CPD Power and Energy Study on

Opportunities and Challenges for Overseas Investment in the Renewable Energy

Sector of Bangladesh: The Case of China
Session II: Opportunities and Challenges for Overseas Investment in the Renewable Energy
Sector of Bangladesh

Study conducted by

Dr Khondaker Golam Moazzem

Research Director
Centre for Policy Dialogue (CPD)

Mr Mashfiq Ahasan Hridoy

Research Associate
Centre for Policy Dialogue (CPD)
23 October, 2023
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 Contents

1. Introduction
2. Analytical Framework: Prerequisites for Attracting FDI
3. Overview of Overseas Investment/FDI in Power and Energy Sector of Bangladesh
4. Overview of Overseas Investment/FDI in the Renewable Energy Sector of Bangladesh
5. FDI related Policies of Bangladesh
6. Structure of Foreign Investment in Bangladesh
7. Eligibility Criteria for Foreign Financing in Bangladesh
8. Facilities and Incentives for Foreign Investors in Bangladesh
9. Major Challenges to Attract Foreign Finance/FDI into RE Sector of Bangladesh
10. Financial Practices for Implementing Renewable Energy Practices
11. Sustainable Finance Instruments for Power and Energy Sector in Bangladesh
12. Recommendations to Increase Foreign Financing/FDI Inflow in the Renewable Energy
Sector of Bangladesh
 1. Introduction

Bangladesh aims to achieve 30% renewable energy by 2030 and 40% by 2041 (as per the Mujib Climate Prosperity Plan, 2023)

1 2 3 4 5

At present 1,194 MW of Major share of The power sector has Even though the Multiple types of
electricity is generated investment in the power fetched $30 billion in Renewable Energy financial challenges
from renewable sources sector has been foreign investment in Policy of 2008 dictates exists for the
(less than 4.5%), but originated either from the last 13 years but to provide financial investment in the
825.23 MW of the public sector or most of this investment incentives in the sector, renewable energy
electricity comes to the from the domestic has been allocated in it is hardly in practice sector
national grid private sector though exploring gas and
investment in establishing new fossil
renewable energy- fuel-based power plants
based power sector is
rather low

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 2. Analytical Framework: Prerequisites for Attracting FDI
Factors Co-factors
Host state's track record, hostility toward FDI or foreign investors, host state's
Stable Political Environment
political and regulatory stability
Multi-year plans, provisions for protecting investments, streamlined and efficient
Clear and Consistent
permitting and licensing procedures, clear rules for Power Purchase Agreements
Regulatory Framework
(PPAs)
Reduced corporate income tax rates, tax holidays, accelerated depreciation,
Investor-Friendly Incentives
currency exchange guarantees
Transmission line, distribution system, infrastructure for the disposal, recycling,
Infrastructure
and management of waste

Electrical engineers, civil engineers, mechanical engineers, control systems

Skilled Workforce
technicians, experts in environmental science and sustainability, energy auditors

Political risk insurance, access to international courts, currency stabilization

Risk Mitigation Measures
measures
Partnerships and
Access to funding, technical expertise, knowledge sharing, joint ventures
Collaboration
Long-term Sustainable
Net-metering and energy efficiency standards
Policies
Partnership with Export Credit Agencies (ECAs), green bonds, Pay-As-You-Go
Access to Financing
(PAYG) schemes, carbon markets
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 3. Overview of Overseas Investment/FDI in the Power and Energy Sector of Bangladesh
FDI Inflows in Power and Energy Sector during the
• During January-December 2022, Net FDI Inflows Calendar Year 2022
were USD 3479.95 million 700

• It records an increase of $584.39 million or 600

585.1

20.2% over its level in the calendar year 2021

Million USD
511.69
500
• During CY2022, inward FDI in the power and
energy sector was $854.2 million which was 25% 400 360.93
342.54
of the total net FDI inflow in the same year 300
170.85
159.3

• Major share of the investment (US$512

60.34
216.84 206.97
55.31
million) went on the power sector (60%)
200 172.97
1.81152.03
11.55
109.45
while the remaining share of investment went
0 5.03 96.31
100 72.16 72.1685.84 73.41
56.38 57.58 55.77
to the energy sector ($342.5 million) 9.87
29.46
13.14 20.94 18.39
0
• It is important to note that about US$91.8 million

