IPFF - an innovative way to PPP in Bangladesh

The provision of sustainable and quality infrastructure is a prerequisite for rapid economic development and it requires huge investments. Any physical infrastructure deficiency is considered one of the major growth constraints in Bangladesh as in any other developing economies. Due to insufficiency of public resources for developing infrastructure, PPP (public private partnerships) has been recognised as an alternative tool for mobilising massive investments needed to address the infrastructure deficiency both in developing and developed economies.


In the backdrop of inadequate availability of long-term funding suitable for infrastructure development in Bangladesh's financial market, the World Bank designed the IPFF as a tool for promoting PPP in Bangladesh. Initially, the World Bank extended a credit (IDA Cr. No.4169-BD) of US$ 50 million including US$ 2.5 million as technical assistance and the government itself provided US$ 10 million as a co-financing facility to the IPFF. Following successful utilisation of the initial $ 60.00 million of project allocation (adding 178 MW power to the national grid through seven small power plants across the country and given the large infrastructure gap in the country, the IPFF was scaled up in 2010 via the additional financing of US$ 257 million (IDA Credit No.4693-BD) from the World Bank. The scaled up IPFF has got $ 294.5 million in the on-lending component to finance infrastructure and $ 12.5 million in the technical assistance component to support the PPP Office and upstream project development activities. In the second phase of IPFF the government is providing US $ 49.4 million as a counterpart fund.
The IPFF is an on-lending-based Technical Assistance (TA) project. Under On-Lending Component, the main component of IPFF, the government-endorsed PPP-based infrastructure development projects are being financed through participating financial institutions (PFIs). The TA component of IPFF is being used to support the PPP Office under Prime Minister's Office and PPP Unit under Finance Division, Ministry of Finance and IPFF Project Cell of BB in terms of operational cost, procuring goods and consultancy services and to build capacity of PPP stakeholders including private and public sectors in Bangladesh through organising various trainings, seminars and workshop both at home and abroad. The Infrastructure Investment Facilitation Company (IIFC) has been providing technical advisory services to IPFF since inception.
The IPFF started functioning with the main objective to promote private sector participation in infrastructure and to bridge the gap for long-term financing required for development in the country. So far from the IPFF, a total of US $ 154.68 million has been utilised to finance nine power plants having a total capacity of 283MW in different areas of the country, three water treatment plants in the EPZs (export processing zones) in Chittagong, Comilla and Adamjee, one Inland Container Depot at Sitakunda in Chittagong and an Information Communication Technology project (a nationwide fibre optic cable installation project) through respective PFIs. Besides, the 200 MW United Ashuganj Energy Limited and the 50MW Midland Power Limited and a dry dock project are under active consideration for financing under the IPFF.
The IPFF Project Cell, a small but competent unit of Bangladesh Bank, is running the project and has deposited so far a total of Tk 318.38 crore or over Tk 3.18 billion (Principal amount Tk 165.31 crore or Tk 1.65 billion and Interest Tk 153.07 crore or Tk 1.53 billion) equivalent to US $ 41.14 million, received in the form of repayment, to the government treasury through designated accounts.
The IPFF is making available partial long term debt financing through 19 private commercial banks and financial institutions better known as PFIs (Participating Financial Institutions) for eligible, government-endorsed infrastructure projects developed by the private sector. The Project Development Objective continues to be relevant for the country's poverty alleviation efforts through the private sector-led infrastructure development.  



Figure :  IPFF's objective targets
PFIs upon receiving requests from the private sector apply to the IPFF Cell for funding. The IPFF considers the application based on the criteria contained in the OD of IPFF and disburses the fund to the PFI. The PFI then extends the loan to the private investor. To be considered as eligible for IPFF financing, the private sector promoter is required to have a Letter of Intent (LOI) in connection with a government-sponsored infrastructure investment project or have a proposal prepared for a private infrastructure project as eligible for financing under the facility.
Following sectors are eligible for financing under the IPFF:
*   Power generation, transmission, distribution and services;
*   Port development (sea, river and land) including inland container terminals, inland container depot and other services;
*   Environmental, industrial and solid waste management projects;
*    Highways and expressways including mass-transit, bridges, tunnels, flyovers, interchanges, city roads, bus terminals, commercial car parking, etc;
*    Airports, terminals and related aviation facilities;
*    Water supply and distribution, sewerage and drainage;
*    Economic development, including development of industrial estates and parks;
*    Social sector, including infrastructure in health and education;
*    Information technology (ICT, including Wimax, internet backbone and e-learning facilities).



