Germany to give 80m euros for renewable electricity

Germany is going to give the state-owned Infrastructure Development Company Limited (Idcol) an €80 million loan for disbursing among entrepreneurs in the renewable energy sector in Bangladesh.

According to officials at the specialised non-bank financial institution, it will provide private sector entrepreneurs with a total of €99 million as loans for the implementation of solar power plants and solar-based irrigation projects under the Renewable Energy Program-2.

The programme will be implemented between 2023 and 2027 and for this, the German government's KfW Development Bank has agreed to lend €80 million. Negotiations have now begun through the Economic Relations Department (ERD) to determine the terms of the loan, they added.

ERD officials said a tripartite review meeting was held on 28 June 2022 at the ERD to discuss the indicative terms and conditions of the project titled "Renewable Energy Program-2" to be implemented by Idcol with financial assistance from KfW Development Bank.

Uttam Kumar Karmaker, additional secretary and wing chief (Europe) at ERD, who chaired the meeting, told The Business Standard, "Negotiations with KfW on the terms and conditions of the loan have now begun. After completing all the processes, an agreement will be signed soon."

Officials at the ERD said that KfW has offered two types of interest rates for this loan. Apart from this, other conditions such as loan repayment are somewhat difficult. Idcol has proposed to reduce loan interest and ease terms. Instead of euros, Idcol has also given a proposal for a dollar loan.

Opinions of various organisations have been sought before taking a decision on these issues. A delegation of KfW from Germany is scheduled to visit Bangladesh on the 10th of this month. The terms and conditions may be finalised at that time.

An ERD official said the financial conditions of the loan include a commitment fee of 0.25% on the undisbursed loan amount and a management fee of 0.10 % flat on the total loan amount.  

KfW has offered two options for the interest rate of the loan, a fixed rate of 2.73% or a floating (variable) interest rate of 6 months EURIBOR +0.35%.

The repayment period of the loan is up to 20 years including a grace period of five years, with 31 equal semi-annual instalments.    

An ERD official said the loan is part of a financing package of €95.5 million offered by KfW on behalf of the German government that includes €18.5 million in investment grants, €1 million accompanying measure grants and a development loan of €80 million.

A official of the Foreign Aid Budget and Accounts (FABA) wing of ERD, said on condition of anonymity that although the interest rates of the previous KfW loans are limited to 2%, the current offer has a higher fixed interest rate of 2.73%, which can be negotiated.

The FABA wing has suggested considering the floating interest rate for the proposed loan, in view of the current global economic conditions, he added.