BANGLADESH Trends and Developments Contributed by: Arunima Dutta Aurni and M. Imtiaz Farooq, Farooq and Associates
ently and in a bankable manner, they may open a new phase of renewable energy investment in Bangladesh. Competitive Tendering and Project Bankability The policy shift towards renewable energy is now being tested through competitive procurement. BPDB has recently floated a series of tenders for solar pow- er projects, ranging from 10 MW projects to larger utility-scale projects. The initial market response was cautious. In some cases, tender documents were pur- chased, but proposals were not submitted within the original timeline, leading to repeated extensions. This response reflects the wider transition taking place in the sector. Following the repeal of the Quick Enhancement of Electricity and Energy Supply (Spe- cial Provisions) Act, 2010, Bangladesh is moving away from negotiated procurement towards a more com- petitive model under the public procurement frame- work. This may support tariff discipline and transpar- ency. However, it also places greater pressure on the tender documents themselves, because sponsors and lenders will price the project based on the contractual risk allocation rather than assuming that gaps can be addressed through later negotiation or government support. This is particularly important because the contrac- tual structure for new renewable tenders appears to differ from the traditional IPP model. Earlier private power projects were typically supported by a pow- er purchase agreement with BPDB and a separate implementation agreement with the government. The implementation agreement was important because it provided government support and, in many cases, backstopped certain BPDB obligations. Under the new tender structure, the contract package appears to be more heavily centred on the tender documents and the contract issued with them. There is therefore an important distinction between policy-level intention and contract-level protection. Recent policies refer to payment security, direct agree- ments, lender step-in rights, termination payments and other protections commonly associated with privately financed infrastructure. However, the actual tender documents may not always carry these con- cepts through in a complete or lender-friendly manner.
Issues such as limited payment security, absence of clear government backstop support, restrictions on assignment for financing purposes, broad termina- tion rights, limited termination compensation and less developed change-in-law or force majeure compen- sation mechanisms may raise concerns for sponsors and lenders. These are not merely drafting points. In a long-term power project, lenders will focus closely on whether debt can be recovered, whether investor capital is protected, and whether the project company has adequate remedies if the offtaker defaults. This is particularly important for foreign financing. International lenders became familiar with the tradi- tional PPA, implementation agreement, government guarantee and termination payment structure. With the revised tender documents, that familiarity cannot be assumed, particularly where the project company is expected to bear greater construction, interconnec- tion, grid or payment risk. The market nevertheless appears to be adjusting. Some of the earlier tenders have now progressed, with bids submitted and contracts awarded or signed in certain cases. This is a positive signal, but the more important test will be whether these projects reach financial close, and whether financing is available from international lenders or mainly from local lenders and sponsor balance sheets. BPDB has also continued to float new tenders, and market interest may improve as bidders become more familiar with the revised documents and bidding requirements. The success of the new procurement model will therefore depend on more than low tariffs. Competitive procurement may reduce prices, but sus- tainable private investment will require a contractual framework that allocates risk clearly and gives suf- ficient comfort to sponsors and lenders. The next few rounds of tenders are likely to show whether Bangla- desh can convert its renewable energy policy direction into a financeable project pipeline. Taxation Incentives The policy shift towards renewables is also reflected in the recent direction of tax incentives. The incentive framework for power generation projects has become increasingly differentiated, with more targeted frame-
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