How Summit takes new step abroad in Indian power plant

Originally posted in The Business Standard on 10 January 2022

Top Bangladeshi private power company Summit has acquired around one fourth of a power project of an Indian power company in Tripura, marking the first footprint of any Bangladeshi company on investing in a foreign power venture.

Summit bagged 23.5% of the ONGC Tripura Power Company (OTPC) in July last year committing to invest about US$50 million in its 750mw gas fired power plant in Tripura. Summit is now awaiting approval of the central government.

“I think this would be the first purchase by any Bangladeshi-owned company investing in a power plant abroad,” said Chairman of Summit Group Muhammed Aziz Khan, adding that he expected the shares would be transferred to his company Summit India (Tripura) in a month or two.

This is the very power plant that Bangladesh had helped OTPC build a decade back by allowing transshipment of its heavy equipment through Bangladesh. Now this company is set to build another 350-megawatt power plant from gas, transmission assets and renewable potentials.

Summit is also in talks with another company over a deal to invest, purchase and import renewable energy to Bangladesh from India at a competitive rate. These cross border renewable deals are backed by The World Bank and the International Finance Corporation (IFC) and are part of policies of the two governments.

The company that now has a huge stake in Bangladesh’s energy industry is also trying to secure a Liquefied Natural gas (LNG) deal with an American company on a long-term basis at a reasonably low cost.

Aziz Khan, in conversation with The Business Standard, also reflected on how his home-grown infrastructure company of the nineties was becoming a multinational entity.

The company moved its headquarters to Singapore six-seven years back with a view to expand its activities beyond Bangladesh, which still remains its business hotspot and where Summit plans to invest another $3 billion by 2025. Moving to Singapore has made it easier for Summit to get finances, he said.

In 2017, Summit won a bid in India to develop a port in Kolkata. It bagged another deal recently to run another port in Patna — which is now under construction.

“For the last four years, we have been operating the Kolkata port that we implemented under the build-own-operate-transfer model by winning a tender from the Inland Waterways Authorities of India,” said the Summit Group chairman.

“I think that nobody [in Bangladesh] has invested in ports or infrastructure abroad before,” said Khan.

Summit has 20 power plants in Bangladesh with a capacity to generate 1,942MW electricity—representing around 8% of the country’s total power generation capacity — and another 600 mw under construction.

The infrastructure conglomerate also has a floating storage and regasification unit (FSRU) for supplying 500mmcf LNG per day.

Summit shifts to Singapore to broaden the horizon

“We have shifted our head office to Singapore to broaden the horizon from containment to go to India and other sub continental countries,” Aziz Khan said.

Khan said that implementing a power plant in Bangladesh is a very difficult task because of the high interest of capital and lack of funding.

He said that the Summit Group has so far invested $2.5billion in Bangladesh.

“For implementing a project, you need to have 30% capital and 70% debt. But I did not have that money. So, I had to take a loan,” he said.

“From that calculation, I had to manage around $900million. But you didn’t hear that I defrauded any banks or people. So, I had to get this capital. Then, I had to manage a $2.1 billion loan, and there is no allegation that I’m not repaying the loan either,” Khan added.

“It was possible due to the low cost of capital. We took a $350 million loan from Standard Chartered Bank at 3.5% fixed interest against the Switzerland state bank’s guarantee.

“But implementation of large projects would not be possible by paying 10-12% interest rate to the local financiers. The private sector does not get the opportunity to obtain loans at an interest rate of 1% like the government,” he said.

“Being a private sector company, we get a loan at 3.5% and our average interest rate is 4.5% against the current $800million loan. And 80% of this loan book is from foreign companies or lenders,” he said.

Khan said others are not getting the commercial loan because of their own company’s governance and the credit rating of Bangladesh.

Bangladesh’s credit rating is also a reason behind the shift of the head office to Singapore, said the Summit Group chairman. “Cost of the fund depends on the credit rating. If you want big spending, you need to go to a big market and Singapore is a big market,” he said.

Bangladesh’s credit rating is still BB minus (BB-), while Singapore is a triple-A or double-A rating country.

“So, we get double-A if we do the credit rating in Singapore, but if we do it here in Bangladesh, we won’t be able to get it above BB minus,” he said.

Another reason for the shift to Singapore was to hire skilled manpower for large projects, said Aziz Khan.

“Getting management is very tough here in Bangladesh because nobody has done big business. You cannot find someone who has done a 580MW power plant implementation, but that is available all over the world,” he added.

Summit invests with American company for long term LNG solution

Summit Group, the trailblazer in the power and energy sector in Bangladesh, is now eying a long term LNG solution.

Talking about the new horizon of the business, Aziz Khan, said, “We are now discussing investment in LNG liquefaction and transportation processes with American companies. If we are successful, we will be able to supply LNG at a lower price.”

“Recently, we have signed a Memorandum of Understanding (MOU) with Commonwealth LNG to collaborate in the supply of LNG to Asia, including Bangladesh,” he said.

The scope of the MoU includes contracting for 1 million tonnes per annum (MTPA) of LNG offtake, for a term of up to 20 years, from Commonwealth’s 8.4 MTPA facility currently under development in Cameron, Louisiana.

Building the third FSRU of the country

Summit Group is also looking to establish its second and the country’s third FSRU at Moheshkhali coast to regasify another 500 MMCF LNG.

In this regard, Aziz Khan said, “We have applied for the second FSRU and we have heard that it has been positively taken by the government.

“Rupantarita Prakritik Gas Company Limited (RPGCL), the state-run company responsible for LNG operation, is going to call us for negotiation,” he added.

The Summit Group chairman also said that this was not by their persuasion, but the country needed it and Petrobangla understood that.

Petrobangla wanted to build an on-shore terminal but they could not acquire the land for it yet, he said.

“Even if they get the land, it will take time to develop the land and they have to dig at an 18-metre depth for storage, but the country does not have that time,” Khan further added.

The capacity of the new FSRU will be 170,000 cubic metres, which would be 30% higher than the existing one.

Will LNG remain affordable?

Currently, the country has a demand for around 3500mmcf to 4000mmcf of gas per day, whereas it gets only 2500mmcf from local gas fields, so a gap remains there.

The margin of the demand gap will be bigger once the 100 economic zones, undertaken by the government, come into operation.

“And as the reserve of natural gas deflates gradually, the demand-supply gap of gas has to be fulfilled by LNG,” said Khan.

The next infrastructure necessary for Bangladesh is how to bring LNG and how to continue to supply the most needed energy for the continuous and sustainable development of Bangladesh, he added.

But in the last one year LNG price was wildly volatile and went up to $36 per MMBtu.

Talking about affordability, Khan said, “To get the lower price, we have to go to a long term contract, instead of spot purchase.”

Khan also said that his new FSRU would be able to provide LNG at cheaper rates than the existing ones. And it is possible if one invests in liquefaction and transportation of LNG, he said.