Bangladesh Power Development Board (BPDB) has proposed to allow true-up payment method for fuel imports for private power plants.

True-up is a payment made post-closing to adjust for any difference between the purchase price, which was determined on a transaction’s closing date and based on estimated financial metrics, and the actual purchase price determined using financial metrics that become known only after the closing date.

Currently, a total of 40 out of 60 HFO-based private power plants import fuel for producing electricity.

The BPDB will require signing a side letter agreement (SLA) with private power producers subject to approval to the true-up payment method by the ministry of power, energy and mineral resources.

According to the BPDB proposal, the fuel import payment for all private power plants is made through the US dollar current rate and local currency. BPDB also considers Guaranteed Net Flat Rate to make the fuel payment as per Schedule-6 under the Power Purchase Agreement (PPA).

The BPDB refereed the HFO import between May and June 2022 to justify the proposal amid the devaluation of the local currency (BDT).

However, the private power sponsors have purchased the fuel for feeding their plants before the reference date when the dollar market was stable.

BPDB proposal added the risk cost of the private power sponsored will come down if the ministry allows true-up payment for fuel import for electricity generation.

It mentioned that nine per cent service charges will not be applicable for true-up payment.

But the BPDB proposal didn’t mention the additional cost caused by true-up payment.

According to the Consumer Association of Bangladesh, electricity generation costs will come down significantly if fuel import for the private sector is restricted. It will also reduce corruption and mismanagement in fuel import.

Energy experts also criticized PDB for making the proposal at a time when Bangladesh Bank (BB) has sat a spread of Tk 1 between buying and selling prices of the dollar for banks to stabilise the foreign currency market. As per the decision, banks cannot make more than Tk 1 profit by selling a dollar from their weighted average buying cost.

Energy expert Prof M Tamim said, “The government should pay the fuel import bills as per the LC settlement. Then there will not be any requirement to sign side letter agreement.”He said the private power sponsors are charging nine percent service charge as a risk cost to import fuel for electricity generation.

Bangladesh Energy Regulatory Commission (BERC) Chairman Abdul Jalil said BPDB doesn’t need any permission from BERC as the ministry settled the power purchase agreement (PPA). “But the matter will be raised when they seek additional power tariff on true-up payment,” he said.

An official of the power division said private power sponsors have sought compensation on HFO import impact due to delayed payment and exchange rate fluctuations.

The Power Division under the Ministry of Power, Energy and Mineral Resources will require to get vetting from the Legislative and Parliamentary Affairs Division to approve this proposal, according to the official.

In a letter on July 5, Bangladesh Independent Power Producers’ Association (BIPPA) President Imran Karim informed Power Secretary that the Independent Power Producer (IPP) companies have outstanding payments of over $1.5 billion-$ 1.7 billion.

BPDB is producing 5500MW of electricity from oil-based power plants with most of this power coming from the private sector. BPDB spends Tk 14.50 for producing per unit of electricity from furnace oil-fired power plants.

According to BPDB, it has incurred a loss of Tk 283.85 billion in FY 2021-22 due to costly electricity purchases from oil-fired power plants.

Bangladesh Power Development Board (BPDB) projected a maximum demand for electricity at 14,500MW. But the production came down to 13500MW on average, official data show.

The Bangladesh Energy Regulatory Commission (BERC) is planning to hike the power tariff next month due to the rise in production costs.