Gross Inflow

Gross Inflow

Gross Inflow

Gross Inflow

Gross Inflow
Disinvestment

Net Inflow

Disinvestment

Net Inflow

Disinvestment

Net Inflow

Disinvestment

Net Inflow

Disinvestment

Net Inflow
has been disinvested during this period mainly
from the gas sector
Jan-Mar’2022 Apr-Jun’2022 Jul-Sep'2022 Oct-Dec'2022 Total CY 2022
Quartiles

Power Gas & Petroleum

Source: Foreign Direct Investment and External Debt, Bangladesh Bank, July-December 2022

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 3. Overview of Overseas Investment/FDI in the Power and Energy Sector of Bangladesh
• The top five countries investing in the power and energy sector of Bangladesh at the end of December 2022
were the UK, Hong Kong, the Netherlands, the USA, and China
• The FDI stock classified by major countries in the power and energy sector at the end of December 2022
• USA: Gas & Petroleum (US$2.9 billion)
• China: Power (US$667 million)
• UAE: (US$233 million)

Gross & Net FDI Inflows by Major Countries in Power and Energy FDI Stock Classified by Major Countries in the Power and Energy Sector at
Sector During the Period 2022 the end of Dec’2022
250
Gross Inflow Net Inflow 3500
200
2910.5
Million USD

150 3000
100 2500

Million USD
50
0 2000
Gas & Petroleum
Gas & Petroleum

Gas & Petroleum

Gas & Petroleum

Gas & Petroleum

Gas & Petroleum

Gas & Petroleum

Gas & Petroleum

Power

Power

Power

Power

Power

Power

Power

Power
-50 1500
1000 200.31 666.9
184.29 168.39
166.48 117.68
500 175.14 232.74
36.66 0 43.12 0 0.21 0.01 5.98
0
UK Hong Kong Netherlands USA China India Malaysia UAE UK Hong Kong Netherlands USA China India Malaysia UAE
Countries

Gas & Petroleum Power

Source: Foreign Direct Investment and External Debt, Bangladesh Bank, July-December 2022

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4. Overview of Overseas Investment/FDI in the Renewable Energy Sector of Bangladesh

Ongoing FDI in the Renewable Energy Sector in Bangladesh

Financing Options for Renewable Power Plants set Projects Capacity Amount Funding Type
to operate in 2023 (Up to Q3, 2023)
60 MW Wind
Number of Power Power Project
Around $116.51
Type of Financing Plants at Coxs Bazar by 60 MW Foreign Investment
million
US-DK Green
Government Funded 3 Energy (BD) Ltd

Domestic Private Investment 4 Around $89.17

Sonagazi 50
million (WB:
MW Solar 50MW World Bank Loan
$74.15 million-
3 (2 Foreign Power Plant
assistance)
Investment & 1
Foreign Investment, Grant or Foreign Assistance + Around $48.14
Loans Loan) million (Sukuk)
Tetulia, - $36.14 million Joint - Beximco & Jiangsu
Joint Ventures 3 Panchagarh 30 30 MW Sukuk and Zhongtian Technology Co.
MW Solar Park $12.04 million Limited
Source: BPDB Monthly Reports and SREDA Equity - $9.63
million (20%)
Dharampasha,
Sunamganj 32 Foreign Investment - HKGE
32 MW $100 million
MW Solar Consortium Ltd.
Power Plant

Source: BPDB Monthly Reports and SREDA

 5. FDI related Policies of Bangladesh

The Foreign
Bangladesh Export
Private Investment Bangladesh
Processing Zones The Companies
(Promotion and Economic Zones
Authority Act, Act, 1994
Protection) Act, Act, 2010
1980
1980

