Power to the Peo­ple

Op­por­tu­ni­ties abound in elec­tric­ity gen­er­a­tion in South and South­east Asia where some economies and their pop­u­la­tions are grow­ing in un­prece­dented num­bers. As Sum­mit Power In­ter­na­tional looks into main­tain­ing its lead sta­tus in Bangladesh, and ex­pand­ing i

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She has the face for a Lan­come cam­paign and brains that can eas­ily se­cure a seat at any good univer­sity, but Ms. Ayesha Aziz Khan thinks her big­gest bless­ing is hav­ing par­ents who un­der­stand the im­por­tance of ed­u­ca­tion. “They in­sisted that we fin­ish school first be­fore we go out there and pur­sue what­ever we wanted,” she tells me. And so she com­pleted her de­gree in eco­nom­ics and busi­ness at the Univer­sity Col­lege London, fol­lowed it up with an MBA at Columbia Univer­sity, and joined the fam­ily busi­ness. “In school I did well in math­e­mat­ics, es­pe­cially in higher maths,”

Ms. Khan says. “I was some­thing of a dork,” she adds with a laugh.

To­day, Ms. Khan runs Sum­mit Power In­ter­na­tional (SPI), the largest in­de­pen­dent power pro­ducer (IPP) in Bangladesh, and serves as di­rec­tor in sev­eral com­pa­nies at Sum­mit Group, the con­glom­er­ate that her fam­ily owns. She re­ports to her fa­ther, em­i­nent busi­ness­man Mr. Muhammed Aziz Khan, who is founder and chair­man of the SPI board. “Each busi­ness un­der the Group is a sep­a­rate le­gal en­tity and is run in­de­pen­dently,” Ms. Khan ex­plains. Mean­while, pro­fes­sional CEOs have been hired to run the other busi­nesses, for which some mem­bers of the fam­ily work. At Sum­mit, Ms. Khan has held var­i­ous key po­si­tions, in­clud­ing di­rec­tor of finance man­age­ment of Sum­mit Power Lim­ited, a publicly listed com­pany in Bangladesh, and group finance di­rec­tor of Sum­mit Cor­po­ra­tion Lim­ited. Through these, she mas­tered the com­plex task of fi­nan­cial man­age­ment and struc­tur­ing for power gen­er­a­tion com­pa­nies, and has spear­headed the fi­nanc­ing of bil­lion-dol­lar power projects.

THE BANGLADESHI BE­HE­MOTH

Sum­mit Group, the largest in­fra­struc­ture con­glom­er­ate in Bangladesh, has com­pa­nies in com­mu­ni­ca­tion, en­ergy and power, ship­ping, trad­ing, real es­tate, and port, of which power is the largest. Its com­pany, Sum­mit Power In­ter­na­tional (SPI), is a lead­ing IPP in South Asia. It owns and op­er­ates the in­fra­struc­ture that gen­er­ates power, which it then sells to the gov­ern­ment. SPI’s port­fo­lio com­prises 17 op­er­at­ing power plants with a com­bined (elec­tric­ity gen­er­a­tion) ca­pac­ity of 1,644 megawatts, roughly 14 per cent of ac­tual de­mand. It has plans to in­crease its ca­pac­ity with the ad­di­tion of a fur­ther 3,500 megawatts with por­jects that are in the pipeline. Since es­tab­lish­ing the first in­de­pen­dent power plant in Bangladesh in 1997, SPI has grown into the largest IPP in Bangladesh, rep­re­sent­ing 21 per cent of the coun­try’s to­tal pri­vate in­stalled ca­pac­ity, and nine per cent of Bangladesh’s to­tal in­stalled ca­pac­ity as of 2017.

