The Bangladesh economy has been growing at about six percent annually over the last few years. Overcoming all hurdles, the growth of the manufacturing sector even reached the double digit. The country is now poised for a take-off stage, with manufacturing leading the way. An unexpected hurdle has now appeared on the scene – that of shortage of energy.

Future investment in manufacturing will be discouraged, while existing industries may face difficulty in smooth operation, unless energy is available. The energy crunch is hitting us at a particularly critical period of our development. Currently around 1-2 percent of our GDP is lost due to power crisis.

The Government has drawn up plans for power generation. 9,276 MW of electricity is planned to be added to the national grid by 2015, of which 4,526 MW would come from private sector plants. For the private sector, it will be a challenge to fulfill the target set for it. The Government initiative requires an investment of $10 billion in the next 5 years.

Both Philippines and Denmark went through similar power crisis, but were able to overcome their crisis through a systematic change in power generation.

The ICC Conference on Energy for Growth was designed to provide a platform in which the stakeholders in the energy sector could interact among themselves, to come up with ideas on how the private sector could meet the targets set for it within the ambit of the government plans. Following the Inaugural Ceremony, there was a plenary in which an overview of the critical issues was provided. Thereafter, there were three breakout sessions, on “Power Project Development”, Hydrocarbon Exploitation & Regulatory Structure” and “Financing of Power Projects”. Experts and financiers from ten countries, apart from Bangladesh, came to the Conference, and presented their perspectives.

A brief account of the rich discussions in the sessions is presented below.

• Liquid oil based power plants can reduce the power crisis in the short-term, while coal can be used to meet the medium to long term demand.
• Bangladesh needs immediately, modern, safe and environment-friendly extraction of coal from Barapukuria and Phulbari mines, within a robust Coal Policy.

• The issue of relocation and rehabilitation of the affected population due to mining and exploration is vital and all actions in this context must be in compliance with legal system to bring confidence among the local people. With a view to ensuring accountability and transparency, setting up a mining authority could be considered.

• A more balanced fuel-mix is vital for Bangladesh to address the issue of energy security.

• Both the government and the private sector should act pro-actively towards developing a mechanism to track forecasts and projections with regard to prices of commodities (gas, LNG, coal) in the future. This is considered to be of critical importance towards designing medium-to-long term strategies in the context of sustainable energy security.

• The private sector developers should ensure operational efficiency, meaning that Distribution reform should go hand in hand and run parallel with Generation reform. While the investors will be mainly earning their revenue from distribution, they should not look for hasty profits.

• A number of rental power plants will need to be established to reduce the demand-supply gap.

• In order to achieve a power generation of 30,000 MW by 2020, half of this will need to be generated from coal powered plants.

• The Government is providing sovereign guarantee and attractive incentive packages to the private sector. In addition, the GoB/BPDB is also willing to provide sites for setting up power plants by the private sector. In this backdrop, financial institutions need to simplify their existing complex project financing process to encourage investment in power generation. Procurement process and other approval process during operation will also need to be simplified.

• To rationalize tariff, government is planning a 12 per cent annual growth in tariff until 2013. The government must take into account the interest of all stakeholders in taking any such measures.

• The IPP proposals should be quickly and efficiently evaluated. For this, tender process must be simplified and made transparent, within a specified timeframe, to enhance attractiveness of the sector to the foreign investors.

• The GoB should make necessary legislative changes in the power purchasing mechanism from the private sector.

• Empower the BERC to be able to set benchmark prices, in consultation with other stakeholders (businesses, experts, academicians, etc).

• In terms of coal mining, it was recommended that the open-pit method should be followed wherever feasible. Any decision should take into account the issue of socio-economic context (rehabilitating the affected people) and loss of agricultural lands. Possible resistance against open-pit mining should be handled pro-actively.

• Investors are attracted to the emerging markets by high GDP growth rates; Bangladesh is attractive now. However, there are risk factors, such as transparency of agreements, tariff structure, fuel supply, regulatory and legal framework, political risk, etc.

• Size of the project, offtake agreement, environmental protection, revision of tariff structure were identified as the most important issues for financing in the power sector.

• Currently, the return from financing a project in Bangladesh is around 20-25%, which is significantly higher than that of other comparable countries.

• We have a long gestation period in awarding power projects to interested parties. Long term finance is of a shorter tenor, ranging from 5-7 years, which is not matched to the time it takes for a particular power project to get its payback. We should put a long term supply agreement in place which matches the tenor of the loan provided to power projects.

• Upward revision of power tariff is a very good solution for dealing with the power crisis as evidenced in other countries. Also, strong sponsors with a good track record can mitigate the completion and implementation risk. In order to face the current challenge, we need to develop investors’ confidence, avoid frequent changes in policies, simplify the bidding procedure, and involve multilateral organizations for financing.

• We need to provide adequate incentives for the large local corporates with good track record, to take up more power projects in order to mitigate the current crisis. We also need to ensure that financing is provided to the exploration of primary sources of energy like gas and coal. International fuel price has to be considered in determining the tariff of the power projects.

• Capital market could be an excellent source of financing giving a combination of debt and equity. Export Credit Agency (ECA) financing, syndicated financing, and NRBs could be possible options for financing.

The ICC should hold further conferences or workshops on specific topics, within this broad framework.