Report and Recommendation of the President to the Board of Directors

Transcription

1 Report and Recommendation of the President to the Board of Directors Project Number: July 2011 Proposed Loan People's Republic of Bangladesh: Power System Efficiency Improvement Project

2 CURRENCY EQUIVALENTS (as of 30 June 2011) Currency unit taka (Tk) Tk1.00 = $ $1.00 = Tk74.14 In this report, a rate of $1 = Tk70.00 was used. ABBREVIATIONS ADB Asian Development Bank APSC Ashuganj Power Station Company BPDB Bangladesh Power Development Board CCPP combined cycle power plant EIRR economic internal rate of return IDB Islamic Development Bank LED light-emitting diode MW megawatt PMU project management unit PPA power purchase agreement NOTE In this report, "$" refers to US dollars. Vice-President X. Zhao, Operations 1 Director General S. H. Rahman, South Asia Department (SARD) Director Y. Zhai, Energy Division, SARD Team leader Team members Peer reviewer P. Wijayatunga, Senior Energy Specialist, SARD A. M. Faisal, Project Officer (Environment), SARD L. George, Energy Specialist, SARD J. Ghimire, Counsel, Office of the General Counsel G. Hauber, Principal Private Sector Development Specialist, SARD Z. Lei, Energy Specialist, SARD R. Murshed, Senior Project Officer (Energy), SARD S. Parwez, Senior Programs Officer, SARD F. Sultana, Social Development and Gender Officer, SARD P. Van Houten-Castillo, Social Safeguard Specialist, SARD J. Liston, Principal Energy Specialist, Central and West Asia Department In preparing any country program or strategy, financing any project, or by making any designation of or reference to a particular territory or geographic area in this document, the Asian Development Bank does not intend to make any judgments as to the legal or other status of any territory or area.

3 CONTENTS PROJECT AT A GLANCE Page I. THE PROPOSAL 1 II. THE PROJECT 1 A. Rationale 1 B. Impact and Outcome 2 C. Outputs 2 D. Investment and Financing Plans 2 E. Implementation Arrangements 4 III. DUE DILIGENCE 5 A. Technical 5 B. Economic and Financial 5 C. Governance 6 D. Poverty and Social 7 E. Safeguards 7 F. Risks and Mitigating Measures 9 IV. ASSURANCES 10 V. RECOMMENDATION 10 APPENDIXES 1. Design and Monitoring Framework List of Linked Documents 14

4 PROJECT AT A GLANCE

5 I. THE PROPOSAL 1. I submit for your approval the following report and recommendation on a proposed loan to the People's Republic of Bangladesh for the Power System Efficiency Improvement Project The project will address two key areas in the electricity supply industry in Bangladesh which suffers from acute power shortages: (i) replacing energy-inefficient thermal power plants; and (ii) expanding renewable energy. The project includes (i) replacing five aging generating units with a combined capacity of 274 megawatts (MW) at Ashuganj power station with an efficient combined cycle power plant (CCPP) of 450 MW using natural gas as the fuel source; (ii) installing a 5 MW solar photovoltaic system connected to the national grid at Kaptai; (iii) installing a hybrid wind (1 MW) solar photovoltaic (1 MW) diesel (5.5 MW) generating system in Hatiya; and (iv) installing or retrofitting streetlights that use photovoltaic and light-emitting diode (LED) technology in the cities of Barisal, Chittagong, Dhaka, Khulna, Rajshahi, and Sylhet. These subprojects will help Bangladesh to embark on a program of energy efficiency, source diversification, and reduced dependence on imported fuels. 2 II. THE PROJECT A. Rationale 3. Energy shortage is the most critical infrastructure constraint on Bangladesh s economic growth. In 2011, the maximum demand for electricity is 6,000 MW, which is expected to rise to 7,000 MW by But the maximum available generation is 4,500 4,750 MW (from an installed capacity of 5,719 MW), leaving a significant supply gap. The main causes for the supply shortage are (i) the poor operational efficiency of thermal power plants and inefficient use of energy; (ii) inadequate supplies of natural gas, which is the primary source of energy for electricity generation; (iii) slow progress on cross-border energy cooperation; and (iv) lack of diversification in energy supply, including inadequate exploitation of renewable energy. These issues were highlighted in the Asian Development Bank (ADB) 2009 Bangladesh energy sector assistance program evaluation (SAPE) The government s declared vision for the power sector in 2010 is to eliminate load shedding beyond 2010 and to make electricity available to all by The government estimated that realizing this vision would require an additional 9,000 MW of generating capacity installed by the end of Of this, 5,400 MW of generation capacity would be added by the private sector. Since the declaration of this policy, 586 MW of generating capacity has been added to the system and additional approvals have been granted for new power plants. Other initiatives aim to diversify energy sources by developing coal resources, renewable energy, and cross-border cooperation. 5. SAPE has concluded that ADB s contribution to the development of the Bangladesh power sector has been significant and successful. One of the key recommendations of SAPE is promoting energy efficiency, the main intervention in the proposed project. 3 ADB s country 1 The design and monitoring framework is in Appendix 1. 2 The Asian Development Bank (ADB) provided project preparatory technical assistance. ADB Technical Assistance to the People s Republic of Bangladesh for Preparing the Power System Efficiency Improvement Project. Manila. 3 ADB Sector Assistance Program Evaluation: Energy Sector in Bangladesh. Manila.

