BANGLADESH ON THE ROAD TO WOO POWER INVESTORS

UNCLAS SECTION 01 OF 03 DHAKA 000109 SENSITIVE SIPDIS DEPT FOR SCA/INSB ENERGY FOR NICHOLAS SHERMAN INTERIOR FOR OSMRE ALFRED WHITEHOUSE E.O. 12958: N/A TAGS: ENRG EINV ETRD EAID ECON PREL BG SUBJECT: BANGLADESH ON THE ROAD TO WOO POWER INVESTORS SUMMARY -------------- ¶1. (SBU) Six power projects valued at $5.5 billion are the core of a Government of Bangladesh (GOB) plan to add close to 4,000 megawatts (MW) of power to Bangladesh's grid. GOB officials unveiled these plans at a series of investment roadshows in London, Singapore and New York in December and January. Investors at the Singapore conference were impressed with the GOB's plans and presentations. Business representatives in Singapore said they hoped the GOB would move more quickly on these projects than it had on previous power projects. These and other power generation projects, including power sharing initiatives between India and Bangladesh, are desperately needed to address Bangladesh's growing power crisis and represent a commercial opportunity for U.S. firms. Bangladesh Needs More Than 2,000 MW of Power -------------- ¶2. (SBU) At an investment conference held in Singapore January 25-26, GOB officials were frank about Bangladesh's energy needs. According to the Chairman of Bangladesh's Power Development Board (BPDB),the country has the capacity to produce 5,800 MW of power. However, most existing power plants are old, do not operate at peak capacity and frequently are shut down for repairs and maintenance. Bangladesh's Power Secretary reported that Bangladesh generated between 3,800 and 4,300 MW per day in 2009, while demand ranged from 4,200 to 5,500 MW per day. Planned Generation Expansion Well Short of Demand -------------- ¶3. (U) The BPDB Chairman told investors in Singapore that existing power expansion plans would still leave Bangladesh with a 1,400-1,800 MW power shortfall annually through 2014. Therefore the GOB had developed additional plans for six large power plants, a wind-powered plant, three small solar-powered plants, and a terminal for the import of liquefied natural gas (LNG) to address the shortfall. The Chairman said these private sector projects, which were the focus of the investment roadshow, along with a range of public sector programs aimed to gradually reduce the supply-demand gap and ensure power supply exceeded demand by 2013 or 2014. Power Expansion Based on Gas, Dual Fuel, Coal Plants -------------- ¶4. (U) The GOB highlighted at the roadshow six proposed independent power projects for companies to invest in on a build-own-operate (BOO) or build-own-operate-transfer (BOOT) basis: --a 300-450 MW gas-fired, combined cycle plant located near Chevron's Bibiyana gas field in northeastern Bangladesh (Bibiyana 2); --a 300-450 MW dual fuel, combined cycle plant located at Meghnaghat outside Dhaka (Meghnaghat 2); --a 150-225 MW gas-fired, combined cycle plant located in Bhola in southern Bangladesh; --a 100 MW dual fuel, peaking power plant located at Savar outside Dhaka and near a cluster of leather tanneries; --a 100 MW dual fuel, peaking power plant located at Kaliakoir north of Dhaka and near a planned information technology industrial park; and --a 2,000-2,600 MW coal-fired power project that would include four 500-700 MW plants located in central and southern Bangladesh. The BPDB Chairman estimated that these projects would involve a total investment of $5.5 billion. The Chairman also described plans for three small solar power plants, between 1 and 4 MW each. He outlined a proposal to establish a 100 MW wind-based power plant on the coast at Chittagong, Bangladesh's second city in southeastern Bangladesh. Proposed LNG Terminal in Chittagong Port -------------- ¶5. (U) The Chairman of the state-owned Bangladesh Oil, Gas and Mineral Corporation (Petrobangla) reviewed a proposal to build a DHAKA 00000109 002 OF 003 liquefied natural gas (LNG) terminal south of Chittagong near the site where the GOB would like to build a deep sea port. The LNG imported and stored in the terminal would augment Bangladesh's own natural gas resources. Bangladesh relies on natural gas for power, fertilizer, industrial and transportation purposes. Investors Keen on Coal and Other Domestic Energy Sources -------------- ¶6. (SBU) Investors in Singapore were quick to question the GOB's plans for supplying energy to these proposed plants. They focused on the fact that Bangladesh anticipated importing coal to fuel the proposed coal-fired plants. Why didn't Bangladesh use its own vast reserves of high-quality coal instead, several investors asked. Bangladesh has an estimated 2 billion metric tons of coal, which many observers believe represent the most economically efficient solution to Bangladesh's energy deficit. A U.S.