Completion Report

Project Number: 36205 Loan Number: 2039 August 2013

Bangladesh: Power Sector Development Program

CURRENCY EQUIVALENTS

Currency Unit – taka (Tk)

At Appraisal At Project Completion (2 September 2003) (31 December 2011)

Tk1.00 = $0.0171 $0.0142 $1.00 = Tk58.40 Tk70.44

ABBREVIATIONS

ADB – Asian Development Bank BERC – Bangladesh Energy Regulatory Commission BHEL – Bharat Heavy Electricals BPDB – Bangladesh Power Development Board DESA – Dhaka Electric Supply Authority DESCO – Dhaka Electric Supply Company DPDC – Dhaka Power Distribution Company EGCB – Electricity Generation Company of Bangladesh EIRR – economic internal rate of return FIRR – financial internal rate of return MPCL – Meghnagat Power Company NDF – Nordic Development Fund NLDC – national load dispatch center NORAD – Norwegian Agency for Development Cooperation NWZPDCL – North-West Zone Power Distribution Company PGCB – Power Grid Company of Bangladesh PIO – project implementation office TA – technical assistance

WEIGHTS AND MEASURES

km – kilometer (1,000 meters) kV – kilovolt (1,000 volts) kVA – kilovolt-ampere (1,000 volt-amperes) kW – kilowatt (1,000 watts) kWh – kilowatt-hour (1,000 watt-hours) MW – megawatt (1,000,000 watts)

NOTES

(i) The fiscal year (FY) of the government ends on 30 June. “FY” before a calendar year denotes the year in which the fiscal year ends; e.g., FY2012 ends on 30 June 2012.

(ii) In this report, “$” refers to the US dollar.

Vice-President X. Zhao, Operations 1 Director General J. Miranda, South Asia Department (SARD) Country Director M. T. Kho, Bangladesh Resident Mission (BRM), SARD Team leader H. Yang, Senior Climate Change Specialist (Clean Energy), BRM,

SARD Team members S. Khan, Project Analyst, BRM, SARD

R. J. Chowdhury, Senior Operations Assistant, BRM, SARD

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 judgment as to the legal or other status of any territory or area.

CONTENTS Page

BASIC DATA I

I. PROGRAM DESCRIPTION 1

II. EVALUATION OF DESIGN AND IMPLEMENTATION 1

A. Relevance of Design and Formulation 1 B. Program Output 2 C. Program Costs 3 D. Disbursements 4 E. Program Schedule 4 F. Implementation Arrangements 6 G. Conditions and Covenants 7 H. Related Technical Assistance 8 I. Consultant Recruitment and Procurement 9 J. Performance of Consultants, Contractors, and Suppliers 9 K. Performance of the Borrower and the Executing Agency 10 L. Performance of the Asian Development Bank 10

III. EVALUATION OF PERFORMANCE 11

A. Relevance 11 B. Effectiveness in Achieving Outcome 11 C. Efficiency in Achieving Outcome and Output 12 D. Preliminary Assessment of Sustainability 13 E. Impact 13

IV. OVERALL ASSESSMENT AND RECOMMENDATIONS 14

A. Overall Assessment 14 B. Lessons 14 C. Recommendations 15

APPENDIXES

1 Project Framework 16 2 Capital Cost Estimates 20

3 Utilization of Loan, Appraised and Actual 23

4 Disbursement by Category and Financial Year 24

5 Project Implementation Schedules 25 6 Compliance with Covenants 28 7 Compliance with Financial Covenants 39 8 Bulk and Retail Tariff Increase 40 9 Operational Performance of the Power Sector 42 10 Accounts Receivable of Power Sector Entities 43 11 Project Financial and Economic Analysis 44 12 Load Shedding during 1988 to 2013 51

BASIC DATA

A. Loan Identification

1. Country 2. Loan Number 3. Program Title 4. Borrower 5. Executing Agencies

6. Amount of Loan 7. Project Completion Report Number

Bangladesh 2039 Power Sector Development Program Bangladesh Power Grid Company of Bangladesh (PGCB) and Bangladesh Power Development Board (BPDB); subsequently North-West Zone Power Distribution Company (NWZPDCL) and Electricity Generation Company of Bangladesh (EGCB) $186.0 million BAN 1404

B. Loan Data

1. Appraisal – Date Started – Date Completed 2. Loan Negotiations – Date Started – Date Completed 3. Date of Board Approval 4. Date of Loan Agreement 5. Date of Loan Effectiveness – In Loan Agreement – Actual – Number of Extensions 6. Closing Date – In Loan Agreement

–Actual – Number of Extensions

7. Terms of Loan – Interest Rate

–Commitment Charges –Front-End Fee – Maturity (number of years)

– Grace Period (number of years)

8. Terms of Relending (if any) – Interest Rate

– Maturity (number of years) – Grace Period (number of years

4 September 2003 10 September 2003 5 November 2003 6 November 2003 10 December 2003 18 December 2003 17 March 2004 2 August 2004 3 30 June 2008 9 April 2012 4 London interbank offered rate (LIBOR) plus 0.60% per year 0.75% per year on unwithdrawn amount 0.5% of loan amount 25 years 5 years 5.00% per year 25 years 5 years

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9. Disbursements

a. Dates

Initial Disbursement

2 August 2004

Final Disbursement

3 April 2012

Time Interval

92 months

Effective Date 2 August 2004

Original Closing Date 30 June 2008

Time Interval 47 months

b. Amount ($)

Category or Subloan

Original Allocation

Partial Cancellation

a

Last Revised Allocation

Amount Disbursed

Undisbursed Balance

a

Power stations 67,000,000 0 110,000,000 108,041,042 1,958,958

National load dispatch center 54,000,000 0 38,000,000 35,718,380

2,281,620

Distribution lines and other materials

26,300,000 0 27,200,000 20,484,303

6,715,697

Substations Operational vehicles

Training

8,700,000

400,000

1,300,000

0

0

0

0

0

0

5,031,254

0

0

(5,031,254)

0

0 Consulting services Front-end fee

2,800,000

930,000

0

0

3,400,000

930,000

2,966,289

930,000

433,711

0

Interest and commitment charge 6,470,000 0 6,470,000 6,470,000

0

Unallocated 18,100,000 0 0 0 0

Total

186,000,000

0

186,000,000

179,641,268

6,358,732

a The undisbursed balance of $6,358,732 was canceled when the loan account was closed on 9 April 2012.