“SPI iden­ti­fies port­fo­lio-en­hanc­ing op­por­tu­ni­ties, both green­field sites and ex­ist­ing power as­sets, that of­fer sig­nif­i­cant value to the power needs of the coun­try, and to our stake­hold­ers,” Ms. Khan ex­plains. The com­pany es­tab­lishes long-term, con­trac­tu­ally backed con­ces­sion power pur­chase agree­ments with gov­ern­ments, for which it re­al­izes sta­ble, risk-mit­i­gated rev­enue streams based on con­tracted ca­pac­ity pay­ments. SPI main­tains strong en­vi­ron­men­tal com­mit­ments in the de­liv­ery of its ser­vices. “As a com­pany, we are still ex­am­in­ing the over­all cost ben­e­fit of coal-based power plant – a very dif­fi­cult de­ci­sion for us,” Ms. Khan says. In a coun­try like Bangladesh, and in other coun­tries our com­pany is in­ter­ested in, such tech­nol­ogy that will have min­i­mum en­vi­ron­men­tal im­pact, she rea­sons. “The tech­nolo­gies that we are us­ing have much less neg­a­tive ef­fect on the en­vi­ron­ment and, there­fore, the econ­omy. It’s our con­scious de­ci­sion to con­tin­u­ously en­sure that our elec­tric­ity gen­er­a­tion is sus­tain­able. And that the value ad­di­tion is not just in terms of the elec­tric­ity we gen­er­ate but in over­all sus­tain­abil­ity and im­prove­ment of the so­ci­ety where we are op­er­at­ing the power plants.”

RAPIDLY EX­PAND­ING RE­QUIRE­MENT

“Of the five of us in this room, at least one is wear­ing a piece of cloth­ing that was made in Bangladesh,” Ms. Khan, by way of ex­plain­ing the coun­try’s im­por­tance as an ap­parel man­u­fac­turer, says with cer­tainty. “It is the sec­ond largest ex­porter of ready-made cloth­ing in the world. We’re not talk­ing here of where Italy has gone, or even Turkey, which is mak­ing gar­ments with high value add – de­signer prod­ucts that go through de­mand and sup­ply fluc­tu­a­tions de­pend­ing on how well the global econ­omy is do­ing.” In­dus­try, which in­cludes man­u­fac­tur­ing, is the sec­ond big­gest con­trib­u­tor to the Bangladeshi econ­omy, af­ter agri­cul­ture, and em­ploys 20.4 per cent of the 109.1 mil­lion es­ti­mated la­bor force. A sus­tained growth in GDP, cur­rently at 7.2 per cent, and a large pop­u­la­tion (160 mil­lion in 2016) fu­els the de­mand for elec­tric power.

The Bangladeshi gov­ern­ment is im­ple­ment­ing a range of poli­cies and projects to meet this rapidly grow­ing de­mand, with a view that en­ergy is vi­tal in se­cur­ing eco­nomic growth, sus­tain­able in­fra­struc­ture de­vel­op­ment, and poverty erad­i­ca­tion. In other words, sus­tained eco­nomic growth is only pos­si­ble with sta­ble and af­ford­able power sup­ply. As in most coun­tries, the power in­dus­try in Bangladesh is reg­u­lated by the gov­ern­ment, Ms. Khan points out. “We can see that the gov­ern­ment is do­ing a good job. The de­mand is ex­tra­or­di­nary, and although there is enough in­vest­ment to pre­vent bot­tle­necks in the value chain, more in­vest­ment is needed to han­dle pro­jected elec­tric­ity re­quire­ments. High in­vest­ments in elec­tric­ity gen­er­a­tion and en­ergy sup­ply are needed, es­pe­cially for the im­por­ta­tion of oil and liq­ue­fied nat­u­ral gas.”

MAR­KET EX­PAN­SION

Fore­most in Ms. Khan’s mind is keep­ing SPI’s po­si­tion as the largest IPP in Bangladesh, as it looks into ex­pand­ing into the re­gion.

