Bangladesh Government is considering a proposal set forward by the Bangladesh Securities and Exchange Commission (BSEC) to extend contracts of 10 power projects that have either expired or about to expire for the sake of public shareholders.
Given the current demand situation where almost 50% of our installed power generation capacity remains idle and ongoing mega projects in the pipeline, who will pay for these renewals and where did the money go?
BSEC claims that all these projects are owned by listed companies. Termination of such contracts will have an adverse impact on their financials which in term harm the public shareholders of the companies.
The companies being impacted by the conclusion of Power Purchase of Agreements are DESCO, Power Grid, Baraja Power, Doreen Power, Energypac, GBB Power, Khulna Power (owned by Summit and United), Shahjibazar Power, Summit Power and United Power Company Ltd. With a view to attract foreign and local investors to the power sector, Bangladesh created the Private Sector Power Generation Policy in 1996. This has proven to be Awami League government’s most successful policies which took the Bangladesh’s power generation capacity from 2000MW to around 23,000MW today.
Integral to the policy were measures that virtually eliminates all risks to the private power plant investors. Among these were, guaranteed capacity payments which means even if there is no demand, the power station owners get fixed monthly payments. The payments are in dollar or dollar indexed Taka equivalent. Fuels costs are pass through, meaning any gyrations in global fuel prices are borne by Bangladesh Government. And finally, payments are inflation adjusted over time.
Given the aforementioned perks, power companies know in advance what their cash flow will be over time. The tariff structure is publicly available. Thus the investors are fully protected and guaranteed on their return on investments just on the basis of the generous Power Purchase Agreement with the government.
The power company sponsors thus should have paid all the profits from these projects as cash dividend or invested in other projects which will generate similar returns in the future.
Investors, when they purchased the shares, knew well what the returns are and value the stocks accordingly. And they must be compensated from cash flow from these projects via dividends or stake in future opportunities.
Majority (if not all) of the foreign currency paid to import expensive machinery and to setup the power projects and subsequently import the fuel is financed by the hard earned money sent by of our migrant workers.
Despite the pandemic, Bangladesh government received over 20 billion US dollars during the first 10 months of this year. Government receives the dollars and pays the families of wage earners in taka. This foreign currency, which has become the dominant source of net forex, is then used to drive development projects and pay for imports.
Putting undue burden on public funds to subsidize ignorant (or cheated) minority shareholders of a few power companies may not be the best decision government can undertake especially at this time.
