Bangladesh’s next financial crisis may begin in the power sector

As public attention focuses on the recent financial difficulties surrounding City Vegetable, Bangladesh should recognise a much larger systemic risk that is quietly building in the country's power sector.

The lesson from any corporate financial distress is simple: even fundamentally sound businesses can fail if cash stops flowing. Liquidity, not profitability, is often what determines survival.

Today, that same danger confronts Bangladesh's Independent Power Producers (IPPs).

The Bangladesh Power Development Board (BPDB) reportedly owes approximately Tk 25,000 crore to IPPs. These are not merely unpaid invoices. They represent working capital that keeps power plants operating, purchases fuel, services debt, maintains equipment and pays thousands of employees.

It is important to remember one fundamental fact: the IPPs are not asking for subsidies or higher tariffs. They are asking to be paid under legally binding contracts for electricity that has already been generated, delivered and consumed by the people of Bangladesh.

If these arrears continue to accumulate, many IPPs, despite owning productive assets and operating under long term government contracts—could eventually default on their obligations to local and international lenders. Their failure would not necessarily reflect poor management or poor investments, but a prolonged liquidity crisis caused by delayed government payments.

Unlike an isolated corporate default, however, the consequences would extend far beyond one company or one industry.

First, financially sound IPPs could become insolvent through no fault of their own.

Second, Bangladesh's banking sector would come under severe pressure. Local banks have financed a substantial portion of the country's electricity infrastructure. If multiple IPPs become non performing borrowers simultaneously, banks will experience a sharp deterioration in asset quality, reducing their ability to finance businesses across the economy.

Third, electricity generation itself would inevitably suffer. Plants that cannot purchase fuel, undertake maintenance or meet debt obligations cannot continue operating indefinitely. The result could be widespread load shedding and, in the worst case, prolonged blackouts.

Fourth, Bangladesh's international credibility would suffer. International commercial banks, multilateral institutions and export credit agencies finance infrastructure because they have confidence that government contractual commitments will be honoured. If that confidence weakens, future financing for power, LNG, ports, transport and other strategic infrastructure will become significantly more expensive or disappear altogether.

Finally, the broader economy would bear the greatest burden. Factories cannot manufacture without reliable electricity. Export competitiveness declines, investment slows, employment suffers and economic growth weakens.

This is therefore no longer simply a BPDB payment issue.

It is a question of national economic security.

Billions of dollars have been invested by domestic entrepreneurs, international investors and development finance institutions to ensure that the country has sufficient electricity to support industrialisation and economic growth.

Allowing that to unravel because of unresolved payment delays would be an avoidable national setback.

Fortunately, the crisis remains entirely solvable.

The government, BPDB, IPPs, local banks and international lenders should urgently come together to develop a comprehensive settlement framework. Structured repayment schedules, government backed payment instruments, refinancing arrangements or securitisation of arrears could all be considered. The objective should be straightforward: restore liquidity while recognising the Government's fiscal constraints.

Every stakeholder benefits from such a solution.

The Government secures uninterrupted electricity.

IPPs remain financially viable.

Banks avoid a new wave of non performing loans.

International investors retain confidence in Bangladesh.

Industries continue to produce, export and create employment.

Most importantly, the people of Bangladesh continue to receive the reliable electricity upon which modern life depends.

The lesson from recent corporate financial distress is not that companies fail overnight. It is that liquidity problems, if ignored, eventually become solvency problems.

Bangladesh still has time to prevent today's payment delays from becoming tomorrow's electricity crisis, banking crisis and economic crisis.

The lights that power Bangladesh's homes, factories, hospitals and businesses depend not only on generating electricity but also on honouring the financial commitments that keep that electricity flowing.

Sketch: TBS

Muhammed Aziz Khan is the Chairman of Summit Group.

Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the opinions and views of The Business Standard.