Bangladesh-based power generation company, Desh Energy, has clocked a revenue of US $25 million in 2012 and is looking to cash-in on coal-based and renewable energy-based projects in the future
If there’s one message that Nuher L. Khan, the young Bangladeshi entrepreneur and founder of Desh Energy would like to share with his peers, it is that funding ideas is more crucial than funding names, because that is what is going to fetch them more money at the end of the day. No doubt, this insight comes from years of experience he carries in manoeuvring the wave of political and economic challenges in Bangladesh’s power sector and building a successful power generation company.
Desh Energy was established in 2005, with the aim of aiding the Government in strengthening the energy sector and maximising its potential in terms of energy security, which is the need of the hour for the country’s economic and social growth. The company sources its projects through participation in international tenders, organised by the Power Development Board (PDB) of Bangladesh and has entered into 15-year and 3-year power purchase agreement (PPA) with the PDB to supply power.
Desh Energy has also established a partnership with Bangla Trac Limited, the local dealer and representative of Caterpillar Inc., to source natural gas and liquid fuelled generator sets and to gain technical expertise. Currently, the company has setup a 10 mega watt gas fired power plant in Kumargaon, Sylhet and a 100 mega watt diesel fired power plant at Siddhirganj, Narayanganj. During inception, the company was supported by its sister concern, Mohammadi Group and was also funded by a consortium of local banks. In FY 2012, it recorded a revenue of US $25 million, excluding the high speed diesel (HSD) fuel costs given by the Government. “The 100 mega watt plant requires about 500 tons of HSD a day, which is directly paid by the PDB to the Bangladesh petroleum corporation. We have an option of importing directly, which we did not opt for. However, this option serves as an underlying value for the company in the event that we wish to import our own HSD in future,” adds Khan.
By 2016, foreseeing a period of political stability in Bangladesh, the company is looking to support the Government in undertaking coal-based and renewable energy-based power projects. Khan also has plans to conceive new projects, as a Chairman at CACO Chemical Industries Limited, a parallel venture, which is in the business of converting lime stone into finished Precipitate Calcium Carbonate (PCC) product, for the local manufacturing, pharmaceutical and cosmetic industries, to name a few.
According to Khan, there are three golden lessons to scaling up a business in Bangladesh. Firstly, building a strong rapport with the Government and senior industry officials, secondly, developing a good business idea that will stand the test of sectoral instability and lastly and most importantly, convincing the local banks to fund the business.
I started off this business as a 21-year-old and at that age, no bank was willing to take the risk of funding my venture, because I did not have adequate expertise. But, a strong sponsorship back-up and an association with a senior industry official helped me secure projects and funding in the initial phase.
Among the bigger challenges that Khan faced when setting up the energy business were procuring funds and convincing the industry officials that he was ready to partake in such a tough venture. “I started off this business as 21-year-old and at that age, no bank was willing to take the risk of funding my venture, because I did not have adequate expertise. But, a strong sponsorship back-up and an association with a senior industry official helped me secure projects and funding in the initial phase,” says Khan.
He states that today, though the power sector in Bangladesh is flooded with opportunities, it is faced with as many political and economic challenges, which make banks shy away from funding new projects. And without the entry of new businesses, sectoral growth is hampered. One of the effects of this drawback is the adverse competition that prevails in the industry today, from several projects being introduced purely based on political considerations. Khan points out that such companies lack financial principles and set power tariffs, which are not commercially viable. “Sometimes, the tie-ups that the Government proposes are by people who have deep pockets and whose interest is not particularly in realising the potential of the project. So what happens is, people who genuinely want to capitalise from this sector, look at the biased power tariff and financial structure and get discouraged, because it does not reflect the true market price,” rues Khan.
Identifying the positives
Moreover, a 2012 report published by Policy Research Institute (PRI), Bangladesh, indicates that the government is planning to increase the share of coal-based power generation to 53 per cent of total power generation by 2021 from 3.77 per cent in 2010. On asking how it would impact Desh Energy, Khan says that the company has a fixed contract with the government for the next 10 years, so it will not hamper business. If anything, it will be perceived as an opportunity. “The more policies the Government comes up with, the more active they are in this and the more prospects we will have to grow. I think coal-based projects are the way forward for a country like Bangladesh because, today, the bulk of energy being produced by our conservatory is only being directed towards the industry. But, once again, these projects will involve large investments and our country needs a period of political stability to pull through this successfully,” says Khan.
On the mixed reactions coming from the Government’s introduction of the quick rental plants scheme, Khan says, “Given the situation the country was in, prior to the policy being construed, where only 90 to 150 mega watt plants came up as against the minimal requirements demanded by the sector, this scheme is absolutely essential for the development of the power sector and for greater energy security of the country. For instance, of the 18 projects awarded under this scheme, only one project failed and all others were activated well within the stated timeline. Moreover, the time taken from signing the contract to getting cabinet approval was just two to three weeks, which indicates a significant progress.”
In the years to come, the company’s main focus will be on increasing its portfolio within the power sector and exploring better technology to enhance operations in the longer run. “Coal is a prospect and I think the government will also look at renewable energy which is completely absent in our country at the moment,” says Khan.
Experience at CAAYE Summit
Khan says that the kind of support that Indian startup entrepreneurs get and the kind of policies that are being discussed to encourage entrepreneurship in India is very impressive. “I think this is what we need in Bangladesh as well. While the Bangladesh Youth Leadership Center (BYCL) is taking several efforts to encourage, motivate and develop the leadership skills of entrepreneurs here, the challenge of financial constraints is restricting entrepreneurs from scaling up their businesses in Bangladesh. Unlike in India, there is an evident lack of financial support which is a very crucial component for entrepreneurship,” he says on a parting note.
Founder: Nuher L. Khan
Revenue in FY12: US $25 million Future plans: Focus on coal-based and renewable energy-based projects