A US-based think tank says the Bangladesh-India Maitree project for a coal-based power unit could effectively end up in a financial mess. Proposed to be built near the city of Khulna, close to the Sundarbans mangrove forest, it is a joint venture between state- owned entities of the two countries. The Institute for Energy Economics and Financial Analysis (IEEFA) said electricity produced from the project would cost 32 per cent more than the average in Bangladesh, assuming an average plant load factor (PLF) of 80 per cent. This despite the project being heavily subsidised, “exposing investors, taxpayers and consumers to high risk, a potential stranded asset in the making”. However, a senior executive associated with the project said the Indian government was not subsidising it but “only providing a loan through the Exim Bank to promote Indian investment in Bangladesh. Ujjawal Bhattacharya, managing director, Bangladesh-India Friendship Power Company (BIFPCL), did not comment on the issue of rates for the power generated. He said coal-based generation was needed for the energy security of Bangladesh, which was planning to have at least half of an additional 30,000 Mw capacity from coal by 2030. The Rampal power plant (the one being put up) is not the only coal-based one coming up in Bangladesh. There are Chinese, Japanese and Malaysian power plants coming up, funded by their respective banks, he added. He said renewable energy was still in the early stages in Bangladesh. A comprehensive study was needed to establish its viability, especially with respect to solar radiation and high rates. Government-owned NTPC is building the plant with the Bangladesh Power Development Board (BPDB), an equal joint venture called BIFPCL. The JV would invest 30 per cent of the equity ($546 million) and the Indian government would facilitate 70 per cent debt, amounting to $1.6 billion, through the Export-Import Bank of India (Exim). While the Rampal project would expose all project promoters and consumers to financial risk, it poses specific risks to the Indian Exim Bank. The project would constitute a large chunk of the bank’s loan book, it would put the Exim Bank’s international fund-raising capacity at risk, and the very coal-fired nature of the project would create refinance risk for the bank, the IEEFA report said. Bhattacharya pointed to a Japanese project coming up in Matarbari in that country, funded by Japan International Cooperation Agency at 0.1 per cent interest. A bank will not fund the (Rampal) project if it is not viable, he contended. The report said the average PLF for coal-fired power plants in China, the US and India was in the range of 50-60 per cent; in Bangladesh in 2014-15, the average PLF rate was 63.9 per cent. Without subsidies, the plant’s generation costs were 62 per cent higher than the current average cost of electricity production in Bangladesh, it said. IEEFA gets funding from philanthropic bodies like the Rockefeller Family Fund, Energy Foundation, Mertz-Gilmore Foundation, Moxie Foundation, William and Flora Hewlett Foundation, Rockefeller Brothers Fund, Growald Family Fund, Flora Family Fund, Wallace Global Fund, and V Kann Rasmussen Foundation. The Bangladesh government is planning to give a 15-year income tax exemption for the plant, worth $936 million. Besides, a below-market-rate loan by the Indian Exim Bank represents a $988-mn subsidy effectively paid by Indian taxpayers to Bangladeshi consumers. Bangladesh would be granting an effective annual $26 mn subsidy by conducting maintenance dredging to assure coal delivery, the report said. Bhattacharya said the project’s viability of project was not under a cloud and the decision on tax concessions was taken by the governments to promote investment. Listing 10 risk factors, the report said the location in the wind risk zone of Bangladesh represented a significant financial risk, since the plant would be extremely vulnerable to storm surges and, therefore, to outages and damage. Besides, the Bangladesh government in the event of further budget deficits might no longer fully support electricity system losses. This constitutes a significant risk to Rampal’s backers and customers. Notably, similar projects in India would not be approved because they would violate laws against building such plants within 25 km of ecologically sensitive areas like forests, the report said. The Rampal unit is part of the country’s Power Sector Master Plan 2010, which aims to expand and diversify the Bangladeshi electricity sector away from the current dominance of gas-based generation, towards a higher percentage of imported-coal-based generation. In April 2016, Bangladesh had a total installed power capacity of 12.3 Gw, with 600 Mw imported from India. Natural gas contributes 61.8 per cent of total generating capacity, followed by furnace oil and diesel at 21.7 per cent and 7.8 per cent, respectively. The gas-based development of the electricity generating system to date has been driven by the large domestic availability of natural gas. In March 2015, Bangladesh had 14.3 trillion cubic ft of gas reserves.
2015, Business Standard Ltd.