Cablegate: Bangladesh On the Road to Woo Power Investors

VZCZCXRO6146
PP RUEHAST RUEHBI RUEHCI RUEHDBU RUEHLH RUEHNEH RUEHPW
DE RUEHKA #0109/01 0350832
ZNR UUUUU ZZH
P 040832Z FEB 10
FM AMEMBASSY DHAKA
TO RUEHC/SECSTATE WASHDC PRIORITY 9977
INFO RUCNCLS/ALL SOUTH AND CENTRAL ASIA COLLECTIVE
RUEHGP/AMEMBASSY SINGAPORE 3113
RUEHLO/AMEMBASSY LONDON 2235
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RHMCSUU/DEPT OF ENERGY WASHINGTON DC
RUEVDEE/DEPT OF INTERIOR WASHDC

UNCLAS SECTION 01 OF 03 DHAKA 000109

SENSITIVE
SIPDIS

DEPT FOR SCA/INSB
ENERGY FOR NICHOLAS SHERMAN
INTERIOR FOR OSMRE ALFRED WHITEHOUSE

E.O. 12958: N/A
TAGS: ENRG EINV ETRD EAID ECON PREL BG
SUBJECT: BANGLADESH ON THE ROAD TO WOO POWER INVESTORS

SUMMARY
-------

1. (SBU) Six power projects valued at $5.5 billion are the core of
a Government of Bangladesh (GOB) plan to add close to 4,000
megawatts (MW) of power to Bangladesh's grid. GOB officials
unveiled these plans at a series of investment roadshows in London,
Singapore and New York in December and January. Investors at the
Singapore conference were impressed with the GOB's plans and
presentations. Business representatives in Singapore said they
hoped the GOB would move more quickly on these projects than it had
on previous power projects. These and other power generation
projects, including power sharing initiatives between India and
Bangladesh, are desperately needed to address Bangladesh's growing
power crisis and represent a commercial opportunity for U.S. firms.

Bangladesh Needs More Than 2,000 MW of Power
----------------------------------------

2. (SBU) At an investment conference held in Singapore January
25-26, GOB officials were frank about Bangladesh's energy needs.
According to the Chairman of Bangladesh's Power Development Board
(BPDB), the country has the capacity to produce 5,800 MW of power.
However, most existing power plants are old, do not operate at peak
capacity and frequently are shut down for repairs and maintenance.
Bangladesh's Power Secretary reported that Bangladesh generated
between 3,800 and 4,300 MW per day in 2009, while demand ranged from
4,200 to 5,500 MW per day.

Planned Generation Expansion Well Short of Demand
---------------------------------

3. (U) The BPDB Chairman told investors in Singapore that existing
power expansion plans would still leave Bangladesh with a
1,400-1,800 MW power shortfall annually through 2014. Therefore the
GOB had developed additional plans for six large power plants, a
wind-powered plant, three small solar-powered plants, and a terminal
for the import of liquefied natural gas (LNG) to address the
shortfall. The Chairman said these private sector projects, which
were the focus of the investment roadshow, along with a range of
public sector programs aimed to gradually reduce the supply-demand
gap and ensure power supply exceeded demand by 2013 or 2014.

Power Expansion Based on Gas, Dual Fuel, Coal Plants
-------------------------------------

4. (U) The GOB highlighted at the roadshow six proposed independent
power projects for companies to invest in on a build-own-operate
(BOO) or build-own-operate-transfer (BOOT) basis:

--a 300-450 MW gas-fired, combined cycle plant located near
Chevron's Bibiyana gas field in northeastern Bangladesh (Bibiyana
2);

--a 300-450 MW dual fuel, combined cycle plant located at Meghnaghat
outside Dhaka (Meghnaghat 2);

--a 150-225 MW gas-fired, combined cycle plant located in Bhola in
southern Bangladesh;

--a 100 MW dual fuel, peaking power plant located at Savar outside
Dhaka and near a cluster of leather tanneries;

--a 100 MW dual fuel, peaking power plant located at Kaliakoir north
of Dhaka and near a planned information technology industrial park;
and

--a 2,000-2,600 MW coal-fired power project that would include four
500-700 MW plants located in central and southern Bangladesh.

The BPDB Chairman estimated that these projects would involve a
total investment of $5.5 billion. The Chairman also described plans
for three small solar power plants, between 1 and 4 MW each. He
outlined a proposal to establish a 100 MW wind-based power plant on
the coast at Chittagong, Bangladesh's second city in southeastern
Bangladesh.

