Highlights:
- Govt weighs Sukuk, dollar bonds and ECA financing for Matarbari Phase 2
- Matarbari Phase 2 financing decision expected early next month
- Tk16,000-17,000 crore needed for the 1,320MW Matarbari expansion
- Currency risks and borrowing costs could push up electricity tariffs
- Around 80% of Phase 2 expenditure will be in foreign currency
- Phase 2 could cost 70-72% less than Phase 1
The government is assessing domestic Sukuk, international dollar bonds, export credit agency (ECA) financing, and other borrowing options backed by sovereign guarantees to fund the second phase of the 1,320MW Matarbari coal-fired power plant as global development lenders refuse to finance fossil fuel projects.
The implementing agency, Coal Power Generation Company Bangladesh Limited (CPGCL), submitted the Development Project Proposal (DPP) to the Power Division last week. Following its receipt, the Power Division met with the Finance Division on 19 October to evaluate financing structures. Tanvir Ghani, special assistant to the prime minister on investment and capital markets, attended the meeting.
Power Division Secretary Mirana Mahrukh told The Business Standard on 20 October that the government is carefully analysing borrowing costs and their potential impact on electricity tariffs before finalising a strategy.
"Raising $1-2 billion through domestic Sukuk is achievable as local banks are willing to invest at higher interest rates. However, borrowing in taka carries significant currency risks. If the taka depreciates when converting funds to cover imports, overall project costs will escalate," she said.
"We are assessing borrowing costs and their knock-on effects on tariffs. Higher interest costs would place additional pressure on electricity prices, so we are taking a cautious approach," Mahrukh added, noting that a final financing decision is expected early next month.
Balancing foreign exchange and currency risks
Officials from the Power Division and the CPGCL confirmed that several modalities are under consideration, including domestic Sukuk issuances, sovereign dollar bonds, ECA financing, and interim payment certificate (IPC)-based funding.
The government prefers foreign currency financing to mitigate exchange-rate volatility as the project relies heavily on imported capital machinery. The expansion is estimated to cost around $1.3 billion (approximately Tk16,000-17,000 crore). Roughly 80% of total expenditure will be incurred in foreign currency for equipment imports, while the remaining 20% will be spent in taka on local physical infrastructure and labour.
ECA financing utilises government-backed loans, guarantees, or insurance to support project procurement, while IPC-based structures offer short-term liquidity to contractors against certified work progress.
A timely financing decision is critical to meeting the government's target of commissioning the plant's first unit by June 2030. Officials emphasised a strong policy push to complete the project as rapidly as possible to stabilise domestic generation, following power supply disruptions from India last summer and constraints on gas-fired plants caused by limited LNG regasification capacity and volatile international fuel prices.
Shared infrastructure drives down costs
The Power Division expects Phase 2 to be significantly cheaper than Phase 1 because core facilities are already operational. Phase 2 is projected at Tk16,000-17,000 crore, compared to the Tk57,000 crore spent on Phase 1, which included major capital outlays for port construction, roads, coal storage, and power evacuation infrastructure.
Based on current projections, Phase 2 capital expenditure will be 70-72% lower than Phase 1.
In its proposal to the Planning Commission, the Power Division highlighted that Phase 2 is highly viable due to shared facilities. Land has already been acquired and developed, while the existing coal-unloading jetty, stockyard, power evacuation lines, and substations are ready for use. Furthermore, the Department of Environment has already cleared the project's environmental impact assessment (EIA).
Bangladesh Power Development Board (BPDB) Chairman Md Rezaul Karim reaffirmed that coal remains a reliable base-load option given the existing assets.
"Coal is our most practical option for reliable power generation, particularly because the core infrastructure was built during Phase 1," Karim said. "The port facilities, transmission lines, and substations needed to evacuate power are fully in place, making the second phase highly cost-effective."
Consultancy approved amid unsolicited bids
To advance implementation, the CPGCL has allocated Tk118 crore for consultancy services under a special Annual Procurement Plan approved on 22 September.
The project was revived after being shelved when the Japan International Cooperation Agency (Jica) withdrew funding in 2022. On 20 April last year, the Power Division submitted a preliminary project proposal to the Planning Commission and the Economic Relations Division (ERD). The Planning Commission approved the outline on 25 May and referred it to ERD to secure financing.
Despite approaches during the interim administration, major international institutions including the World Bank, Asian Development Bank (ADB), International Monetary Fund (IMF), Japan Bank for International Cooperation (JBIC), Export-Import Bank of Korea, New Development Bank, and the EDCF, have declined to participate due to global mandates restricting coal financing.
Concurrently, several countries – including Qatar, Malaysia, and Indonesia – have submitted unsolicited proposals to build the plant. While the Power Division strongly prefers competitive international bidding, officials acknowledge that strict procurement timelines could pose challenges.
"Spending months on a standard tender process only to shift to direct negotiation later could delay the plant by up to two years," a senior official noted, adding that urgency may ultimately compel the government to evaluate unsolicited offers to hit the June 2030 operational deadline.
The project proceeds against the backdrop of a broader national retreat from coal. In 2021, the government cancelled 10 proposed coal-fired power projects totaling over 8,500MW as part of a strategic shift toward cleaner energy sources.