6 2 partnership strategy for Bangladesh 4 emphasizes (i) investments in energy efficiency and network expansion; (ii) continuing policy dialogue on energy pricing and creating an enabling environment for private sector participation; and (iii) regional cooperation. ADB is strengthening its efforts toward clean energy investments through public private partnerships. As a part of this strategy, ADB approved a loan to facilitate the flow of 500 MW from India to Bangladesh through an electricity transmission interconnection on Bangladesh s western border 5. The proposed project will supplement ADB s efforts to assist Bangladesh in eliminating supply shortages. B. Impact and Outcome 6. The impact of the project will be increased provision of better access to electricity. The outcome will be increased generating capacity. The capacity to generate 176 MW will be added by installing a CCPP to replace some aging, inefficient plants. Further, the project will support expanding renewable energy in the country by installing solar photovoltaic and wind power systems with a total capacity of 14 MW. C. Outputs 7. The project outputs can be grouped in two parts. Part A is improved energy efficiency, to be achieved by replacing aging steam and gas turbine plants at Ashugani power station that have a capacity of 274 MW with a state-of-the-art CCPP that has a capacity of 450 MW, and constructing a 1-kilometer transmission line to connect the new plant to the national grid. Part B is increased renewable energy use, to be achieved by (i) installing a 5 MW solar photovoltaic grid-connected power generating plant at Kaptai hydropower plant site; (ii) installing an off-grid wind solar hybrid system with diesel generator on Hatiya Island (1 MW solar photovoltaic, 1 MW wind, and 5.5 MW diesel); and (iii) installing or retrofitting streetlights that use solar photovoltaic and LED technology in the six cities. 8. Infrastructure investments in parts A and B will be supplemented by capacity building for each, toward supporting project implementation and training on operation and maintenance (O&M) for the staff of executing agencies (EAs) and communities to be served by the off-grid wind solar hybrid plant. This will include training women on the O&M of solar photovoltaic and solar wind hybrid plants and a gender-sensitive educational program for beneficiaries on household energy efficiency. D. Investment and Financing Plans 9. The government has requested a loan of $300 million from ADB s ordinary capital resources to help finance the project. 6 The loan will have a 25-year term, including a grace period of 5 years, an annual interest rate determined in accordance with ADB s London interbank offered rate (LIBOR)-based lending facility, a commitment charge of 0.15% per year (with interest and other charges during construction to be capitalized in the loan), and such other terms and conditions set forth in the draft loan and project agreements. The government has provided ADB with (i) the reasons for its decision to borrow under ADB s LIBOR-based lending facility based on these terms and conditions; and (ii) an undertaking that these choices 4 ADB Country Partnership Strategy Midterm Review: Bangladesh, Manila. 5 ADB Report and Recommendation of the President to the Board of Directors: Proposed Loan to the People s Republic of Bangladesh for Bangladesh India Electrical Grid Interconnection Project. Manila (Loan BAN). 6 ADB financing includes transportation and insurance costs.