10. Local Costs (ADB-Financed) - Amount ($) 0 - Percentage of Local Costs 0 - Percentage of Total Cost 0 C. Project Data

1. Project Cost ($million)

Cost Appraisal Estimate Actual

Foreign exchange cost 195.60 179.65 Local currency cost 132.90 78.73 Total 328.50 258.38

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2. Financing Plan ($ million)

Cost Appraisal Estimate Actual

Implementation costs Borrower-financed 98.70 78.73 ADB-financed 186.00 179.65

Other external financinga 9.60 0.00

Domestic borrowing 34.20 0.00

Total 328.50 258.38

IDC Costs

Borrower Financed 18.90 26.50 ADB Financed 4.00 7.40 Other External Financing 0.00 0.00

Total 22.90 33.90

ADB = Asian Development Bank, IDC = interest during construction. a The actual Nordic Development Fund cost could not be ascertained as physical implementation has just started.

3. Cost Breakdown, by Project Component ($ million)

Component Appraisal Estimate Actuala

Foreign Local Total Foreign Local Total A. Base Cost Part A: BPDB/Generation 68.00 34.30 102.30 109.29 29.50 138.79 Part B: PGCB/NLDC 56.80 33.30 90.10 37.44 13.97 51.41 Part C: BPDB/Distribution 45.30 32.10 77.40 25.52 8.73 34.25 Subtotal (A) 170.10 99.70 269.80 172.25 52.20 224.45 B. Taxes and duties 0.00 55.70 55.70 0.00 31.44 31.44 C. Contingencies Physical 8.40 5.00 13.40 0.00 0.00 0.00 Price 9.70 9.30 19.00 0.00 0.00 0.00 Subtotal (B) 18.10 14.30 32.40 0.00 0.00 0.00 D. Interest during

construction 6.47 18.90 25.37 6.47 26.53 33.00 E. Front-end fee 0.93 0.00 0.93 0.93 0.00 0.93 Total 195.60 132.90 328.50 179.65 78.73 258.38

BPDB = Bangladesh Power Development Board, NLDC = national load dispatch center, PGCB = Power Grid Company of Bangladesh. a Excludes Nordic Development Fund financing for substations.

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4. Project Schedule

Item Appraisal Estimate Actual

Date of contract with consultants

PGCB component Oct 2004 26 Jan 2005 BPDB/EGCB generation component Sep 2004 22 Feb 2006

Completion of engineering design BPDB/EGCB generation component Jun 2005 Dec 2007 PGCB component Jun 2005 Sep 2004–Jul 2008

BPDB distribution component June 2005 Jun 2004 - Sep 2005 Civil works and/or turnkey contract

Date of award of first contract BPDB/EGCB generation component PGCB component BPDB distribution component

Jan 2005 Apr 2005

Dec 2004–Feb 2005

31 Jan 2007 19 Dec 2005 22 Mar 2010

Completion of work BPDB/EGCB generation component PGCB component BPDB distribution component

Dec 2006 Dec 2007 Jun 2007

28 Nov 2011 16 Sep 2010

Ongoing

Equipment and supplies First procurement

BPDB/EGCB generation component PGCB component BPDB distribution component

Not applicable* Not applicable*

Oct 2004

Not applicable* Not applicable*

Sep 2005 Last procurement

BPDB/EGCB generation component PGCB component BPDB distribution component

Not applicable* Not applicable*

Feb 2005

Not applicable* Not applicable*

Mar 2006 Completion of equipment installation

BPDB/EGCB generation component PGCB component BPDB distribution component

Not applicablea

Not applicablea

Jun 2007

Not applicablea

Not applicablea

Mostly completed by Dec 2011; remaining

works ongoing Start of operations Completion of tests and commissioning

BPDB/EGCB generation component PGCB component BPDB distribution component

Nov 2006 Dec 2007 Jun 2007

28 Nov 2011 16 Sep 2010

Ongoing

BPDB = Bangladesh Power Development Board, EGCB = Electricity Generation Company of Bangladesh, PGCB = Power Grid Company of Bangladesh, NWZPDCL = North-West Zone Power Distribution Company. a EGCB and PGCB contracts comprised only turnkey and consulting packages.

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5. Project Performance Report Ratings

Implementation Period

Rating

Development Objectives

Implementation Progress

1 August 2004 to 31 December 2004 Satisfactory Satisfactory 1 January 2005 to 31 December 2005 Satisfactory Satisfactory 1 January 2006 to 31 December 2006 1 January 2007 to 31 December 2007 1 January 2008 to 31 December 2008 1 January 2009 to 31 December 2009 1 January 2010 to 31 December 2010 1 January 2011 to 31 December 2011 1 January 2012 to 31 December 2012

Satisfactory Satisfactory Satisfactory Satisfactory Satisfactory Satisfactory Satisfactory

Satisfactory Satisfactory Satisfactory Satisfactory Satisfactory Satisfactory Satisfactory

D. Data on Asian Development Bank Missions

Name of Mission

Date

No. of Persons

No. of Person-Days

Specialization of Members

Appraisal 4–10 Sep 2003 4 28 a, b, c, d Inception 14–22 Sep 2003 3 21 a, b Review 1 28 Sep–5 Oct 2005 2 16 a, b Review 2 5–17 Sep 2007 2 26 e, f Review 3 5–13 Aug 2008 2 18 e, f Review 4 30 Mar–10 Apr 2009 2 24 e, f Review 5 20–31 May 2010 2 24 e, f Review 6 2–9 Oct 2011 2 16 e, f Special project administration mission

28 Mar–2 Apr 2012 2 12 e, f

Project completion review 1–2 Jan 2013 4 8 a = mission leader, energy specialist, b = senior project officer, c = principal country program specialist, d = senior economist, e = project implementation officer, f = project analyst.

