Project cost and funding mix
The project is estimated to cost $295 million, including $75 million in equity and $220 million in debt. In December 2000, a $ 50 million direct loan and a $ 20 million supplementary financing facility were approved for the Meghnaghat power project by the Board of Directors of ADB. In turn, two weeks later, a $ 70 million Political Risk Guarantee (PRG) was approved for the project by the Board. The Government of Bangladesh has reimbursed ADB for all amounts paid under the guarantee agreement. $ 20 million in senior loans and $ 60 million in subordinated loans were provided by financial institutions and commercial banks.
Demand, supply, and risks
According to Project financing for Meghnaghat natural gas-fired combined cycle Power plant project in Bangladesh (2020), at the time of the project, the electricity supply was lagging behind demand, and the country was facing a power shortage. Before the project’s implementation, the annual per capita electricity consumption in the country was one of the lowest globally. Further, while the electricity demand increased by 8% annually, the quiet utilization of the plant, insufficient investment, and high distribution losses caused a significant reduction in the load, which peaked in 1999.
Asian Development Bank (2009) asserts that demand risk is low based on the current deficit and high annual demand growth. The buyer’s “take or pay” obligation under the PPA, which the government guarantees, further reduces the risk of demand. Moreover, such influences on the project as private sector expansion, competition, innovation, catalytic elements, affected laws, frameworks, and regulations, expertise contribution, demonstration of new standards, and improved governance are rated as low.
Initial problems with the project and final restructuring
According to the Asian Development Bank (2009), the developer, the terms and conditions of the project were determined through international competitive and transparent tendering. AES Corporation initially developed the project through the particular purpose company AES Meghnaghat Limited. The activities for selecting a suitable site, the procurement of materials, and the construction of access roads were carried out in 2000 by BPDP. In the third quarter of 2002, the Department of the Environment (DOE) granted an environmental permit for the commercial operation of the station. Thus, construction lasted 22 months, and in November 2002, the project’s commercial operation began.
In December 2003, AES sold 100% of MPL to Globeleq Ltd., a subsidiary of the United Kingdom government’s CDC Group plc. The new owner changed its name from AES Meghnaghat Limited to Meghnaghat Power Limited (MPL). In December 2005, 24% of the shares were bought from Globeleq by the Islamic Development Bank Infrastructure Fund LP. In turn, in November 2007, Pendekar Energy (L) Ltd., a private Malaysian company, acquired all of Globeleq’s assets, including Meghnaghat. It is noteworthy that the change in the ownership structure did not lead to severe shifts in the corporate goals and objectives of the project.
Asian Development Bank (2009) notes that the Meghnaghat Power project demonstrated how to plan, prepare and implement a successful private power plant in Bangladesh. The project is successful because it is commercially viable, financially viable, environmentally friendly, and well-managed. It acquired a significant and much-needed addition to the country’s generating capacity, which has helped meet the growing demand of existing and new subscribers.
References
Asian Development Bank. (2009). Loans and political risk guarantee Bangladesh: Meghnaghat Power Project [PDF document].
Project financing for Meghnaghat natural gas-fired combined cycle Power plant project in Bangladesh. (2020). Japan Bank for International Cooperation.