Banks pledge part of $10b financing

Mega Plan for 7,000mw Power
Banks pledge part of $10b financing
Demand transparent bidding; govt seeks lower interest rates, long-term lending
Bankers told the government Thursday though they were new in financing power projects, they were eager to provide a part of US 10 billion dollar required for implementing the power projects of around 7,000 megawatts (mw) in the next five years.
The bankers instantly pledged more than Tk 1,500 crore loan for the upcoming 530-mw rental power projects at a meeting between the power ministry, power development board (PDB) and representatives of local and foreign banks and financial institutions.
But they said the local banks can not entirely finance the sector as the investment requirement is huge and also because the banks understood little about the power plant technology and the managerial skills of the entrepreneursan issue that can mar the possibility of recovery of loans from the projects.
The government side assured them of sharing knowledge on the power sector through continuous workshops to facilitate financing projects and monitoring them.
The bankers said the government still needed to tap international financial institutions and that they were willing to help the government in this regard by playing a role of catalysts.
“But to ensure easy financing transparent bidding process is a must,” said a banker at the discussion echoing other bankers’ sentiments.
The discussion was participated, among others, by State Minister for Power Enamul Haq, Adviser to the prime minister on energy Dr Towfiq-e-Elahi Chowdhury, Bir Bikram, Power Secretary AK Azad and PDB Chairman Alamgir Kabir.
Alamgir Kabir, who made a presentation on Investment Opportunity in Power Sector depicting a government vision of zero load shedding beyond 2010, said that the government was expecting 25 to 30 percent financing from the local banks.
But he urged the banks to think about long-term financing, which they are not used toto make the financing cheaper by lowering interest rates.
Kabir noted that while the PDB has always paid power plant operators money for power supply on time and there were a host of guarantees ensuring investment return, the country needed to increase power tariff in the near future to ensure a healthy financial situation in the sector.
“The government is serious about tariff rationalisation. As you know, rental power is a costly solution. But we will have to do it and tariff rationalisation is necessary. The poor section of consumers will get government subsidy,” he said, “and I am sure once the quality of power supply improves, the customers would not feel offended by tariff hike.”
Towfiq-e-Elahi Chowdhury said the expected financing was continuous and it should not be a problem for the banks once the lending took a structure. “We have to be innovative. The Non-resident Bangladeshis (who send home $10b each year) may be attracted to invest in the projects through various means,” he said.
He pointed out that the government has set up teams with PDB, Bangladesh Inland Water Transport Authority (BIWTA), Roads and Highways and Railway to assist and ensure power contractors that the roads, bridges and water navigation systems were working properly for transport of plant equipment and other raw material.
Besides, in the past the PDB had given contractors undeveloped land, which affected the project implementation period. This time the land issue would be addressed before the contracts are signed.
Urging the banks to nurture power projects Elahi said, “the PDB and the power ministry will be your partners.”
Secretary AK Azad noted that the country has had an average GDP growth of 6 percent over the last one decade. But there are huge unmet power demands. If that had been addressed the GDP rate would have been 7.5 percent.
“Right now our priority is for the next irrigation season. We are aiming at 250mw to 300mw rental diesel-fired power to ensure uninterrupted irrigation,” Azad said, adding that that was why the government would not tolerate bidders that would fail to launch their plants on time.
“We want to implement the projects in a very transparent way. As part of it, we have put up the bid documents in the PDB web site,” he adds.
The government has planned four 500mw coal-fired power projects demanding $3 b investment under a private-public participation system in which the government would provide $750m dollars investment.
Besides, the PDB has floated tender for 530mw rental power projects and planned another 800mw fast track public sector power projects and 2400mw more as private and rental power projects.
Lending would be required not just for these power projects, but also to build transmission and distribution lines.
A representative of the IDCOL pledged Tk 300 crore lending for the rental projects and another Tk 700 crore for the large projects.
A Pubali Bank high official said that his bank was eager to invest TK200 crore. The Sonali and Janata banks also made a promise of lending out through syndication.
A Premier Bank official noted two risks in financing power projects. One is related to the long tenure of power sector lending. “Commercial banks are habituated with short-term recovery. They will have to work on long-term financing,” he said.
The other risk is not with the government’s payment, but with the contractor-cum lenders’ managerial failure to implement project properlyleading to a massive loss.
An HSBC official added that local financial institutions did not have the capacity of investing in large sectors. Without foreign financing it would not be possible to achieve the investment target.

Courtesy of The Daily Star