MW nuclear power plants could be built each with an official lifespan of 40 years, whereas the coal plant would last 20-22 years. A Padma bridge and a rail bridge on the Jamuna river could be built with this money.
The Jica justifies this high cost by showing that this project includes all costs related to the power plant's operation, which most other projects usually hide. It puts the price of the power plant construction at a staggering $3 billion.
The remaining money is for a high voltage 400kV power transmission line from Maheshkhali to Anwara, construction of road and two bridges from Chakoria up to the project site, relocation and rehabilitation of the local community.
The total cost has also included about $700 million for constructing a coal terminal. This addition has surprised many experts, who questioned if the government should allow a coal terminal for every coal power project -- each to be built at such high cost. Maheshkhali is supposed to be the country's future energy hub and one coal terminal is good enough for all coal power projects there.
It is true that the Rampal power project has not outlined the details of the Matarbari project, but that does not justify the cost projected by Jica.
This also brings up the question of the role of the Japanese financiers in promoting certain Japanese companies in various power and telecom tenders in Bangladesh.
In the last five years, all Japan-financed power projects went to one company -- Marubeni. The Jica and the Japan Bank for International Cooperation (JBIC) have financed three major power projects -- Bibiyana phase three, Haripur and Bheramara -- each with around 400MW capacity and costing more than $1.5 billion.
In all those tenders, other bidders voiced complaints to the authorities that Marubeni was being favoured. They alleged that the authorities were modifying bid terms that suited only Marubeni. But these complaints were ignored. Marubeni won two of the three bids as the lone bidder when the bidding authorities allegedly disqualified other competitors. In the last bid, Marubeni reportedly had a dummy competitor.
There had been a whole range of complaints against Marubeni and the bidding process that reached the ears of Jica, which funded two out of three projects. But Jica has never addressed these grievances.
It was not that the complaints against Marubeni were totally baseless and it was ultimately proved by the Jica itself in mid-March when it banned Marubeni, but not before the company had signed a contract for a 360MW power plant in Bheramara.
Marubeni has also bagged a telecom project financed by the Jica in 2013, which led to a court case filed by another bidder. Marubeni had to give up a part of the contract.
The Jica banned and blacklisted Marubeni on March 26, a week after the US Department of Justice slapped a $88 million fine on Marubeni for paying bribes to high-ranking officials in Indonesia to secure a lucrative power project. Hearings against Marubeni had been going on for many months and both Marubeni and Jica knew about the imposition of this penalty when they hurriedly converged on a signing of the Bheramara deal.
Something seems to be wrong with Marubeni's projects in Bangladesh. Its three power projects are configured almost identically. And yet its 2014 Bheramara power project construction cost is $745 per kilowatt, $851 in Bibiyana and $919 in Haripur power projects of 2011.
It has been questioned as to how the costs of the three projects differ when the same company is implementing those using the same machinery.
Bidders interested in the Matarbari project told The Daily Star that they feared the same would happen in case of this overpriced project, as Jica in the past allegedly did not demonstrate its willingness to ensure fairness in the tendering process. It is not just some powerful quarters in Bangladesh who are unduly cashing in on such unfair deals, but also some powerful quarters in Japan who are slicing away even bigger shares of undue cash, they allege.
Japanese financing is important for these infrastructures, which will transform Bangladesh. The financing also comes on very friendly terms, which most countries do not usually offer. Japan also often transforms its loans, which are usually soft, to grants in a rare gesture of magnanimity for Bangladesh. The feeling, though, is that such financing should also ensure cost-effective and transparent project implementation.