Surge in Chinese investment in Bangladesh power projects

As is common with China's strategy of increasing influence in South Asian countries, it has made inroads into Bangladesh by offering to fund its infrastructure projects while aligning them to its own expansionist strategy.

There has been an increase in the pace of Chinese investment in Bangladesh, tying the two countries more closely together than ever, which also raises questions on the latter's relationships with its traditional development and strategic partners.

According to some estimates, in 2019-20, approximately $407 million of Chinese investment went into Bangladesh's power sector, mostly to coal-based power projects. Some major ones included the 1,320 (MW) Pyra thermal power plant in Patuakhali, 1224 MW Banshkhali coal power plant  in Chittagong and 1,300-MW coal project in Maheshkhali Island in Cox Bazar.

While China has proposed loans worth about $5.15 billion to fund power plants with power generation capacity of 1, 246 MW of electricity, it has committed only about $1.9 billion  for the 1,320 Payra power plant while the actual disbursal have been even lower (as of 2019).

Earlier, China used to sign Engineering, Procurement and Construction (EPC) contracts, which offered fixed returns if the plant was built and running on schedule. However, now-a-days, Chinese companies have entered into joint venture agreements with some domestic ones, thus making equity investments.

While at one hand it gives the Chinese companies more say in the running of the plant as well as profits, it also involves longer-term risks. China with its rapidly expanding global outreach will be taking such calculated risks keeping in mind the broader picture.

Name of project with expected date of completion

1.    Payra 50 MW Wind Power Plant ProjectDEC 2022

2.    Sirajganj 100 MW Grid Connected Photovoltaic Solar Power Plant ProjectJUNE 2022

3.    Jamuna 125 MW Grid Connected Photovoltaic Solar Power Plant ProjectDEC 2022

4.    Dighipara 1000 MW Ultra Super Critical Thermal Power Plant Project JUNE 2028

Bangladesh State-owned North-West Power Generation Company Ltd. (NWPGCL) set up a joint venture in the name of BCPCL with China National Machinery Import & Export Corporation Ltd. (CMC) for carrying out Payra 1320 MW Thermal Power Plant Project on turnkey basis, where both sides would possess equity of 50:50. 

Apart from the Payra Thermal Plant project, BCPCL also has plans for a number of future projects- Bangladesh Power Development Board (BPDB) has entered into a JV agreement with China Huadian Hong Kong Company Limited (CHDHK) to build a 1,320 MW coal-fired power plant on Bangladesh's Moheshkhali Island in Cox's Bazar district.

CHDHK is a wholly-owned subsidiary of China Huadian Corporation, a large state-run power generation enterprise, with investments in power generation, coal resources development, and power grid construction.

The $2bn Payra power project is financed through 30% equity investment provided by BCPCL partners and 70% debt provided through loan from Chinese banks led by Chinese Export-Import (Exim) bank. Most of the EPC contracts for the project have also been awarded to Chinese companies. 

EPC contract for the power plant was awarded to a Chinese consortium comprising China Energy Engineering Group Northeast No. 1 Electric Power Construction (NEPC) and China National Energy Engineering and Construction (CECC) in March 2016. Dongfang Boiler Group was subcontracted to supply the boilers and Shanghai Electric Group was subcontracted to provide the steam turbine generators for the coal-fired power plant.

Minconsult, an engineering consultancy based in Malaysia, along with Shenzhen Engineering and Power Energy Management & Engineering (PEMEC) was awarded the owner's engineering (OE) services contract for the project in June 2016.

Further, there are reports that BCPCL is planning to engage Hong Kong-based Huizhi International Capital Holdings Co. Ltd.  as its financial advisor for raising finance for the Payra Phase two project.  BCPCL has to pay $ 2,760,000 as Success fee to Huizhi within 30 days of signing the contract.  Further, BCPCL has also engaged Herbert Smith Freehills, Beijing, China as its legal advisor for the phase two project. It is already involved in many BRI projects.

The Payra project has long been in the pipeline. The Chinese consortium was the lone bidder for the project. However, the funds also took long time to come. While the Framework Financial Agreement of $1.984 billion between the CEXIM and BCPCL was signed in Oct. 2016 during Chinese President Xi Jinping's maiden visit to Bangladesh, the Project Financing deal was inked almost two years later in May, 2018.

It is already way behind its target dates of completion. The Unit-1 and Unit-2 of the Plant were expected to be commissioned in April, 2019 and October, 2019 respectively.  However, unit 1 with 660MW began its test run in January 2020.

The second unit was scheduled to follow suit in March 2020 but has now got delayed due to the pandemic. Moreover, the double-circuit transmission lines are not fully in place, therefore commercial operations cannot resume properly. But Bangladesh will need to pay capacity charges every month even though the electricity generated remains unused.

Repayment of loan instalments to China ExIM Bank is scheduled to begin in six months after the commercial operation begins. However, Payra project director Shah Abdul Moula has said that they are in very bad situation as they are unable to contribute to the national grid and run at full capacity due to lack of transmission.

Power grid company officials said that their Gopalganj substation, meant to distribute a part of the electricity generated by the Payra power plant among some north-western areas such as Gopalganj, Madaripur and Fairdpur, was not yet prepared to handle double circuit line.

The 132 kv distribution lines running from the Gopalganj substation are old lines and highly susceptible to tripping.  Power grid company managing director Golam Kibria said that they would not be able to complete the task until April 2021. First the coronavirus and then the monsoon season implies that field level works are not possible before the next winter.

Field-level work on 25 ongoing power transmission projects remained suspended since the coronavirus outbreak in China in December last year, hitting hard the power sector development. According to official sources, most of these projects were either awarded to Chinese contractors or their equipment were supposed to come largely from China.

In 2016, just ahead of Xinping's visit, China's Jiangsu Etern Co Ltd was signed for strengthening the power grid network in Bangladesh. Another $1.6bn deal was signed between China's state-owned Tebian Electricity Apparatus and Dhaka Power, a state-owned utility, to upgrade the capital's power grid.

However, not much progress was made regarding approvals and disbursals. After much negotiation, during Bangladesh PM Sheikh Hasina's visit to China in July 2019, agreements were signed for Dhaka Power Distribution Company (DPDC) to receive $1.4 billion and Power Grid Company of Bangladesh (PGCB) over $2.8 billion. However, as these were framework agreements, the Bangladeshi sides have had to repeatedly pursue their Chinese counterparts for funds.

The Payra Seaport will be supplied power from the Payra thermal power plants. It is a $15 billion Belt and Road Initiative project that will be constructed by China Harbor Engineering Company (CHEC) and China State Engineering and Construction Company (CSCEC), two Chinese state-owned enterprises that also oversee construction of Gwadar and Hambantota ports in Pakistan and Sri Lanka, respectively.

It has been said that Payra Seaport is unlikely to become a Chinese asset because of the unfeasibility of its location, poor supporting infrastructure, and the positive outlook of Bangladesh's external debt.However, Bangladesh has emerged as the second largest recipient of Chinese loans after Pakistan in South Asia. In the power sector alone, Bangladesh is the country with the most proposed coal-fired capacity and funding from China, totaling US$7.05 billion for about 14GW of capacity.


The writer is a freelancer
and a columnist