Suicidal power purchase deal may be ruined PDB

Mahfuja Mukul: Three major gas based power plants are scheduled to be commissioned this year in the country. Summit Power, Unique and Reliance Group are constructing the plants with a capacity of about 2,000 MW. Bangladesh Power Development Board (BPDB) entered into a purchase agreement in 2019 to buy electricity from these new plants.
And in these contracts, the price of electricity per unit is calculated in dollars. At that time, the contract was made for Tk 80 per dollar. Although at that time the market rate of US currency was like Tk 85. In a span of more than two years, the exchange rate of the dollar has increased by 28 percent and is now fluctuating between Tk 109.
After commissioning, the power price or capacity charge of these three plants will be charged according to the current exchange rate of dollars. Energy experts see buying electricity in foreign currency from the country’s private sector power plants (IPPs) as a suicidal path.
Local companies in the power sector have to sell electricity to BPDB. Therefore, considering the financial situation of the country, economists think that an opportunity of local currency could have been kept in the agreement with the IPPs. But that was not done.
As a result, the existing adverse situation has to be faced. In this regard, economist Anu Muhammad told Daily Industry, “Power plant construction agreement, purchase agreement – these have been done as the lobbyists wanted.” Agreements are made as the structures are constructed. The objective is to protect the money of private power entrepreneurs.
Whatever the international situation so as not to inconvenience them. And that is why the impunity law was made. In this law, the issue of financial loss and economic freedom of the public has not been preserved in this sector in any way.
According to sources in the power department, PDB signed a power purchase agreement with Unique Meghnaghat Power Limited (UMPL) in July 2019. The contract for the purchase of electricity from that power plant of 584 MW capacity was made in dollars.
If the power plant runs on local gas, the price of electricity per unit was fixed at Tk 2.95. And if it runs on converted natural gas (LNG), the price per unit will be Tk 5.44. The 22-year power purchase agreement stipulates a different price per unit for each year.
Indian company Reliance’s power purchase agreement with PDB was signed in August 2019. The price of electricity per unit is fixed at Tk 5.84.
The sector stakeholders said that in the last decade and a half, the production capacity of electricity in the country has increased by about 20,000 megawatts (excluding captive). Among these, the capacity of private sector power plants has increased to nine thousand megawatts. PDB has signed most of the power purchase agreements with these private power plants in dollars.
Although electricity price and capacity charges of most centers are paid in taka. Even at the current exchange rate of the dollar. Due to devaluation of money, the amount of financial loss is increasing.
Due to the recent dollar crisis, electricity and fuel bills have also become overdue. In particular, PDB still owes a huge amount of bills to local power generation companies.
An electricity-related official, who did not want to be named, said, “The issue of power purchase agreement in dollars has already come to the attention of the government. But according to the contract with the new power plant, its scope is less. The government will review the issues in the new power plants with which construction contracts will be signed.
The taka continues to depreciate against the dollar. From March 2021 to July this year, the rupee has depreciated by around 28 percent. Against the dollar, the value of the taka went from Tk 85 to Tk 109. In this situation, PDB’s losses are also increasing day by day.
According to PDB’s financials, the company incurred a financial loss of Tk 612 crore in the financial year 2021-22 due to the devaluation of the taka against the dollar. According to sources related to PDB, this loss will be more than doubled in the just ended financial year.
By the year 2027, at least 6,800 megawatts (including the current year) of electricity capacity will be added to the private sector. PDB’s power purchase and capacity charges will increase significantly if the taka continues to depreciate against the dollar during the relevant period.
BD Rahmatullah, former Director General of Power Cell said, ‘Investment in this sector came with the financing of a foreign donor organization to increase capacity in the power sector. As a result, the contracts were denominated in dollars for the sake of financial security, according to the requirements of the time. But later local power sector entrepreneurs continued to contract in dollars to reduce their financial risk. However, PDB had the opportunity to purchase electricity in local currency. If that was done, the risk of financial loss with the dollar would not have been created so much.
Meanwhile, according to Bangladesh Bank’s Quarterly Report on Currencies and Currency Exchange Rates, depreciation of taka against the dollar continues in the interbank foreign exchange market. In the January to March quarter of this year, there was a depreciation of 2.61 percent compared to the previous quarter (October-December).
Compared to the January to March quarter of 2022, the depreciation in the first quarter of this year has been 19.29 percent. At the end of March this year, the value of the dollar was Tk 106.80. Yesterday on July 16, it increased to Tk 109.
PDB may have to face huge financial losses in the future if the market price of dollar goes higher.
Fahmida Khatun, executive director of the Center for Policy Dialogue (CPD) said, since the private companies in the power sector are local producers. As a result, there was a kind of opportunity for a local power purchase agreement with them.
But these agreements were kind of secret. Here the public had no opportunity to know about these agreements. As the financial deficit is increasing due to devaluation of money against the dollar, these companies also do not have enough dollar reserves to pay their bills. There is no opportunity to give from reserve now. If the rupee continues to depreciate against the dollar in the future, it will be dire for this sector.