Bangladesh News

While the government’s bid to set up rental power plants continue to fail, the Power Cell has prepared fresh bid documents to set up six power plants with a total production capacity of around 300 megawatt on three-year rental terms to meet rising power demand in the next summer.

The cell Thursday finalised a draft request for proposal (RFP) and a draft contract proposing to set up four 50 MW rental plants at Fenchuganj, Kumargaon, Shahjibazar and Ashuganj and two 20 MW rental plants in Bogra and Bhola.

The bid documents outlined various terms and conditions under which a bidder would qualify, and laid out other criterions. The bid documents might be approved by the power ministry today, sources said.

The cell prepared a list of 17 power companies, including six or seven local companies, which have expressed interest in taking part in the bid. But industry insiders say only five or six of these companies actually qualify to bid for rental power as they have their own power generators.

Sources said while the RFP for the first time accommodated the right concepts about rental power, it also left some gray areas which could affect the tender process like that in the past.

“The confusion in the new RFP is still there because the tendering authorities still mix up the concepts of regular Independent Power Projects (IPPs) and rental power schemes,” comments a power expert.

The government has been trying to sign rental power contracts for the last three years without any positive results. The past government had tried to award dozens of rental power schemes to party men with 15-year tender terms, and almost all of these bidders had no experience in power sector. But rental power schemes demand each bidder must have its own power generator. So far only one such contract remains active. But that contract, signed with local company GBB, to set up a rental plant in Bogra could not come into operation.

The Power Cell tried to see the root cause of such failure and came up with the RFP that would produce results. Some experts however believe that unless some issues are addressed in the new RFP, it would once again fail to achieve the goal.

In the opening disclaimer the RFP says, “Government of Bangladesh does not accept any responsibility for maintaining the confidentiality of the material submitted…” An expert notes that this disclaimer means a bidder can say nothing if its offer lands on the table of a competitor. An incompetent bidder has the scope of resorting to falsehood by copying a good bid document to win a tender.

To another expert, the RFP’s biggest shortcoming is allowing 120 days for project implementation. “The Power Cell believes that the 17 companies which have expressed their interest in the bid have power generators in their stock. If so, then why to allow 120 days?,” he asks.

“The international practice for a rental power plant installation is just 45 days. Because rental power plants are built for emergency power supply, a rental power company must have its own equipment. Allowing 120 days for implementation is basically inviting third party companies to shop around to get a suitable power plant. This is exactly why the earlier rental schemes failed,” he said

The earlier rental schemes outlined 120 days for project implementation, which was later increased to 150 days but failed to produce results.

The RFP suggests the bidder submit a proposal security of $150,000 in case of a 50 MW power plant and $75,000 in case of a 20 MW plant. “This is not an international practice as it discourages rental power companies to participate in the bid. Instead, the government may impose high performance guarantee to ensure that a winning rental power company duly pays its penalty for its failure,” he adds.

Regarding tax, customs duty and Vat, the draft RFP may Board confuse the bidders. The RFP says the power company shall be entirely responsible for payment of all income taxes, other taxes, Vat, duties, levies etc incurred inside Bangladesh. But on August 29, the power ministry formally requested the National of Revenue (NBR) to flatten all taxes to six percent, involving rental power, by following the same practice in Pakistan and Sri Lanka. Sources said the NBR is likely to provide this incentive soon, which the RFP can cash in as a major incentive.

Other than these issues, sources say the Power Cell really needs to check track record of the 17 companies that expressed their interest in the bid. The companies include: Aggreko (Singapore), Alstom Power Rentals (USA), Airest (UK), Dynoil (USA), Diesel System International (UAE), Gasturbomash (Ukraine), Master SDN (Malaysia), GMR Energy (India) Taylor Technical Services (USA), Kaltimex Energy (Indonesia) and Bangladeshi companies– Energy Prima, Timely Investment, RB Power, Alliance Holdings, Unique Power, Regent Textile Mills and Green Power.

Most of these companies do not have their own power generator though they claimed to have their own capacity stand-by. Some even did not mention having any equipment.

Indian company GMR suggested it had 220 MW power capacity but it would be available by the end of 2008. “Then why are we even considering GMR as a bidder when we want power next summer?” asks an official.

“Another vital issue is that the government should properly understand the actual price of rental power — it is supposed to be higher than that of regular power projects and a low price offer never guarantees successful project implementation,” he adds.

Rental power projects are popular around the world as a make-shift measure to handle sharp rise of power demand and these are installed for a maximum period of three years. “For instance, rental power companies have been assigned to provide extra power only for 18 days during the Olympic events in China,” the official notes. “This is why rental power companies must be very flexible. They should be able to mobilise their generators and decrease or increase capacity on short notice.”

Rental power companies use gas engines to generate gas-fired power. Gas engines use low gas pressure (90 pressure per square inch) and consume small gas supplies but the power price would be costlier than that from conventional power plants, if gas cost factor is not considered.

“In conventional power projects, gas turbines are used for gas-based power generation. Turbines are not flexible and require huge gas supplies at high gas pressure (500 pressure per square inch). Minus the gas price, power generated by turbines are cheaper than that produced by rental power companies using gas engines,” the official pointed out.

“Therefore, while evaluating the rental power schemes, the government must evaluate actual economic value of the two types of plants. Turbines use more gas and engines do not. The government must add gas cost with the proposed power tariff to find out the real cost of each of these projects,” he added.

The government must also ask the gas distribution companies, which would ensure gas supplies to the upcoming rental plants, to set up Regulatory Meter System (RMS) to ensure that gas supply pressure can be reduced on demand. “In the past, power companies faced difficulties with gas supply pressure. We should now be careful to remain prepared,” the official noted.