A Bangladeshi-India joint venture company yesterday signed an agreement with India's state-run Bharat Heavy Electricals Ltd, paving the way for the start of construction of the much-debated Rampal coal power plant.

The engineering, procurement and construction deal worth $1.49 billion was signed between the Bangladesh-India Friendship Power Company Ltd and BHEL at Sonargaon Hotel in Dhaka yesterday.

Pradeep Kumar Pujari, power secretary of India, praised the deepening cooperation between the two countries, including in energy cooperation. 

“The signing of the agreement is a milestone in the relationship between the two countries,” said Harsh Vardhan Shringla, high commissioner of India to Bangladesh. 

The total project cost is about $2 billion, said Nasrul Hamid, state minister for power of Bangladesh. 

The construction for the project will start within three to four months, said Gurdeep Singh, chairman of National Thermal Power Corporation, India's largest coal power company. The plant is expected to go into commercial production by July 2019.

“We will provide all cooperation but we will not be extending the deadline,” said M Abul Kalam Azad, principal secretary to the prime minister.

Shringla also said that he hoped the project would not face cost and time overruns.

There is scope to fast-track the project, said Tawfiq-e-Elahi Chowdhury, energy adviser to the prime minister.

BHEL has emerged as the lowest bidder for the 1,320-megawatt coal-based power plant known as Maitree Super Thermal Power Project.

NTPC has formed a joint venture, BIFPLC, with Bangladesh Power Development Board on a 50:50 share basis to develop the plant.

Indian government's external lending arm, Exim Bank, has backed up BHEL's offer with nearly 70 percent funding of the project.

The proposed power plant will have two units of 660MW that will generate power for local consumption, as nearly 40 percent of the population does not have access to electricity. Environmentalists have been up in arms against the power plant because of its proximity to the Sundarbans, the world's largest mangrove forest and a Unesco World Heritage Site.

The project poses significant adverse social and environmental risks and impacts that are diverse and irreversible, according to Bank Track, a Netherlands-based coalition of organisations “targeting the operations and investments of private sector banks and their effect on people and the planet”.

Green activists are concerned that the plant would lead to its environmental degradation from increased ship traffic, dredging, and air and water pollution.

Coal-fired thermal power plants belch toxic gases that could impact wildlife and human health and forest quality in the neighbourhood, leading the country's many environmentalists to continue their call to scrap the plant.

The Rampal plant is located just 14 kilometres upstream of the Sundarbans and is estimated to burn 4.72 million tonnes of imported coal a year.

However, senior officials from both Bangladesh and India yesterday contended that the coal plants will have little or no impact on the forest, saying they will use the latest technology to mitigate pollution and are following stringent environmental guidelines, Bangladeshi laws and international standards.

“I will not make a tall comment. Time will tell. This will be the most efficient power plant in Bangladesh as we are following international standards properly,” said Ujjwal Kanti Bhattacharya, managing director of BIFPCL.

The company is taking the most stringent environmental protection measures, and the plant would not harm cultural heritage and biodiversity and living natural resources, he said. Singh of NTPC added: “We are providing the best technology and meeting the best standards.”

The project was originally expected to be awarded by early 2014 with the target to begin commercial power generation from 2017. But in the face of environmental concerns, the authorities took extra time to refine tender guidelines and requirements.

BIFPLC will fund 30 percent of the project cost and the rest will come from the contractor in the form of loans.

The plant will run on imported coal, said Md Shamsul Hasan Miah, chairman of BPDB. Currently, the country gets the bulk of its energy from natural gas, which accounts for about 70 percent of electricity production.

As the demand for power is fast rising, Bangladesh is seeking to diversify the country's energy mix amid dwindling domestic gas reserves and volatile global oil markets.

Despite sitting on high quality coal reserves, only 3 percent of the electricity generated in the country now comes from coal, with the government planning to produce 20 percent of power from coal by 2041.

Bhattacharya of BIFPCL and Prem Pal Yadav, general manager of BHEL, signed the agreement.