I. PROGRAM DESCRIPTION

1. For years, Bangladesh had been suffering power shortages and unreliable power supply because of insufficient generation capacity, an inadequate transmission grid, and unbalanced distribution facilities. The major constraints on the power sector were (i) low institutional capability; (ii) unavailability of domestic resources for investment; (iii) limited capability of the economy to service foreign debt; (iv) centralized management policy of government, which entailed time-consuming procedures and practices; (v) low employee commitment; and (vi) institutional weaknesses in governance, banking, law enforcement, and judicial processes external to the sector but essential for its proper functioning. 2. To overcome the institutional weaknesses in the power sector and improve sector performance, the Government of Bangladesh approved in September 1994 a policy paper that proposed the reform of the power sector by improving management and corporate governance, introducing competition, and facilitating public–private partnerships. In accordance with the recommendations put forth in the paper, the power sector in Bangladesh embarked on a series of gradual structural changes with support from development partners. This reform-linked Bangladesh Power Sector Development Program1 was part of the 1999 country assistance program of the Asian Development Bank (ADB) for Bangladesh.

3. The objective of the program was to support the government’s efforts to reform the power sector through the financial restructuring of two major companies, such as the Power Grid Company of Bangladesh (PGCB) and Dhaka Electric Supply Company (DESCO), and to prepare the sector for long-term financial sustainability and gradually relieve the government of the burden of financial support for the sector. 4. The program had two components: a program loan and a project loan. The program loan of $100 million, for a term of 15 years, came from ADB’s ordinary capital resources (OCR). ADB also provided a 25-year loan of $186.0 million from its OCR to cover part of the foreign exchange cost ($195.6 million) of the physical part of the program, which had a total estimated cost of $328.5 million equivalent at appraisal. Parallel financing of €8.3 million ($9.6 million equivalent) from the Nordic Development Fund (NDF) would meet the costs of 10 new 33×11 kilovolt (kV) substations. Local costs were to be funded by the government through loans and equity. Subsequently, the Norwegian Agency for Development Cooperation (NORAD) showed interest in providing $10.0 million in parallel financing for the renovation of substations. The program framework in Appendix 1 shows the program’s physical targets and expected output at appraisal and actual output at completion.

II. EVALUATION OF DESIGN AND IMPLEMENTATION

A. Relevance of Design and Formulation

5. The program was designed in line with ADB’s country strategy,2 whose primary goal was to reduce poverty by (i) accelerating economic growth, (ii) improving the lives of the poor through the efficient growth of the energy sector and better access of the poor to the benefits of growth, and (iii) improving and protecting the environment. The program would improve power

1 ADB. 2003. Report and Recommendation of the President to the Board of Directors: Proposed Loans to the

People’s Republic of Bangladesh for the Power Sector Development Program. Manila. 2 ADB. 2002. Country Strategy and Program Update: Bangladesh, 2003-2005. Manila.

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supply, particularly in the northwestern region of the country, which lagged in generation and transmission capability, by (i) adding 2×100 megawatt (MW) of gas-based peaking generation capacity to replace old and inefficient power plants; (ii) constructing a national load dispatch center (NLDC), to ensure economic dispatch and rationalize regional power supply; and (iii) upgrading distribution systems in the northwest zone, to speed up the development of industry and the service sector in the zone.

6. The reforms under the program were expected to improve the financial and operating performance of the power sector by converting the Bangladesh Power Development Board (BPDB) and the Dhaka Electric Supply Authority (DESA) into corporate bodies, changing the business culture, building long-term institutional capacity, and encouraging private sector participation. The creation of the Electricity Generation Company of Bangladesh (EGCB) and the North-West Zone Power Distribution Company (NWZPDCL) would further unbundle BPDB’s generation and distribution systems. The program design supported the government’s efforts to restructure the power sector, accelerate economic growth, and create jobs. 7. At completion, the program design was deemed to be sound and relevant to ADB’s country partnership strategy and the sector reform objectives of the government.3 The output was designed to promote sustainable economic growth, commercial development, and poverty reduction.

B. Program Output

8. The program had three physical parts.4 In part A, a 2×120 MW gas-fired power plant was installed instead of the 2×100 MW plant envisaged at appraisal, virtually replacing the old and inefficient power plants (3×10 MW and 1×50 MW steam turbines) at Siddhirganj, which were dismantled. With the new plant, additional power became available at peak hours and load shedding was minimized, particularly in the northwest region. But part A was completed only on 28 November 2011, almost 5 years after the target date of 31 December 2006. 9. Part B involved establishing an NLDC at Rampura, Dhaka, comprising an energy management system and a supervisory control and data acquisition (SCADA) system, to manage the 230/132KV electrical power network and associated substations and power stations. Part B facilitated economic dispatch by maximizing generation from least-cost generators, and enhanced grid management through better control of the grid. The NLDC was commissioned on 16 September 2010, against the target date of 31 December 2007.

10. In part C, existing distribution systems were modernized through the addition of new facilities and the upgrading of existing facilities in 10 major towns (Rajshahi, Serajganj, Bogra, Pabna, Rangpur, Dinajpur, Joypurhat, Thakurgaon, Nilphamari, and Gaibanda) in the northwest zone. The objectives were to (i) minimize technical distribution losses and reduce nontechnical losses through proper metering, and (ii) connect additional consumers by using available additional power from the new generation plant built under part A. The construction and renovation of about 1,200 km of 11 kV, 11 kV/0.415 kV, and 0.415 kV distribution lines by

3 ADB. 2011. Country Partnership Strategy: Bangladesh, 2011–2015. Manila.

4 Estimates place the energy savings possible under the program at 0.12 terawatt-hour yearly (equivalent to 91,000

tons of carbon dioxide [CO2] emissions reduction). The program also resulted in 240 MW of installed generation capacity, new household connections numbering 45,000 by 2012 and a projected 310,000 by 2017, and 1,200 kilometers (km) of distribution lines installed.

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December 2011 (against the target date of 31 December 2007), and the augmentation of 33 kV/11 kV substation capacity with 160 megavolt-amperes (under implementation) made operations more flexible, and created scope for 200,000 new consumer connections. Power supply to existing and new consumers greatly improved. Forty-five thousand new household connections were made during project implementation.

