Bangladesh's Private Power Sector Model Raises Concerns Over Risk Transfer to State
The World Bank-backed financing model for Bangladesh's private power sector has raised concerns about risk transfer to the state. The model was introduced in the late 1990s, with the Haripur gas-fired power plant serving as a flagship project.
The World Bank provided a $60.9 million Partial Risk Guarantee (PRG) to protect private lenders against losses from government agencies' contractual defaults. However, the arrangement has led to questions about where the line is between reducing risks for private investors and transferring those risks to the state.
Dr. Zahid Hussain, a former lead economist at the World Bank's Dhaka office, described this as the power sector's biggest financial trap. He noted that while Haripur was designed as a model for an individual power plant, the framework later evolved into a contractual system that protected investors' income while requiring the state to pay even when electricity was not generated.
The World Bank has provided guarantees worth $700 million to support financing for imported LNG. However, this has led to increased dependence on foreign-currency requirements and volatile international LNG prices. Dr. Khondaker Golam Moazzem, president of the Knowledge Hub Institute, pointed out that capacity payments initially had a reasonable justification but became problematic when the mechanism expanded without adequate consideration of demand forecasts, competitive pricing, and fuel availability.
The Haripur legacy has resulted in BPDB paying around $506 million to the owner between 2004 and 2013. Over the full contract period, payments are estimated at $1.1 billion to $1.2 billion, nearly 19 to 20 times the original guarantee.