Sri Lanka, which bears strong sim­i­lar­i­ties to the mar­ket con­di­tion­al­i­ties in Bangladesh, is among those that the com­pany is study­ing for ex­pan­sion. “Be­fore we go into any mar­ket, we en­sure that we un­der­stand it very well. Sum­mit Group has been a con­ser­va­tive com­pany, and has grown in a very sys­tem­atic man­ner. It is only when we un­der­stand the mar­ket that we in­crease our in­vest­ments, but the first round is typ­i­cally very dis­creet, and we would like to main­tain that.” In South­east Asia, Ms. Khan is closely study­ing Myan­mar and In­done­sia. The for­mer has a good pop­u­la­tion base and a steadily grow­ing econ­omy. “We pre­fer to en­ter mar­kets that are smaller, younger, and in a sim­i­lar sit­u­a­tion as Bangladesh, where we can repli­cate what we know and com­mence op­er­a­tion ef­fi­ciently and ef­fec­tively.

“What is nec­es­sary for us to en­ter a mar­ket is know­ing where we can add value. We think we cre­ate the most value when the mar­ket re­quires elec­tric­ity.” That rules out com­pet­ing in a very ma­ture mar­ket with long-run­ning in­cum­bents dom­i­nat­ing the in­dus­try. “That’s not the busi­ness we know well; rather we are able to build the in­fra­struc­ture that is sus­tain­able and rea­son­ably priced, and meets the de­mands of the peo­ple.” SPI has re­cently made pub­lic its in­ten­tion to list on the Sin­ga­pore Ex­change (SGX). The com­pany plans to shore up cap­i­tal for in­vest­ment in the next five years – ex­pected to be in bil­lions of dol­lars, fur­ther in­fra­struc­ture de­vel­op­ment, and ex­pan­sion into new mar­kets. (The com­pany has de­clined to re­veal the val­u­a­tion of the IPO.) SPI is the first and only com­pany of Sum­mit Group to seek in­ter­na­tional pub­lic list­ing, Ms. Khan points out. “We still fully own the (other) busi­nesses that to­gether make up about 30 to 40 per cent of our size, de­pend­ing on what num­bers you’re look­ing at. Power, be­ing the largest of the com­pany, rep­re­sents about 60 per cent. “Power is a highly cap­i­tal-in­ten­sive busi­ness so we’re try­ing to raise a lot of cap­i­tal. Over the next 10 years, we will need any­where from 300 to 500 mil­lion dol­lars of eq­uity, and the most ef­fec­tive man­ner of rais­ing eq­uity is still the cap­i­tal mar­ket.” Ms. Khan sur­mises that the big­gest risk in Bangladesh’s power in­dus­try at the mo­ment is lack of am­ple in­vest­ment. Bot­tle­necks

– in sup­ply, trans­mis­sion or dis­tri­bu­tion – can arise from lack of in­vest­ments, and over a pro­longed pe­riod may de­velop into a risk. The to­tal value chain – of en­ergy sup­ply, power gen­er­a­tion, trans­mis­sion, and dis­tri­bu­tion – is com­plex, Ms. Khan says. Ship­ping routes for trans­port­ing raw ma­te­rial and ware­hous­ing fa­cil­ity to store it, for ex­am­ple, have to be built. “Power gen­er­a­tion, by it­self, is sys­tem­at­i­cally a sim­ple busi­ness. Once you set up a power plant, very few things that can go wrong. “What we’re do­ing is putting in­vest­ments into power gen­er­a­tion, but we’re also closely mak­ing sure that en­ergy sup­ply is well man­aged. And we’re keep­ing our eyes wide open to en­sure that trans­mis­sion and dis­tri­bu­tion do not go through any kind of bot­tle­neck.”

SPI’S PORT­FO­LIO COM­PRISES 17 OP­ER­AT­ING POWER PLANTS WITH A COM­BINED CA­PAC­ITY OF 1,644 MEGAWATTS, ROUGHLY 14 PER CENT OF AC­TUAL DE­MAND.

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