11. By completion, the program had partly achieved the reform objectives envisaged at appraisal. BPDB handed over to EGCB the site at the Siddirganj power plant area for the construction of the 2×100 MW peaking power plant. EGCB demolished the old and inefficient 3×10 MW and 1×50 MW plants and readied the site for the installation of the new plant. Existing generation assets (1×210 MW steam turbine power plant) of BPDB were also handed over to EGCB under a resolution approved by the BPDB board on 12 September 2006. EGCB commenced business operations on 1 January 2008 after taking over the steam plant.

12. NWZPDCL was created on 3 August 2005, but it could not operate, as BPDB did not hand over assets despite the fact that (i) NWZPDCL management was recruited in August 2007–January 2008, (ii) NWZPDCL obtained its distribution license from the Bangladesh Energy Regulatory Commission (BERC) on 12 February 2009, (iii) NWZPDCL’s manpower setup was approved by its board of directors on 2 November 2009, and (iv) a draft vendor agreement was finalized in March 2011. NWZPDCL was not activated and BPDB was not corporatized mainly because BPDB resisted corporatization and the government revised its sector reform strategy.

13. The Cabinet Committee on Economic Affairs approved the proposal to corporatize DESA on 8 July 2004. The corporatization took effect when the Dhaka Power Distribution Company (DPDC) was registered as a company on 25 October 2005. But the appointment of directors with delegated powers took almost 2 years. It was only in May 2007 that the managing director, the director (technical), the director (finance), and the company secretary were finally appointed. Though consultants were hired in May 2005, services were suspended for over 2 years because of internal problems in DESA, political unrest, and travel restrictions in Bangladesh. DPDC finally took over the operations of DESA as a distinct power distributor in July 2008.

14. Despite approval by the government’s Cabinet Committee for Economic Affairs on 12 January 2004, the corporatization of BPDB has not progressed.

C. Program Costs

15. The physical works cost an estimated $328.5 million equivalent during appraisal. At completion, the actual cost was a much lower $258.37 million.5 This was primarily because bid prices for the procurement of goods, services, and turnkey contracts in parts B and C were lower than expected, and the NORAD-financed component under part C and some other components were not implemented. Details of the final cost are provided in Appendix 2. A cost summary for the physical components is in Table 1.

5 The actual cost figure excludes the turnkey implementation contract amounts of €8.29 million and Tk49.8 million ($11.3 million equivalent) financed by the NDF.

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Table 1: Cost Summary for Physical Components ($ million)

Physical Component and Executing Agency

Cost at Appraisal Cost at Completiona

Foreign Currency

Local Currency Total

Foreign Currency

Local Currency Total

Part A: EGCB 77.70 41.30 119.00 113.78 49.53 163.30 Part B: PGCB 65.70 48.90 114.60 39.17 20.04 59.21 Part C: BPDB 52.20 42.70 94.90 26.69 9.16 35.85

Total 195.60 132.90 328.50 179.64 78.73 258.37

BPDB = Bangladesh Power Development Board, EGCB = Electricity Generation Company of Bangladesh, PGCB = Power Grid Company of Bangladesh. a The cost at completion for part C excludes the NDF-financed costs of new substations, on which physical work

has just started. Sources: Executing agencies’ project completion reports and the Asian Development Bank Loan Financial Information System.

16. The cost of part A was higher than expected at appraisal primarily because (i) the design specifications called for a base-load plant instead of a peak-load plant, leading to the procurement of higher-priced goods and services by EGCB; and (ii) prolonged delay in completion resulted in higher-than-estimated interest during construction (IDC). But despite the higher cost, taxes and duties remained within the appraisal estimates.

17. For part B, the foreign exchange cost savings were due to the lower-than-estimated prices of goods and services procured, and nonuse of funds allocated for the renovation or upgrading of substation equipment. The lower-than-estimated taxes and duties paid on imported goods produced substantial savings in local costs. 18. Part C had savings in both foreign exchange and local costs because fewer-than-expected distribution lines were constructed or upgraded, and part of the cost of the component was borne by NORAD.

D. Disbursements

19. The original allocation at appraisal, the last revised allocation, the actual use of the loan proceeds, and the undisbursed loan balance are all given in Appendix 3. Disbursements totaled $179.64 million. The undisbursed loan balance of $6.36 million was canceled at loan closing on 9 April 2012. The annual disbursements from the ADB loan are disaggregated by executing agency and category in Appendix 4.

20. The initial disbursement under the ADB loan was made on 19 April 2005, and the final disbursement, on 3 April 2012. The actual disbursement period of 6 years and 9 months was 3 years and 3 months longer than the appraised period of 3 years and 6 months, because implementation took longer than estimated at appraisal.

E. Program Schedule

21. The ADB loan was declared effective on 2 August 2004, against the target date of 17 March 2004, because of the government’s delayed compliance with the loan effectiveness conditions. After four extensions, the loan was finally closed on 31 December 2011, 3 years and 6 months beyond the closing date of 30 June 2008 originally planned at appraisal.

22. During program processing, NDF and NORAD showed interest in financing the upgrading of the 33/11 kV substation; ADB therefore excluded that part of the substation

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component from its scope of work. On 11 May 2004, the government signed a tied credit agreement with the NDF, which required the supply of equipment by Nordic countries, for €8.3 million, to finance the construction cost of new substations. The closing date, originally 30 June 2007, was moved to 30 June 2014, for the reasons discussed below.

