NTPC's Bangladesh project puts Exim Bank's global credibility at risk: IEEFA

Power produced from project to cost 32% more than average electricity in Bangladesh, despite heavy subsidies

A US-based think tank today said the Bangladesh-India Maitree project could effectively end up in a financial mess. The coal-based power plant proposed to be built near the city of Khulna, close to the Sundarbans mangrove forest, is a joint venture between India and Bangladesh’s state-owned entities.

The Institute for Energy Economics and Financial Analysis (IEEFA) said electricity produced from the project would cost 32 per cent more than the average electricity in Bangladesh, assuming an average plant load factor (PLF) of 80 per cent. This despite the project being heavily subsidized, "exposing investors, taxpayers and consumers to high risk and is a potential stranded asset in the making". A senior executive associated with the project, however, said the Indian government was not subsidising the project in any form. “It was only providing loan through Exim Bank to promote Indian investment in Bangladesh,” he said.

NTPC is building the plant together with the Bangladesh Power Development Board (BPDB), forming a 50:50 joint venture called the Bangladesh-India Friendship Power Company (BIFPCL). The New entity formed, BIFPCL, would invest 30 per cent equity ($546 million) and the Indian government would facilitate 70 per cent debt to amounting $1.6 billion through the Indian Exim bank. “While the Rampal project would expose all project promoters and consumers to financial risk, it poses specific risks to the Indian Exim Bank. The Rampal project would constitute a large chunk of the bank’s loan book, it would put the Exim Bank’s international fund-raising capacity at risk, and the very coal-fired nature of the project would create refinance risk for the Exim Bank,” it said.

Power generation capacity of Bangladesh by fuel type
Fuel	Megawatts produced	Percentage of total
Coal	250	2.1
Gas	7,694	64.3
Hydro	230	1.9
Wind	20	Negligible
Utility scale solar	0	0.0
Distributed rooftop solar	158	1.3
Furnace Oil	2,675	22.4
Diesel	956	8
Domestic Installed Capacity	11,965
Imports - India	600
Total Generation Capacity	12,565
Source: Bangladesh Power Development Board, IEEFA calculations

The IEEFA receives its funding from philanthropic organizations like Rockefeller Family Fund,  Energy Foundation, Mertz-Gilmore Foundation, Moxie Foundation, William and Flora Hewlett Foundation, Rockefeller Brothers Fund, Growald Family Fund, Flora Family Fund, Wallace Global Fund,  and V. Kann Rasmussen Foundation.

The report said the average PLF for coal-fired power plants in China, the US and India were in the range of 50-60 per cent, while in Bangladesh in 2014-15, the average PLF rate was 63.9 per cent.

Without subsidies the plant’s generation costs were 62 per cent higher than the current average cost of electricity production in Bangladesh, it said.

The Bangladesh government is planning to give a 15-year income tax exemption for the plant, an exemption worth $936 million. Besides, “a below-market-rate loan by Indian Exim Bank represents a $988 million subsidy effectively paid by Indian taxpayers to Bangladeshi consumers”. Bangladesh would be granting an effective annual $26 million subsidy by conducting maintenance dredging to assure coal delivery to the plant, the report pointed out.

The executive quoted above, however, said the viability of project was not under cloud and decision with regard to tax concessions were taken by governments according to the requirement of promoting investment.

Listing out 10 risk factors, the report said the location in the “Wind risk zone” of Bangladesh represents a significant financial risk, since the plant would be extremely vulnerable to storm surges and, therefore, to outages and damage. Besides, it said the Bangladesh government in the event of the further budget deficits might no longer fully support electricity-system losses. This constitutes a significant risk to Rampal project backers and customers. “Notably, similar projects in India would not be approved because they would violate laws against building such plants within 25 kilometres of ecologically sensitive areas like forests,” the report said.

The Rampal power plant is part of the country’s Power Sector Master Plan 2010, which aims to expand and diversify the Bangladeshi electricity sector away from the current dominance of gas- based power generation toward a higher percentage of imported-coal-based power generation.

In April 2016, Bangladesh had a total installed power capacity of 12.3 Gw, with 600 Mw of power imported from India. The electricity system is primarily dependent on natural gas, which contributes 61.8 per cent of total generating capacity, followed by furnace oil and diesel at 21.7 per cent and 7.8 per cent, respectively. “The gas-based development of the electricity generating system to date has been driven by the large domestic availability of natural gas. In March 2015, Bangladesh had 14.3 trillion cubic feet of gas reserves.”