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Orion is one of leading business conglomerates in Bangladesh. It has ventured into the field of power generation through independent power projects ranging from 2 MW to 495 MW. The group has recently been awarded the 495 MW combined cycle Meghnaghat Phase II Power Project, under a consortium named, BON Consortium Power Company Limited.
Salman Obaidul Karim, Director of the Orion Group talked to Energy & Power magazine Editor Mollah Amzad Hossain on their ventures as well as concerning issues in the sector. Following are the excerpts of his interview:
EP: There is an allegation that you have got a contract for a 450 MW power plant due to your political connection although you did not have business in the sector. What would be your response?
Salman: Orion Group has a good track record. Inspired by our successes in other sectors, we have stepped into the power sector. We have started with IPP. We must keep it in mind that IPP is a new sector, which is controlled by the foreigners. Orion got the Meghnaghat 450 MW power plant assignment under the name Bon Consortium with a foreign partner on the basis of its qualification.
I believe the government has done a good job allowing the private sector to take part in the IPP. If a foreign company does it, the whole money flies abroad. But a local company is unable to implement a large project in the power sector on its own. That's why Orion joined hands with Steag Incotec as technical partner and Belhasa as financial partner. So, I think it would be illogical to bring such an allegation against us.
EP: Many people say that the Bon Consortium has signed the agreement with the government for the second phase of the Meghnaghat, but they would not be able to do it. How do you see it in that perspective?
Salman: I want to assure you that our preparations have already progressed a lot. We have ensured bringing plant machinery. We have also talked to the EPC contractors. We have taken over the land after signing all necessary papers with the government.
As per the rule, the financial closing must take place by April 2007. We have progressed in this point too. We hope that the financial closing would take place before the stipulated time. As soon as it is closed, we will order for the machinery.
I would like to tell you that the Meghnaghat II will kick off its commercial production within the stipulated time.
EP: There were many debates over IPP in last five years. The immediate past government had taken position against purchasing power at US dollar. Again, the matter of floating share in the local stock market must be made mandatory so that the full money of the IPP does not fly abroad. Most of all dollar indexation must be reduced to 30 percent from 100 percent for purchasing power. What is your opinion?
Salman: It is not possible for our government to invest in the power sector without any partners for meeting the huge demand for power. That is why there must be an opportunity for the local and foreign investors to participate in it. However, the IPP policy could be amended in the light of experiences in other countries or our own experiences over the last few years. But the foreign investors will lose their interests even if the payment is made by taka instead of dollar.
On the other hand, a rule for floating share in the local stock market could be there. But it must not be made mandatory, because the investors might be discouraged. And the indexation facilities should not be cancelled. Because, the whole investment for our power sector is foreign exchange based. As a result, the return could be in dollar.
However, a guideline could be formulated so that the local value addition could be possible by setting up a power plant. If it can be done, IPP payment could be made by taka along with dollar.
EP: Some people say that the agreement with the Bon Consortium was inked following the accord on Meghnaghat I. Is there any difference between the two agreements?
Salman: The capacity of the Meghnaghat II is higher than the unit-I, which is 450 MW. The second one is 495 MW. The tariff for the phase I is 2.79 cents and for II it is 2.7865 cents. So the price is lower although the agreement for the phase I took place in 1999 and phase II in 2005. The government provided 68.18 acres of land for the phase I while only 30 acres for the phase II. Initial development payment for each acre of land in the phase I was 7.8 lakh while it is Tk 20 lakh for the phase II. The annual development payment for phase I was Tk 15.6 lakh per acre while the figure is Tk 40 lakh for the phase II. Yearly rent for the phase I was Tk 1.02 lakh for each acre in phase I while it is Tk 1.5 lakh for the phase II. The EPC expenditure for phase I was US $ 180 million while it will be US $ 270 million for the second phase.
So I must say the agreement was signed to provide power at a lowest cost in the world.
EP: There are allegations that the government was not getting expected response for setting up IPP and power plant in the public sector. Why?
Salman: For IPP, it is proven across the globe that the levelized tariff for each kilowatt hour is not less then 3 cents. On the other side, there is no guarantee that you will get the tender even if you are qualified in terms of technical and financial sides. Most of all the decision making process is very slow. The system of preparing tender documents is one-sided here. As a result, good investors are losing interest in Bangladesh. It will affect the whole sector if such a situation continues.
