External debt of the electricity sector: repayment can be a problem

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“We’re at a point where we’re asking for budget support from the World Bank and the International Monetary Fund. We need to make sure we don’t have to borrow to repay the loans. We don’t have the excess revenue, nor the necessary foreign exchange reserve.”

Debapriya Bhattacharya

The repayment of foreign loans in the power sector could aggravate the country’s debt service burden as the government will have to pay lenders Tk 197,677.27 crore over the 30 years starting from fiscal year 2024 -25.

The loans, contracted for the construction of 27 power stations and a network extension project, are equivalent to 4.44% of the country’s current GDP.

Rooppur Nuclear Power Plant alone has a debt of Tk 90,474 crore.

For the other 26 plants, Tk 94,174.79 crore will have to be reimbursed, according to Electricity Division data submitted last week to the Parliamentary Standing Committee of the Ministry of Power, Energy and Mineral Resources .

The Dhaka Power Distribution Company grid reinforcement initiative has a debt of over Tk 13,000 crore.

Foreign loans account for three quarters of the costs of the 26 public power plants.

The data submitted to the parliamentary body was signed by an assistant secretary of the Energy Division on July 17.

According to the documents, the government reimbursed about 16% of the total amount.

Economist Debapriya Bhattacharya has repeatedly warned of the intense pressure such debts would put on the economy.

“We’re at a point where we’re asking for budget support from the World Bank and the International Monetary Fund. We need to make sure we don’t have to borrow to repay the loans. We don’t have the excess revenue, nor the necessary foreign exchange reserve,” he told the Daily Star yesterday.

“Will we have enough foreign currency to service the debt? We need a repayment plan,” he said.

He added that power plant projects should be implemented according to schedule to ensure economic returns on investment.

Addressing an event on Thursday, he said the country should be cautious about the debt situation as the repayment of several large loans taken out for megaprojects will begin between 2024 and 2026.

“There is a need to define a repayment strategy, including the rescheduling of imminent payments, taking into account the current account and the state of foreign exchange reserves. Very close monitoring will be essential to control the debt situation,” said he said, commenting on several megaprojects.

The debt repayment period for loans taken out for power plants is 2024-2054.

The Rooppur Nuclear Power Plant project is implemented by the Bangladesh Atomic Energy Commission while the others are by the Energy Division.

Most of the debt is due to be repaid in 2054 for the first phase of the Matarbari coal project.

The second and third largest tranches of debt repayment are to be made by 2035 and 2037 for four power plants.

The largest amount, Tk 47,070 crore, will have to be paid to the Japan International Cooperation Agency (Jica). The money was borrowed for the construction of five factories.

Tk 15,060 crore will be paid to the Export-Import Bank of China for the 1,320 MW Patuakhali coal-fired power station. This debt must be repaid by 2035.

Exim Bank India owes Tk 12,800 crore for Rampal Power Station. The debt is to be repaid in 27 installments from March 31, 2024 to March 31, 2037.

Two other major lenders, the World Bank and the Asian Development Bank, are due to be repaid between 2028 and 2038.

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