23. On 11 December 2004, the government signed a framework agreement with NORAD for mixed credit of $10.0 million. But for reasons beyond the control of the government and NORAD, NORAD later canceled its loan. The non-implementation of the NORAD-financed component adversely affected consumer connections. BPDB has been working to secure financing from other sources so it can implement this component by 2016. 24. The EGCB component was expected to be completed in July 2006. EGCB invited bids for the 2×100 MW power plant on 2 October 2004, and signed an engineering, procurement, and construction (EPC) contract with Bharat Heavy Electricals (BHEL) on 31 January 2007 for the construction of the 2×120 MW plant, with a completion date of 7 November 2008. ADB issued its commitment letter on 21 May 2007 and the contractor received the 10% mobilization advance on 16 June 2007, the date work under the contract was to start. The site was, however, handed over to the contractor only on 15 May 2007; the contractor needed more time to clear the site. The first 120 MW unit was completed and started operating on 20 November 2009. It broke down in June 2010 because its generator stator failed, and it was recommissioned with a new generator stator on 18 September 2011. The second unit was commissioned on 26 May 2010, and was taken over by EGCB on 14 October 2010. As provided in the contract, both units underwent acceptance and performance testing, which was conducted successfully on 28 November 2011. The long delay in the completion of the component had several causes: (i) the contractor needed extra time to demolish unforeseen structures and clear the site (2 months); (ii) the writ filed by BPDB staff for the non-demolition of the running plant had to be vacated; (iii) the preparation of the engineering design was delayed (6 months); (iv) extra time was needed for civil works (6 months); (v) equipment was shipped late (12 months); (vi) the first generator unit skidded during transportation from the manufacturing plant to the port of shipment, and required third-party inspection to assess the extent of the damage (6 months); (vii) the generator stator unit failed and had to be replaced with a new unit (15 months); (viii) generators and substations were shut down and were unavailable for the installation of data transmission equipment (5 months); and (ix) the contractor’s project implementation team on the site was inadequately staffed. As stipulated in the contract, EGCB imposed 10% liquidated damages on BHEL for the implementation delay, which are to be adjusted against the remaining invoices.

25. The PGCB portion was expected to be completed by December 2007. The EPC contract for the NLDC was signed on 19 December 2005 and was to be completed within 30 months from that date, that is, by 18 June 2008. The contract was amended twice. The first amendment, signed on 18 June 2006, expanded the scope of work and moved the completion deadline to 17 March 2009, 33 months from the date the amendment was signed. The second amendment was signed on 20 February 2008. The amendment dropped the connecting 11 substations of PGCB from the scope of work, added 14 new substations of PGCB and DESA to the scope of work, and allowed changes in the architectural and structural design of the NLDC building to be completed by 17 March 2009. The actual completion date was 16 September 2010.

26. The schedule projected at appraisal and the actual implementation schedule are compared in Appendix 5. The long delay in implementation was due to (i) failure to use the advance procurement facility provided by ADB, (ii) the failure of most turnkey contractors to complete works within the contract period, (iii) frequent turnover in the key position of project

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director for BPDB’s distribution component, and (iv) changes in project scope to accommodate works that were necessary to meet project objectives. 27. There was a provision for the construction of 11 new 33/11 kV substations, at an estimated cost of $9.6 million. As the funds from NDF were not enough to cover all the 11 substations, a tender for eight substations was floated in December 2005. Bidding was canceled after a bidder lodged a complaint. The first rebidding took place in January 2008, and the second rebidding, in August 2008. AREVA (Sweden) was the winning bidder. NDF accepted the recommendation on the condition that the government would request an extension of the loan closing date and agree to finance the additional cost of the contract. But the government, newly elected in 2008, advised BPDB to reevaluate the bids. NDF cleared the BPDB recommendation in July 2008, and the contract was awarded to AREVA in 2009. NDF issued its no-objection letter in January 2010 and the contract was signed on 22 March 2010. In May 2010, NDF received a complaint from a bidder and referred this to the corruption committee of NDF. The project came to a standstill. NDF gave clearance in February 2011 to proceed with the contract. Meanwhile, in 2010, AREVA was sold to the French firms Alstom and Schneider Electric, and Schneider became responsible for this contract. The contract, with an implementation period of 18 months, was assigned to Schneider in September 2012. NDF extended the loan closing date to 30 June 2014. BPDB was unaware of NDF’s direct disbursement procedure. The contractor, BPDB, ERD, and NDF agreed on the disbursement procedure on 27 February 2013, and the contractor began fieldwork in mid-March 2013.

F. Implementation Arrangements

28. BPDB, and subsequently EGCB,6 was the executing agency for part A; PGCB, for part B; and BPDB, and subsequently NWZPDCL,7 for part C.

29. EGCB initially appointed a BPDB official, on deputation from BPDB, as project director for part A. EGCB later established a project implementation office (PIO) and replaced the BPDB official with an EGCB executive, who continued as project director up to December 2012. PGCB appointed a project director for part B, who worked throughout the project implementation period and reported to the general manager (projects), the head of the PIO. BPDB established a PIO for part C and hired a project director.

30. The establishment of PIOs by EGCB, PGCB, and BPDB and the availability of responsible officials helped in the smooth execution of their components. The project director for BPDB’s distribution component was changed five times during the implementation period. At present, a new project director is working to implement the unfinished scope, particularly the substations under NDF financing and distribution lines.

6 Schedule 6, paragraph 4, of the loan agreement stipulates the creation of the Siddhirganj Power Station Company to implement part A of the program and eventually take over the entire assets on the Siddhirganj generation site. Instead of forming a new company, BPDB issued an order on 7 December 2003 assigning Meghnaghat Power Co. (MPCL), which was incorporated as a company under the Companies Act 1994 on 23 November 1996, the responsibility for implementation and operation of the Siddhirganj 2×100 MW power plant. MPCL was renamed EGCB and registered with the Registrar of Joint Stock Companies and Firms on 16 February 2004. For convenience, EGCB is used in place of BPDB as executing agency for part A in the basic data, text, and appendixes of this project completion report.