For example, Orion became the lowest bidder after dropping tender for Siddhirganj 210 MW plant with NEPC. But the government could not take any decision in last four years.
EP: You must know that the whole money for the energy sector comes from the capital market everywhere in the world. Why it is not so in Bangladesh?
Salman: It requires policy support from the government. Local capital market can fund the larger energy projects if a rule could be initiated for collecting money from the capital market for the green field projects. We will have to take such initiative in the future.
EP: Will Orion take part in the final round of tender for the Sirajganj 450 MW plant?
Salman: We were selected in the evaluation phase. But we did not make any final decision. It will take some time to take a decision.
EP: There are allegations that an initiative for setting up the power plant was finally cancelled at the fag end of the previous government. How do you evaluate the situation?
Salman: I don’t know the matter clearly. I think it was not proper to cancel it at the fag end if the whole process was right.
EP: What should be done to bring about confidence of the entrepreneurs in the power sector?
Salman: I think if anyone takes part in the tender process, they allot money in commercial plan. A pool of manpower is engaged for the follow up actions. The organization falls in trouble if decision is not made within expected timeframe. If the decision-making period is 3-4 years, it will be impossible to gain confidence of the investors. Lengthy Process Discourages the Investors.
EP: Experts say that the outgoing government should have been produce at least 3000 MW power in last five years. But they could only add 100 MW. How do you see it?
Salman: Such a mess took place for the delay in decision-making and complexities in many phases. I can name the Siddhirganj 210 MW plant, for which Orion dropped tender with the NEPC. The government did not take any decision although it was accepted both technically and financially.
EP: It is said that the political quagmire took the power sector to a position on which it stands today. What do you say?
Salman: Recently different types of investment system have been initiated, of which the IPP was a major one. Since the matter is new to the administration in our country, the decision-making was taking time. I hope the bureaucrats and the politicians would be more conscious in course of time and there would be no delay.
EP: The government controls the price of power. As a result, the PDB was counting huge losses as it sells power at a lower rate than the rate it purchases. So you think that the price of power should be increased so that it commercially grows for the sake of the power sector of the country?
Salman: You are right. The price of power should not be less than its expenditure. The power sector cannot be moved forward if such a situation continues. The price of power should be set in a way so that the investment for generation, transmission and distribution comes from within the sector. Subsidy must be stopped as it cannot make any progress. The price of power should be adjusted with the price in other countries of the world.
EP: Do you think that the whole process of the generation, transmission and distribution should be opened for the private sector besides the public sector?
Salman: I think all the sub-sectors of the power sector should be open for private investment. Competitiveness would be ensured between the public and private sectors if private investment is there in generation, transmission and distribution. Such an initiative will play vital role for increasing skills and accountability of the public sector institutions.
EP: What will be Orion’s step if the government opens it? Will you go?
Salman: Of course, if the government privatizes the distribution sector we are interested to invest there.
EP: The government has already created an opportunity for the gas and coal sector under a policy. Are you planning to look for businesses there?
Salman: We would like to be in the power sector right now. We don’t have any plan to invest in the other sub-sectors like gas, oil or coal.
EP: The issue of regional cooperation is now a much-talked-about issue across the world. Why a regional cooperation initiative is not getting success here?
Salman: I think the politicians of this region have failed to identify the proper sector for beginning the regional cooperation. As a result, an effective mechanism for regional cooperation is yet to be created in the SAARC region. I think the governments should not waste further time. The tri-nation pipeline issue could have been a good initiative. But we could not utilize the opportunity. The next government should think about it.
EP: We want FDI. Many institutions have come forward especially in the power sector. But the government is facing trouble in dealing with the investors. Some issues were raised to the international court, but Bangladesh was defeated. Why has it happened?
Salman: Some issues are involved in it. We must have wide and in-depth preparations for signing any agreement and we must know what is there in the agreement and whether it would be contrary to the country’s interest. A special office could be there for cooperating with the negotiators with necessary information. But both sides must follow the agreement once it is signed. There is no way to step back.
But the government must take stern steps if anyone violates the agreement. I don’t know what had actually happened in Phulbari, but the government should have been looked into it and know why had it happened and who are to blame. But canceling the agreement with a lame excuse is not proper.
The media has a role here. They can remind the government as well as the company about the agreement clauses, or else the country’s image would be tarnished and it will affect the industries, commerce and investment. |