We mapped the formal and informal processes involved in contracting for solar power projects in Bangladesh. The governance of these processes has been poor, and Bangladesh has been contracting solar power at prices that are often more than twice as high as in comparable neighbouring countries. Even allowing for higher land prices and transmission costs, the prices awarded are excessive, and high electricity prices are making Bangladeshi businesses uncompetitive relative to competitor countries. The governance failures here can be traced to several factors. The most obvious is the prevalence of unsolicited bids and the absence of competition in the bidding process. A deeper problem is that capable investors without strong political connections are likely to find this investment environment too risky, particularly in the absence of financing instruments or co-investments that reduce their risks. These investors stay away and do not submit unsolicited bids of their own. In their absence, the formal governance structure based on vertical checking fails to work.  

Formal governance is a system of vertical checking, but it is only effective if there are strong horizontal checks from other actors. These demands and pressures are necessary to force the formal system to work as it should, particularly in contexts where the rule of law is weak. In the Bangladeshi solar power sector, horizontal checks have virtually disappeared because of the emergence of a collusive approvals process. Based on our observations of business practices, and key informant interviews with critical insiders, we show how investors must strike collusive deals with key officials in multiple departments involved in approving projects. The coordination of deals across these officials is usually carried out by trusted intermediaries or consultants who organise a package deal for investors in exchange for significant upfront payments. We describe this hidden coalition of colluding officials as a ‘syndicate’. The implications of the syndicate are far reaching. The high risks facing unconnected investors keeps them out, but their absence means there are no effective horizontal checks on regulators and officials to enforce the rules. As a result, the politically connected investors who do bid not only receive approval for their projects but can also raise contracted prices to the highest level they can negotiate. These governance failures have clearly been very damaging for Bangladeshi taxpayers and electricity consumers.  

The emergence of a syndicate means that a horizontal actor who may want to check a particular violation must take on the syndicate. They are unlikely on their own to have the power to be able to do so, or to construct a sufficiently powerful alternative coalition. A feasible strategy is only likely to emerge if new actors can be brought in who may have a different relationship with the vertical actors responsible for governance. One possibility is suggested by the evidence of lower prices achieved in other parts of the power sector in Bangladesh: to look for strategies that can attract a broader range of investors to bid on specific projects. Some forms of preferential financing can attract new investors to bid, if this reduces investor exposure to high interest payments in a context where their own payments may not be made on a timely basis. In turn, if capable and unconnected investors are attracted to bid on projects, this can enhance horizontal checks and create pressures for the enforcement of governance rules at least for these projects. If more contracts go to capable companies at competitive prices, this can begin to change the distribution of power and interests in a sector that now appears to be dominated by collusive interests.