Bangladesh’s power sector faces turmoil over failure to pay bills and allegations of discrimination

❐ BD Digest Desk

A deep and multifaceted crisis is quietly brewing in the country’s power sector. The deduction of liquidated damages (LD) from power plants’ bills despite the terms of power purchase agreements, the disregard for the Bangladesh Energy Regulatory Commission’s (BERC) directives despite the ongoing arbitration process, and the discriminatory treatment of domestic and foreign power producers have all contributed to a serious collapse in the stability and investment confidence of the sector.

According to those concerned, this crisis is not limited to the financial problems of a few power plants; it is also affecting the banking sector, energy import capacity, and the long-term investment environment.

Sources said that about 30 furnace oil-based power plants have filed an arbitration application with BERC against the Bangladesh Power Development Board (BPDB) for allegedly deducting predetermined fines by showing excessive production shutdowns. The power producers alleged that the main reason for the disruption in production was the BPDB’s failure to pay bills for a long time.

On January 8, BERC dismissed these applications and directed both parties to resolve the dispute through negotiations. It also directed that the existing status quo regarding the calculation and deduction of fines be maintained during the arbitration process. However, despite these instructions, BPDB continued to deduct fines from the bills of some power plants, which has created severe uncertainty and distrust among power generating companies.

Every year, during Ramadan, summer and irrigation seasons, the country’s electricity demand increases by 5,000 to 6,000 megawatts compared to normal times. Currently, the electricity demand is between 10,000 and 11,000 megawatts.

Senior BPDB officials said that peak electricity demand could reach 18,000 megawatts next summer.

On the other hand, the target for maximum electricity production has been set at 17,000 MW. Last year, the maximum electricity demand was 7,800 MW and the maximum production at that time was 16,794 MW.

Industry stakeholders fear that the ongoing conflict between BPDB and power producers, just before Ramadan and the upcoming irrigation season, could further destabilize the power supply system.

Entrepreneurs have warned that if financial pressure increases further, many power plants may be forced to reduce production, which will directly impact irrigation activities, industrial production, and the daily lives of the general public.

Asked about this, David Hasanat, president of the Bangladesh Independent Power Producers Association, an organization of private power plant owners, said yesterday that Ramadan and the summer are the most sensitive times in terms of electricity demand. If outstanding bills are not paid during this period, energy imports will be disrupted and power production will be at serious risk.

He said that many power plants have not yet paid their bills for more than six months. As a result, entrepreneurs are facing extreme financial pressure to pay interest on bank loans. If this situation persists, investment confidence in the private power sector will be severely damaged, which will directly impact national power supply and energy security.

David Hasanat alleged that BPDB is following different policies for domestic and foreign-owned power plants in terms of fine deductions. Although the contracts of foreign-owned plants contain provisions for fines, they are not being implemented in practice. On the contrary, domestically owned power plants are regularly facing fine deductions.

He further said that there are currently about 60 to 65 power plants in the private sector, with a total generation capacity of about 9,000 megawatts. The investment in these plants is estimated at $10 billion, which is making a significant contribution to the country’s electricity security.

He commented that despite such large investments, the private power sector is being treated discriminatoryly.

In his words, nowhere in the world is contractual dues withheld like this. If the government had the goodwill, it would have been possible to identify the real culprits separately.

On the other hand, a senior BPDB official said that the owners of the furnace oil-based power plants have clearly stated that it will not be possible for them to operate the plants unless the outstanding amount is paid. Due to the gas crisis, it is not possible to operate additional gas-based power plants even if necessary. As a result, there is a risk of a major shortfall in electricity demand and supply in the future.

Meanwhile, the investigation has uncovered an incident involving Barisal Electric Power Company Limited, which further clarifies the allegations of discrimination. It is learnt that BPDB initially deducted a predetermined penalty from the company’s capacity allowance. Later, with a different legal opinion and the consent of the concerned ministry, the deducted amount was refunded.

No acceptable explanation has been found for this different behavior, where one company was refunded money under a similar power purchase agreement, while the fine was upheld in others.

According to legal experts, such a move goes against the principle of equality before the law and could create major legal complications in the future.

It has also been revealed that the Bangladesh Power Development Board (BPDB) is following different policies for domestic and foreign-owned power plants in terms of fine deductions. Although there is a provision for fines in the contracts of foreign-owned plants, it is not being implemented in practice. On the other hand, domestically owned power plants are facing fine deductions on a regular basis.

The main reason for this discrimination is the complaint of domestic entrepreneurs, especially a large foreign industrial group, that they are being punished for investing in the country and continuing to supply electricity despite suffering losses for national needs.

In this regard, BPDB Chairman Md. Rezaul Karim said, there is no issue of domestic or foreign ownership in the deduction of LD. According to the rules, where LD is applicable, it will be implemented in all cases. He claimed that there is no room for misunderstanding in this regard. When asked about the payment of outstanding bills, he said, work is underway to pay the outstanding bills.

The documents show that power producers have repeatedly informed the BPDB in writing that due to non-payment of bills on time, letters of credit (LC) for energy imports are not being opened and complications are arising in paying dues to banks and suppliers. As a result, production is naturally disrupted. However, according to most power purchase agreements, there is a provision for suspending power supply if the bills are not paid for a long time.

According to experts, the responsibility for production disruptions caused by BPDB’s own financial weakness is being placed on the power plants, which is in conflict with the contract and the law.

Meanwhile, the national committee formed to review the agreements signed under the Rapid Increase in Supply of Electricity and Energy Act, 2010, submitted its final report yesterday. The committee members formally handed over the report to Muhammad Fawzul Kabir Khan, Advisor in Charge of the Ministry of Power, Energy and Mineral Resources.

A notification sent from the ministry said that the submitted report will be sent to the Power Department for review. After reviewing the report, the Power Department will decide on the next steps as per the government’s instructions.