The Bangladesh
The Act established the
The act provides certain Economic Zones Act of
Bangladesh Export
protections from 2010 was enacted to
Processing Zones
indemnification, establish economic
Authority (BEPZA) as the
expropriation, and zones in all potential
governing body
nationalization, and areas, including
responsible for The Act sets out the
allows for repatriation of backward and
overseeing and procedures and
investment and removal underdeveloped regions,
managing EPZs in requirements for the
of difficulties to accelerate economic
Bangladesh incorporation of
growth
different types of
companies, including
The Act provides for
The Act outlines the private companies,
various incentives to
procedures for public companies, and
The act also ensures that attract investors to EPZs
establishing economic foreign companies
foreign private like tax holidays,
zones and specifies the operating in Bangladesh
investment receives fair customs duty
authorities responsible
and equitable treatment exemptions on imports
for their management,
and full protection and and exports, and
including the Bangladesh
security in Bangladesh repatriation of profits
Economic Zones
and dividends without
Authority (BEZA)
restrictions
 6. Structure of Foreign Investment in Bangladesh
• Foreign Direct Investment (FDI): According to the United Nations Conference on Trade and Development (UNCTAD), FDI
inflows to Bangladesh increased by 12.9% to USD 2.89 billion in 2021 compared to USD 2.56 billion in 2020
• The total stock of FDI was estimated at USD 21.58 billion in 2021 by UNCTAD
• Wholly Owned Subsidiaries: In this system, one company (the parent or holding company) owns 100% of another
company's (the subsidiary) shares or assets
• Joint Ventures: In a joint venture, foreign investors typically collaborate with local partners or entities since they can bring
valuable insights into the Bangladeshi market, regulatory landscape, and business environment
• There are several types of joint ventures in Bangladesh, including project partnership, limited cooperation, separate
joint venture business, and functional joint venture
• Setting up a Branch or Liaison Offices: The operations of these organizations are limited to those set out in their BIDA
approvals and are subject to strict compliance with the foreign exchange regulations
• Generally, no outward remittance of any kind from Bangladesh is allowed unless expressly approved by the Foreign
Exchange Regulations or the Bangladesh Bank
• Such offices are expected to pay inward remittances of at least USD 50,000 within two months from the date of
establishment as a cost of establishment
• Participating in an Existing Bangladeshi Company by Purchasing Shares: Shares can be given to foreign investors against
capital machinery brought by them to Bangladesh (subject to confirmation by the Customs and Excise Office of the import
documents, Procedure of foreign investment in Bangladesh)

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7. Eligibility Criteria for Foreign Financing in Bangladesh

• The applicant is required to submit the prescribed application form along with other
Criteria 1 documents such as a feasibility report, project profile, and environmental impact assessment
report

• Foreign loans with a term of less than a year require prior authorization from Bangladesh
Criteria 2 Bank
• All other foreign loans must be authorized by the BIDA

• Approval of the foreign borrowing given by the Scrutiny Committee will be valid for up to 6
Criteria 3 months from the date of approval letter issued by BIDA

• All corporate records of the borrower must be up-to-date, and the borrower must have all
Criteria 4 licenses and permits to conduct its business

• The concerned AD bank (banks with an RBI license to buy and sell foreign exchange for
Criteria 5 specified purposes) through their respective head office will have to submit a consolidated
report of foreign loans approved by BIDA/Bangladesh Bank

• Financial institutions must hold a valid license from Bangladesh Bank to participate in the
Criteria 6 fund
8. Facilities and Incentives for Foreign Investors in Bangladesh
5 to 7 years corporate tax holiday for selected sectors

Private power companies enjoy corporate income tax exemption for a period of 15 years

Tax exemption on royalties, technical knowhow and technical assistance fees and facilities for their repatriation

Tax exemption on foreign loans regarding interest

Tax exemptions on capital gains from transfer of shares by the investing company

Remittances of up to 50% of salaries of the foreigners employed in Bangladesh and facilities for repatriation of their savings and
retirement benefits at the time of their return

No restrictions on issuance of work permits to project related foreign nationals and employees

Facilities for repatriation of invested capital, profits and dividends

Provision of transfer of shares held by foreign shareholders to local investors

Reinvestment of remittance dividends would be treated as new investment

An investor can wind up on investment through a decision of the AGM

Once a foreign investor completes the related formalities to exit the country, he or she can repatriate the sales proceeds after securing
proper authorization from the Central Bank
9. Major Challenges to Attract Foreign Finance/FDI into RE Sector of Bangladesh
Category Challenges
Bureaucratic complexity to get registered or permission
Absence of investment promoting agency
Lack of project specific proposals in hand to attract international investment

Non-cooperation from relevant government agencies like, the Board of Investment, Police, National
Board of Revenue, Environment Authority etc.
Administrative/Operational
Political unrest and blockades
Differential treatment with the change of government

Lack of administrative coordination among different government bodies

Delay to get services from supporting organizations (e.g. Department of Land)

Absence of efficient physical infrastructure

Technical
Absence of technology infrastructure
Poor imposition of Intellectual Property Law
Corruption
Legal
Frequent changes in policies on import duties for raw materials, machinery, equipment etc.