7 3 were its own independent decision and not made in reliance on any communication or advice from ADB. 10. A collaborative cofinancing facility of $200 million from the Islamic Development Bank (IDB) is expected to finance the gas turbine and the heat recovery steam generator in part A. Table 1: Project Investment Plan ($ million) Item Amount a A. Base Cost b 1. Part A: Improved generating efficiency Part B: Increased use of renewable energy i. Kaptai 5 MW grid-connected solar photovoltaic system ii. Hatiya wind solar diesel off-grid plant iii. Solar photovoltaic-powered LED street lighting Subtotal (A) B. Contingencies c C. Financing Charges during Implementation d Total (A+B+C) LED = light-emitting diode, MW = megawatt. a Includes taxes and duties of $14.7 million to be financed from government resources. b In mid-2010 prices. Physical contingencies computed at 8% of base costs. Price contingencies for investment in Bangladesh computed as per ADB Financial Management and Analysis of Projects. Manila. d Includes interest and commitment charges. Interest during construction to be paid by executing agencies for the domestic loan is 3%, for the ADB loan based on LIBOR with 25-year tenure including 5-year grace period and, for IDB financing LIBOR+105 basis points with 20-year tenure including 5-year grace period. Sources: Asian Development Bank, Ashuganj Power Station Company, Bangladesh Power Development Board. Table 2: Financing Plan Source Amount ($ million) Share of Total (%) Asian Development Bank Islamic Development Bank Government Total Source: Asian Development Bank 11. The government will make the loan proceeds available to EAs and cause the proceeds to be applied to financing project expenditures including through separate subsidiary loan agreements, the terms of which must be acceptable to ADB. 12. Gender related capacity building activities and implementation of gender action plan will be financed through a separate ADB grant technical assistance of $ 350, ADB provided technical assistance. ADB BAN: Enabling Poor Women's Participation in the Renewable Energy Sector. Manila. The gender-related outputs of the technical assistance are being integrated into the DMF of this project and are presented separately in the DMF of the technical assistance. It will be ensured during project performance reporting that the gender outputs of the project and the technical assistance get counted only once.

8 4 E. Implementation Arrangements 13. The EAs will be Ashuganj Power Station Company (APSC) for part A; Bangladesh Power Development Board (BPDB) for part B (i) and (ii); and the Power Division under the Ministry of Power, Energy, and Mineral Resources for part B (iii). Implementation will be undertaken and supervised by a project management unit (PMU) within each executing agency. The PMUs will be headed by senior officials and staffed by adequate personnel. PMU responsibilities will include (i) overall project coordination, management, and monitoring; (ii) annual budget preparation and monitoring the utilization of loan proceeds; (iii) progress reporting, including reports on cost management and project impact; and (iv) ensuring compliance with loan covenants. The implementation arrangements are summarized in Table 3 and described in detail in the project administration manual. 8 Table 3: Implementation Arrangements Aspects Arrangements Implementation period 1 Jan June 2017 Estimated completion date 30 June 2017 (loan closing on 31 December 2017) Management (i) Oversight body Steering committee chaired by the Secretary, Power Division under the Ministry of Power, Energy, and Mineral Resources (ii) Executing agencies APSC, BPDB, Power Division (iii) Key implementing Project management units within APSC, BPDB, Power Division agencies (iv) Implementation units Ashuganj, 16 staff (APSC); Dhaka, 10 staff (BPDB); Dhaka, 5 staff (Power Division) Procurement International competitive Four contract $ million bidding packages Consulting services (project implementation and training ) Financed by the government and ADB Four contract packages $6.88million Retroactive financing and All eligible contract packages and eligible expenditures agreed between advance contracting Disbursement ADB and the government The loan proceeds will be disbursed in accordance with ADB's Loan Disbursement Handbook (2007, as amended from time to time) and detailed arrangements agreed upon between ADB and the government. ADB = Asian Development Bank, APSC = Ashuganj Power Station Company, BPDB = Bangladesh Power Development Board. Source: Asian Development Bank. 14. Goods and works to be financed under the project will be procured in accordance with ADB's Procurement Guidelines (2010, as amended from time to time) except the turnkey power plant package under part A, which will be jointly financed with IDB, with IDB financing the cost of the gas turbine and the heat recovery steam generator. As it is not possible to separately procure individual components of this package, its procurement will be conducted jointly by ADB and IDB. In order to enable such joint procurement, it is proposed to expand country eligibility for procurement under part A by allowing firms, subcontractors, and sourcing of materials from any country eligible under ADB s Procurement Guidelines and IDB s Guidelines for Procurement of Goods and Works under IDB Financing (2009). Such an expansion of country and source eligibility is required to implement the jointly financed package and would require a waiver under Article 14 (ix) of the Agreement Establishing the Asian Development Bank. In the absence of such a waiver, implementation of the package as a jointly co-financed package will not be 8 Project administration manual (accessible from the list of linked documents in Appendix 2).

