Ashuganj Power: Project benefits caught in same old delays

Originally posted in The Business Standard on 01 June 2022

The Ashuganj Power Station Company, a major state-owned power producer in the country, raised Tk600 crore through the issuance of bonds for two power plants in 2019.

But flip-flopping on plans led to a delay in project implementation, eventually causing Ashuganj Power to pay interests to bond investors despite having no returns.

Thus, the state-owned power producer’s opting for an alternative source of financing other than banks has backfired on it – in the form of Tk100 crore paid to its investors in periodical interests from earnings it has got from other plants.

Sources at Ashuganj Power say interest payments at an average of 9% on the borrowed money are putting the company’s total earnings under pressure.

On top of the interest burden, the bonds will mature next year and then the company will have to start paying principal to the investors.

Around Tk400 crore of the fund has been spent on the two power plants – Ashuganj 400MW Combined Cycle Power Plant (East) involving Tk2,931 crore and Patuakhali 1320MW super thermal power plant involving Tk819 crore only for land development.

The Ashuganj plant will go into operation after June this year while only land acquisition has been completed for the Patuakhali plant.

The remaining Tk200 crore has been parked as a short-term deposit in state-owned Agrani Bank, which yields 4.5% interest. The annual accrued amount is not enough to cover the interest payments. That is why the company has to keep aside a portion of its earnings from other plants to pay the interests.

Asked, Mohammad Abul Mansur, company secretary at Ashuganj Power Station Company, told The Business Standard, “The bond was issued as per the government’s instruction. So, profit and loss is not a big issue here. We are now paying interests from the earnings of our other projects. We hope to adjust it once the projects come into operation.”

The growing interest burden

The company has been paying Tk54 crore at 9% on an average annually since 2019 – just three months after the bond issuance.

As per the bond obligation, Ashuganj Power is supposed to pay between 8.5% and 10.5% in interest on the raised fund. Earlier, the company had paid a 10% interest on the fund; last year it made interest payments at the rate of 8.5%.

Dhaka Stock Exchange data says the bond’s trustee fixed the coupon rate at 8.50% on the 3rd coupon payment for six months – from 5 July 2021 to 4 January 2022 – on the face value of the bond.

Last week, the authorities concerned sent a letter to Ashuganj Power asking it to make interest payments at 10% given the country’s current financial situation, company insiders say.

The recent move appears to be another blow to the company that is already in a tight spot over the bond interest payment, they add.

Of the Tk600 crore fund, Ashuganj Power Station Company raised Tk500 crore under public placement and Tk100 crore through public offering. It was the first state-owned company that was listed on the capital market through bond issuance. Its bond trading started in 2020.

Ashuganj Power Station Company Limited, which accounts for about 8% of total power generation capacity in the public sector, has six power generation units with a capacity of 1,297MW, whereas the country’s total production capacity stands at 22,200MW.

To strengthen its financing capacity and popularise the bond market, Ashuganj Power entered the bond market as the first-ever public company for financing its two power plants.

Professor Mamtaz Uddin Ahmed, independent director at Ashuganj Power Station Company, told TBS, “As we could not invest the entire fund in the projects, we deposited a certain amount with a bank. Now the problem is that we have to make higher interest payments on bonds but our interest income is low as deposit rates have come down.”

This gap is creating a pressure on the company’s earnings. But it is temporary, once the plants come into operation, the company will overcome it, he said.

Patuakhali plant now hangs in the balance

There is new uncertainty over the implementation of the Patuakhali 1320MW super thermal power plant as it is now included in the list of 10 coal-fired projects that were scrapped by the government.

It has been decided that the cancelled project will now be developed as LNG-based. LNG infrastructure development in the southern region will take 3-4 years, but it is uncertain when the work will begin.

Only land development has been completed for the project at a cost of Tk819 crore even after its time extension for the third time. Some 925 acres of land have been acquired at Kalapara in Patuakhali.

As of February 2022, the physical progress of the project is only over 30% and its financial progress is 27.85%.

On the other hand, work on the Ashuganj 400MW combined cycle power plant was expected to be completed by April 2021, but it got delayed by a year because of the pandemic-led shutdown. The plant is now expected to go into operation in mid-June, according to sources at Ashuganj Power.