Mounting dues may compel Indian power suppliers to Bangladesh to use sovereign guarantee commitment

Updated – September 30, 2024 at 03:06 PM.
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Hyderabad/Mumbai

Bangladesh owes more than $1 billion for power supplied by the Indian entities

Feeling the financial strain as the payment dues from Bangladesh keep mounting, the Indian power exporters to Dhaka are now looking at all options to recover the dues including using the sovereign guarantee made by Bangladesh Power Development Board (BPDB) during the signing of the power purchase and power sale agreements.

Among the five Indian entities selling power to the neighbouring country, Adani Power has recently received some payment, but suppliers like SEIL Energy India and PTC are finding themselves in a fix. Multiple sources told businessline if the situation stays unchanged, the sellers will be left with little option but to use the sovereign guarantee commitment made by BPDB.

Owes over $1b

Bangladesh owes more than $1 billion for power supplied by the Indian entities, according to reports. SEIL Energy supplies Bangladesh with 250 MW of power directly and 200 MW through PTC under the long-term power purchase agreements awarded through competitive bidding. The total overdue receivable to SEIL Energy India over the past eight months alone exceeds $190 million (as of August).

While Bangladesh government has been making regular payments to some of the international suppliers including Indian companies, but these are in lesser amounts and do not even cover the daily build-up of charges. For example, those in know of Adani Power developments said that it has over the last 2 months, received a total of $70 million, while the average monthly billing is $90-100 million. The current dues are around $850 million. 

Industry observers in Bangladesh said that the situation is well known to authorities in Dhaka and that they are in talks with various lending agencies and institutions. However, just tending to the debt for energy sector may not be enough as the financial situation in the country is far from stable.

The agencies that are coming forward to extend loans to Bangladesh are putting in their own conditions, a source in the know said adding that Dhaka needs budgetary financial support at present.

On what allows them to use the sovereign guarantee, a source tracking the sector, quoting the letter of credit (LC) condition that has been signed by the entities said, the Bangladesh government entity – BPDB — is obligated to make the payments as per the terms of the guarantee within five business days of receiving the LC. If BPDB fails to honour the LC even after the stipulated deadlines for making payments,  then SEIL and PTC or others have the right to explore alternative options, according to the agreement. However, SEIL and others are hoping that BPDB will make the payments, as they have done with Adani.

Unsustainable situation

The suppliers are sending reminders to BPDB. But, despite repeated attempts, payments are still pending, creating a situation that is now unsustainable for the Indian suppliers due to their commitments to their creditors, lenders and suppliers resulting from the continuous payment default and the rising overdue of receivables from Bangladesh.

After failing to get any payment despite the acknowledgement of the dues, suppliers like SEIL Energy India and PTC have presented the LC for the drawdown of the dues, sources said.

The Bangladeshi banking counterpart, Rupali Bank has acknowledged the dues, stating the institution is trying to arrange foreign currency for making the payment. This is based on advisories received from BPDB in August 2024. However, the Bangladeshi banks are yet to remit the payments, sources said.

To step up their payment collection efforts, some of the power suppliers, including SEIL, have issued a demand notice following the non-receipt of payments through the placement of LC.

Adani Power sources told businessline that the company is still waiting and weighing the situation and watching developments. “No immediate plan to invoke guarantees… Will act only if absolutely sure that Bangladesh is unable to pay dues,” the source said.