9 5 possible. All goods and works will be procured by international competitive bidding. All consultants will be engaged in accordance with Guidelines on the Use of Consultants (2010, as amended from time to time). Consulting firms will be recruited using quality- and cost-based selection, with a quality cost ratio of 80: The funds required for the jointly financed package will be directly disbursed to the supplier by IDB. For effective coordination between the cofinanciers and the borrower, ADB will develop, in consultation with IDB, a memorandum of understanding to lay out the basic principles and procedures for collaboration, cooperation, and exchanging information at the time of implementation. The minutes recording discussions on the contents of such a memorandum of understanding were finalized by ADB and IDB during the appraisal mission. III. DUE DILIGENCE A. Technical 16. The draft power sector master plan update 2010 identifies the need to add 11 CCPPs each with 450 MW capacity in The proposed Ashuganj 450 MW plant (part A) can be considered one of these CCPPs. Further, the government has identified the proposed plant as a priority project in its expansion plan. The economic cost of electricity supply from the Ashuganj CCPP is similar to or lower than those of a coal-fired power plant (based on the costs taken from the master plan), confirming that the proposed plant is among the least-cost options for generating new capacity. CCPP design will use the latest commercially available technology to harness the maximum benefit of energy efficiency. Part B of the project will demonstrate renewable energy technologies and their application for long-term large-scale penetration into the Bangladesh power system. The subcomponents in part B use solar photovoltaic, wind power, and LEDs, which are commercially proven technologies. B. Economic and Financial 17. Financial analysis of the proposed project was carried out in accordance with ADB's Financial Management and Analysis of Projects. 9 All financial costs and benefits are expressed in constant 2010 prices. The financial viability of the Ashuganj CCPP was assessed by comparing the incremental costs and benefits of the project. The incremental benefits were calculated based on the revenue stream from power sales to BPDB and avoided costs of O&M for aging power plants. The capital investments, O&M costs, and taxes incurred to install and operate the project were used as costs. In renewable energy components, the revenue stream in the form of power sales or avoided power purchase and a cost stream consisting of capital costs, O&M costs, and taxes were used. The financial internal rate of return for part A is 7.6% against an estimated weighted average cost of capital of 2.16%, while that for part B is negative due to high capital costs and low power sales and avoided power purchase tariffs. However, part B has redeeming demonstration impact on renewable energy development in Bangladesh. 18. As Bangladesh currently faces a power deficit, cost savings from prevented power outages are a direct tangible economic benefit of the project in addition to any resource cost savings achieved through replacement with alternative fuels and efficiency gains. Part A of the project provides an economic internal rate of return (EIRR) of 70%, derived mainly from a large reduction in the use of gas per unit of electricity generated. Part B, consisting of renewable energy, provides only a marginal EIRR of 12% because of high capital costs. However, its 9 ADB Financial Management and Analysis of Projects. Manila.

