Pvt power plants gain 35pc profit boost

Capacity charges in dollars

Mahfuz Emran: From May 2022, the official devaluation of the taka against the dollar began. At this time, the dollar exchange rate increased from Tk 86 to Tk 120. The impact of this devaluation of money has directly affected the power sector. Capacity charge of private power plants has increased. The private power plants pocketed 35 percent extra money due to the exchange rate of the dollar in the last fiscal year.
According to the data of Power Development Board (PDB), 2022-23 fiscal year, rental and capacity charges of IPPs (Independent Power Producers) in the private sector had to pay Tk 17 thousand 155 crore 85 lakhs.
However, in the financial year 2023-24, the capacity charge in this sector has to be paid Tk23 thousand 97 crore 39 lakh. That is, last financial year, the cost of paying capacity charges has increased by Tk5 thousand 941 crore 54 lakh or 34.63 percent. This money is lost due to payment of capacity charges in dollars only.
It has been found that there are basically two parts in the case of capacity charge. One part is non-scalable and the other is scalable. Basically, capital machinery import cost is included in non-scalable part.
And almost all power plants of Bangladesh have taken loans in local currency from various banks within the country for importing equipment. They have to repay this loan in local currency. But they are charging

capacity charges at dollar rate. As a result, additional money is entering the pockets of the power plants.
PDB officials analyzed it with an example. They said that if a power company had imported equipment worth $100 million in 2018, its debt would have been Tk800 crores based on the exchange rate of that time (Tk 80). PDB will have to pay Tk 800 crore if the capacity charge is determined considering the import price of machinery. PDB will pay it in installments over a fixed period (eg 20 years).
Meanwhile, the dollar exchange rate currently stands at Tk 120. In this (in 6 years) the company has repaid Tk160 crores of debt, its debt amount has stood at Tk640 crores. However, if calculated in dollars, if he has paid $20 million, the amount of his debt currently stands at $80 million or Tk960 crore. In other words, the debt has increased by Tk160 crores instead of decreasing by Tk160 crores. This will require PDB to increase capacity repayments over the next 14 years.
PDB’s liability for charging capacity charges on a dollar basis does not end here. As the dollar exchange rate increases in the future, PDB will have to pay higher capacity charges. However, the private power company will pay only Tk 800 crore to the bank. However, since the capacity charge is determined based on the dollar rate, an additional Tk 400 to Tk500 crore may enter the pocket of the power company in 20 years. In this way, the PDB’s and the government’s money is regularly wasted. As a result, electricity production is increasing. However, PDB’s losses cannot be reduced even by increasing the price of electricity. Rather, the losses are increasing every year.
A meeting of PDB and Power Department was held with the Ministry of Finance in June 2022-23 on the impact of dollar exchange rate hike. PDB presented a report in the meeting. It was said that if the dollar exchange rate was Tk86, the potential loss of PDB in the fiscal year 2022-23 would have stood at Tk39 thousand crore. However, if the dollar rate is Tk107, this loss will increase to about Tk52 thousand crore. That is, the loss will increase to about Tk13 thousand crore only for the devaluation of the dollar.
According to sources, since 2009, the government has approved several rental and quick rental power plants. The capacity charge of these power plants has to be paid in dollars. Although the number of quick rentals has decreased, existing centers still have to pay capacity charges in dollars. After rental-quick rental, the private sector was allowed to set up several large power plants. The capacity charge of these centers called IPP has to be paid in taka based on the dollar exchange rate. That is, as the exchange rate increases, the cost of paying the capacity charge also increases.
In that meeting, PDB also said that the loss of PDB increases by Tk230 crore per year due to one taka exchange rate increase. When asked what to do in this regard, the PDB official said that the capacity charges of power companies that have foreign debt can be paid at the dollar exchange rate. Because the value of the dollar is increasing, the amount of debt is increasing. However, in the case of companies that do not have foreign debt, but have borrowed from domestic sources of the country, the agreement must be amended. In this case, the capacity charge should be determined directly in local currency excluding the dollar exchange rate.
However, the recommendation of the PDB officials was not implemented. Several PDB officials present at the meeting said on condition of anonymity that it is very easy to identify. Which company has taken loan from which source should be filed in PDB. PDB will scrutinize the same and recommend amendment of the contract. If one borrows from a foreign source, one will get a capacity charge at the dollar exchange rate. And those who have taken loans from domestic sources have to determine the capacity charge by fixing the loan amount based on the LC opening rate. If one borrows from both domestic and foreign sources, then his capacity charge should be determined in terms of foreign source in dollars and domestic source in taka. By doing this, the cost of paying capacity charges can be reduced by 35 percent.