Govt explores Sukuk, dollar bonds for $1.3b Matarbari Phase 2
Bangladesh weighs financing routes for Matarbari power expansion
Bdbusinessdaily.com – Bangladesh is examining several borrowing mechanisms to finance the second stage of the 1,320MW Matarbari coal-fired power plant, a project estimated to require about $1.3 billion. With many international development lenders no longer funding fossil-fuel ventures, the government is considering domestic Sukuk, sovereign dollar bonds, export credit agency financing and other arrangements supported by state guarantees.
Coal Power Generation Company Bangladesh Limited (CPGCL), the project’s implementing body, sent its Development Project Proposal to the Power Division last week. The proposal prompted a meeting between the Power Division and Finance Division on 19 October, where officials reviewed potential funding structures. Tanvir Ghani, special assistant to the prime minister on investment and capital markets, participated in the discussion.
A financing decision is expected early next month. The choice will be important not only for the construction schedule but also for the eventual cost of electricity generated by the plant.
Borrowing costs and tariff pressure
Power Division Secretary Mirana Mahrukh said the government is assessing how each funding option could affect overall project expenses and consumer electricity prices. Domestic Sukuk could draw investment from local banks, but financing an import-heavy project in taka carries currency-related risks.
“Raising $1-2 billion through domestic Sukuk is achievable as local banks are willing to invest at higher interest rates. However, borrowing in taka carries significant currency risks. If the taka depreciates when converting funds to cover imports, overall project costs will escalate,” she said.
“We are assessing borrowing costs and their knock-on effects on tariffs. Higher interest costs would place additional pressure on electricity prices, so we are taking a cautious approach,” Mahrukh added.
The project is expected to need foreign currency for roughly 80% of its expenditure, mainly because major equipment must be imported. The remaining 20% is expected to be spent in taka on domestic infrastructure, labour and related works. This balance has made foreign-currency borrowing an attractive option for limiting the effect of exchange-rate movements during procurement.
Officials from both the Power Division and CPGCL have identified several possible routes. A domestic Sukuk issue would mobilise funds within Bangladesh, while dollar bonds would tap international investors. Export credit agency financing can combine loans, insurance or state-backed guarantees to support equipment purchases. Interim payment certificate-based financing could also give contractors short-term cash flow against completed and certified work.
Deadline linked to generation needs
Timely financing is central to the government’s goal of bringing the first unit of Phase 2 into operation by June 2030. The expansion has gained added policy attention after power-supply disruptions involving imports from India last summer, as well as constraints on gas-based generation. Limited LNG regasification capacity and shifting global fuel prices have complicated the country’s ability to rely entirely on gas-fired plants.
Supporters of the project view the additional Matarbari capacity as a way to strengthen dependable base-load generation. Base-load plants are designed to provide a steady supply of power, helping a grid meet demand that persists throughout the day rather than only at peak periods.
Bangladesh Power Development Board Chairman Md Rezaul Karim said the project benefits from infrastructure already developed in the first phase.
“Coal is our most practical option for reliable power generation, particularly because the core infrastructure was built during Phase 1,” Karim said. “The port facilities, transmission lines, and substations needed to evacuate power are fully in place, making the second phase highly cost-effective.”
Existing facilities reduce the investment requirement
Phase 2 is projected to cost between Tk16,000 crore and Tk17,000 crore, equivalent to around $1.3 billion. That is far below the Tk57,000 crore spent on the first phase, which required extensive foundational investment beyond the generating plant itself.
The original phase included construction of port facilities, road links, coal-storage capacity and the systems needed to transmit electricity from Matarbari into the national grid. Since these assets are now operating, the second phase does not have to repeat the same large-scale infrastructure spending.
Current estimates put Phase 2 capital costs at 70% to 72% below those of Phase 1. Land for the expansion has already been acquired and prepared. The coal-unloading jetty, stockyard, substations and power-evacuation lines are also available for use. The project’s environmental impact assessment has received clearance from the Department of Environment.
These shared facilities are central to the project’s economic case. They reduce the amount of new construction required, shorten the list of supporting assets that must be financed and allow the expansion to build on systems already designed for Matarbari’s energy operations.
Consultancy work moves forward
CPGCL has set aside Tk118 crore for consultancy services under a special Annual Procurement Plan approved on 22 September. The allocation is intended to help advance implementation planning as the government determines how the project will be financed.
The scheme returned to focus after it had been shelved when Japan International Cooperation Agency funding was withdrawn. The renewed proposal now faces a central financial question: how to secure substantial capital while controlling interest costs, protecting the project from currency swings and avoiding excessive pressure on future power tariffs.
The decision will shape more than the financing package. It will influence procurement timing, the pace of construction and the cost framework for a major addition to Bangladesh’s electricity system. With much of the physical groundwork already in place, the government’s immediate challenge is to choose a funding structure capable of turning that existing infrastructure into new generating capacity by the 2030 target.
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