10 6 demonstration impact and avoided costs brought by reduced local pollution and climate change mitigation are additional benefits that would significantly enhance the EIRR if quantified and included. The integrated project provides an EIRR of 63.4%. Sensitivity analyses show project returns to be stable against changes to critical variables and demonstrate the economic feasibility of the project. 19. The Clean Development Mechanism, established under the Kyoto Protocol and managed by the United Nations Framework Convention on Climate Change, has significant potential to provide additional carbon financing to support the development of clean energy projects that reduce greenhouse gas emissions in Kyoto Protocol signatory countries. As Bangladesh is a signatory of the Kyoto Protocol, the project can benefit from carbon financing under the Clean Development Mechanism. 20. Part A of the project, which replaces aging steam and gas turbine plants with a state-ofthe-art CCPP, will avoid 300,000 tons of carbon dioxide (CO2) emissions per annum. Part B, installing solar photovoltaic, wind power, and LED lighting, will avoid emission of 25,000 tons of CO2 per annum. These make the project eligible under the Clean Development Mechanism, which could improve its financial viability. C. Governance Area Institutional and corporate governance Anticorruption Procurement Table 4: Governance Measures Measures APSC and BPDB will independently file tariff petitions with the Bangladesh Energy Regulatory Commission. ADB will review and examine any alleged corrupt, fraudulent, collusive, or coercive practices relating to the project. (i) Project management units are to be established, headed by senior officers reporting directly to the managing director of APSC and BPDB and the additional secretary to the Power Division in the case of part B (iii). (ii) Bid specifications and packaging are being prepared to ensure maximum competition under international competitive bidding procedures. (iii) Information on procurement will be disclosed on company websites. (iv) Procurement capacity support will be made available at the ADB Resident Mission to expedite action on procurement issues. Financial management and audit Grievance review (i) Measurable financial performance indicators for APSC and BPDB have been established. (ii) Expenditures, other financial transactions, and safe custody of projectfinanced assets will be monitored by the accounting and control systems of APSC and BPDB. (iii) Internal audit reports will be provided to the audit committees of the company boards of the respective companies. (iv) Financial statements will be audited by independent auditors acceptable to ADB and regularly published and reported to shareholders. A grievance redress mechanism will be established to address issues relating to project implementation. ADB = Asian Development Bank, APSC = Ashuganj Power Station Company, BPDB = Bangladesh Power Development Board. Source: Asian Development Bank.

11 7 21. The government established its Anticorruption Commission in 2004, and ADB provided technical assistance to help build capacity and provide support for an integrated anticorruption strategy. 10 The government will ensure that APSC and BPDB have operational autonomy and that no organizational changes will affect their ability to perform their obligations under the project. ADB s Anticorruption Policy (1998, as amended to date) was explained to and discussed with the government, APSC, BPDB, and the Power Division. The specific policy requirements and supplementary measures are described in the project administration manual. Table 4 summarizes major governance measures adopted for the project. D. Poverty and Social 22. Bangladesh remains one of the poorest countries in the world with nearly half of its population living below the $1.25 poverty line. Lack of adequate and reliable electricity has contributed to perpetuating poverty. Only 49% of the population has access to electricity. Even those with electricity face power shortages and poor reliability of supply. These factors have severely constrained the growth of industry and the delivery of essential services (including health care and education) and contributed to environmental pollution and poverty. 23. From a poverty and sustainability perspective, the project will have positive benefits locally and regionally across the project areas of influence. Benefits will be direct and indirect consequences of increased access to reliable and clean energy supplies, allowing progressive economic and social development. The project will generate a considerable number of temporary and permanent jobs. New and expanded access to reliable power supplies will enhance the production capacity of industries and facilitate new commerce, creating opportunities in agriculture, garment manufacture, and complementary businesses. 24. Improved power supplies will lighten women s household drudgery and enhance women s energy-related livelihood opportunities. Bangladesh s commitment to integrating gender and social considerations in the energy sector was agreed during a 1-day consultation meeting in November 2010 with the Power Division. The project was identified for integrating gender and social enhancement interventions. The inputs from the consultation have guided the design of the gender action plan, which includes as key design features (i) increasing women s participation in energy-related employment and energy-based livelihood opportunities resulting from the loan; (ii) providing technical training to women to enable them to maximize these opportunities; (iii) a gender-sensitive user-education program and module to improve household energy efficiency; and (iv) the provision, in selected project sites, of improved cook stoves to improve household energy efficiency, reduce women s time burden, and improve women s health. A pilot project on enabling poor women s participation in the renewable energy sector in Bangladesh that integrates these gender design features will be implemented on Hatiya Island. E. Safeguards 25. Environment. The project is classified under environmental category A due to the installation of the 450 MW Ashuganj CCPP. The government also classified this component as category A, and APSC prepared an environmental impact assessment in May 2009 based on the Environmental Conservation Rules of The environmental impact assessment was approved by the Department of Environment on 5 May 2010 and revised to conform with ADB s Safeguard Policy Statement (2009). 10 ADB Technical Assistance to the People s Republic of Bangladesh for Supporting Good Governance. Manila.

