The government’s recent policy shift may hinder the expansion of renewable energy and discourage foreign direct investment (FDI) in private power generation in Bangladesh, according to industry stakeholders and experts.
Concerns were raised during a meeting with the Power Division Secretary on January 7, 2025. Stakeholders voiced apprehensions about the Bangladesh Power Development Board’s (BPDB) new approach, particularly its decision to float a bid on December 5, 2024, for 12 power projects with a combined capacity of 323 MW, but without an Implementation Agreement (IA).
Under this policy, once the projects are operational, the government plans to sign a Power Purchase Agreement (PPA) for a 20-year term at a fixed tariff rate. On January 8, 2025, BPDB also invited bids for 10 solar-based power projects with a total capacity of 500 MW across the country.
Why an Implementation Agreement (IA) Is Critical
The IA plays a crucial role by providing a state’s Sovereign Guarantee, which mitigates investment risks. Most of Bangladesh’s existing power plants have been implemented under such guarantees. Without the IA, project implementation—particularly in terms of tariffs—could face substantial cost increases, deterring investors.
Globally, countries like Indonesia, South Africa, Pakistan, India, Sri Lanka, Angola, and Senegal include an IA or a Sovereign Contract to supplement PPAs and attract foreign investment.
BPDB’s Financial Struggles
The BPDB’s financial condition adds another layer of complexity. The organization has incurred substantial net losses over the past three fiscal years—Tk 8,764 crore, Tk 11,765 crore, and Tk 3,232 crore, respectively—and currently carries unpaid bills totaling Tk 30,000 crore.
These financial difficulties make BPDB a high-risk “Off-take Guarantor,” raising concerns among lenders both domestically and internationally. Without an IA, BPDB could be viewed as “insolvent,” making it nearly impossible to secure financing for the proposed projects.
Moody’s assigned Bangladesh a negative credit outlook in November 2024, and other international credit rating agencies have similarly downgraded the country’s credit rating. This further limits the availability of international financing for power projects.
Investors Voice Concerns
“The absence of an IA will lead to higher electricity tariffs, placing a significant financial burden on the country,” said KM Rezaul Hasnat, President of the Bangladesh Independent Power Producers’ Association (BIPPA).
BIPPA has formally requested the Power Division to include the IA in contracts to safeguard national interests and support renewable energy development.
Mostafa Al Mahmud, President of the Bangladesh Sustainable and Renewable Energy Association (BSREA), echoed these concerns. “We have informed Power Division officials about our investors’ apprehensions regarding the lack of an IA for new renewable projects,” he told Just Energy News on Friday. He added that the absence of an IA could result in increased power tariffs.
Energy expert Prof. M. Tamim emphasized that BPDB’s financial struggles call for greater consultation with investors to lower project costs. “If the IA helps reduce costs, the government should consider including it in renewable energy projects,” he said.
The International Monetary Fund (IMF) recently recommended reducing subsidies or adjusting power tariffs to minimize losses. The government’s new approach is expected to result in varied power tariff increases.
The government is currently losing Tk 1,500 crore per month in the power sector. This financial strain is compounded by the lack of success in recent initiatives, such as the Offshore Bidding Round 2023, where no bids were submitted by international oil companies due to complex terms and conditions.
Industry experts warn that without necessary policy adjustments, including the incorporation of an IA, Bangladesh risks missing opportunities to attract FDI and expand its renewable energy sector sustainably.
