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Summit guarantees Meghnaghat power project with $12m

Bibiyana power projects' financing almost complete

Sharier Khan
Four months after signing a contract to set up the second phase Meghnaghat 335 megawatt private power plant, local power company Summit on Tuesday submitted $12 million bank guarantee to the authorities under pressure.
In line with the contract, Summit was supposed to produce this guarantee as soon as it had signed the contract in May. But the company did not do so as it found the Meghnaghat contract 'exceptional’ and also because it came across problems with financing this particular project.
Following several reminders, Summit was served with a notice of intent to terminate the Meghnaghat contract two weeks ago.
Power Development Board (PDB) Chairman ASM Alamgir Kabir yesterday said Summit has finally submitted the bank guarantee for the project.
Since it signed contract for setting up the Meghnaghat dual fuel as well as two phases of Bibiyana gas fired power projects (341MW each), Summit was busy arranging around $800 million of loans from various lenders. The arrangement was going well with the Bibiyana projects, but not with the Meghnaghat.
These three projects would provide cheap electricity and act as basic power plant from 2013 as opposed to short term petroleum fired power plants.
“The obligation of bank guarantee in the Meghnaghat project was exceptional," said Summit chief Muhammad Aziz Khan, explaining why the company delayed the payment.
“Both the Bibiyana phase 1 and 2 power projects demand that we submit bank guarantee upon closing our finances. But in case of the Meghnaghat project, it demands that we pay the guarantee upfront soon after the signing of the contract,” he added. Summit was hoping that the government would understand "this anom-aly” and allow it time.
In the past, none of the AES Meghnaghat and Haripur projects had to submit bank guarantee immediately after contract signing.
The Summit chief said he was facing some problems in getting finance from the Bangladesh Bank's “Bangladesh Infrastructure Finance Fund (BIFF)” for the Meghnaghat project. With Tk 1,600 crore capital, the BIFF was formed in 2009 and Summit sought Tk 700 crore from it, which is just one part of the financing.
But till date, due to bureaucratic botdeneck, the government could not form the administrative structure of the BIFF and therefore release Summit's loan.
“If BIFF was not created, we would have started looking for other sources. It would have been successful like Bibiyana financing,” Kham said.
In Bibiyana, four lenders — IFC, ADB, IPFF of World Bank and IDCOL — have committed financing of $430 million. The lenders have issued letters and are currently reviewing the two Bibiyana power projects' socio-economic studies. After completing the review, the lenders would provide the finances.
“As per contract, we have until March 2012 to close our finances for these three projects. But we targeted December next."
For the Meghnaghat project, Summit is reconfiguring the finances for Meghnaghat. If the BIFF is unable to launch and provide the loans, Summit is prepared to seek loan from the Islamic Development Bank or Chinese Development Bank.
In addition, because of the plummeting share market trend — it had abandoned its previous plan to raise Tk 1,500 crore by issuing zero coupon bonds through two banks. Instead, Summit has been negotiating with the World Bank to obtain a $100 million loan under Partial Risk Guarantee (PRG). The PRG would enable the company to obtain a similar loan from any commercial bank.
As the largest local power company, Summit is now operating nine power plants and supplying 560MW power, which is around one tenth of the country's present daily power generation.