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New power policy to buck up local investors

Entrepreneurs to get tax exemption, joint venture scope with public bodies

Sharier Khan
The caretaker government last month approved a policy welcoming greater participation of local private entrepreneurs in the power sector and their wider involvement in selling electricity to large consumers.
The Policy Guidelines for Enhancement of Private Participation in the Power Sector, 2008 welcomes foreign private investors as before. But for the first time, it opens up for local investors the same financial incentives offered to foreign investors spelled out in the articles 5 and 6 in the Private Sector Power
Generation Policy. 1996.
These incentives include exemption of corporate income tax for 15 years, 12 years duty-free spare parts import worth maximum 10 percent of the original value of the plant, freedom for investors to buy insurance of their choice, tax exemption on royalties, technical know-how, tax exemption on interest on foreign loans, capital gains from transfer of shares, among others.
Joining partnership with public sector power entities will be exclusive to Bangladeshi private sector.
The commercial power plants will get preference in developing coalmines and
purchasing coal from existing coalmines as per a provision of the coal policy.
"Given the fast depleting condition of domestic natural gas, the new [private] power plants shall preferably rely on coal, imported gas, liquid fuel or renewable energy sources ...” it says.
The fuel supply or source of energy has to be arranged by developers for commercial power plants.
"The idea is we want our local entrepreneurs to be stronger and eventually to take the lead. How long will we keep on depending on foreign investors only?" says a top power ministry official
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"The private power policy 1996 allowed some local private companies to grow. We now have around 15 or so small power companies side by side with large entity like Summit," he adds.
The official goes on to say, "We now want to take this to the next level. We believe for the next 10 years we would not need new policy interventions to stimulate private sector participation."
Earlier, local Summit power had struck a partner-ship with the Power Development Board (PDB) in the Sirajganj 450-megawatt power project which the Khaleda Zia government cancelled in 2004. "At that time, there was no policy framework to support the joint venture. Now this issue has been addressed," the official observes.
Tailored in line with the year 2000 vision of power for all by the year 2020, the policy that was officially notified last month seeks to develop new power plants and rehabilitate
some old and inefficient power plants through publicprivate partnership under Rehabilitate, Own and Operate (ROO) and Rehabilitate, Operate and lYansfer (ROT) model.
The private sector will be allowed to supply electricity to the distribution licensees at tariffs determined by the Bangladesh Energy Regulatory Commission (BERC).
The policy also says private commercial power plants will find their own buyers to sell electricity and will be free to negotiate the applicable tariffs with large consumers.
Unless specific commitment is made, the government would not guarantee in favour of any fuel suppliers to supply fuel to commercial power plants, it adds.
The policy dictates a set of requirements for joint venture partnership with public sector utilities. A special project vehicle will be established to implement and operate such joint venture projects. Such joint ventures will require
approval of the board of the respective public sector power utilities and BERC.
The Power Grid Company of Bangladesh and other distribution licensees will provide non-discriminatory open access to their transmission and distribution system for use by any generation licensees.
According to the policy, private investors may also build their dedicated transmission line from their power stations to large consumers under the Grid Code.
The policy spells out a set of qualification criteria for private investors that can work under the policy. The private sector will have proven financial capacity to arrange financing for development of power plant, proven experience in developing and operating power plants of same or higher capacity as Independent Power Project (IPP), Rental Power Plant, Small Power Plant or Commercial Power Plant and selling power to large consumers.