Figure : Sectoral exposure of onlending component
The IPFF requires the eligible project to maintain a minimum debt: equity ratio of 75:25. Out of this 75 per cent debt, the respective PFI is supposed to provide minimum 20 per cent from its own source and the remaining 80 per cent is provided by the IPFF. In terms of total project cost the financing participation ratio of equity: IPFF: PFI is 25:60:15. The maximum loan period is 20 years including 3 to 10 years of grace period. Applicable interest rate under the IPFF is perceived to be low by the prospective entrepreneur. IPFF extends long term loan both in BDT and USD. For taka financing, the interest for a floating rate loan is set at 0.30 percent above the interest rate of the 364-day Treasury bill or Weighted Average Interest Rate on Deposit (WARID), whichever is lower.  For any Facility Loans made to the PFI in dollars, the interest rate will be 0.30 per cent above the 6-month LIBOR. This is to mention here that the PFIs are exposed to the entire commercial risks associated with the respective project.


Figure : Fundflow to private investors through IPFF cell and PFI




Technical Assistance Component: The TA component of IPFF is being used to support the PPP Office under Prime Minister's Office and PPP Unit under Finance Division of the Ministry of Finance and the IPFF Project Cell of the BB in terms of operational cost, procuring goods and consultancy services and to build capacity of PPP stakeholders in Bangladesh through various trainings, seminars and workshop both at home and abroad. This component is intended to provide project development support and facilitate an institution which will solely be for facilitating and implementing PPP in Bangladesh. In addition, the TA component is targeted to strengthen the PPP framework for capacity building of all concerned, including provision of adequate ideas on PPP issues and creation of awareness of potential investors.
The IPFF Project is providing the operating and logistic support to the PPP Office. The IPFF Project has also hired IT consultant, PPP expert and firm for legal advisory services for the PPP Office. Hiring other consultants i.e. transaction adviser, international PPP experts, is at a mature stage. The main objective of this support is to assist the PPP Office for PPP project development in Bangladesh, irrespective of IPFF financing. In a nutshell, the IPFF Project is extending the required support to the PPP Office with a view to making it fully functional as per the international standard.
For the project development support, the IPFF Project Cell is working with the Ministry of Shipping (MoS), the Mongla Port Authority (MPA) and the PPP Office for development of two jetties at Mongla Port. The IPFF Project Cell engaged itself in its upstream engagement in the procurement process through the line ministry.
Similarly, the TA fund has been allocated for the PPP Unit of the Ministry of Finance and the IPFF Project Cell of the Bangladesh Bank with a view to identifying specific projects to conduct sector market assessments/feasibility studies and also for goods, services and capacity building of IPFF Project staff.
A major portion of the TA component is used for capacity building by providing training and arranging workshop on PPP. With a view to creating awareness regarding PPP among all the stakeholders a capacity-building plan was developed in collaboration with the IIFC, the technical adviser to the IPFF. Based on that plan and need assessment done earlier, a total of 19 local trainings, 16 workshops and 35 foreign training events have been organised so far. 1410 officials from different ministries/agencies including Finance Division, Economic Relations Division, Planning Commission, PPP Office, Board of Investment (BOI), Ministry of Shipping, Ministry of Law, Ministry of Water Resources, Road Division, Ministry of Power, Energy and Mineral Resources, Ministry of Civil Aviation, Rajdhani Unnayan Kartipokkho, Ministry of Railway, different private commercial banks and non-bank financial institutions and Bangladesh Bank have attended those training sessions and workshops.


Figure : Number of participants
In tandem with those training sessions, the IPFF Project Cell took an initiative to sponsor a series of training programmes on PPP for government officials of different ministries and agencies. The main objective of the series of training programmes was to train the concerned officials within the government agencies who would implement priority PPP transactions in Bangladesh. It was planned to target selected officials for the series of training rather than providing basic training haphazardly to a wide range of participants. In addition, the training programme was envisaged to be delivered to a number of officials who would be trained from introductory to advanced levels as follows:



The series of training programme on "PPP Capacity Building" having eight modules of a three-day monthly training event started on November 19, 2013. Internationally renowned resource persons with PPP experience brought from the USA, the UK, India and Thailand conducted those eight modules. The content of the said series of training was designed incorporating crucial aspects of PPP that includes basics of PPP: Strategies for Managing the PPP Project Cycle, Managing PPP Feasibility Studies and Business Cases, Managing PPP Tendering and Procurement, Managing PPP Contracts and Monitoring Performance, Project Finance: Managing PPP Financial Analyses and Structuring Bankable Projects, Designing PPP Contracts and Legal Agreements and Financial Modelling and Analysis for PPP and Project Finance.
Along with the international resource persons, national experts in PPP have also conducted sessions in this event of a series of training. As a result, the participants had got the opportunity to enrich themselves with real life experience of those PPP resource persons.
Today is the certificate giving day for this series of training. The PPP arena in Bangladesh is going to get some PPP experts in different ministries/agencies who would disseminate their learnings in implementing prospective infrastructure projects using PPP as a mode.
The IPFF initiatives and endeavour towards promoting PPP in Bangladesh would be fruitful, if officials who participated in the series of training can materialise their ideas, thinking and the gained knowledge about PPP in our infrastructure development.

Md. Abul Quasem
Deputy Governor, Bangladesh Bank
& Project Director, IPFF