Haripur Power Plant Project in Bangladesh
Project cost and funding mix
The World Bank (2014) notes that the total project cost is about $183 million. The project was financed through equity and quasi-equity in shareholder-subordinated debt and senior commercial debt. AES Corporation provided equity of about $68 million through its various subsidiaries. The $ 115 million credit was assured through IFC A and IFC B loans, as well as a commercial loan facility with the support of an IDA PRG. The IFC, A loan of $ 40 million, was provided for 15 years, and the IFC B loan was up to $ 14.1 million for ten years for the account of participating international banks. In addition, IFC’s Board approved an exposure for $115 million interest rate swaps to hedge the floating-rate financing into a fixed rate.
Demand, supply, and risks
The unsustainable electricity supply, a growing problem in Bangladesh, has reached a critical size. The poor financial condition of the sector, associated with a combination of low tariffs, high losses, and low reimbursement rates, had prevented the utilities from operating in a financially sound manner and meeting the investment requirements of the sector. The imbalance in supply and demand has meant that cities and villages across the country suffer from reduced workloads of eight or more hours a day.
The risks were shared among the project participants. According to the World Bank (2000), sponsors and commercial lenders were responsible for commercial risks, including completion and operations risks and dangers of natural force majeure. Moreover, most commercial risks have been mitigated through engineering, procurement, construction, O&M contracts, and various commercial insurance arrangements.
The World Bank (2000) assessed such risks as political force majeure and gas supply in sufficient quantities are evaluated as substantial, while market demand for electricity and project delays are assessed as modest risks. In general, the project has substantial risk due to the weakness of the sector and slow reforms.
Initial problems with the project and final restructuring
The supposed country risk of Bangladesh was high at that time. Both international IPP developers and financial institutions were skeptical of the Bangladesh energy sector because of its unstable economic situation and lack of experience in implementing the power project development IPP model. To procure investors and lenders with confidence in the country’s ability to fulfill its payment obligations for the project, the GoB requested IDA for a Partial Risk Guarantee (PRG) to backstop the obligations of the Bangladesh Power Development Board (BPDB) as an off-taker. The PRG has sought to ensure the Haripur project access to the most significant commercial financing package in Bangladesh, making the risk profile acceptable to creditors.
Furthermore, according to the World Bank (2014), initially, there were issues regarding the discrepancy between gas prices for public generation projects and the Haripur IPP. Titas invoiced Haripur IPP at Taka 124/MCF towards Taka 72.45/MCF for public generation plants. Haripur contested this and continued to pay the gas bills at the rate of Taka 72.45/MCF under the GSA. During Bank’s initial oversight missions, the issue was raised at the highest level of the government and reflected in the mission AMs. The problem was later resolved in late 2006 by Titas billing Haripur at the same rate as for public generation projects.
The World Bank (2014) asserts that there was no restructuring of the project. According to AES: Bangladeshi double-take (2001), together with the Meghnaghat Power Project, the Haripur project represents the most extensive non-recourse cross-border debt financing program ever to exist.
AES: Bangladeshi double take. (2001). IJGlobal.
The World Bank. (2014). Implementation completion and results report (guarantee no. B-002-0-BD) on a IDA partial risk guarantee in the amount of USD 60.90 million to AES Haripur (Private) Limited for Haripur Power Project [PDF document].
The World Bank. (2000). Project appraisal document on a proposed IDA partial risk guarantee in the amount of us$ 60.9 million of a syndicated commercial loan to AES Haripur (Private) Limited for the Haripur Power Project in Bangladesh [PDF document].