7 NWZPDCL was incorporated on 3 August 2005.

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G. Conditions and Covenants

31. The government and the executing agencies have partly complied with all loan and most program covenants stipulated in the loan and project agreements. The loan covenants and their compliance status are listed in Appendix 6. 32. The first members of the NWZPDCL management were recruited during the period from 19 August 2007 to 13 January 2008. But NWZPDCL could not start operating as BPDB did not transfer to it the distribution networks in northwest Bangladesh. NWZPDCL prepared all required documents related to the transfer, e.g., vendor agreement, power purchase agreement, and memorandum of understanding, and sent these documents to BPDB in 2008. NWZPDCL also prepared a business plan and organogram. NWZPDCL obtained its distribution license from BERC on 12 February 2009. 33. BPDB did not approve the documents submitted by NWZPDCL related to the transfer of assets, and neither renewed the contracts of NWZPDCL management staff nor recruited new management staff. BPDB apparently adopted a go-slow approach in operationalizing NWZPDCL. As NWZPDCL was not operationalized, part C was implemented by BPDB directly. Although there was no apparent causal relationship, this might explain some delays in the implementation of part C. BPDB also had to corporatize its distribution in the south and central zones as a condition of its loans from the World Bank and the Japan International Development Corporation (JICA), but did not comply with that condition either. 34. Although the BPDB board approved on 12 September 2006 the handover of all assets, including a 210 MW power plant, to EGCB, BPDB first transferred only the project site to EGCB. BPDB handed over the 210 MW power plant to EGCB on 1 January 2008, but resumed possession of the plant on 17 January 2011. EGCB received a loan from the World Bank for the construction of a 360 MW combined plant at Siddhirganj, and a loan from JICA for the construction of a 360 MW combined-cycle plant at Haripur (opposite Siddhirganj, on the other side of the Sitalakhya river). Both plant projects are being implemented.

35. DESA was corporatized when DPDC was registered as a company on 25 October 2005. DPDC began operating by taking over assets from DESA on 1 July 2008. However, BPDB corporatization did not materialize. This failure was contrary to the government’s previous efforts to reform the sector and may jeopardize the long-term financial sustainability of the sector.

36. As a condition of the program loan, PGCB was to raise Tk2,000 million from the market for the NLDC project to ease the pressure on the government budget. PGCB completed all groundwork for the bond issue and hired an issue manager. But the market response was not positive. PGCB then shelved the idea of issuing bonds, and approached the government for the required amount. The government allocated the funds and complied with the provisions of para. 7, schedule 6, of the project loan agreement.

37. The status of compliance by PGCB, DESCO, and the new power sector companies with financial covenants in 2011 and 2012, under the terms of this loan agreement, is summarized in Appendix 7. PGCB complied with all financial covenants in 2012. DESCO complied with all requirements in 2011 except for accounts receivable. DESCO nearly met the accounts receivable requirement in 2012, but its return on equity sharply declined to 8% from 15% in 2011. DPDC could not meet requirements other than the debt-service coverage ratio in both years. EGCB data are based on 5 months’ operating performance in 2012. The main reason for DPDC’s and DESCO’s failure was the reduction in distribution margin. BERC raised BPDB’s

8

generation tariff by about 98% in 2011 and 2012, from a weighted average of Tk2.04/kWh in 2007 to Tk4.70/kWh in 2012, to minimize the government subsidy for power generation. At the same time, the retail tariff was also raised by about 68%, from a weighted average of Tk3.45/kWH in 2007 to Tk5.75/kWh in 2012 (Appendix 8). The retail tariff has been kept low at the cost of the distribution margin for DPDC and DESA, placing these entities under serious financial constraints. 38. All executing agencies were required to take out and maintain insurance for the project facilities with responsible insurers. However, insuring generation, transmission, and distribution assets is not practiced in the power sector in Bangladesh, and none of the executing agencies complied with this condition. H. Related Technical Assistance

39. ADB approved technical assistance (TA) amounting to $850,000 in 2002 to assist the government and DESA in (i) corporatizing DESA, (ii) introducing modern management information systems into the new company, and (iii) integrating the new company into the power network as a distinct power distributor,8 thereby defining the new company’s relationship with other sector entities. The TA agreement was signed on 23 August 2004, after the corporatization of DESA was approved by the Cabinet Committee on Economic Affairs on 8 July 2004. An international consulting firm was hired on 21 April 2005, and the consultants were mobilized on 15 May 2005. The TA was completed on 30 September 2008. The TA completion report was prepared and circulated to the Board in 2009.9

40. Although the implementation of the TA was significantly delayed, its scope, cost estimates and financing plan, implementation arrangements, and terms of reference were relevant. The two-stage implementation was considered appropriate for the TA objectives. But because of the significant delay, the TA was rated only partly successful despite the fact that it fully met its objectives. 41. Another TA, this one for $800,000, was approved in 2005 to support the conduct of studies and the corporatization of BPDB. 10 The government signed the TA letter on 4 December 2005. An international consulting firm was hired on 9 February 2006, and the consultants were mobilized on 15 May 2006. The TA was completed on 11 August 2008. The TA completion report was prepared and circulated to the Board in 2009.11

42. This TA was rated successful since the TA objectives were fully met. Its scope, cost estimates and financing plan, implementation arrangements, and terms of reference were considered relevant and appropriate for the TA objectives. Its implementation was, however, delayed by 22 months because of unfavorable political conditions in Bangladesh during the implementation period, which resulted at one point in a 6-month suspension of project activities.

8 ADB. 2002. Technical Assistance to the People’s Republic of Bangladesh for the Corporatization of the Dhaka

Electric Supply Authority. Manila (TA 3978-BAN, approved on 7 November 2002 for $850,000). 9 ADB. 2009. Technical Assistance Completion Report: Corporatization of Dhaka Electric Supply Authority. Manila.

10 ADB. 2005. Technical Assistance to the People’s Republic of Bangladesh for the Corporatization of the Bangladesh Power Development Board. Manila (TA 4626-BAN, approved on 2 August 2005 for $800,000).

11 ADB. 2009. Technical Assistance Completion Report: Corporatization of the Bangladesh Power Development Board. Manila.

9

I. Consultant Recruitment and Procurement

1. Consultant Recruitment 43. Consulting services were provided under the program to assist PGCB in procurement and in the supervision of NLDC implementation. ADB allowed PGCB to take advance action in consultant recruitment, but PGCB did not avail itself of this facility. PGCB invited proposals from shortlisted consulting firms on 8 April 2004 and signed a contract with the selected firm on 26 January 2005. International consultants provided services for 97 person-months, and national consultants, for 135 person-months.

44. Consulting services were also provided to assist EGCB in procurement and in the supervision of the implementation of the 2×120 MW power plant. Although ADB likewise allowed EGCB to take advance action in recruiting the consultant, EGCB did not avail itself of this facility. EGCB invited proposals from shortlisted consulting firms on 5 October 2004 and signed a contract with the selected firm on 22 February 2006. International consultants provided services for 38 person-months, and national consultants, for 196 person-months. 45. Consultants under ADB financing were hired in accordance with ADB’s Guidelines on the Use of Consultants (2002, as amended from time to time).