-U.K.-Australian venture to develop a large portion of these reserves has languished as a result of the GOB's reluctance to fully exploit its coal reserves. (COMMENT: The now-governing Awami League vigorously opposed development of these reserves when it was the opposition party and is now finding it difficult to reverse track. END COMMENT.) GOB Considering Ways to Exploit Large Coal Reserves -------------- ¶7. (U) Tawfiq Elahi Chowdhury, the Bangladesh Prime Minister's Energy Advisor and top energy decision-maker, admitted the GOB was undergoing some "soul searching on coal." Chowdhury said the GOB was grappling with technical, social and environmental challenges connected to surface mining, which would be the best way to access Bangladesh's coal reserves. Chowdhury told investors he anticipated the GOB would reach a decision on this issue of coal within "a couple of months." He added that the GOB hoped to mine Bangladesh's coal fields in the future. Recovering Gas Reserves More Attractive to GOB -------------- ¶8. (SBU) Chowdhury also noted that the GOB's plans for an LNG terminal were a response to short- and medium-term shortages in Bangladesh's domestic gas supplies. The GOB is pursuing onshore and offshore gas prospects, including with U.S. firms Chevron and ConocoPhillips. What about timing and pricing? -------------- ¶9. (U) The BPDB Chairman said the GOB planned to complete the tendering process and sign contracts on the six main power projects by the end of 2010 or early 2011. The GOB estimates that the gas fired and dual fuel plants could be operational between late 2010 and early 2014. The coal fired power plants have an operations target of late 2014 or early 2015. Energy Regulation and Pricing -------------- ¶10. (U) Bangladesh's Power Secretary described ongoing GOB efforts to rationalize power prices so they better reflect power costs and lower GOB power subsidies. According to the Power Secretary, the Bangladesh Energy Regulatory Commission (BERC),which has evolved largely as the result of USG assistance since its inception in 2003, increased power tariffs in 2008 and 2009. BERC planned further incremental increases between now and 2014 to better match prices and costs. Bangladesh Also Exploring Power Sharing with India -------------- ¶11. (SBU) As GOB officials were on the road to promote these power and energy projects, Prime Minister Sheikh Hasina returned from a highly successful summit with Indian Prime Minister Manmohan Singh in New Delhi. Among the topics discussed was power sharing, and India committed to providing 250 MW of electricity from its grid to Bangladesh. This is an important step towards regional power sharing, one that programs like USAID's South Asia Regional Initiative for Energy (SARI/Energy) can build on. Comment -------------- DHAKA 00000109 003 OF 003 ¶12. (SBU) Investors at the Singapore conference agreed the GOB had presented itself and its projects very favorably. They rightly questioned the GOB about the timing of tenders and sources of energy. The GOB tender process usually moves at a glacial pace. For example, it is now nine months since the GOB revitalized plans for its first proposed power plant at Bibiyana (Bibiyana 1). Despite having promised to award the contract for Bibiyana 1 in the fall of 2009, the GOB has not yet floated the tender, though the pre-qualification process is complete. Many local experts question whether the timelines outlined at the road show are realistic. ¶13. (SBU) Bangladesh desperately needs power, and power generation is one of the top election commitments made by the Awami League government. It is no coincidence that the projects highlighted at the road show are reportedly set to come online in late 2013 or early 2014. This corresponds with the end of the Awami League's term in office. The Awami League government must follow through on its power promises if it hopes to stand a chance in the next national elections. U.S. companies stand to benefit from participating in meeting Bangladesh's energy deficit and sharply increasing demand. Mission Dhaka will continue to aggressively support U.S. companies in this endeavor. MORIARTY