Pvt power producers seek default rule waiver amid financial headwinds

In an effort to sustain access to loan facilities amid the ongoing dollar crisis and delayed bill payments from the government, private power producers are seeking an exemption from defaulter classification.

"We respectfully request your consideration in formulating a policy and issuing a necessary circular to exclude electricity generation companies from group or related party classification, recognising them as independent power producers," the Bangladesh Independent Power Producers Association (Bippa) wrote to the central bank governor on 2 November.

"This adjustment would enable them to access credit facilities from banks, ensuring a seamless generation of electricity," reads the letter signed by Bippa President Faisal Khan.

Under the existing banking policy, individuals in default are not eligible for loan facilities from banks and financial institutions. However, groups or entities associated with the interests of the defaulting individual may still qualify for such facilities, provided that the defaulting party is not deemed a wilful defaulter.

"In a new gazette issued on 26 June, the government granted access to loans for institutions associated with defaulting borrowers. However, it is essential to provide an explanation to the central bank, affirming that the said institution is not a wilful defaulter," said a senior official at the Bangladesh Bank.

He said the central bank will issue a no-objection certificate (NOC) when a borrower provides a reasonable explanation demonstrating that it is not a wilful defaulter.

The official said private power generation companies are now seeking even more streamlined facilities.

Faisal Khan emphasised the necessity of such measures for sustaining the operations of independent power companies. Speaking to TBS, he said, "Because IPPs face delayed payments of up to seven months, without access to loans, how can these companies maintain their operations?"

Imran Karim, former Bippa president, said, "Private power plants are burdened with a substantial amount of unpaid bills owed by the state for the electricity they supply. The situation has led to challenges for many companies in meeting their bank loan obligations."

He mentioned that the government is cognisant of the reasons why power-generating companies are facing challenges in repaying loans. According to him, introducing a new explanation of default and a fresh procedure may be unnecessary.

He stated, "We have proposed that power companies be acknowledged as independent institutions. Consequently, the debt classification policy should not be applicable to other entities associated with the owner of the power company."

Bippa also mentioned in its letter to the central bank that the global economic and financial crisis over the past two years has significantly impacted Bangladesh's power sector. Issues such as a shortage of working capital and the unavailability of dollars have been prominent. And prolonged delays in payments from the Bangladesh Power Development Board (BPDB) have created substantial challenges for Bippa members. Procuring fuel for power plants has become particularly daunting due to the severe dollar crisis in the market.

"IPP companies, structured as Special Purpose Vehicles (SPVs) as per the Bangladesh Private Sector Power Generation Policy, face additional complications. The sponsors of these SPVs are involved in various business lines, and the global crisis has led to financial difficulties for some of their sister or related concerns. This has resulted in cash flow challenges, debt classification, and obstacles in opening LCs."

Bippa seeks a waiver of additional interest charges on defaulted loans

Banks now charge a maximum 1.5% penalty interest for overdue and classified loans. The central bank imposes punitive interest on defaulted loans as a measure to encourage good borrowers and discourage bad or wilful defaulters.

In its letter to the Bangladesh Bank, Bippa highlighted the challenges faced by power companies, attributing them to delayed receipt of electricity prices from the government, a shortage of foreign currency, and heightened import liabilities, resulting in financial losses.

Due to these difficulties, the companies have sought a waiver of penalties and interest, emphasising their commitment to maintaining a regular power supply to the government.

Govt owes Tk23,000 crore to IPPS

The proprietors of private power plants currently have an outstanding bill with the government amounting to slightly over $2 billion, which is around Tk23,000 crore, in unpaid electricity bills.

Recently, Bippa wrote a letter asking for a meeting with the Prime Minister to overcome these crises and saying that the entrepreneurs in this sector are on the verge of bankruptcy. The Prime Minister's intervention is necessary for the entrepreneurs' survival.

Regarding the letter, Bippa President Faisal Khan informed a daily newspaper that, as per the agreement with the Power Development Board (PDB), the government entity is obligated to settle dues within one month of receiving the bill. However, some power plants have had outstanding bills until January, and in many cases, arrears extend up to seven months. In total, the government owes approximately $2.7 billion to private power plants, and this amount continues to accumulate monthly.

Faisal Khan highlighted an additional challenge, stating that the PDB calculates the dollar exchange rate at Tk111 when paying dues, while banks charge more than Tk120 to open letters of credit for importing fuel for power plants.

He emphasised the critical role of the exchange rate, as the private power industry is heavily dependent on the import of fuel and parts. To address this issue, they have sought the intervention of the prime minister.

PDB losses and subsidies 

According to PDB sources, the entity has reported a cumulative loss of Tk52,345 crore over the eight fiscal years from 2012-13 to 2019-20. Furthermore, for fiscal 2022-23, the temporary loss incurred by the entity stood at Tk51,526 crore. This indicates that the annual loss for the last fiscal year is nearly equivalent to the cumulative losses of the preceding eight years.