'Sustainability has always been at the core of our strategy'

The Infrastructure Development Company Limited (IDCOL) utilises its expertise in project finance, financial analysis, financial modelling, and project management experience to offer strategic advisory services in Bangladesh and abroad. Sustainability has been at the core of our strategy, said Alamgir Morshed, executive director and CEO of IDCOL during an interview with The Business Standard.

The IDCOL is a government-owned specialised non-bank financial institution that finances renewable infrastructure projects.

How do you evaluate the 25 years journey of the IDCOL? What are your plans moving forward?

It is a story of transformational growth with a commendable contribution to the socio-economic development of Bangladesh. With the relentless effort of the team and guidance from the board of directors, the company grew in leaps and bounds. As mandated by the government, the company successfully promoted private sector participation in much-needed infrastructure development of the country, by providing long-term funding solutions. It has been instrumental in creating ESG-compliant project financing capacity in the local financial industry, providing required long-term funding for such projects. Since joining the team last year, it has been a privilege for me to learn so much about sustainable finance and this unique company's contribution to the development of industrial as well as rural economic growth through various projects ranging from financing low-cost improved cooking stoves to large scale energy efficient capital machinery like vertical rolling mills or project finance for infrastructures.  

As a pioneer in financing independent power plants, the IDCOL invested in private sector power and captive projects with an aggregate installed capacity of over 30% of Bangladesh's total private sector electricity generation capacity. Extended financing to the country's first private sector land port and river port, accounting for 22% of the total annual domestic export container capacity. Financed country's one of the two offshore LNG terminals in Cox's Bazar. Funded the first PPP project in the healthcare sector comprising a hospital offering affordable dialysis services. Extended major financing to the ICT and Telecom sectors, and supported the development of Economic Zones, health, hotel and tourism sector projects.

Sustainability has been at the core of IDCOL's strategy. It is now well recognized at home and abroad as a leading financial institution offering a wide range of innovative green financing solutions to its clients for which we won numerous prestigious awards. For me personally, it has been a privilege to lead this company and make a positive impact on climate change. We are the market leader in promoting energy efficiency investments in manufacturing, services, and household sectors and one of the two national executing agencies for the "Energy Efficiency and Conservation Promotion Financing (EECPF) Project" in association with Jica. We are also enlisted as a Participating Financial Institution (PFI) under the Green Banking Wing of the Green Banking and CSR Department of the Bangladesh Bank. We also have arrangements with KFW and ADB for financing renewable energy and energy efficiency projects in Bangladesh.

World leaders are working towards achieving a net-zero target by 2050 for regulating global warming.  Bangladesh also has set targets to generate 40% of its total electricity from renewable sources by 2041. What are the IDCOL plans to materialise the government's ambition?

As you know, Bangladesh is a victim of global warming. The government has committed more than its share in climate actions. The prime minister has laid special emphasis on renewable energy and has set a target of up to 40% power generation from clean and renewable sources by 2041. In line with the GOB's vision, we have aligned our strategies accordingly emphasising financing projects like energy efficiency, industrial solar rooftops, large grid-tied solar power projects, solar irrigation pumps (SIP), etc. We are also working closely with our partners and stakeholders on EV. We have already financed 50MWp of industrial solar rooftop projects, over 1500 SIPs, and more than 20 mini-grid solar projects to name a few. Our total funded renewable energy projects are generating over 250 MW of green energy. Our projects like Improved Cooking Stove (ICS), Biogas and SIP are contributing hugely to reducing carbon emissions and the use of diesel. The IDCOL has been active in carbon credit for its various eligible sustainable projects.

Bangladesh is emphasising different activities to achieve Sustainable Development Goals (SDGs). How is the IDCOL contributing towards achieving SDGs?

The IDCOL has been facilitating several projects and programmes in the areas of infrastructure, renewable energy and energy efficiency, prioritising Sustainable Development Goals (SDGs) and development aspects over profitability. For example, despite not being able to generate any revenue, the IDCOL is relentlessly pursuing the growth of its Improved Cook Stove (ICS) Programme for the last 10 years predominantly for its contribution towards meeting the SDGs.  

The Programme inherently addresses the 2030 agenda of the SDGs and directly contributes to several of its goals. Installation of higher thermal efficiency stoves at a price compatible with the income of rural groups addresses Goal-7 of the SDGs (Affordable and Clean Energy), which aims to provide affordable and clean energy for all.

An Indoor Air Pollution (IAP) study conducted by Berkeley Air Monitoring Group (BAMG) under the ICS Programme showed that the improved stoves reduce the kitchen concentration of particulate matter (PM) and personal exposure to Carbon Monoxide (CO) by more than 80%. The households' improved air quality directly contributes to SDG-3 (Good Health and Well-being). The expected reduction of 13.36 million tonnes of Carbon dioxide under the Programme will significantly contribute towards SDG-13 (Climate Action). While all our Renewable Energy and Energy Efficiency initiatives are contributing towards SDG-7 and SDG-13, we are also contributing towards SDG-9 (Industry, innovation, and infrastructure).

The IDCOL's SHS and ICS programmes are registered as Clean Development Mechanism (CDM) projects under the United Nations Convention for Climate Change (UNFCCC). Under the CDM mechanism, the reduction of CO2 through programme interventions and/or technologies can be quantified and sold to buyers. The IDCOL's Solar Home System (SHS) and Improved Cook-stoves (ICS) programmes significantly reduce the emission of CO2 into the atmosphere. The UNFCCC issues Certified Emission Reduction (CER) credits to these projects from time to time after verification of the performance and operational status of a programme over a specific monitoring period. As the Coordinating and Managing Entity (CME) of these projects, the IDCOL can sell the CERs. So far, the UNFCCC has issued 2.53 million CERs against our eligible projects. We intend to create a sustainable fund with CER sales proceeds for renewable energy initiatives to complement the SDG targets of Bangladesh.

