Bangladesh govt finds way to clear dues to power producers

The government has initiated the issuance of special bonds to settle bank liabilities accrued by independent power producers (IPPs) and fertiliser importers stemming from outstanding subsidies.

Finance ministry officials said the move aims to facilitate power producers, fertiliser importers and banks in streamlining their balance sheets.

To operationalise this initiative, the finance ministry has formally requested the power division and agriculture ministry for data on bank loans extended to independent power producers and fertiliser importers. 

The initiative is a good one. This will reduce the immediate financial deficit of the government, and banks and IPPs will get some relief.

Habibur Rahman, senior secretary of the Power Division

Also, a committee, led by an additional secretary of the finance ministry, has been established to accelerate the processes associated with these bonds, including determining their tenure and interest rates, they said.

The committee consists of representatives of related banks, power division and agriculture ministry. The central bank will be the bond issuer on behalf of the government. 

The decisions were taken at a meeting with the officials of the Ministry of Agriculture and Power Division last week, said a top official of the Finance Division.

Habibur Rahman, senior secretary of the Power Division, told The Business Standard that the initiative is a good one. "This will reduce the immediate financial deficit of the government, and banks and IPPs will get some relief."

Sonali Bank CEO and Managing Director Md Afzal Karim told TBS that settling bank liabilities though special bonds is a good idea. This will improve the various indicators of the banks and the lending capacity will also increase.

He said there will be no issue from the banks if the bond's coupon rate is  determined according to the market rate.

Md Mofidur Rahman, the head of the committee and an additional secretary of the Finance Division, declined to comment on the matter when contacted.

The government has about Tk25,000 crore outstanding subsidy bills owed to IPPs, according to the Bangladesh Independent Power Producers' Association (BIPPA). Those concerned could not tell the amount of debt owed to the bank by these companies.

Possible details 

Finance division officials explained that if an IPP has an outstanding subsidy of Tk100 crore and an equivalent bank liability, the government will issue bonds to pay the entire amount to the bank. This allows the IPP to clear its bank debt without impacting the bank's financial position.

However, if the IPP's bank liability is Tk200 crore, the government will still issue bonds but will cover only Tk100 crore (matching the outstanding subsidy) for the relevant bank.

In cases where an IPP is entitled to a Tk100 crore subsidy and has a Tk50 crore bank liability, the government will issue a bond to pay Tk50 crore to the bank. The remaining Tk50 crore of the outstanding subsidy will be gradually settled with the IPP through the Bangladesh Power Development Board, as outlined by the officials.

Imran Karim, former president of the BIPPA, said only paying the bank's debt will not be logical without paying the full dues.

He told TBS that the government should pay the entire outstanding bills through bonds. "If only the bank's liabilities are paid off, those who owe more will benefit more. Good companies, which have been struggling to repay bank debt with money from other sources, will suffer."

Electricity subsidy soared to a whopping Tk42,893 crore in the previous fiscal year. Of the amount, Tk30,334 crore has been carried over to this fiscal year, which has been added by a fresh Tk12,759 crore in arrears till October.

Muslim Chowdhury, former finance secretary, told TBS that the special bond will not improve the health of banks much. 

If the interest rate of these bonds is not fixed in coordination with the cost of funds of the banks, then the banks will not make much profit. "If the bond's interest rate is low, the bank's cost of funds will not recover." 

Issuing bonds defers liability from the government's side, he further said. "If these bonds are not repaid, the government's debt is passed on to the next generation." 

BCIC unable to meet fertiliser import debt

The government had Tk8,394 crore outstanding subsidy for urea imports till June. 

In view of this, the Bangladesh Chemical Industries Corporation (BCIC) on 21 November sent a letter to the Ministry of Industry and the Ministry of Finance informing that it will not be possible to open LCs due to exceeding the counter guarantee limit.

The government usually gives counter guarantees to the banks for the import of fertilisers. Banks pay the price of fertiliser by creating LTR (Loan against Trust Receipt) for a period of six months against the guarantee.

The government has already issued a counter guarantee of Tk15,000 crore in favour of Sonali, Janata, Bangladesh Krishi and Agrani Bank till December, according to the letter.

In the meantime, the BCIC's debt to the banks is more than Tk12,000 crore. Of this, Tk3,167 crores of loans have turned into overdue liabilities or defaults.

The letter further said banks are not agreeing to open new LCs due to restrictions in providing new loans in favour of defaulting borrowers as per the policy of the central bank. 

Besides, if the limit of counter guarantee of the government is exceeded, it will not be possible to open LC in any bank. 

Therefore, the arrears of subsidy are urgently needed, the letter said.

According to the BCIC, on 2 November, Sonali Bank did not respond at first due to defaulted loans after applying to open an LC for 30,000 tons of fertiliser from Saudi Arabia. 

However, an LC was opened on 9 November on the decision of the board of directors of the bank with special consideration in view of repeated communication and requests.