Solar energy: IDCOL's hard landing

When the Infrastructure Development Company Limited (IDCOL) began its journey one and a half decades ago, it honed on the power sector, mainly funding small scale plants. The return was meagre for the government-owned non-bank financial institution.

But then it found the golden goose – the solar energy – as the country was starving in power with demand outstripping demand by a large margin. Solar energy was the only solution for the dark countryside.

It started heavily giving loans to partner organisations, mainly NGOs, for spreading solar energy. By 2018, 41.5 lakh homes were fitted with solar devices with loans from IDCOL.

As business boomed, its net profit spiralled, as much as 1,300 percent in just about six years to 2013.

IDCOL became a shining success story for a state-owned company.

Then came on the light.

The government’s high vigour helped Bangladesh overcome its power shortage and generation boomed. The farthest corners of Bangladesh was having electricity.

But the boom brought gloom for IDCOL. Its solar energy demand fizzled out. And with it, its huge loans – over Tk 1,600 crore -- given for solar energy proliferation got stuck with the NGOs.

It is now a classic story of how putting all eggs in one basket can turn into a nightmare for a company when the market changes.

In 2009, six years since its start, IDCOL’s classified loan was zero but now it stands at 11.57 percent, about 30 percent higher than the industry average.

IDCOL used to get its fund from the government at 3 percent interest rate. Now it is seeking a complete waiver on its interests, for now, future and past as well.

Solar brings boom to IDCOL

IDCOL started its financing activities in 1997 and the solar energy program began in January 2003 to fulfil basic electricity requirement of the off-grid rural people of Bangladesh as well as supplement the Government’s vision of ensuring access to electricity for all citizens.

But until 2006 the company could not attain remarkable profit from its operation activities. Its annual turnover was constrained to one digit.

However, once it switched to solar energy, it started to get the long awaited success.

In 2006-07, its total portfolio in solar power was only 19 percent which zipped to 26 percent in a year. Its number of home coverage also almost doubled. And more than one-third of its revenue now came from this investment.

As business peaked, IDOCL’s profit in 2013-14 stood at Tk 145 crore, about 80 percent of it owing to solar business, making it the darling for everyone.

But then the first shock came two years down the line when its profit tanked to Tk39 crore which was one-fourth of the previous year.

So IDCOL shifted its policy again and shifted from renewable energy to basic power, information technology and other infrastructures.

In 2018, it doubled its effort on basic energy with 48 percent finance going there. A stark comparison is only about 4,000 new homes were fitted with solar energy panels that same year with IDCOL’s funding.

Big loan defaulter

The number of organisations that took IDCOL loans but defaulted is increasing. So far, 31 companies have defaulted on IDCOL loans and the amount of defaulted loan stands at 11.57 percent.    

Grameen Shakti is one of the major partner organisations of IDCOL who has been implementing Solar Home System (SHS) in the rural areas. But as the customers are refusing solar panel, it has been struggling to get its SHS instalments back.

Now it has become one of the top loan defaulters in the country with an amount of Tk601 crore till February 2019. This social business organisation took Tk401 crore from IDCOL.

From the very beginning, IDCOL has been financing some specific sectors, including power, telecommunications, ports and shipyards.

Earlier, its major finance went to the power sector and it has financed to generate around 2,000MW power from different plants.

The company has financed most of the power projects implemented by Summit Group. But investing in Otobi’s Quantum Power System Ltd and Rahimafrooz’s RZ Power Ltd was a big blow.

IDCOL financed Tk62.90 crore in Quantum Power Systems Limited for 110MW HSD-based (High Speed Diesel) and 105MW HFO-based (Heavy Fuel Oil) power plants. But the company failed to repay the overdue loan and remains one of the big defaulters of IDCOL. Till December 2018, its payable amount to IDCOL is Tk182.41crore. 

Is grid expansion the main reason?

While IDCOL has been blaming grid expansion for its business slowdown, experts think it is a different story.

They say IDCOL maintained monopoly in the renewable energy sector with state protection until 2014.

Consumers have raised questions about the quality of the solar panels, cost of per kilowatt solar electricity, and cost of other fees and services.

Currently, the cost of per kilowatt solar electricity of a SHS is almost Tk30, which is even higher than the conventional (oil-based power) electricity.  

In the US, per kilowatt solar energy costs only 12 cents (around BDT 10), which means solar energy is three times expensive in Bangladesh.

Solar energy is also cheaper in neighbouring countries, such as India and Pakistan. According to a report of the Guardian, in 2017, India’s Phelan Energy and Avaada Power each offered to charge Rs2.62 (3.23 BDT, 0.038 cents) for per kilowatt of electricity generated from solar panels in Rajasthan.

In contrast, the Bangladesh government awarded some solar park projects to independent power producing (IPP) companies for producing per kilowatt electricity at the rate of 17 cents.

Due to this higher cost, consumers began to refuse solar power and accept grid electricity despite the frequent load shedding problems. 

Engineer BD Rahmatullah, former director general of Power Cell, said: “Because of the very high prices charged for low-capacity solar systems, the concept of ‘renewable’ has gradually lost its appeal among the rural people.”

While modern solar panels used globally have energy efficiency of up to 22 percent, the Bangladesh market is still stuck at 10-12 percent. As a result, even after two decades of SHS distribution throughout the country, the share of renewable energy in total electricity generation is only 0.08 percent.

IDCOL is paying 3 percent interest to Bangladesh Bank for its loans under special provision for the SHS programme, but it has been lending to its partner organisations at 6-7 percent interest rate.

Also, for financing and providing technological support, IDCOL has been taking a large amount for its solar systems, which is now Tk10,000 for each solar irrigation project. It has also been taking Tk50,000 for each of its other renewable energy projects, including mini and micro solar grid.

“Such expensive charges were the major reason why the company’s business nosedived,” said Rahmatullah.

Struggle to get back loans

For the SHS programme, IDCOL received Tk4,543 crore from the government in loans at 3 percent interest and disbursed the amount among its partner organisations across the country at the rate of 7 percent.

Of this amount, it only repaid Tk679.59 crore as principal repayment while payable amount is about Tk3,864crore.

The payable interest against this principal amount will be Tk1,775.92 crore and it is scheduled to be paid by 2038. Till June 2018, the company paid Tk890.99 crore in interests, while asking for interest waiver for the rest of the amount.

In an application in May 2019, it called on the finance minister to abolish the existing 3 percent interest on the loans taken for SHS programme.

IDCOL Chairman Monowar Ahmed, who is the secretary of Economic Relations Division, told the Business Standard the government needs to consider the plea.

“Due to the speedy expansion of grid electricity, SHSs programme of IDCOL has been affected and amount of unsecured loan has been increasing. This is a big burden for the company,” he added.