BANGLADESH Trends and Developments Contributed by: Arunima Dutta Aurni and M Imtiaz Farooq, Farooq & Associates
the BPDB, being the procuring entity, will use the international open tendering method under the PPA 2006. The Act also provides for other procurement methods specifically applicable to international procurement. Early Challenges in Competitive Tendering Despite this shift, early results under the new regime have been discouraging. The BPDB had floated three tenders to build solar power plants with capacities between 10 MW and 100 MW. The deadlines for submission of propos- als have been extended for the second time as no proposals have been received from poten- tial investors. The tender documents must be purchased from the BPDB upon payment of a fee of BDT25,000. While interested entities have bought the tender documents, none appear to have submitted any proposals. The main challenge is the bankability of such projects. Previously, there were two key agree- ments: • The power purchase agreement (PPA) between the BPDB as the purchaser and the project company as the independent power producer. • The implementation agreement between the GOB, represented by the Ministry of Power, Energy & Mineral Resources, and the project company as the independent power produc- er. Under this agreement, the GOB used to backstop the BPDB’s obligations and provide necessary support in project implementation. Most importantly, termination payments were payable by the GOB in case of termination of the project agreement. The entire format of the project documents has now been changed. Instead of the earlier imple- mentation agreement and the PPA, the contract
documents will now include the tender docu- ments, which contain references to certain provi- sions of the earlier PPA. Under the traditional PPA, the BPDB was obliged to issue a standby letter of credit to the pro- ject company within 25 business days after the commercial operations date. This letter of credit acted as a payment security mechanism, allow- ing the project company to draw amounts due under the PPA (less any disputed amounts) by presenting a certificate in the prescribed form. In practice, the BPDB often fails to issue or replenish the payment security within the stipu- lated timeframes under the PPA, making it unre- liable as the sole form of security. As a result, lenders typically placed greater reliance on the GOB guarantee provided under the Guarantee Agreement. The absence of both the standby letter of credit and the GOB guarantee in the current tender documents introduces significant risks for the independent power producer. Without these safeguards, the project company faces height- ened exposure to payment delays or defaults by the BPDB, which could adversely affect the project’s financial stability and viability. The tender documents do not include provisions regarding the establishment and operation of bank accounts, foreign exchange (FX) availability and convertibility, or transferability of funds. The absence of such provisions creates uncertainty and raises concerns about the ability to repat- riate funds or service foreign debt obligations, which are critical factors for international inves- tors and financiers. Traditionally, Bangladesh’s power sector has attracted substantial foreign direct investment,
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