DHAKA, Oct 17, 2024 (BSS) - In view of Bangladesh's foreign reserve crisis, the Centre for Policy Dialogue (CPD) today urged the central bank to establish a dedicated local currency conversion channel for renewable energy investors, ensuring timely conversion of returns from BDT to USD.

The private think tank also called upon the government to continue pursuing China's proposed loan assistance of US$ 5 billion in Chinese currency to mitigate foreign reserve pressures and further strengthen investor confidence.

CPD made the call at a dialogue titled "Overseas Investment in the Renewable Energy Sector: How to Attract Chinese Investment in Bangladesh?" at a hotel in the city. 

Md Abdur Rahman Khan, chairman of the National Board of Revenue (NBR), attended the event as the special guest while Chowdhury Liakat Ali, director (SFD), Sustainable Finance Department, Bangladesh Bank, attended as the guest of honour.
 
Md Ariful Hoque, director general, Bangladesh Investment Development Authority (BIDA), Syeda Afzalun Nessa, head of sustainability, The Hongkong and Shanghai Banking Corporation Limited, Md Shahidur Rahman, country manager, and Jinko Solar Bangladesh and Shafiqul Alam, lead energy analyst, Institute for Energy Economics and Financial Analysis (IEEFA), among others, spoke on the occasion as distinguished discussants.
 
Dr Fahmida Khatun, executive director, CPD, chaired the session while Dr Khondaker Golam Moazzem, research director, CPD, delivered the keynote presentation.

In his speech, Moazzem said Bangladesh should ensure tax incentives, subsidies and a favorable regulatory environment for green bond markets and venture capital investments for attracting foreign investment from different countries, especially from China.

"Tax incentives, subsidies, and a favorable regulatory environment for green bond markets and venture capital investments must be provided. Simplifying administrative processes and reducing bureaucratic barriers to lower the cost of accessing finance will make the investment environment more attractive," he added.

He suggested that Bangladesh Bank and local private banks should establish state-backed green banks or dedicated renewable energy funds to offer lower-cost financing and accelerate renewable energy projects. 
 
He said since the interim government has decided to go for open and competitive tendering process for new power plants, this would give a number of opportunities for the Chinese investors and financiers.

"Bangladesh Power Development Board's (BPDB) 10 grid-connected solar power plants for the private sector could be a good test case. Government may float tenders for new power plant projects under 'reverse auction' method. The 37 renewable energy-based power plant projects including the Chinese investment-based power plant projects could submit their proposal for 'reverse auction'," he added.

To address currency risks, Moazzem said, the Bangladesh government should establish a fund offering hedging products, subsidized currency swaps, and partial guarantees for foreign exchange losses.

"This would immediately provide a safety net for Chinese investors concerned about currency fluctuations. Local banks should be encouraged to offer credit in Taka and incentivize foreign investors to use Taka-denominated bonds, reducing reliance on foreign currency debt," he added.

He said that establishing bilateral currency swap agreements with key partners will help stabilize local currency liquidity and reduce foreign currency risks over time for Bangladesh.

To provide revenue certainty and reduce market risks, he said the government should offer long-term PPAs (power purchase agreements) with fixed tariffs to ensure predictable returns for investors.

Moazzem opined that collaboration can be made with Chinese educational institutions to set up specialized training institutes and vocational programs to quickly upskill the local workforce.

To reduce corruption in project allocation, he said, Bangladesh should adopt a transparent competitive bidding system, similar to China's model, ensuring fair opportunities for all investors.

He said Bangladesh Bank, in collaboration with global financial institutions such as the World Bank, ADB, and IFC, should enable partial risk guarantees to minimize investment risks and attract more foreign investment.

Bangladesh should adopt a dispute resolution policy aligned with international arbitration standards, allowing for neutral third-country venues in cross-border investment disputes, he added.

He also said that Chinese investors should be encouraged to diversify their funding sources by tapping into global climate funding, particularly non-Chinese resources, to align with global efforts to support renewable energy in vulnerable regions.