12 8 26. The Ashuganj CCPP will be located within the existing Ashuganj power station complex. The project will use natural gas as fuel and meet the cooling water requirements of 6.4 cubic meters cubic meters per second, or 52,000 cubic meters per gigawatt-hour, using water from the Meghna River, which will be released back to the river after 3% 5% loss, or 1,500 2,600 cubic meters per gigawatt-hour. CCPP technology has high thermal efficiency, and a burner will be used that limits the formation of nitrogen oxide. A pond will temporarily hold cooling water discharges, and the discharge channel will have adequate turbulence to dissipate heat before its final discharge back into the Meghna River. The plan for abandoning the replaced power plant units will be prepared by APSC. ADB will review the plan prior to any decommissioning works. 27. The other subprojects in part B are classified as environmental category B. Initial environmental examination reports have been prepared in compliance with ADB s Safeguard Policy Statement. Part B will utilize clean energy technologies to reduce greenhouse gas emissions by 25,460 tons per year. The subprojects have been assessed for their risk and vulnerability to climate change impacts, and design measures have been integrated to ensure that these risks are minimized. The environmental impact assessment and initial environmental examination reports were publicly disclosed through the ADB website on 25 March The EAs are committed to implementing the environmental management plan and submitting semiannual environmental monitoring reports to ADB. 28. Involuntary resettlement. The project is classified under involuntary resettlement category B. Constructing the Ashuganj CCPP will require relocating 134 people 11 to alternative, vacant, and suitable accommodation inside the Ashuganj industrial compound. Affected people have been consulted on the process and consented to relocation under the terms promised by APSC. Relocation will be fully managed by APSC through a resettlement plan, the provisions of which shall comply with the ADB Safeguard Policy Statement. 29. Other resettlement impacts include the acquisition of 3.5 hectares of small landholdings on Hatiya, and minor and temporary nuisances and disturbances caused during the retrofitting and upgrading of streetlights, all of which will be minimized through mitigation. Compensation for any temporary or permanent loss of crops and trees will accord with entitlements indicated in resettlement plans. Care will be taken to engage and consult with stakeholders as necessary and in a culturally sensitive manner. The EAs will ensure that project information is disclosed and disseminated to project stakeholders in a timely manner. If, during implementation, adjustments are made to the project, these will be reflected in the entitlement matrix in consultation with displaced and otherwise affected people. 30. Indigenous peoples. The project is classified under indigenous peoples category C. No indigenous groups have been identified as potentially affected by the project. Additionally, where worker migration is required, the project will minimize the risk of HIV/AIDS through information dissemination campaigns at project areas per the provisions in the project administration manual ASPC workers and family members, of which 42 workers are security guards. 12 Section VII (safeguards) and section VIII (gender and social) of the project administration manual (accessible from the list of linked documents in Appendix 2).

