By starting the issuance of special bonds to pay off bank liabilities resulting from unpaid subsidies, the government has made a substantial contribution to resolving the financial difficulties faced by independent power producers (IPPs).
This process began Wednesday, a source from the Finance Ministry said.
The finance ministry will gradually issue bonds totaling Tk25,500 crore to 40 banks at a coupon rate of 7.7%, which will match the rate on the Bangladesh Bank repo.
As of June, bank debts accounted for Tk25,500 crore of the outstanding subsidies in the power and fertiliser sectors, totaling Tk42,000 crore, according to sources.
Sources said, bonds totaling Tk 4,500 crore will be issued to the private IFIC Bank and the state-owned Sonali Bank in the first phase. The bonds, which have an anticipated 8–10 year maturity period, will assist banks in meeting the requirements for the Cash Reserve Ratio and Statutory Liquidity Ratio. The goal of the government is to issue all of the bonds this month.
The process has started, according to Farid Ahmed, Deputy Secretary, Government Debt Management, Finance Division, disclosed to Bangladesh Post, but declined to provide further information.
The decisions regarding the issuance of special bonds were made during a meeting with officials from the Ministry of Agriculture and Power Division recently, according to a top official from the Finance Division.
However, as per the Bangladesh Independent Power Producers' Association (BIPPA), the exact amount of debt owed to banks by these companies remains undisclosed.
The Power Division sent a letter, dated December 11, to private power producers, asking them to submit bills. The government has issued bonds in the past to raise capital for projects and various other investments.
This move, announced by finance ministry officials, is aimed at stream
lining the balance sheets of both power producers and banks. To operationalize this initiative, the finance ministry has formally requested data on bank loans extended to IPPs from the power division and agriculture ministry.
According to official sources, the total outstanding debt for these sectors has risen to about $5 billion. About Tk 25,000 crore in unpaid bills to the IPPs are included in this amount; the power sector contributes about $4 billion (roughly Tk 43,093 crore) and the energy sector the remaining $1 billion.
Over a period of nine months, some businesses have not received payments.
A committee has also been formed to speed up procedures for these bonds, such as figuring out their tenure and interest rates. This committee is chaired by an additional secretary of the finance ministry. The committee is composed of representatives from the relevant ministries of agriculture, power divisions, and banks, and the central bank is the government's bond issuer.
Habibur Rahman, senior secretary of the Power Division, expressed support for the initiative, emphasizing that it would alleviate the immediate financial burden on the government while providing relief to both banks and IPPs.
Sonali Bank CEO and Managing Director, Md. Afzal Karim, echoed the positive sentiment, stating that settling bank liabilities through special bonds would enhance banks' indicators and increase lending capacity. He emphasized that as long as the bond's coupon rate aligns with market rates, banks would not encounter issues.
Finance division officials clarified that the government would issue bonds to cover the entire bank liability of an IPP, matching the outstanding subsidy. However, industry experts argue that paying only the bank's debt may favor those with higher liabilities, impacting good companies struggling to repay debt from alternative sources.
BIPPA has appealed to the Finance Division, seeking a different categorization of IPPs in the banking system due to cash flow issues resulting from the state body's non-payment. The association emphasized the urgent need for intervention to prevent financial institutions from declaring IPPs as defaulters.
The Bangladesh Power Development Board, the main buyer of electricity from privately owned plants, is hamstrung with a fund crunch and mounting losses.
"The PDB makes small partial payments each month from their revenue collection and support from the finance ministry," Faisal Khan, the president of the Bangladesh Independent Power Producers' Association, said in an interview with the media.
Mohammad Hossain, director-general of the Power Cell, termed the owners of the IPPs an extended family of the power ministry. He told journalists that IPPs have been getting payments regularly for the last 10 years. They also know that the government is going through a challenging situation. They are getting payments, but it takes time. We hope everything will be fine. The government plans to generate about 17,500 megawatts of electricity this year, he said.
The state-owned Bangladesh Power Development Board (BPDB) is compelled to purchase electricity from independent power producers (IPPs) in dollars, contributing to the rising outstanding payments. The current daily allocation from the Bangladesh Bank falls significantly short of the required amount, exacerbating the financial strain on the BPDB.
The State Minister for Power, Energy, and Mineral Resources, Nasrul Hamid, acknowledged a severe crisis in the country's power and energy sectors to UNB on 24th December. He identified the primary issue as a shortage of dollars, stating that they are not receiving sufficient funds from the Bangladesh Bank to meet their monthly obligations, which require at least $1 billion.
Despite regular negotiations with the central bank for increased dollar supply, Hamid noted that the bank suggests raising electricity, gas, and petroleum prices, a politically challenging option.
To address the situation, the ministry is planning to secure a loan from the Multilateral Investment Guarantee Agency (MIGA).
The issuance of special bonds aims to mitigate the immediate financial strain on the government and provide relief to banks and IPPs. However, careful consideration is needed to ensure the fair treatment of all stakeholders and prevent adverse consequences for well-performing companies in the sector.
