Debt buildup haunts Payra power hub

A Bangladesh-China joint venture that owns the Payra Thermal Power Plant Project, has sought US$140 million from Bangladesh Bank to pay the sixth instalment to China Exim Bank due by December 8.

The joint venture had defaulted on two immediate past instalments.

In a letter to the Power Division, sources said, the company has alerted that failure to pay the next instalment in time may cause shutdown of the crucial plant in the power hub, and may result in loan default on part of Bangladesh.

Furthermore, the Bangladesh-China Power (Pvt) Company Limited (BCPCL) forewarned, building the second unit of the plant of as much capacity may run into risk.

The BCPCL is a joint venture between North-West Power Generation Company Ltd, a cent-percent government-of- Bangladesh-owned entity, and China National Machinery Import and Export Corporation (CMC), also a fully government- of-China-owned enterprise.

The total cost of the project is $2.480 billion of which 1.984 billion, or 80 percent of the amount, is funded solely by the Export Import Bank of China and the rest 0.496 billion by shareholders NWPGCL and CMC.

The joint-venture company, BCPCL, signed a facility agreement with the EXIM Bank of China on 12 May 2017 for a US$1.984-billion loan.

The loan tenure is 15 years with four- year grace period. Principal and interest are payable in 23 semi-annual instalments, and the interest rate is six-month Libor-plus 2.98-percent margin.

So far, BCPCL has received USD 1.881 billion from the China bank.

The Payra 1320MW plant has been in operation since December 08, 2020, providing electricity into the national grid since then, the letter says, adding that loan repayment has started and around US$280 million-considering six months' LIBOR of 5.6 percent-is required per year to maintain the debt-service application.

"Moreover, USD140 million, equivalent to one instalment, is required to maintain in the debt-service reserve account (DSRE) being reserved prior to the six months of the 1st-repayment date or prior to the upcoming repayment date," the letter reads, lamenting that it is not possible to keep in DSRA account due to present dollar price in Bangladesh.

According to the Schedule 8 of the facility agreement, if BCPCL fails to meet DSRA requirements, the lender may call events of default (EOD) which may result in the shutdown of the power plant.

Out of 23 instalments BCBCL has so far paid five instalments of the principal amounting to 343 million US dollars, and the outstanding loan-principal balance stands now at 1.5 billion dollars.

As the EXIM Bank of China has issued payment advice for the 6th instalment of principal  and interest amounting to USD 140,891,605.40 which will be due on December 8, 2023, the company requested Power Division to notify the Forex Reserves and Treasury Management Department of Bangladesh Bank to provide the required am out of US dollars.

The Company has mentioned that as the last two instalments (5th and 4th) could not be paid in time, it caused an additional interest payment of USD 678,746 for the 5th instalment and US dollar 435,487 for the 4th instalment.

"Such delayed payments caused events of default (EOD) default and cross-default which ultimately troubled operation of this project and loan financing of other related projects. To avoid such types of defaults and to meet the debt-service reserve requirements, CEXIM officially notified us through a letter," the company wrote.

"The account bank (Sonali Bank) informed us that they are not in a position to provide such requirements of US dollars, so Bangladesh Bank is the only source of finance that has capability to support us for the FX liquidity requirement," the letter added.

As the Ministry of Finance issued a sovereign guarantee of around US$ 1.0 billion favouring the lender, China EXIM Bank, to secure this loan-repayment failure to pay the 6th-loan-installment requirements may result in the country being defaulter, the company pointed out in its letter.

The company also apprehends that if it fails to pay the next instalment in time, the USD1.547 billion non-concessional loan approved for the second 1320MW Payra Power Plant would be 'seriously threatened'.

BCPCL is operating the first phase of Payra Power Plant at Dhankhali, Patuakhali, which has a capacity of 1320 megawatts. The Payra Power plant project was initiated to meet a growing demand for electricity in the country at affordable cost with a very minimal environmental impact.

It intends to adapt and promote safe, officiate, sophisticated and clean technology, for power generation. The same company is implementing the 1320MW second-phase Payra Power Plant project at the same location.