13 9 F. Risks and Mitigating Measures 31. The main risks to the project are to part A, which is more than 80% of the total investment. The main risk to Ashuganj subproject viability is the absence of a long-term power purchase agreement (PPA) between APSC and BPDB. A provisional PPA signed between the two entities in 2005 was last reviewed in September BPDB will expedite developing longterm PPAs for all the generating companies. 32. The other risk to the viability of the Ashuganj subproject is the possibility of reduced gas allocation to the Ashuganj power station. Considering that the gas requirement for the new power plant is less than that of the power plants to be replaced, the gas allocation risk is minimal. Further, Ashuganj power station is located closer to the gas fields, and several gas pipelines feed the power station. Therefore, the possibility of reduced gas availability for the power station is low. However, an assurance to this effect will be included in the loan agreement. Further coordination between ADB and IDB on issues such as the sequencing of procurement, contract awards, and disbursements is critical to the successful implementation of the project, particularly with regard to the envisioned joint procurement in part A. The memorandum of understanding expected to be signed between ADB and IDB will address this issue. 33. Major risks and mitigating measures are summarized in Table 5. Risks BPDB and APSC fail to enter or delay entering into long-term PPAs Coordination between ADB and IDB on loan disbursements Reduced gas allocation to the Ashuganj power station over the coming years Limited capacity of APSC and BPDB to implement project components Increase in prices for raw materials Lack of competition in the procurement in renewable energy components Table 5: Summary of Risks and Mitigating Measures Mitigating Measures BPDB will expedite developing long-term PPAs for all the generating companies. PPAs need to be reviewed by the Bangladesh Energy Regulatory Commission. Coordination on issues such as the sequencing of procurement, contract awards, and disbursements will be covered under loan agreements and a memorandum of understanding between ADB and IDB. An assurance relating to maintaining the existing gas allocation to the Ashuganj power station is included in loan documentation. The project components will be implemented as engineering, procurement, and construction contracts, which will require minimal intervention from EAs. Implementation consultants will be provided to project management units of the EAs. Adequate contingency amounts have been provided. Costs will be passed on to consumers through the PPAs to be endorsed by the Bangladesh Energy Regulatory Commission. Appropriate clauses will be included in the bid documents to enable bidding to be cancelled if the number of bidders is inadequate. ADB = Asian Development Bank, APSC = Ashuganj Power Station Company, BPDB = Bangladesh Power Development Board, IDB = Islamic Development Bank, PPA = power purchase agreement. Source: Asian Development Bank.

14 10 IV. ASSURANCES 34. The government, APSC, BPDB, and the Power Division have assured ADB that implementation of the project will conform to all applicable ADB policies, including those concerning anticorruption measures, safeguards, gender, procurement, consulting services, and disbursement as described in detail in the project administration manual and loan documents. 35. The government, APSC, BPDB, and the Power Division have agreed with ADB on certain covenants for the project, which are set forth in the loan agreement and project agreement. The government has also agreed with ADB that effectiveness of the loan and project agreements is conditional upon a subsidiary loan agreement, satisfactory to ADB, under which the loan proceeds are relent to APSC and BPDB. V. RECOMMENDATION 36. I am satisfied that the proposed loan would comply with the Articles of Agreement of the Asian Development Bank (ADB) and recommend that the Board approve (i) the loan of $300 million to the People s Republic of Bangladesh for the Power System Efficiency Improvement Project from ADB s ordinary capital resources, with interest to be determined in accordance with ADB s London interbank offered rate (LIBOR)-based lending facility; for a term of 25 years, including a grace period of 5 years; and such other terms and conditions as are substantially in accordance with those set forth in the draft loan and project agreements presented to the Board; and (ii) the proposal set out in para. 14 of this report allowing contractors, suppliers, and subcontractors, and materials used by them to be procured from nonmember countries of ADB, to be eligible for financing under the Power System Efficiency Improvement Project by the requisite affirmative vote of directors representing not less than two-thirds of the total voting power of ADB s members, pursuant to Article 14(ix) of the Agreement Establishing the Asian Development Bank. 21 July 2011 Haruhiko Kuroda President

15 Appendix 1 11 DESIGN AND MONITORING FRAMEWORK Design Summary Impact Increased provision of better access to electricity Performance Targets and Indicators with Baselines Demand-supply gap eliminated by 2016 (2011 baseline: demand supply gap of 30%) Data Sources and Reporting Mechanisms BPDB annual report Assumptions and Risks Assumption Government emphasis on energy sector development to continue Risk Inadequate gas supplies for electricity generation Outcome Increased electricity generating capacity Total installed generation capacity increased to 5,909 MW by 2016 (2011 baseline: installed generation capacity of 5,719MW) Annual reports of APSC, BPDB, and Power Division Assumptions Improved regulatory environment Outputs Improved energy efficiency Assumptions Timely availability of counterpart funds from the government Successful completion of construction of Ashuganj combined cycle power plant of 450MW and associated 1km transmission line by Dec 2016 Annual reports of APSC Successful installation of 33,000 LEDbased street-lighting by Mar 2016 Annual reports of Power Division Employment for local labor in O&M of streetlights (target: minimum of 25% of employees are women) Annual reports of Power Division A gender-sensitive user education program implemented for the safe and efficient use of electricity in household by Dec 2012 (pilot target group: up to 1,000 women on Hatiya Island) Annual reports of BPDB Reduction in CO 2 emissions by 300,000 tons annually against the baseline. (baseline: annual emissions of 44 million tons in 2016 and 65 million tons in Power Sector Master Plan 2010) Annual reports of APSC Increased renewable energy use Successful installation of Kaptai solar power plant of 5MW, installation of offgrid wind (1MW)-solar(1MW)-diesel (5.5MW) hybrid power plant at Hatiya Annual reports of BPDB and Power Division