2. Procurement

46. Goods and services for the project were procured through international competitive bidding, according to ADB’s Procurement Guidelines (1999, as amended from time to time) and using standard bidding documents for the procurement of goods and services. Goods and services under design–build and turnkey contracts were procured through international competitive bidding, following ADB’s standard bidding documents for such contracts. Procurement for civil works for borrower-funded projects was done through local competitive bidding, following the standard bidding procedures of the executing agencies. Design–build and turnkey contractors under NDF financing were recruited according to NDF procurement guidelines. J. Performance of Consultants, Contractors, and Suppliers

47. The performance of suppliers, consultants, and turnkey contractors was generally satisfactory.

48. Under part A, the turnkey contract for the construction of the power station was awarded to BHEL, India, on 31 January 2007, for completion by 7 November 2008. But the actual completion date was 28 November 2011. BHEL required the 3-year extension to complete the works for the reasons mentioned above. The 10% liquidated damages imposed by EGCB for the delay in the completion of work have yet to be realized.

49. Under part B, the turnkey contract for the construction of the NLDC and the stringing of optical ground wire was awarded to the joint venture of AREVA T&D of France and Furukawa Electric Co. of Japan on 19 December 2005, for completion by 30 June 2008. The completion date was moved to 15 March 2009 to accommodate amendments in the scope of work. The actual completion date was 17 September 2010. The extension was due not to any fault on the part of the contractor but mainly to PGCB’s inability to ensure the timely shutdown of segments of the transmission networks (about 1,800).

10

50. Under part C, the performance of all suppliers except three was satisfactory. Two of the 27 supply contracts were terminated with forfeiture of the performance guarantee because of the suppliers’ failure to perform, and the goods were later procured after rebidding. Another local contractor for the supply of 1,004 sets of 250 kVA transformers failed to ensure the quality of the supply. Out of 700 supplied transformers, 350 did not meet the quality standards and were rejected by BPDB. Litigation is ongoing. These failures did not affect implementation progress since the reduction in the number of new 33X11 kV substations and non-completion of the construction of substations also curtailed line construction.

51. The performance of consulting firms hired under parts A and B was satisfactory. Maunsell (subsequently renamed AECOM), New Zealand, was involved in the NLDC project from 1994, first under the extended scope of the Eighth Power Project,12 for the design and preparation of the NLDC project, and then under the Ninth Power Project,13 to assist PGCB in preparing bidding documents for the World Bank. The World Bank’s initial agreement to cofinance the project did not materialize. AECOM acted as supervision consultant for the project and performed satisfactorily. 52. EGCB hired the joint venture of KEMA International B.V. of the Netherlands and Tata Consulting Engineers of India to supervise the construction of the power plant during bid evaluation. EGCB rated the consultants’ performance satisfactory. K. Performance of the Borrower and the Executing Agency

53. The borrower showed strong commitment to the program and accorded high priority to various reform measures. During program implementation, the borrower ensured that sufficient counterpart funds were available and that land was acquired in time for the project.

54. The borrower initially demonstrated firm commitment to corporatizing BPDB, DESA, and BPDB’s northwest zone distribution system, and incorporating EGCB. DESA and EGCB were incorporated. But the borrower failed to convince and control BPDB where the corporatization of BPDB and the operationalization of NWZPDCL were concerned. The borrower’s interference in BERC’s decision making on account of political considerations resulted in failure to appropriately restructure the generation, transmission, and end-use tariff and improve the financial performance of sector entities. 55. Frequent changes in BPDB’s PIO, particularly in the project director for the distribution component, affected project implementation. This problem was not foreseen during appraisal. Otherwise, the performance of all executing agencies was satisfactory. L. Performance of the Asian Development Bank

56. ADB cooperated well with the borrower and the executing agencies in formulating the program and processing the loan. During implementation, ADB staff actively monitored the program and advised the executing agencies on program implementation matters from time to time. Program administration was delegated to the Bangladesh Resident Mission on

12

ADB. 1989. Report and Recommendation of the President to the Board of Directors: Proposed Loan to the People’s Republic of Bangladesh for the Eighth Power Project. Manila

13 ADB. 1996. Report and Recommendation of the President to the Board of Directors: Proposed Loan and Technical Assistance Grant to the People’s Republic of Bangladesh for the Ninth Power Project. Manila

11

5 January 2006, after a joint review of the program in September–October 2005. This delegation further promoted good interaction among ADB, the executing agencies, consultants, and contractors. ADB’s timely approval of contract awards and disbursements, close monitoring of the progress of works, and timely interventions to resolve implementation issues contributed greatly to the successful completion of the program. ADB fielded six review missions and one special administration mission and interacted regularly with the borrower and the executing agencies. The borrower and the executing agencies appreciated ADB’s flexibility in allowing changes in the scope of the program and its willingness to extend the closing dates of loans, thus enabling the borrower to use part of the loan savings. Overall, ADB’s performance in program implementation was highly satisfactory.

III. EVALUATION OF PERFORMANCE

A. Relevance

57. By financing new generation facilities to ensure competitive dispatch and improved distribution, the program played an important role in developing power infrastructure in Bangladesh, particularly in the northwest zone. The program was also designed to advance the government’s reform initiatives to corporatize BPDB and DESA, and further unbundle BPDB’s generation and distribution services. The program was aligned with ADB’s country strategy for Bangladesh, which envisaged a reduction in poverty through economic development (footnote 2).