Lack of professionals and sector specific trained man power

Quality Assurance
Absence of standardization/quality infrastructure in home/household
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 10. Financial Practices for Implementing Renewable Energy Practices

Establishment of the • It is a center that would provide financing and technical assistance for implementing renewable energy practices
• Green banks, which offer technical assistance and financing to provide better loan rates, terms, and credit access, can be leveraged
Financing and to accelerate the decarbonization, grid resilience, and energy affordability policy objectives of the FSC
Settlement Center (FSC) • Fundings of FSC may include government funding, grants, private investments, or a combination of these

Exemption of Tariffs for

• This kinds of initiatives are taken to significantly reduce the financial burden on renewable energy projects and facilitate their
Importing Renewable development
Energy Equipment

• Unlike negotiated procurements or feed-in tariffs (FITs), auctions have the potential to provide price discovery, reduce windfall
Bidding Mechanism profits for power producers, and give cash-strapped utilities and consumers lower prices for electricity

Renewable Energy • Renewable Energy Quotas, often referred to as Renewable Portfolio Standards (RPS) or Renewable Energy Standards (RES), are
regulatory policies or mandates implemented by governments at various levels (local, state, or national) to promote the use and
Quotas development of renewable energy sources for electricity generation

• Net metering is a billing arrangement and policy that allows owners of residential or commercial renewable energy systems, such
as solar panels or wind turbines, to receive credit for any excess electricity they generate and feed back into the grid
Net Metering • At the end of the billing period (usually monthly), the customer is billed for their "net" consumption, taking into account any
credits earned from excess generation
11. Sustainable Finance Instruments for Power and Energy Sector in Bangladesh
• Green Loans:
• Green loans are a category of loans offered by financial institutions (banks, investors, or development
organizations) to finance projects that have positive environmental and sustainability impacts
• These loans are typically earmarked for initiatives that reduce greenhouse gas emissions, conserve
natural resources, or promote eco-friendly practices
• They provide access to capital for green initiatives that might otherwise face financial barriers
• Green Deposits:
• Green deposits are a type of savings or investment account offered by banks and financial institutions
to attract funds from environmentally conscious individuals and organizations who want to support
projects and activities with positive environmental and social impacts, such as renewable energy
• This ensures that the money is directed toward projects with clear sustainability goals
• Depending on the institution, green deposits may have specific terms and conditions, including
minimum deposit requirements or restrictions on withdrawals

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11. Sustainable Finance Instruments for Power and Energy Sector in Bangladesh
• Green Guarantees: Green guarantees are financial commitments issued by a guarantor, such as a bank or
financial institution, to ensure that a project or transaction complies with specific environmental or
sustainability criteria
• They provide a form of assurance that the project will meet predefined green standards
• The guarantor ensures that the project or transaction adheres to specific environmental and
sustainability criteria
• Sustainable Supply Chain Financing (SSCF): SSCF refers to financial mechanisms and solutions that link a
company's commitment to sustainability with its access to financing
• It involves collaboration between buyers (often large corporations) and their suppliers to promote
responsible and sustainable practices throughout the supply chain
• SSCF helps suppliers, including those providing components for renewable energy projects (e.g., solar
panels, wind turbine components), access affordable financing
• This, in turn, enables them to invest in sustainable practices, such as reducing emissions, improving
energy efficiency, or sourcing renewable materials

