BANGLADESH Trends and Developments Contributed by: Arunima Dutta Aurni and M. Imtiaz Farooq, Farooq and Associates
work for renewable energy-based projects and spe- cific solar power arrangements. SRO 208 provided income tax exemptions for private power-generation companies, excluding coal-based power companies. For projects commencing com- mercial production between 1 July 2024 and 30 June 2025, the exemption was available on a phased basis for ten years. SRO 247 then operated as a transitional and amending notification, preserving or clarifying the position for certain earlier projects and specific gas or LNG-based projects. The position was further updated through SRO 400, which introduces a separate incentive regime for renewable energy-based power projects and power plants. The exemption applies to projects commenc- ing commercial production between 1 July 2025 and 30 June 2030. Eligible projects receive a 15-year phased income tax exemption from the date of com- mercial production, comprising 100% exemption for the first ten years, 50% exemption for the following three years and 25% exemption for the next two years. The framework has since been supplemented by SRO 211, effective from 1 July 2026. It provides an income tax exemption until 30 June 2035, for qualifying insti- tutions generating and supplying renewable solar electricity through self-financed and self-managed solar power plants, subject to net metering approval and supply under a power purchase agreement. It also grants the institution using the electricity a tax rebate equal to 5% of the relevant solar electricity bill. These are important developments for project spon- sors and lenders. While the general private power incentive regime has become more limited and tran- sitional, renewable energy projects have been given a longer and more specific exemption period, with separate targeted relief also introduced for qualifying solar power arrangements. The relief is likely to remain relevant for tariff assumptions, financial modelling and the overall economics of renewable power projects. Electricity Tariff Adjustments and Subsidy Pressure The new procurement and policy direction is also unfolding against a wider sector revenue and subsidy backdrop. Recent tariff adjustments at the wholesale,
transmission and retail levels are aimed at improving cost recovery and reducing the government’s subsi- dy burden. These are sector-level tariff adjustments, rather than changes to the project-level tariff payable by an offtaker to a power producer under a PPA. The adjustment appears to be calibrated rather than uniform. The lowest residential consumption slabs have been kept outside the increase, reflecting a con- tinued attempt to protect lower-consumption house- holds while improving overall cost recovery. Even after the revision, the power sector is expected to continue requiring substantial government subsidy. The tariff increase may reduce part of the revenue gap, but it is unlikely to eliminate it entirely. Tariff rationali- sation is therefore becoming an important part of the sector’s financial reform, although it remains only one element of the wider solution. Payment Delays Payment delays remain one of the key commercial issues affecting operating power projects in Bangla- desh. Projects that have achieved commercial oper- ations continue to invoice BPDB under their project agreements, but BPDB’s payment cycle remains delayed. This issue existed during the previous gov- ernment’s tenure as well, although the delay period has, at different times, worsened significantly, ranging from a few months to more than a year depending on the priority and status of the project. These delays directly affect project cash flow. Power projects are typically structured around predictable offtaker revenue, and prolonged payment delays can affect debt service, operating expenses and compli- ance with other contractual obligations. For sponsors and lenders, the issue is therefore not only delayed receivables, but also future risk pricing and confi- dence in sector payment discipline. There has been some recent improvement in the pay- ment cycle, although payments have not fully regular- ised. That improvement should be read with caution. In a number of cases, BPDB has reduced the amount payable by calculating outages and deducting liqui- dated damages for alleged failure to meet availabil- ity obligations. As a result, the net payable amount
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