Owned by private companies, rental power plants were initially introduced as an immediate measure to tackle a crippling power crisis with replacement plans, mostly within three to five years, with less expensive government power plants. But the rental power plants were retained anyway, even after installed power generation capacity soared far beyond the demand resulting in 50 per cent overcapacity after the government built many new power plants. At least 13 rental power plants worth 982.5MW are still in operation in the country, some of them existing for 15 years. After the incumbent interim government has assumed power following the ouster of Sheikh Hasina, energy experts have advised for review and cancellation of all rental and quick rental power plant contracts.

‘Ideally, renewed contracts should not carry any consequences for their cancellation,’ said Shafiqul Alam, lead analyst, Institute for Energy Economics and Financial Analysis. Since the immediate past Awami League government kept all the rental and quick rental power plant contracts concealed under an indemnity law, it was hard to speculate what legal and financial consequences the cancellation of the contracts might bring, experts said. The financial consequences include payment of capacity charge for the renewed tenures, they said, highlighting that careful review of the renewed power purchase agreement could reveal numerous ways for the cancellation of these shady deals. Scrapping the contracts is likely to bring many positive consequences, the Center for Policy Dialogue said in a press conference on August 18. The think tank recommended that the interim government reduce power overcapacity burden by immediately getting rid of rental power plants and offer the consumers some relief from rising energy cost.

Its research director Khondaker Golam Moazzem told New Age that the rental power plants had two major implications—creating a situation for increasing power bills and giving more subsidies. ‘Rental and quick rental power plants lost their economic feasibility with their tenure being extended retaining the capacity charge and not adjusting their prices,’ he said. Two factors make rental power plants expensive—use of expensive diesel and furnace oil and capacity charge entitlement. In 2023, the average power generation cost of oil-fired power plants was around Tk 23 per unit, against the average power system cost of Tk 11.5 per unit. Some oil-fired power plants even spent Tk 40 to produce a unit of electricity.

Heavy fuel oil was over four times more expensive than gas and over 37 per cent more expensive than coal in producing a unit of electricity in 2023, according to the Bangladesh Working Group on Ecology and Development, a platform of green activists. In 2023, a unit of power produced using diesel cost eight times more than the power generated by gas and three times more than the power produced by coal, the working group said. Regarding gas-based rental power, a Petrobangla report said that on average small rental and quick rental power plants required 57.4 per cent more gas compared with combined cycle power plants. Capacity charge, on the other hand, refers to the amount of money payable by the government to power investors based on their plant’s capacity, not on the amount of electricity generated.

The capacity charge incorporated in power purchase agreements guaranteed substantial profits for power investors. Several renewals of these agreements, always with capacity charge entitlement, raised many eyebrows. Of these power plants currently in operation, five were introduced in 2011, four in 2012, three in 2009, and one in 2010. ‘The power sector became a tool of transferring public money into private pocket,’ said Hasan Mehedi, member secretary of the working group.Even this year in May, the Awami League government renewed the purchase agreement with Noapara 40MW furnace oil-based power plant, set up in 2011 and jointly owned by the Summit and United groups.

Agreements with seven of these power plants were renewed until 2026 in 2021, just the year before Bangladesh was hit with the dollar crisis, and rotating power cuts were officially introduced due to fuel shortages. Other companies owning the rental power plants in operation are Sikder Group, Orion Group, Sinha Group, Baraka Group, Hosaf Group, Banglatrac, Youth Group and Anlima Group. In September last year, the then government revealed that 114 power plants, including 32 rental power plants, received over Tk 1 trillion as capacity charge in the past 14 years. The government named top 10 capacity charge receiving rental power plants were Aggreko International, Khulna Power Company Limited, Summit Power Limited, Dutch Bangla Power and Associates Limited, Acorn Infrastructure Services Limited, Desh Energy, and Max Power.

The renewal of old and outdated rental power plants costs Bangladesh Tk 2,726 crore a year, including Tk 594 crore capacity charge, said a report released in March last year by the working group. In June this year, Bangladesh’s outstanding bill to rental and quick rental power plants and independent power plants rose to Tk 10,000 crore. Rental and quick rental power plants have also been blamed for the mounting losses of the Bangladesh Power Development Board, which stood at Tk 43,539 crore last year. In 2022–23, the government paid Tk 39,535 crore in subsidy to the power sector. Neither the power secretary nor the power development board member in charge of independent power plants answered phone calls.

News Link: Call for scrapping rental power plants gets stronger