Introduction

Over the past year, Bangladesh’s power sector has undergone sweeping changes amid an unprecedented period of political and institutional transition. The resignation of the former prime minister in August 2024, following mass protests, and the formation of an interim government marked a significant turning point. Since then, the sector has seen a flurry of reforms, including the repeal of major legislation which was the cornerstone of procurement in various projects in the power sector over the last 14 years, a reorientation of procurement processes, and the publication of a new Renewable Energy Policy aimed at overhauling the clean energy landscape.

These reforms reflect the interim government’s stated intent to address long-standing concerns over transparency, accountability, and market competitiveness in the energy sector. However, they have also introduced new uncertainties for investors and project developers, particularly in relation to existing contracts and regulatory stability.

Repeal of the Special Act

The Quick Enhancement of Electricity and Energy Supply (Special Provisions) Act, 2010 (the “Special Act”) was enacted to facilitate the development of power and energy-related projects in response to Bangladesh’s urgent energy needs. Under the Special Act, the Government of the People’s Republic of Bangladesh (the “GOB”) and all enterprises owned or controlled by it could undertake plans for the rapid enhancement of electricity or energy generation, transmission, transportation, and marketing, or accept proposals from and enter into agreements with the private sector, without being required to comply with the Public Procurement Act 2006 or any other prevailing laws.

Over the past 14 years, a large number of power projects, including both thermal and renewable, have been awarded to the private sector under the Special Act. However, only a limited number of these projects were successfully implemented and have commenced commercial operations.

Section 6(2) of the Special Act allowed the processing committee to consult and negotiate with a single or limited number of organisations regarding any purchase, investment plan, or proposal. Upon approval of the Ministry of Power, Energy & Mineral Resources, such organisation could then be selected for the relevant work, and steps could be taken to forward the matter to the Cabinet Committee on Economic Affairs or the Cabinet Committee on Government Purchase. Additionally, Section 9 provided that no question regarding the validity of any act carried out or purported to be carried out, any action taken, or any order issued or direction given under the Special Act could be raised in any court.

These provisions gave rise to widespread criticism. The Special Act was seen as granting excessive powers to the GOB, which allegedly enabled project awards to be made arbitrarily and without competitive bidding. The absence of judicial oversight further heightened concerns regarding transparency and accountability.

A writ petition was subsequently filed before the High Court Division of the Supreme Court of Bangladesh challenging the constitutionality of Sections 6(2) and 9. Following a full hearing, the court declared both provisions unconstitutional.

In the aftermath of this decision, the interim GOB repealed the Special Act in its entirety through an Ordinance issued in November 2024. The repeal ordinance clarified that any agreements entered into, or actions taken pursuant to such agreements under the Special Act prior to its repeal, would be deemed valid. However, it also reserves the GOB’s right to review such actions and permits it to take further measures in the public interest.

Introduction of a New Policy: Renewable Energy Policy 2025

The Renewable Energy Policy 2025 was adopted by the Power Division of the Ministry of Power, Energy and Mineral Resources in June 2025, thereby repealing the earlier Renewable Energy Policy 2008.

The Renewable Energy Policy 2008 of Bangladesh laid the groundwork for promoting clean energy, setting modest targets of 5% renewable electricity by 2015 and 10% by 2020, with limited fiscal incentives and a largely undeveloped institutional framework. In contrast, the Renewable Energy Policy 2025 significantly raises ambitions, targeting 20% of total generation by 2030 and 30% by 2040. It also modernises the policy landscape by incorporating technologies such as green hydrogen, floating solar, and battery storage, and by proposing market mechanisms such as feed-in tariffs, renewable energy certificates, and reverse auctions.

Crucially, the policy outlines a clearer – though more complex – regulatory architecture involving the Sustainable and Renewable Energy Development Authority (SREDA), the Bangladesh Energy Regulatory Commission (BERC), and the Power Division. For sponsors, this means additional regulatory interfaces and potential co-ordination risks.

The fiscal incentives provided in the Renewable Energy Policy 2025 include an exemption from corporate income tax for ten years, followed by a partial exemption for the subsequent five years (50% for the next three years and 25% for the following two years), applicable to projects commissioned between 1 July 2025 and 30 June 2030. These incentives are comparatively higher than those available under the Renewable Energy Policy 2008.

Formation of a National Committee and Contract Review

In tandem, the Power Division formed the National Committee to examine whether the interests of the GOB have been adequately protected in the contracts already signed under the Special Act.

The agreements entered into under the Special Act have no provisions allowing a tariff adjustment during the tenure of the agreement. However, based on the recommendations of the National Committee, the Power Division has started directing the independent power producers (IPPs) to renegotiate tariff rates, including during ongoing operations or as a pre-condition to starting operations.

These directions are being given outside the purview of the signed agreements and, while no legal challenges have yet been filed, it remains to be seen whether the IPPs will accept renegotiations or contest them in court. So far, no renegotiation has resulted in a confirmed tariff reduction.

Cancellation of Letters of Intent (LOIs)

As part of the reform activities, the Power Division has cancelled all LOIs for power projects. Some of the sponsors who had been awarded LOIs had undertaken significant preparatory work for the project and had made financial commitments. An outright cancellation of the LOI at such a stage, without citing any specific breach, can be challenged.

