$465m loan deals signed with ADB to develop power sector

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FE Report
The Asian Development Bank (ADB) and the Government of Bangladesh Thursday signed loan agreements of US$465 million to further develop the power sector of Bangladesh and help ensure the delivery of reliable electricity supply to its people. This is part of an overall initiative to promote sustainable economic growth in a country, where more than half the population has no access to electricity.
Economic Relations Division (ERD) Secretary Md Aminul Islam Bhuiyan and Country Director of ADB's Bangladesh Resident Mission Hua Du signed the agreements on behalf of the Bangladesh government and ADB at a simple ceremony at ERD at Sher-e-Bangla Nagar Thursday.
The loans will support the country's Sustainable Power Sector Development Program (SPSDP), which will contribute to the government's goal of providing reliable electricity to the entire country by 2020, and will result in better and more affordable power supply to the public.
The assistance is expected to increase power generation, improve transmission systems, reduce system losses and improve quality of supply, leading to more efficient use of energy and making more power available to support sustained economic growth, while offsetting growth in greenhouse gas emissions.
It will also directly benefit 820,000 existing consumers in Dhaka area by providing reliable power supply, which will also help manufacturing and service industries, including the garment sector that employs several million poor people.
The power sector programme, which is in line with ADB's country strategy programme for Bangladesh, has three financing components. The programme loan of US$60 million will be released in two tranches. The loan carries a 24-year term including an eight-year grace period and will come from ADB's Special Fund resources. The loan will help reform the power sector through financial and organisational restructuring, improved governance, and promoting public-private partnerships.
The other financing components consist of a US$400 million loan with a 25-year term including a five-year grace period and will be sourced from ADB's ordinary capital resources, and a US$5.0 million loan from its Special Funds resources, which will have a 32-year term including an eight-year grace period.
The US$400 million project loan will assist in expanding clean fuel generation capacity, enhancing transmission network reliability and efficiency, and improving the quality of supply in the capital of Dhaka and its surrounding areas, accounting for a major part of the country's power demand.
"The newly corporatized power sector entities, such as the North-West Power Generation Company and Dhaka Power Distribution Company, with improved financial health and operational efficiency, are expected to better implement the new generation and distribution activities planned under the ADB-assisted projects" said Hua Du, Country Director for ADB's Bangladesh Resident Mission.
"Through a separate technical assistance (TA) project, ADB is assisting the government in the tendering process for two large Independent Power Producers (IPP), for which contracts are expected to be awarded in the first half of 2008. The private sector will implement the IPPs, which will increase power supply and reduce the demand-supply gaps," Hua Du said.
She also stressed the need for operationalising the Bangladesh Energy Regulatory Commission (BERC) for improving the efficiency of the power sector entities and bringing dynamism in the sector.
Bangladesh's macroeconomic performance has been good over the past decade, but inadequate electricity supply has been a major constraint to economic growth and poverty reduction. Per capita gross domestic product was just US$445 in 2005.
Only one third of the households have access to electricity and those with access receive poor, unreliable service due to insufficient power generation capacity, poor transmission and distribution systems. At about 158 kilowatt-hours annually, per capita power generation in Bangladesh is among the lowest in the world. The current dependable power generating capacity of Bangladesh is about 4,120 megawatts, while the country's peak demand is about 4,700 megawatts.