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11. Sustainable Finance Instruments for Power and Energy Sector in Bangladesh
• Green Bonds: Green bonds are fixed-income securities or debt instruments issued by governments, financial
institutions, or corporations with the explicit purpose of raising capital for projects and activities that have
positive environmental and sustainability impacts
• Green bonds are designed to align with recognized green bond principles and standards, such as the Green
Bond Principles or Climate Bonds Standard, to ensure that the projects meet stringent sustainability criteria
• Investors in green bonds often benefit from the assurance that their investments are aligned with their
sustainability goals while still receiving competitive returns
• Blue Bonds: These bonds are specifically designed to support activities related to the protection and preservation
of marine environments
• Blue bonds can indirectly contribute to the renewable energy sector, particularly in the context of offshore
wind and tidal energy projects
• Blue bonds can finance projects aimed at assessing and minimizing the environmental impact of offshore
wind installations, including studies on marine life, seabed ecology, and navigation safety
• They can also fund projects focused on mitigating potential ecological disruptions caused by offshore wind
turbines
• Blue bonds can support the research, development, and deployment of tidal energy technologies while
ensuring that these projects adhere to strict environmental standards, minimizing harm to marine
ecosystems
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11. Sustainable Finance Instruments for Power and Energy Sector in Bangladesh
• Social Bonds: Social bonds are debt instruments issued by governments, financial institutions, or
corporations with the primary purpose of raising capital to fund projects or activities that have a positive
social or societal impact
• These bonds are distinguished by their "social" label, indicating that the proceeds will be used for
initiatives that address social challenges, such as affordable housing, education, healthcare, or
employment opportunities
• Renewable energy projects often involve interaction with local communities so it can fund community
engagement initiatives, such as job training, education programs, or infrastructure development,
which can build support for renewable energy projects among local residents
• In regions with limited access to clean energy, social bonds can finance projects that improve energy
access and affordability
• This indirectly supports renewable energy adoption by making it more accessible to underserved
populations

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12. Recommendations to Increase Foreign Financing/FDI Inflow in the Renewable
Energy Sector of Bangladesh
• Preparing complete project profile (PP) and approaching relevant multinational companies (MNCs)
• MNCs like Vestas, Siemens require detailed project profiles
• To attract investment from these kinds of MNCs, PP should be made according to the global standards
• Establishing an Investment Promotion Agency other than the Board of Investment (Regulator)
• Bangladesh Investment Development Authority (BIDA) can promote renewable energy investment to attract
foreign investments/loans
• Increasing government’s investment (could be under PPP modality) to achieve trust of foreign investors
• Unless GoB has their own initiatives to attract local investments, foreign entities will always be doubtful
before financing in the country
• China, with the help of their Policy Banks, attracted local investments which eventually attracted other
foreign entities like Vestas

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12. Recommendations to Increase Foreign Financing/FDI Inflow in the Renewable
Energy Sector of Bangladesh

• Functional one stop investment service center to reduce investment relevant harassments
• GoB should develop a new entity which will solely focus on mitigating clashes concerning investments
• This kind of initiative will create a sense of assurance to the foreign investors
• Increase/attract investment in infrastructure development
• Unless the infrastructures(e.g. transportation) are developed, it will be difficult to attract foreign investment
in the renewable energy sector since it is still a niche concept in the country
• Emphasizing on the job training to facilitate technology transfer and employment generation
• Creating a capable and strong manpower is necessary to attract foreign entities since before investing they
would check the quality of manpower
• Unless programmes like job trainings are offered, there might be backlashes from the local community while
building a renewable energy powerplant which would surely demotivate the investors
• China invested a substantial amount to make its manpower efficient to attract investors through training
and schooling

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12. Recommendations to Increase Foreign Financing/FDI Inflow in RE Sector of
Bangladesh
• Attracting FDI into backward and forward linkage industries including testing laboratories, common
facility centers, industrial park development and international value chain linkage industries
• Attracting cluster based investment to upgrade existing 177 SME Clusters in Bangladesh
• Upgrading SME clusters can stimulate economic growth by enhancing the productivity and
competitiveness of these businesses
• Cluster-based investment often leads to the exchange of knowledge, best practices, and technology
among businesses within the cluster
• Strong clusters contribute to the resilience of the renewable energy supply chain
• Renewable energy clusters can foster collaborations with other industries, such as information
technology and manufacturing, to develop integrated solutions and create new market
opportunities

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Thank You.