Power producers risk wiping out investors' funds as expiry nears

Eight listed power producers have been losing revenue as the government has moved away from quick rental plants to ease the burden of capacity charge payments and bring down the price of electricity.

Quick rental power plants were a quick but temporary solution to the power crisis. So, allowing the listing of companies, which were meant to have a short life, was a wrong move.

Except for Summit Power, the seven other companies listed between 2010 and 2021. Some of them have already had their contracts with the government expired while others are approaching expiry of their deals to supply electricity to the national grid.

Market experts say the companies, fully aware of the brevity of their business, passed on the risk to general people by raising money through initial public offerings.

Now, as the companies will go out of business one by one, shares issued to the market by the entities will add to the pile of worthless assets, and investors will get stuck with them without any scope of exit.

"We knew these companies would destroy the capital of investors," said Md Shakil Rizvi, a director of the Dhaka Stock Exchange (DSE).

"We were always opposed to the listing of these companies. Many a time we told the stock market watchdog not to allow these companies to list," he added.

Md Rezaul Karim, executive director and spokesperson of the Bangladesh Securities and Exchange Commission (BSEC), acknowledged concerns over the power companies and investments in them. But he said the companies would be able to survive by moving to other industries and pursuing new projects.

Quick rental power plants to be phased out

The previous Awami League-led government went for quick rental power plants in 2010 purportedly as a quick fix to the then acute power crisis.

That compelled the government to pay huge amounts of capacity charges to private sector electricity producers for more than a decade.

Capacity charge is the amount of money payable under power deals irrespective of whether the government purchases power from the companies or keeps their operations suspended. Such payments ensure maximum returns to private investors on the investment made.

In September last year, the past government revealed that Tk 1.04 trillion had been spent on paying capacity charges in the 14 years since it assumed power in 2009.

Now experts urge the interim government to phase out all quick rental power plants as quickly as possible and search for sustainable alternatives.

Even before the ouster of the Sheikh Hasina-led government, there was pressure mounting for cancellation or non-renewal of the contracts tied to capacity payment.

So, the government stopped renewing contracts with power generators.

As a result, revenue of listed power producers started falling in FY20. Their dividend "These companies should have gone for debt financing," said Shahidul Islam, managing director and chief executive officer (CEO) of VIPB Asset Management.

Echoing the view, Md Moniruzzaman, managing director of Prime Bank Securities, told The FE, "A better way to finance them was through limited lifetime bonds."

Current state of the power producers

Listed in 2011, Baraka Power witnessed its contract with the government expire in October this year. The company is at the risk of going out of business, according to its auditor.

Baraka Patenga Power Limited, which went public in 2021, has already gone into the red. A sister concern of Baraka Power, it has a contract with the government, the validity of which will end in 2029. Baraka Patenga Power is enduring losses partly because of the finance expenses of its non-functional subsidiary.

Doreen Power Generations and Systems listed in 2016. All of its three plants had their power deals expired. The company decided to sell two plants while the other got a time extension of the deal by five years on a no-electricity-and-no-payment basis.

However, some of its non-listed subsidiary power plants are in operation, with a limited lifetime.

Having issued shares to the public in 2010, Khulna Power Company has already sold its three plants this year. It has no operating income now and earns a scanty income from non-listed subsidiaries.

Shahjibazar Power, a public entity since 2014, has a new contract signed with the government on a no-electricity-and-no-payment basis. The deal also has a fixed time.

GBB Power is also facing threats of bankruptcy, according to its auditor, since it currently has no contract with the government.

United Power Generation & Distribution Company Ltd, listed in 1015, and Summit Power Limited, listed in 2005, are major players in the power industry among listed firms.

Both of them experienced a decline in their revenue. Summit Power has not yet published FY24 financial results. United Power has contracts for power supply up until 2039.

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