16 12 Appendix 1 Design Summary Performance Targets and Indicators with Baselines Island and installation of solar photovoltaic-powered LED street lighting (33,000 systems) by Dec 2016 Data Sources and Reporting Mechanisms Assumptions and Risks Employment of local labor in O&M of Kaptai solar power plant and wind power plant on Hatiya Island (target: minimum of 25% employed are women) Annual Reports of BPDB Reduction in CO2 emissions by 25,000 tons annually against the baseline (baseline: annual emissions of 44 million tons in 2016 and 65 million tons in JICA Power Sector Master Plan, 2010) Annual Reports of BPDB and Power Division Capacity developed in the EAs and surrounding communities Implementation consultants successfully employed for all the project components by March 2012 Minimum of 25 people trained on O&M of Ashuganj power plant by June 2017 Annual Reports of APSC Annual Reports of APSC Minimum of 25 people trained on O&M of the grid-connected solar plant (a minimum of 25% women) by June 2013 Annual Reports of BPDB Minimum of 20 people trained on O&M of solar wind off-grid plant (at least 25% of the trainees being women) by June 2013 Successful completion of at least one training program for the executing agency on community involvement and information dissemination among beneficiaries by Dec 2012 Annual Reports of BPDB Annual Reports of APSC, BPDB and Power Division Local community have adequate human resources to build local capacity for O&M of offgrid wind solar power plants Successful implementation of the project gender action plan for technical training and energy-related livelihood activities targeting women by Dec 2013 Annual Reports of APSC, BPDB and Power Division

17 Appendix 1 13 Activities with Milestones 1. Improved energy efficiency 1.1 Acquisition of land along the transmission line route completed by March Clearing sites for transmission line and generation plant and payment of compensation completed by June Construction of generation plant, transmission line, and switching station, August 2012 October Implementation of environment management plan from January Increased renewable energy use 2.1 Acquisition of land on Hatiya Island completed by December Site clearance and compensation completed by June Design and installation of plants at Kaptai and Hatiya and streetlights in the six cities, June 2013 December Capacity development 3.1 Identification of specific areas of training completed by December Selection of trainees, December 2011 December Conducting awareness and training programs, December 2012 December Staff orientation on community involvement, December 2012 December Implementation of gender action plan, December 2011 December 2016 Inputs Loan ADB: $300 million Amount Item ($ million) Part A Part B Government: $81.18 million Amount ($ million) Item Part A Part B IDB: $200 million Amount Item ($ million) Part A Grant financing: $350, Project Management 4.1 Recruitment of implementation consultants by March Procurement of consulting services for training in part A by Dec Procurement of consulting services for training in part B by Dec First review mission by June 2012 and follow-up missions every 6 months ADB = Asian Development Bank, APSC = Ashuganj Power Station Company, BPDB = Bangladesh Power, CO2 = carbon dioxide Development Board, IDB = Islamic Development Bank, JICA = Japan International Cooperation Agency, LED = light-emitting diode, O&M = operation and maintenance.

18 14 Appendix 2 LIST OF LINKED DOCUMENTS 1. Loan Agreement 2. Project Agreement 3. Sector Assessment (Summary): Power 4. Project Administration Manual 5. Contribution to the ADB Results Framework 6. Development Coordination 7. Financial Analysis 8. Economic Analysis 9. Country Economic Indicators 10. Summary Poverty Reduction and Social Strategy 11. Gender Action Plan 12. Environmental Impact Assessment 13. Resettlement Plan: Ashuganj Combined Cycle Power Plant 14. Resettlement Plan: Hatiya Wind Solar Diesel System 15. Resettlement Plan: Solar LED Streetlights 16. Risk Assessment and Risk Management Plan Supplementary Documents 17. Additional Information on Project Components 18. Procurement Capacity Assessment Report and Recommendations