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Saturday, November 17, 2012
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Bibiyana 1 Power Project

Saudi company to get the job

Summit overcomes financing hurdles for two big power projects

Local power company Summit has overcome its financing hurdles to two major base-load power projects while it is formally withdrawing from another power project in Bibiyana so that the government can award the deal for that to a Saudi company.

Summit chief Muhammad Aziz Khan has said his company has arranged $190 million financing for Meghnaghat dual-fuel 335 megawatt power plant, work on which was started in February using Summit's own funds.

Sources said Summit is also receiving finances from the International Finance Corporation (IFC) and the Asian Development Bank (ADB) for the second Bibiyana 341 MW gas-fired power plant.

This means the government can expect that at least two major power plants producing cheap electricity would come into operation within the next couple of years and provide expenditure relief on the national exchequer for producing power.

Moreover, Summit is formally withdrawing from the Bibiyana phase-one 341 MW power project which was being delayed due to financing and land problems. As per the contract, the government and Summit are expected to form a six-member committee within a week, with equal representation from each side, to formally raise disputed issues and come to an agreeable solution.

The company won the deals for all the three projects through competitive tenders in late 2010 by offering very low price. The three projects needed around $800 million for implementation and it became a challenge for Summit as the World Bank refrained from giving Partial Risk Guarantee (PRG) against these projects. The PRG provides a contractor confidence of other banks to give loans.

Back in June, Summit verbally agreed to pull out from the Bibiyana power project where it had offered to sell power at a very low price of Tk 2.6 per kilowatt hour. In the present market, the price is considered unusually low, which other bidders decline to match.

Soon after Summit's consent to the matter, the power ministry toyed with several proposals to other companies to develop this troubled project.

In its latest move, the government signed a memorandum of understanding with Advance Energy of Saudi Arabia that has stakes of the Saudi Royal family. According to Power Division Secretary AK Azad, Advance Energy will submit a formal proposal by the next month.

“We shall formally deal with other interested companies for Bibiyana -1 after we resolve the legal matters with Summit,” Azad added.

But as no other companies can match Summit's proposed tariff, the government has changed the configuration of this power plant. Instead of it being a 341 MW one, it would now be a 225 MW combined cycle plant. The Saudi company has given a primary offer of US 3.8 cents (Over Tk 3) per kilowatt hour.

The Bibiyana-1 project has an extra catch. When it was awarded to Summit, the government imposed an extra job of setting up gas pipeline and power evacuation system, costing $ 20 million. Combined with Summit's low price offer, no bidder was interested to carry out this task.

The Bibiyana-2 project does not have such obligation, while its price offer is almost the same.

Now the Power Division has taken initiative to ask the Gas Transmission Company Ltd (GTCL) to build 10 kilometres of pipeline between the Bibiyana gas field and the power project site, and the Power Grid Company of Bangladesh (PGCB) to set up the power evacuation system.

For Summit, setting up the phase-2 Bibiyana plant poses little hurdle now. “There is already a high voltage 232 kV line at the project site that can evacuate 460 MW power. We can launch Bibiyana-2 with that system even if a new power evacuation system is not established by October 2014,” Aziz Khan said.

He also said the simple-cycle part of the plant is expected to come into operation by April 2014. Summit has signed engineering contract with a Chinese company to build the plant, while it received the project land last week.

He mentioned that Summit has submitted its financial closure application to the Board of Investment outlining that German financier DEG-FMO is providing $120 m, Idcol $30m and Standard Chartered Bank $40 m for the project, totalling $190m. Summit will be giving another $85m from its own funds.

The financing for Bibiyana- 2 is still in process. Sources said the IFC and the ADB have agreed to provide $70 m each for this project.

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We will keep on seeing such stories run in the Daily Star in favour of Summit after every few months.

Had the government been honest and prudent, it should have invited the second ranked or the third ranked bidder for Bibiyana 1 project instead of going after an unknown developer. Can such decision be justified under any rules of public procurement? This kind of unethical and opportunistic behaviour will keep genuine foreign investors away from future IPP bidding in Bangladesh. We know that the vested quarters want such malpractices to go on for ever.

The country will be paying price for running costly oil based generating units due to delay in implementation of combined cycle IPPs awarded to Summit. Summit's delay is a boon for the smaller IPPs running oil based plants. Their PPA terms may get extended.

These all have been happening due to selection of an unqualified bidder who does not have financial and technical abilities to execute large IPP projects, and multiple projects at time. The same was the fate of Meghnaghat II IPP project awarded to Orion Group in 2005 by the BNP government. Poor Bangladeshis will have to pay the price.

: Tajul Islam, Manila

 

 


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