WB attaches strings to power sector loan

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Nazmul Ahsan
The World Bank (WB) has agreed to extend financial assistance for 10 new power projects in Bangladesh with strings attached.
The multilateral lender, in response to a request from the government to provide a loan of about $1.0 billion for the power projects to be set up mainly in southern and northern parts of the country, wants the government to carry out the much-needed reforms in the state-owned enterprises (SOEs) and ensure transparency in public procurement, according to finance ministry sources.
The Bank has recently clarified its position to the finance ministry following a request made by the Economic Relations Division (ERD) to make available $947.27 million for setting up 10 power plants.
The ERD has also sought an additional $23 million from the WB to finance the second phase of the Compact Fluorescent Lamps programme.
An energy sector mission of the Bank is set to visit the country during the middle part of the current month to hold talks with the government policymakers and know the latter's positions on SoE reforms and public procurement transparency.
"The WB wants the government to carry out comprehensive reforms in both financial and non-financial SOEs, restructure the public enterprises and ensure transparency in public procurement", a top finance ministry official said.
"The issues raised by the lending agency will come up for discussions during the scheduled meetings between the government and the WB energy mission,' he added.
He, however, said the policymakers would have to determine whether they want the WB lending for power sector or not.
"The public sector enterprises need reform and, at the same time, the country desperately needs power", another high official in the ERD told the FE.
The government will have to opt for a few unpopular steps if it really wanted to build up power plants with WB assistance, he added.
The WB's Acting Country Director Robert L. Floyd, in a recent communi-
cation to the finance ministry, has identified four major areas where the government would have to bring about changes if the latter wanted to secure about $1.0 billion worth of assistance for the power sector, a source in the ERD said.
The Bank wants the government to create an enabling and commercial environment in the SoEs, strengthen the regulatory agency concerned, over time, with a view to ensuring accountability on the part of service providers, financial restructuring to attract investments and make the procurement processes, for both public and private projects, transparent, fair and predictable.
Currently, the country generates between 3700mw and 3800mw, leaving a shortfall of about 2000mw.
Officials in the ERD said the proposed 10 power projects, to be built mostly in the country's northern and southern regions, would generate about 2700mw of power.
Presently, the WB has extended loans to two projects. They are the Rural Electrification and Renewable Energy Development Project at a cost of $130 million and Siddirganj Peaking Power Project at a cost of $350 million.
The Ministry of Industries officials said the government has to provide about Tk 10 billion to SOEs as subsidy every year.
There are 45 non-financial public enterprises in the country. Their net loss in 2007-2008 was Tk 56.37 billion. The total debt service liability up to June 2008 of the SoEs stood at Tk 48.69 billion, according to the Bangladesh Economic Review 2008.
Outstanding bank loan against 30 SOEs up to June 2008 stood at Tk 170.16 billion, including the classified amount of Tk 15.22 billion.
The government has recently relaxed the public procurement regulations (PPR) to accommodate inexperienced contractors and suppliers to take up contracts valued at Tk. 20 million or less. The multilateral lenders, including the WB and the Asian Development Bank have expressed their serious reservation against the PPR amendments.