Bangladesh suffered a full-blown power crisis in the mid 1990s characterized by a critical shortage of generation capacity. Weak finances and inefficient operations of the two main power companies–Bangladesh Power Development Board and Dhaka Electricity Supply Authority–determined the introduction of privately financed, independent power producers (IPPs).
A framework for attracting private power generation investments was created with IDA support. It resulted in the development of two cost-effective IPPs–the 360 MW Haripur and 450 MW Meghnaghat plants, with AES as the original sponsor of both projects. IDA also assisted Bangladesh with the development of transparent procurement approaches, regulatory frameworks, and risk sharing mechanisms for private sector infrastructure promotion and operations.
Two new well-maintained and reliable power plants in Bangladesh generate 30 percent of the country's power.
Highlights:
- Reliable plants: Haripur, for example, was available over 99 percent of the time in its most recent contract year.
- Cost-effective: Haripur 2006 unit costs of 1.9 cents per kWh and Meghnaghat's of 2.3-cents compare well to the all-IPP average cost of 3.4-cents and the Bangladesh Power Development Board's own generation cost of 3.8.
- Bangladesh's most energy efficient: the plants introduced state-of-the-art, gas-fired combined-cycle technology in the country.
- The plants have a spotless environmental record and have received the highest level of ISO certification, having gone through a rigorous on-site review of environmental, safety and health issues and procedures.
- Haripur came into commercial operation in December 2001; and Meghnaghat in November 2002 together adding 810 MW. The facilities now account for 20 percent of Bangladesh's installed capacity, but are so reliable and cost-effective that they provide 30 percent of the total amount of generated power.
- An IDA partial-risk guarantee (PRG) supported the 360 MW Haripur Power Project, which was the first major private power plant developed in Bangladesh. (The guarantee provides comfort to international commercial lenders on certain risks related to government policy and regulatory behavior.) The Haripur IDA PRG covered US$60.9-million in support of commercial debt financing, out of a total financing of US$ 107 million, project cost being US$ 180 million and equity US$73 million.
- Meghnaghat received US$80-million debt finance (with a senior loan of US$20 million and subordinate loan of US$60 million) from IDA through the Private Sector Infrastructure Development Fund, out of a total financing of $220-million.
- IDA's US$141-million support leveraged an additional $259-million.
- In the case of the Haripur guarantee, as with other PRGs, loans were provided to the project company at lower interest rates (only 2 percent premium to US Libor) and longer tenor (15 years), than would otherwise have occurred, thus lowering the overall cost of capital for the project.
- For Meghnaghat, the long-term financing placed into the project through PSIDP was fundamentally unavailable in the market otherwise.
- IDA's impact is underscored by the fact that, without IDA support (unavailable for other projects because of procurement transparency concerns), no other IPPs have been financed in the past five years. IDA assistance was also provided for institutional development of the government contracting agency, and development of the legal and regulatory framework.
- The government has not built on the success of these plants and no major plants have been privately financed since Meghnaghat came on-line in 2002. Procurement processes, both for publicly and privately financed plants, have been characterized by a lack of transparency.
- Now facing a full-blown power crisis again, the government has turned to the Bank Group for advisory services (IFC), and financing and risk mitigation support (IDA/IFC/MIGA). IFC and IDA will work closely with the government and other donor partners, particularly the Asian Development Bank, to ensure that transparent and competitive processes are used to attract investors; that the resulting deals reflect a fair balance of risk and reward for investors; and that, as with Haripur and Meghnaghat, new deals represent good value for Bangladeshi consumers.
- In parallel, IDA is addressing immediate shortages of peak generation through the US$300-million Siddhirganj gas-to-power project. This project will also emphasize the integrity of procurement processes and build capacity in three state-owned entities for project implementation, operation, and contract management.
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