Th e operational landscape of the Independent Power Producers (IPPs) in Bangladesh is currently de?ned by a paradoxical relationship between contractual obligations and ?nancial viability.
as an almost 50 percent contributor to the nation’s energy security, IPPs, particularly those operating Heavy Fuel Oil (HFO) based plants, have maintained a commitment to the national grid despite a growing liquidity crisis. Central to this crisis is the Bangladesh Power Development Board’s (BPDB) signi?cant delay in settling outstanding invoices. Reportedly, the arrears have now reached approximately Tk 14,000 crore for HFO-based producers. These payment delays often stretch between eight to ten months.
the long wait has forced many producers into ?nancial insolvency.
as a result, the affected IPPs cannot open Letters of Credit (LC) to import fuel. Subsequently, those IPPs also cannot maintain the ‘Availability Factor’, required as per respective Power Purchase Agreements (PPAs).
the root of the legal dispute lies in the imposition of Liquidated Damages (LD) by the BPDB during periods of forced outages.
the PPA provides a mechanism for the BPDB to penalize producers for the non-availability of electricity due to LD outages. Whereas, the IPPs argue and contend that these outages are a direct consequence of the BPDB’s own material breach of contract- speci?cally, the failure to make timely payments. From a legal point of view, this brings Section 13.2(j) of the standard PPA into sharp attention.
this clause entails that if the BPDB fails to settle undisputed invoices within a speci?c grace period, the producer’s contractual obligation to deliver dependable capacity (power) is effectively suspended. Such a period of suspension necessitated by the buyer’s (i.e., BPDB) default, the law advocates that the producer should remain entitled to Capacity Payments without being penalized by LD deductions.
the situation might even be complicated by looking at the role of the National Load Dispatch Center (NLDC).
iPPs are worried about how the BPDB issues instructions to NLDC. When the plantsare already struggling to buy HFO due to not being paid, the BPDB may issue dispatch instructions anyway. Industry experts note this as ‘imaginary demand’.
the goal of these orders could be triggering Liquidated Damages (LD) penalties against the IPPs, and it would be unfair if it were true.
this seems to be using the IPPs’ ?nancial struggles to arti?cially lower the debts. Such actions lead against the ‘Take-or-Pay’ model and make it much harder for the bankability of power projects to stay ?nancially viable.
the legal instance followed in the case of the Barisal Electric Power Company Limited (BEPCL) offers a noteworthy roadmap for resolution. In this precedent, the BPDB ultimately recognized that deductions (Tk 270.7 crore for outages) made during a period (between May and October 2023) of payment default were inconsistent with the protections afforded under Section 13.2(j).
this ultimately led to a reversal decision (by BPDB) of signi?cant LD penalties of BEPCL. But the LD decisions are applied differently to local vs foreign power producers, which may create market instability and threaten future investment.
it emphasizes the necessity for a harmonized legal interpretation for all IPPs that treats payment default as a ‘force majeure-like’ event. To safeguard a sustainable Bangladesh power sector, the Government should ensure that the PPAs are followed strictly and fairly.
the BPDB must cease the ongoing LD impositions for outages caused by its own lack of payment, linked to documented arrears. There should be an independent veri?cation mechanism to ensure that dispatch demands are based on genuine systemic requirements. There should also be a transparent, non-discriminatory approach for both local and foreign power producers to keep the investment climate stable and prevent capital ?ight. Protecting the legal rights (Section 13.2(j), etc.) of IPPs is essential to preserve the integrity of the energy market and for the future of the energy sector. Clearer communication and timely payments will ensure that the national grid remains reliable for everyone