Under the Contract Act of 1872 in Bangladesh, a contract is concluded when there is an offer by one party and this is accepted by another, both with the intention to create legal relations. The contract must involve lawful consideration, be entered into by parties with legal capacity, and have free consent, meaning it is not induced by coercion, fraud or misrepresentation. The terms must be certain, the contract’s purpose must be lawful, and the performance must be possible. Additionally, any required legal formalities must be fulfilled. When these elements are met, the contract is legally binding and enforceable.

Given that the LOI fulfils the essential elements of a contract (ie, offer, acceptance, intention to create legal relations, consideration, certainty of terms, and compliance with legal formalities), it can be argued that the LOI constitutes a binding contract under the Contract Act of 1872.

A writ petition had been filed challenging a similar cancellation of an LOI during the term of the former government, but the judgment was passed only recently. As per the judgment, the cancellation of the LOI by the Bangladesh Power Development Board (BPDB) without involving the highest decision-making body, that is, the Cabinet of Bangladesh, was illegal due to procedural irregularity.

While no legal proceedings have yet been filed against the recent cancellation of LOIs, it remains to be seen what the judicial position will be if such a matter is brought before the court under the current administration, especially since the cancellations were carried out using the same procedures.

Transition to Competitive Procurement

Now that the Special Act has been repealed, the Ministry of Power, Energy and Mineral Resources intends to undertake projects relating to generation, transmission or distribution under the Public Procurement Act, 2006 (PPA 2006) and the Public Procurement Rules, 2008 (PPR 2008). This marks a significant shift in the power sector, where projects had been implemented under the 2010 Act for almost 14 years.

According to Section 33 of the PPA 2006, the procuring entity may undertake public procurement using an open international procurement method where it is not feasible to conduct procurement by inviting competitive tenders within Bangladesh, and it reasonably appears that effective international competition cannot be ensured without special efforts. Therefore, the BPDB, being the procuring entity, will use the international open tendering method under the PPA 2006. The Act also provides for other procurement methods specifically applicable to international procurement.

Early Challenges in Competitive Tendering

Despite this shift, early results under the new regime have been discouraging. The BPDB had floated three tenders to build solar power plants with capacities between 10 MW and 100 MW. The deadlines for submission of proposals have been extended for the second time as no proposals have been received from potential investors. The tender documents must be purchased from the BPDB upon payment of a fee of BDT25,000. While interested entities have bought the tender documents, none appear to have submitted any proposals.

The main challenge is the bankability of such projects. Previously, there were two key agreements:

• The power purchase agreement (PPA) between the BPDB as the purchaser and the project company as the independent power producer.
• The implementation agreement between the GOB, represented by the Ministry of Power, Energy & Mineral Resources, and the project company as the independent power producer. Under this agreement, the GOB used to backstop the BPDB’s obligations and provide necessary support in project implementation. Most importantly, termination payments were payable by the GOB in case of termination of the project agreement.

The entire format of the project documents has now been changed. Instead of the earlier implementation agreement and the PPA, the contract documents will now include the tender documents, which contain references to certain provisions of the earlier PPA.

Under the traditional PPA, the BPDB was obliged to issue a standby letter of credit to the project company within 25 business days after the commercial operations date. This letter of credit acted as a payment security mechanism, allowing the project company to draw amounts due under the PPA (less any disputed amounts) by presenting a certificate in the prescribed form.

In practice, the BPDB often fails to issue or replenish the payment security within the stipulated timeframes under the PPA, making it unreliable as the sole form of security. As a result, lenders typically placed greater reliance on the GOB guarantee provided under the Guarantee Agreement.

The absence of both the standby letter of credit and the GOB guarantee in the current tender documents introduces significant risks for the independent power producer. Without these safeguards, the project company faces heightened exposure to payment delays or defaults by the BPDB, which could adversely affect the project’s financial stability and viability.

The tender documents do not include provisions regarding the establishment and operation of bank accounts, foreign exchange (FX) availability and convertibility, or transferability of funds. The absence of such provisions creates uncertainty and raises concerns about the ability to repatriate funds or service foreign debt obligations, which are critical factors for international investors and financiers.

Traditionally, Bangladesh’s power sector has attracted substantial foreign direct investment, with reputed international lenders, including development finance institutions (DFIs), multilateral financial institutions (MFIs) and commercial banks, financing major power projects. These lenders were comfortable with the previous format of agreements and had worked out the associated risk mitigation. However, it will require significant time for lenders to familiarise themselves with this new format and to finance projects given these key bankability concerns.

Payment Challenges in Existing Power Projects

The existing power projects that have successfully achieved commercial operation are invoicing the BPDB for payments as per their agreements. However, the BPDB’s payment cycle remains significantly delayed. While this issue existed during the previous government’s tenure, the delays have since worsened, with payment deferrals ranging from three months to over a year depending on project priority.

The persistent delays not only hamper the cash flow of project sponsors but also undermine lender confidence, thereby increasing the risk premiums on future financing. Consequently, sponsors face mounting difficulties in servicing debt obligations and meeting other contractual commitments, which in turn threatens the overall financial viability and sustainability of power projects in Bangladesh.

Conclusion

In light of these ongoing changes and challenges, the power sector in Bangladesh stands at an interesting turning point. How it evolves from here will be crucial, not just for the sector itself but for the broader economy as well. It is a pivotal moment that calls for careful balancing of reform and practical solutions. Ultimately, the path chosen now will have a tremendous impact on the country’s energy future and economic growth.