Proposed LNG Terminal in Chittagong Port
-----------------------------

5. (U) The Chairman of the state-owned Bangladesh Oil, Gas and
Mineral Corporation (Petrobangla) reviewed a proposal to build a

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liquefied natural gas (LNG) terminal south of Chittagong near the
site where the GOB would like to build a deep sea port. The LNG
imported and stored in the terminal would augment Bangladesh's own
natural gas resources. Bangladesh relies on natural gas for power,
fertilizer, industrial and transportation purposes.

Investors Keen on Coal and Other Domestic Energy Sources
-------------------------------------

6. (SBU) Investors in Singapore were quick to question the GOB's
plans for supplying energy to these proposed plants. They focused
on the fact that Bangladesh anticipated importing coal to fuel the
proposed coal-fired plants. Why didn't Bangladesh use its own vast
reserves of high-quality coal instead, several investors asked.
Bangladesh has an estimated 2 billion metric tons of coal, which
many observers believe represent the most economically efficient
solution to Bangladesh's energy deficit. A U.S.-U.K.-Australian
venture to develop a large portion of these reserves has languished
as a result of the GOB's reluctance to fully exploit its coal
reserves. (COMMENT: The now-governing Awami League vigorously
opposed development of these reserves when it was the opposition
party and is now finding it difficult to reverse track. END
COMMENT.)

GOB Considering Ways to Exploit Large Coal Reserves
---------------------------------

7. (U) Tawfiq Elahi Chowdhury, the Bangladesh Prime Minister's
Energy Advisor and top energy decision-maker, admitted the GOB was
undergoing some "soul searching on coal." Chowdhury said the GOB
was grappling with technical, social and environmental challenges
connected to surface mining, which would be the best way to access
Bangladesh's coal reserves. Chowdhury told investors he anticipated
the GOB would reach a decision on this issue of coal within "a
couple of months." He added that the GOB hoped to mine Bangladesh's
coal fields in the future.

Recovering Gas Reserves More Attractive to GOB
--------------------------------------

8. (SBU) Chowdhury also noted that the GOB's plans for an LNG
terminal were a response to short- and medium-term shortages in
Bangladesh's domestic gas supplies. The GOB is pursuing onshore and
offshore gas prospects, including with U.S. firms Chevron and
ConocoPhillips.

What about timing and pricing?
------------------------------

9. (U) The BPDB Chairman said the GOB planned to complete the
tendering process and sign contracts on the six main power projects
by the end of 2010 or early 2011. The GOB estimates that the gas
fired and dual fuel plants could be operational between late 2010
and early 2014. The coal fired power plants have an operations
target of late 2014 or early 2015.

Energy Regulation and Pricing
-----------------------------

10. (U) Bangladesh's Power Secretary described ongoing GOB efforts
to rationalize power prices so they better reflect power costs and
lower GOB power subsidies. According to the Power Secretary, the
Bangladesh Energy Regulatory Commission (BERC), which has evolved
largely as the result of USG assistance since its inception in 2003,
increased power tariffs in 2008 and 2009. BERC planned further
incremental increases between now and 2014 to better match prices
and costs.

Bangladesh Also Exploring Power Sharing with India
-----------------------------------------

11. (SBU) As GOB officials were on the road to promote these power
and energy projects, Prime Minister Sheikh Hasina returned from a
highly successful summit with Indian Prime Minister Manmohan Singh
in New Delhi. Among the topics discussed was power sharing, and
India committed to providing 250 MW of electricity from its grid to
Bangladesh. This is an important step towards regional power
sharing, one that programs like USAID's South Asia Regional
Initiative for Energy (SARI/Energy) can build on.

Comment
-------

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12. (SBU) Investors at the Singapore conference agreed the GOB had
presented itself and its projects very favorably. They rightly
questioned the GOB about the timing of tenders and sources of
energy. The GOB tender process usually moves at a glacial pace.
For example, it is now nine months since the GOB revitalized plans
for its first proposed power plant at Bibiyana (Bibiyana 1).
Despite having promised to award the contract for Bibiyana 1 in the
fall of 2009, the GOB has not yet floated the tender, though the
pre-qualification process is complete. Many local experts question
whether the timelines outlined at the road show are realistic.

13. (SBU) Bangladesh desperately needs power, and power generation
is one of the top election commitments made by the Awami League
government. It is no coincidence that the projects highlighted at
the road show are reportedly set to come online in late 2013 or
early 2014. This corresponds with the end of the Awami League's
term in office. The Awami League government must follow through on
its power promises if it hopes to stand a chance in the next
national elections. U.S. companies stand to benefit from
participating in meeting Bangladesh's energy deficit and sharply
increasing demand. Mission Dhaka will continue to aggressively
support U.S. companies in this endeavor.

MORIARTY

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