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Bangladesh Bank seeks sovereign guarantee for new power sector funding

05 Aug 2017, 23:07 | updated: 05 Aug 2017, 23:34

Online Desk

Dhaka: Bangladesh Bank has put forward three suggestions including a condition for government's sovereign guarantee to mobilise Tk 20,000 crore for new investment in the power sector.

The suggestions are floating Islamic bond with idle fund of the country's Islamic banks, creating consortium of banks for large scale funding, and floating of bonds by the state-owned organizations in power sector.

"We have submitted the suggestions to the government against the proposal of Tk 20,000 crore funding for new investment in the power sector," SK Sur Chowdhury told news agency UNB.

He also mentioned the central bank has tagged a condition of providing sovereign guarantee from the government in financing the power sector by floating bonds and large bank loans.

The suggestions as well as the condition of the central bank came against the backdrop of the government's recent move to set up 18 new power plants having total capacity 2900 MW on a fast track basis within next one and a half year period.

Of these, 7 plants having total 900 MW are planned to be set up on PDB's own land while 4 plants having total 1000 MW would be set up in the private sponsors' lands and the 7 remaining plants having total 1000 MW in railway and sugar mills' unutilized lands.

All these 18 plants of total 2900 MW will be set up by private sector and the state-owned Power Development Board (PDB) will purchase electricity from these plants for a long term period of minimum 15 years.

Official sources said the recent power crisis in the early summer prompted the government to take up these new projects to meet the power shortage before the next general election.

They said initiating the move the Power Division invited a joint meeting of the prospective investors, banks, financial institutions, capital market representatives and other concerned ministries and government agencies to discuss their plan.

The funding of the projects emerged as the big issue as implementation of the government's new plan will require about Tk 20,000 crore.

The existing banking law is also a barrier to the way of funding as any bank cannot provide a large loan to any client, which crosses the 25 percent limit of the bank's total capital.

Finally, the meeting formed a 10-member committee comprising Bangladesh Bank representatives and headed by an additional secretary of the Finance Ministry, to extensively examine the whole issue and find out solutions to resolve the funding problem.

Officials said the Bangladesh Bank gave its suggestion during the meeting of the committee which held a number of meetings and now is in a process to finalise its recommendations.

Sources said that the committee found that if banks and financial institutions go for large scale funding to any investor in power sector through creating consortium, in that case, there will be no need to amend the banking law.

Bangladesh Bank officials also said that a big amount of fund could easily come from the idle money of Tk 5500 crore which remained unutilized with different Islamic banks of the country. The banks can float bonds to finance the projects.

The state-owned PDB can float also bonds to raise a big fund through floating its own bond on the capital market.

But in both cases, the central bank put a condition of providing government's sovereign guarantee so that public or financial institutions can buy these bonds with trust and in risk-free manner.

Power Division officials said they are still unaware of any suggestion of the central bank as they have not yet received the report of the additional secretary-led committee.

They, however, said they have already completed the selection process of sponsors for a number of plants having total capacity of 1800 MW. The proposals were sent to Prime Minister's office for necessary approval, they added.

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