Moving away from capacity payment

In what can be viewed as a last-ditch attempt by the government to extricate the economy from crippling power cuts, energy planners are now planning to take power from some pilot power-plants that are about to come into operation. Reportedly, these soon-to-be operational power plants have no "capacity payment" clause built into contracts and, it is hoped that, through generating power from these projects, it will be able to offset some of the load-shedding in power sector. The other option authorities are looking into is to make full use of older power plants that are not producing at full capacity.

It remains to be seen whether these ad-hoc measures will be enough to offset some power loss to the economy as the major contributors like Payra and Matarbari plants are now sitting idle or are underutilised due to a lack of coal. Because the power plants being talked about may not have "capacity-payment" clause built in to their contracts, they will still require coal to run. So, unless the government has found a cheaper alternative to procuring coal from some source, it is too early to state anything in advance about the new line of thinking.

Interestingly, these pilot-projects are supposed to get paid after successful commissioning, and sources state that the relevant ministry is expecting 1,000 megawatts (MW) of electricity to be generated from these new projects. While the Adani project, across the border, will procure its own supply of coal to generate power, what will happen to the rest of the projects? The country is in no position to pay for the coal needed by its power sector. One has only to look at the situation with the independent power producers (IPPs) to see the dire straits on the payments issue which has now reached a critical situation. The dollar-crunch has blown the air out of the much-vaunted success in energy planning and today Bangladesh has idle power generation capacity but no fuel to fire up the power plants it has built.

This leaves Bangladesh on the backfoot because now the country is at the mercy of Adani, which can dictate terms for payment on any additional electricity generated over there. The country is back to square one and no matter what explanation is given, there will be no short cut to solving the current energy crisis. Unless Bangladesh can work out a non-dollar payment mechanism for cross-border energy payment with India, the latest plan will also, in all likelihood, fall through.

There is little room to maneuver here. Unfortunately, Bangladesh's international rating according to S&P has also suffered recently. That translates into greater difficulty in securing foreign loans, and those institutions that do give loans to the country will have higher interest rates and shorter repayment periods. All in all, a grim situation. Whether it is local power plants or foreign, any electricity generated will have to be paid for, regardless of whether capacity-payment is involved or not. Today, Bangladesh has no extra dollars to pay for coal, after paying for liquefied natural gas (LNG). Had sufficient foreign exchange been available, then the country could have bought cheap crude oil from international markets and refined the same, or bought cheaper refined oil since there are more choices available now. Unfortunately, the cart was put before the horse and now all sorts of compromises will have to be made to get as much power to the economy, as soon as possible. It is a suppliers' market and policymakers will have to find ways to get requisite finance to pay for the power generated by private sector somehow.