Khulna Power’s fate uncertain as contracts set to expire in May

The fate of the country's first private power company – Khulna Power Company Ltd – hangs in the balance as the contracts for its  last two units are expiring this May.

The Bangladesh Power Development Board (BPDB) first discontinued contract with the barge-mounted plant in 2018; and now Khulna Power Company's existence is threatened as its two other units in Khulna region are set to stop production on 28 and 31 May.

The company has already applied to the BPDB seeking renewal of the Power Purchase Agreement (PPA) for these plants, but the board is yet to respond on this matter, a BPDB source told The Business Standard.

A joint venture of the Summit Industrial & Mercantile Corporation (Pvt) Ltd and United Enterprise & Co Ltd (Bangladesh), the KPCL is a publicly listed company, so general investors who poured money to buy its shares will also be impacted by its fate – for better or worse.

Responding to a query, BPDB's Chairman Engineer Md Belayet Hossain said, "There is no scope for oil-fired power plants to get further extensions on their contracts. We will no longer renew or sign fresh contracts with oil-fired power plants.

"Moreover, we are establishing gas-fired power plants to reduce the generation cost."

When contacted, KPCL Chairman Hasan Mahmood Raja said the company is optimistic about getting another extension of contracts for the two plants if the government decides to keep furnace oil-fired power plants in this region.

"The power generation cost of state-owned diesel-based power plants is higher than ours, because it is cheaper to use furnace oil as primary fuel to generate electricity. Therefore, if the government considers keeping oil-fired plants here, we hope to get the priority."

Regarding general investors, Raja further said, "The KPCL acquired 35% shares in the United Payra Power Ltd for Tk115 crore, and this plant is fully prepared to launch commercial operation. So, the investors should not be worried, as they will profit from this plant's earnings."

The United Payra Power Ltd has built a 150 MW furnace oil-based plant in Patuakhali, which is waiting for the BPDB's approval to begin commercial operation. 

The KPCL chairman also said they have decided to sell off the first Private Barge Mount 110MW Plant, which got retired from service in 2018.

KPCL's journey so far

The KPCL started its journey in 1998, at a time when Bangladesh was struggling with severe load-shedding and the government had no immediate way out of the crisis due to its then limited infrastructure and investment.

The KPCL dared to become the country's first private investor in the power generation sector. The BPDB thus signed a PPA with the company in 1997 to set up a power plant in Khulna to alleviate the power shortages as a fast-track solution.

Under the contract, the KPCL mobilised a Barge Mount Power Plant or a floating power generating infrastructure with a capacity to generate 110MW in Khulna. The company was formed with a paid-up capital of $44.10 million, and the initial project cost was $96.07 million. 

The KPCL commenced its full commercial operation on 13 October, 1998, and since then it has been selling power to the national grid.

The formation of the KPCL Project was initially sponsored by the Summit Group and United Group along with their foreign partner El Paso Corporation, USA – one of the world's largest and most diversified natural gas exploration and pipeline companies, and Wärtsilä Corporation, Finland – a leading power plant manufacturer of the world.

El Paso, as part of its global repositioning strategy, disposed of its shares in KPCL to Summit Group and United Group in 2008. Later in 2009, Wärtsilä's share was also acquired by Summit and United.

Later in 2010, the company got two more approvals for setting up 115MW and 40MW plants respectively with a 5-year contact for each, which were extended for another 5 years and scheduled to end on 28 May, 2021, and 31 May, 2021.

Following the KPCL, more than three dozen private companies invested in the country's power generation sector throughout the last two decades, causing it to become saturated.

Listing with the stock market

The KPCL became listed with the Dhaka and Chittagong stock exchanges as a publicly listed company through a direct listing in April 2010.

The company's earnings per share (EPS) was Tk2.79 and its net asset value (NAV) was Tk 18.53 on 31 December, 2009, its indicative price during the direct listing was Tk162.

The initial selling price was set at Tk194.25 per share, which was 69 times higher than the EPS and over 10 times of the NAV. The average selling price of each share was Tk211.23, but it came down to Tk170 barely a month after the direct listing, and it never went up.

Khulna Power had a total asset of Tk1,206 crore and equity of Tk977 crore as of 2019-20 fiscal year, and its bank loans stood at Tk142 crore.