De-risking private power in Bangladesh: How financing design can stop collusive contracting
This article was published in The Energy Policy [©2022 Rights managed by Elsevier] and the definite version is available at: https://doi.org/10.1016/j.enpol.2022.113146 The Article's website is at: https://www.sciencedirect.com/science/article/pii/S0301421522003718?via%3Dihub
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2024
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10361-237252024-08-12T04:59:20Z De-risking private power in Bangladesh: How financing design can stop collusive contracting Khan, Mushtaq Watkins, Mitchell Zahan, Iffat Fiscal policy Economic growth Short run Long run Growth effects This article was published in The Energy Policy [©2022 Rights managed by Elsevier] and the definite version is available at: https://doi.org/10.1016/j.enpol.2022.113146 The Article's website is at: https://www.sciencedirect.com/science/article/pii/S0301421522003718?via%3Dihub Collusive contracting with private power plants in Bangladesh has resulted in high power prices that cost the taxpayer around U$1 billion in subsidies. The main driver of collusive contracting is the unwillingness of politically unconnected firms to engage in a high-risk environment. To attract investment, the government has adopted a targeted risk absorption strategy that negotiates mark-ups with interested firms. We argue that this strategy cannot discover the minimum mark-up that would induce investment. Moreover, because only politically connected investors are likely to be bidding and negotiating, this approach encourages investors to set high mark-ups. An alternative strategy is competitive risk-mitigation that provides contestable subsidies from development finance institutions (DFIs), such as preferential finance and partial risk guarantees. Contestable subsidies work by reducing risks of unconnected investors, encouraging their participation to make collusion more difficult, and constraining mark-ups. To test our hypothesis, we collect a dataset on plant-level DFI support and prices from 58 private power plants in Bangladesh from 2004 to 2017. Our empirical analysis finds that financing instruments with contestable subsidies from DFIs are associated with a 26% reduction in plant-level prices controlling for plant capacity, size, and fuel type. 2024-08-12T04:58:17Z 2024-08-12T04:58:17Z 2022-09 Journal article http://hdl.handle.net/10361/23725 en Elsevier |
| institution |
Brac University |
| collection |
Institutional Repository |
| language |
English |
| topic |
Fiscal policy Economic growth Short run Long run Growth effects |
| spellingShingle |
Fiscal policy Economic growth Short run Long run Growth effects Khan, Mushtaq Watkins, Mitchell Zahan, Iffat De-risking private power in Bangladesh: How financing design can stop collusive contracting |
| description |
This article was published in The Energy Policy [©2022 Rights managed by Elsevier] and the definite version is available at: https://doi.org/10.1016/j.enpol.2022.113146 The Article's website is at: https://www.sciencedirect.com/science/article/pii/S0301421522003718?via%3Dihub |
| format |
Journal article |
| author |
Khan, Mushtaq Watkins, Mitchell Zahan, Iffat |
| author_facet |
Khan, Mushtaq Watkins, Mitchell Zahan, Iffat |
| author_sort |
Khan, Mushtaq |
| title |
De-risking private power in Bangladesh: How financing design can stop collusive contracting |
| title_short |
De-risking private power in Bangladesh: How financing design can stop collusive contracting |
| title_full |
De-risking private power in Bangladesh: How financing design can stop collusive contracting |
| title_fullStr |
De-risking private power in Bangladesh: How financing design can stop collusive contracting |
| title_full_unstemmed |
De-risking private power in Bangladesh: How financing design can stop collusive contracting |
| title_sort |
de-risking private power in bangladesh: how financing design can stop collusive contracting |
| publisher |
Elsevier |
| publishDate |
2024 |
| url |
http://hdl.handle.net/10361/23725 |
| work_keys_str_mv |
AT khanmushtaq deriskingprivatepowerinbangladeshhowfinancingdesigncanstopcollusivecontracting AT watkinsmitchell deriskingprivatepowerinbangladeshhowfinancingdesigncanstopcollusivecontracting AT zahaniffat deriskingprivatepowerinbangladeshhowfinancingdesigncanstopcollusivecontracting |
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