Implementation deals became outdated: Adviser Fouzul on scrapping solar plant projects

Highlights

• Fouzul says PPAs, IAs from 1990s no longer suitable for sector
• He says investors care most about uninterrupted cash flow
• Govt moving toward direct procurement for new renewable projects
• Independent power producers say IA ensured payment security
• They say IA waiver risks default if plant owners cannot sell electricity
• Solar projects weren't implementable due to land scarcity

Defending the government's recent decision to cancel approval of 34 solar power plant projects, Power, Energy and Mineral Resources Adviser Fouzul Kabir Khan has said their implementation agreements (IAs) had become outdated and ineffective.

"An implementation agreement is cheaper than the paper it is written on…We revoked the IA with good conscience," he said at a dialogue titled "Recent Procurement Initiatives of Renewable Energy in the Power Sector: CPD Study Findings".

"Both the PPA and IA frameworks, dating back to the 1990s, are no longer suitable for the current renewable energy landscape," he said at the event organised by the Centre for Policy Dialogue (CPD) at BRAC Inn in Dhaka today (1 December).

He also said confusion persists regarding power purchase agreements (PPAs) and implementation agreements because the sector has long depended on outdated frameworks.

The adviser said ensuring strong cash flow is now the top priority for attracting investment in Bangladesh's renewable energy sector.

"Investors care most about uninterrupted cash flow. For mutual benefit and long-term sustainability, ensuring cash flow is essential," he said.

"We are prioritising cash flow so that both cost and revenue remain viable," Fouzul added.

In September this year, the interim government cancelled the approvals for 34 solar-power plants following the repeal of a special-provision act by an ordinance. The plants were supposed to generate 5,681 megawatts of electricity.

Towards direct procurement

Adviser Fouzul said the government is now moving towards direct procurement for new renewable energy purchases. Discussions are underway with banks and IDCOL to make upcoming projects bankable.

"We have already informed the Banking Division to provide needed facilities, and we are trying to secure guarantee programmes from IDCOL," he said.

Highlighting structural problems in the power sector, Fouzul Kabir said bypassing competitive bidding and relying on direct negotiations in the past created a "vicious circle" of high tariffs and unpaid bills. 

"All unsolicited power deals carried high tariffs. Because of these tariffs, BPDB could not pay, which created outstanding bills," he noted.

He added that the interim government cleared $3.2 billion in unpaid energy import bills after taking office, as suppliers were charging penalties and higher prices due to delays.

New solar projects with significantly lower tariffs have already been forwarded to the purchase committee for approval, he said. "We are trying to transition from a corrupt process and come out of the 2010 Power and Energy Act."

Possibility of default if IA waived 

BIPPA president David Hasanat remarked that many of the government-approved solar projects were not implementable due to land scarcity and weak financial models. 

He said the country needs sound policy support and assurance of return on investment to accelerate the green energy transition.

Imran Karim, former president of Bangladesh Independent Power Producers' Association, said the open tendering process had been sufficiently transparent. 

"If there is no implementation agreement, how would I understand that BPDB would pay me year after year? Financial qualification was stringent in the open tender process. Those who want to finance have to opt for balance-sheet financing, which means they must be financially strong."

Hann Kon, president of the Chinese Enterprise Association Bangladesh – which represents 250 entities – said Chinese companies account for 55% of total investment and contribute 36% of installed capacity.

He warned that without sufficient green transition in the readymade garments sector, foreign buyers may shift orders away from Bangladesh. 

"Developing renewable energy faster is very urgent not only for the environment but also for cost. If IA is waived, there is a possibility of default when plant owners are unable to sell electricity," he added.