Govt to review all independent power deals

The interim government has announced a comprehensive review of all power contracts signed with Independent Power Producers (IPPs) during the Awami League's tenure, citing "inconsistencies" that require thorough examination. 

This move, while cautiously welcomed by private power producers and sector experts, comes with strong calls for transparency and consultation to avoid undermining investor confidence.

Finance Adviser Salehuddin Ahmed confirmed the decision following a meeting of the Cabinet Committee on Government Purchase and the Cabinet Committee on Economic Affairs at the Secretariat today (15 July). 

"A decision has been made to review all these deals as there are inconsistencies in the agreements signed for Independent Power Plants (IPPs) during the Awami League government's tenure," he stated.

Salehuddin emphasised that the review would involve discussions and require legal assistance, underscoring that the process "cannot be done unilaterally" due to the legal matters involved.

Industry reaction: Caution and call for transparency

Industry insiders acknowledge the government's right to review contracts but caution that any unilateral action could deter investors and erode confidence in Bangladesh's power sector. They warn that imposing unfair conditions during the review process could have lasting negative consequences.

David Hasanat, President of the Bangladesh Independent Power Producers' Association (BIPPA), expressed support for the investigation into irregularities. "If there are any irregularities in the IPP deals, the government is entitled to investigate them. We have no problem with such a move," he told TBS. He added that IPP owners who have conducted their deals fairly are not concerned.

However, Hasanat stressed the importance of consultation: "We want the government to consult with IPP owners before making any major decisions so that discussions can proceed with mutual understanding."

Zahid Hussain, former lead economist of the World Bank's Dhaka office, echoed this sentiment, suggesting the government engage power plant owners to identify irregularities.

"There is no barrier to reviewing deals signed by the previous government," Hussain said, reiterating that "any government has the right to review contracts if there are inconsistencies or undue privileges granted." 

He cautioned against imposing terms by force, stating, "Any unilateral action could undermine investor confidence in Bangladesh."

The scope of IPPs in Bangladesh's power sector

According to the Bangladesh Power Development Board's (BPDB) June data, Bangladesh currently has 134 power plants. Of these, 64 are government-owned, 62 are Independent Power Plants, and two are joint ventures.

IPPs play a significant role, accounting for 10,272 MW of the country's total generation capacity of 26,959 MW, which is approximately 38%. BPDB's 2023-24 annual report indicates that IPPs generated 29,126 million kWh out of the total 95,996 million kWh electricity produced.

Addressing inconsistencies and investor concerns

BIPPA sources indicate that some irregularities in IPP deals include power plants with similar specifications being allowed higher tariffs compared to others in the same category. These discrepancies, they suggest, warrant investigation.

M Tamim, a power and energy expert, noted that Bangladesh's IPP deal format is generally standard and aligned with international norms. 

He stated that he isn't aware of any "massive deviation" from the 1996 IPP policy. However, he cautioned against imposing "illogical conditions" during the review, which he believes would "send shockwaves to investors."

Tamim also warned of potential legal challenges: "The government will be mired in legal entanglement if any undue demand or provision is imposed on the IPP owners during the review process. They will take legal action." 

He advised the government to focus solely on identifying "whether any company is given undue privilege in the deal, which harms public interest."

Chinese investors voice alarm over renegotiation

The review follows previous concerns from foreign investors regarding contract stability. 

Han Kun, President of the Chinese Enterprises Association in Bangladesh, publicly criticised earlier government moves to renegotiate tariffs in the power sector. Speaking at a Centre for Policy Dialogue (CPD) programme on 30 June, he called such actions "discouraging for investors."

"When we made the investment and the plant was ready for commercial operation, we were suddenly informed that tariff structures were going to be changed," Han Kun stated. "Changing terms and conditions after investment is a disaster for investors already committed to power projects."

He stressed that such decisions deter new investors and send a "message of unpredictability to international investors." 

Han Kun concluded that "global experience shows that such actions can undermine long-term investor confidence, increase financial costs for future infrastructure projects, and delay the energy transition."

It's important to note that two committees, formed by the interim government, are already addressing power sector issues: one focused on renegotiating tariffs and another investigating contracts made under the Awami League regime.