The IDCOL is an accredited organisation in Bangladesh for receiving green climate funds and utilisation. For which projects and how much have you received such funds so far? What are your plans for getting more in the future?

The IDCOL is the first nationally accredited entity to Green Climate Fund (GCF) in Bangladesh and is termed the Direct Access Entity (DAE) which means the IDCOL can directly channel climate finance from GCF to local projects and programmes that are nominated by the government. The IDCOL is accredited to access both loans and grants of up to $250 million per project or programme.

GCF will provide us with $250 million concessional credit and $6.5 million as Technical Assistance to develop the capacity of the sectors. This is the first concessional GCF credit line for Bangladesh, as well as the first private-sector financing of GCF in the country. This is a great step towards mobilising private sources of finance at the national level towards mitigation and adaptation.

With more than 23 years of experience in leveraging private sector finance under the PPP modality, the IDCOL hopes to blend GCF concessional resources to de-risk climate-smart investment to stimulate private co-financing in scale. The IDCOL already has a pipeline of bankable projects developed from the Country Programme, which will be submitted to GCF soon.

Being a financier in renewable projects, how would you explain the main challenges of renewable financing in Bangladesh?

You see, renewables require upfront investments which are largely offset by minimal operating costs down the line. As a champion of renewable energy, we structure financing solutions for our clients to ensure competitive returns for their investments.  

A typical challenge about renewable energy is the lack of awareness among stakeholders about the technologies, benefits, and policy framework. There is a huge lack of confidence amongst investors for such new green or energy-efficient technologies.

For example, corporate houses are still new to the benefits of the Net Metering policy enacted by the government in 2018 which allows the export of excess electricity generated from solar to the national grid and the tariff adjusted against the monthly electricity bill.

As such, from the IDCOL's side, we exert significant effort in raising awareness among beneficiaries and project promoters. We invest our resources in capacity building. It is a unique financial institution providing end-to-end both technical and financial solutions to clients.

Infrastructure and renewable energy or transition financing require long-term funds at very competitive prices. The local financial market is predominantly bank driven and the banking industry has limitations in terms of supporting long-term funding, say beyond five to seven years. The banks also have limited credit appetite for such projects. 

Therefore, disintermediation of the financial sector is critical to mobilise adequate financial resources from other sources through bonds and other long-term debt capital instruments. We have seen some development in the local bond market, but still it is at a very nascent stage. A vibrant secondary market for bonds is critical for the overall growth of the corporate bond market.  There are a number of challenges in this regard and it has to be addressed collectively by regulators and market players. 

On the other hand, credit enhancement products would also be needed through various non-fund guarantee schemes to encourage banks and other financial institutions to participate in such projects. While the Bangladesh Bank and development partners have been providing liquidity support for green and sustainable finance, there are challenges in credit risk management for the lenders. Market participants also need to find solutions for long-term hedging of market risks.

Utilising its expertise, IDCOL is now providing advisory services in Bangladesh and abroad. What are your plans in regard to offering consultancy services in the future?

The IDCOL utilises its expertise in project finance, financial analysis, financial modelling, and project management experience to offer strategic advisory services in Bangladesh and abroad. In Bangladesh, the IDCOL works closely with government entities and regulators in an advisory capacity to formulate policy and enable the development of regulatory and institutional frameworks that support private investment and public-private partnerships in renewable energy and infrastructure development. In African countries, the IDCOL is supporting development partners and respective governments to roll out various renewable energy interventions based on its experience of implementing RE initiatives in Bangladesh.

In the last couple of years, the IDCOL won several notable assignments domestically and internationally for rendering advisory services.

We were one of the key contributors in preparing the "Mujib Climate Prosperity Plan" for Bangladesh, which was the first of its kind for member countries of the Climate Vulnerable Forum (CVF). The plan was a strategic investment framework to mobilise financing, especially through international cooperation, for implementing renewable energy and resilience projects. 

We were also instrumental in developing the business plan for renewable energy sector skill development in Bangladesh and arranging training programmes through the Skills for Employment Investment Programme (SEIP) under the Finance Division.

We also won a number of international assignments. With technical assistance from the UK's Department for Business, Energy and Industrial Strategy (BEIS) under its UK PACT (Partnering for Accelerated Climate Transitions) Green Recovery Challenge Fund programme, the IDCOL supported an EV uptake project. 

We provided technical assistance and capacity-building support to the Rural Energy Agency (REA) of Tanzania. Consultancy services to the Ministry of Energy in Malawi for the Off-Grid Market Development Fund under The World Bank-funded Malawi Electricity Access Project. The objective of the fund is to address the challenges of scaling up the off-grid market in Malawi and electrifying 200,000 new households in remote rural areas. We are focusing on our advisory business as we see huge opportunities. It will also help to develop our local talents.

Finally, how would we achieve the ambitious net zero targets by 2041?

As I have mentioned the government is fully committed to the agenda despite contributing very little to greenhouse warming. There is a sense of urgency to act from all the stakeholders. Moreover, we see the development partners coming forward to support and private sector investment in various green and energy-efficient projects. Bangladesh houses the highest number of LEED-certified factories. 

Many of the commercial and residential projects are focusing on green technologies. The financial industry along with the central bank has come forward to provide sustainable and sustainable linked financing. There are a number of large-scale renewable energy projects coming up. We also see progress in other sources of green energy like wind and hydro. All in all, I am very optimistic about the future.