Originally posted in The Daily Star on 9 November 2022
BB relaxes rules for funding coal-fired power plants
Bangladesh Bank yesterday relaxed its rules to facilitate lending for the establishment of coal-based power plants and buying the dirty fuel to generate electricity.
As per central bank guidelines, lenders cannot disburse more than 25 per cent of their capital.
Now though, the upper limit will not be applicable for the next five years for financing coal-fired power plants, Bangladesh Bank said in a notification.
However, the central bank will determine the upper ceiling beyond 25 per cent for this period, it added.
A senior official of Bangladesh Bank said it has relaxed the rule as coal-fired power plants require large amounts of finance.
As such, the limit has been relaxed, he added while declining to comment further.
The move comes at a time when Bangladesh is producing just half of its 25,700-megawatt (MW) electricity generation capacity due to gas shortages, leading to load-shedding.
A senior official of Bangladesh Bank said it has relaxed the rule as coal-fired power plants require large amounts of finance
At present, two coal-based power plants are in operation while one unit of the 1,320 MW Maitree super thermal power project at Rampal in the southwest division of Khulna is expected to start operations this year.
Besides, public sector power companies are establishing three more coal-based power plants with a combined capacity of 3,840 MW in Patuakhai, Matarbari and Chattogram.
In addition, a 1,320 MW capacity coal-fired plant is being constructed by S Alam Group’s SS Power in a joint venture.
M Tamim, a professor of the department of petroleum and mineral resources engineering at Bangladesh University of Engineering and Technology, said the government may be thinking it will be necessary to generate more electricity through coal-fired plants.
It may be an indirect policy decision and the financing relaxation is mostly likely for facilitating coal purchases for Rampal’s power plant.
“Construction of a project usually starts after financial closure. Other than cost overrun, an ongoing project does not require additional funds,” he added.
However, Golam Moazzem, research director of the Centre for Policy Dialogue (CPD), said the central bank’s latest move goes against its previous initiative to form a green fund for financing eco-friendly projects.
“Relaxing the single borrower exposure limit raises questions whether it was eased to provide special privileges to certain groups or individuals,” he said. “And at this moment, when there is surplus power generation capacity and the country suffers from shortage of foreign currency, easing the lending rule is unacceptable.”
Moazzem went on to say the operational cost to run a coal-based power plant should be met under the current 25 per cent limit for lending to single borrowers.
“Existing provisions were sufficient to accommodate operative costs. So, there is no requirement to further ease these provisions,” he added.