58. The development objectives planned at appraisal were generally achieved at program completion. The program’s scope expanded during implementation, enhancing impact. As the fifth in a series of reform-linked initiatives in the power sector, the program addressed key sector issues and supported further sector restructuring, including (i) the corporatization of BPDB (not yet achieved); (ii) the corporatization of DESA (functioning since 1 July 2008 under the DPDC name); (iii) the unbundling of BPDB’s generation and distribution services through the creation of EGCB and NWZPDCL (NWZPDCL has not yet been made operational); and (iv) the promotion of PGCB and DESCO as commercially viable companies with access to the capital markets for at least part of their future capital needs. The program was therefore relevant. B. Effectiveness in Achieving Outcome 59. The program was effective, as the outcome envisioned at appraisal was mostly achieved. The main program outcomes were (i) reduced load shedding, (ii) accelerated sector restructuring through the corporatization of DESA and the further unbundling of BPDB’s distribution operations, (iii) competition introduced into power generation, (iv) augmented and expanded distribution to improve network efficiency and reliability in selected major cities and towns in the northwest zone, and (v) wider customer outreach. The creation of NWZPDCL further unbundled BPDB’s distribution operations in the northwest zone, though NWZPDCL has yet to be made fully operational. Corporatization effectively improved the operating performance of DESA. The construction of NLDC essentially improved PGCB’s dispatch function by instituting competition in generation. Previous reform initiatives and reforms promoted by the program improved the operating performance of the sector as a whole, as BPDB’s non-corporatized segment had to perform to match the performance of DESCO and DPDC. In 2012, PGCB’s transmission loss was 2.87%, overall distribution loss was 12.11%, overall collection–billing ratio was over 95%, and receivables amounted to 2.21 equivalent months (Appendixes 9 and 10). BPDB connected over 45,000 new consumers during program

12

implementation. New connections are being made and will increase further with the commissioning of the substations that are now under construction.

C. Efficiency in Achieving Outcome and Output

60. Insufficiency and irregularity in power supply were common in the northwest zone, given the inadequacy of generating capacity in the zone and the saturation of the first east–west interconnector to transfer power from the east zone. The removal of bottlenecks in the transmission system in the northwest was addressed by ADB under its previous project.14 However, demand growth in the northwest exceeded 8% per year. Constructing the 2×120 MW peaking power plant at Siddhirganj to ensure the availability of adequate power in the northwest, installing the NLDC to optimize the cost of power generation and reduce transmission loss, and improving the distribution networks in the northwest greatly helped relieve the power supply problem in the northwest zone. Therefore, the program was efficient.

61. The program’s financial and economic performance is measured by the financial internal rate of return (FIRR) and the economic internal rate of return (EIRR). Assumptions used in calculating the FIRR and the EIRR, as well as the reasons for variations from appraisal figures, are given in Appendix 11. Table 2 shows the FIRR and the EIRR at appraisal and at completion.

Table 2: Comparison of FIRR and EIRR at Appraisal and at Completion

Physical Component and Executing Agency

FIRR (%) EIRR (%)

At Appraisal At Completion At Appraisal At Completion

Part A: EGCB 10.0 7.7 20.2 39.1

Part B: PGCB 10.6 7.2 24.0 29.0

Part C: BPDB 26.6 16.9 38.7 37.6

BPDB = Bangladesh Power Development Board, EGCB = Electricity Generation Company of Bangladesh, EIRR = economic internal rate of return, FIRR = financial internal rate of return, PGCB = Power Grid Company of Bangladesh. Source: ADB’s appraisal report and staff estimates.

62. The FIRR at completion for EGCB was less than the FIRR at appraisal because of the substantial cost overrun and the longer implementation period. Since the plant is likely to be used as a base load plant, the FIRR is likely to improve in the future.

63. The FIRR at completion for PGCB’s NLDC was less than the FIRR at appraisal despite a substantial reduction in cost. It could have been improved further had there been no generation shortage. Bangladesh has experienced acute load shedding since 2005, and a number of off-grid plants have been constructed to supply power directly to the distribution network. The situation should improve with the addition of large generation capacity by BPDB and the private sector. Installed generation capacity has increased over 1,000 MW since 2010. Two thousand megawatts more of generation capacity is expected to be added to the grid by 2014.

14

ADB. 2001. Report and Recommendation of the President to the Board of Directors: Proposed Loan and Technical Assistance Grant to the Government of Bangladesh for the West Zone Power System Development Project. Manila.

13

64. The FIRR for BPDB distribution was less at completion than at appraisal because the non-completion of substation works financed by NORAD or NDF limited the capacity to supply required power and resulted in failure to connect targeted customers on time.

65. The EIRRs for the EGCB and PGCB components were larger at completion than at appraisal because of the increase in projected generation from the plant, the larger-than-expected reduction in transmission loss after NLDC’s operation, and the sharp increase in the cost of alternative fuels.15

66. At present, over half of the total energy generated is from private power plants built by independent power producers and rental power producers. Gas supply shortages led most private sector plants and all new plants constructed by BPDB to use either furnace oil or diesel as fuel, thereby incurring high generation costs. Generation, transmission, and distribution tariffs require proper enhancement to enable sector entities to stay financially solvent. BERC should ensure appropriate distribution margins for DPDC, DESCO, and other distribution entities, and compensate sector entities in a timely way for any needed subsidies to consumers.

D. Preliminary Assessment of Sustainability

67. The ability of the executing agencies to preserve the assets created or restore them to good condition through proper maintenance will determine the program’s sustainability over time. EGCB and PGCB are the two new entities that have taken over assets from BPDB and created new assets under the program. PGCB has proven its ability to maintain over 99% system availability. EGCB has shown promising operating performance by ensuring over 90% plant availability. DPDC begun operating on 1 July 2008 and has shown promising performance. NWZPDCL, though not made operational, developed all plans and programs to ready itself for operation. EGCB, PGCB, and DPDC have enough qualified and experienced technical staff to maintain program facilities. EGCB and PGCB trained some of their staff in Bangladesh and abroad under turnkey contracts. The program is therefore rated likely to be sustainable.

E. Impact

68. No major environmental impact was anticipated at the start of the program. Minor environmental issues were promptly addressed during design and implementation. The program did not affect any indigenous people, wildlife reserves, archaeological sites, religious structures, orchards, or houses, as it required minimal land acquisition. BPDB acquired only 10,117.5 square meters of land for the construction of new substations. The owners of the land were adequately compensated for the property loss and for the damage to crops and trees in line with ADB’s Involuntary Resettlement Policy (1995).

69. The program increased the availability and improved the reliability of power in the northwest zone and helped minimize load shedding, particularly during the irrigation season. Additional power generation from the plant constructed under the program and other plants constructed in both the public and the private sector will substantially reduce or even eliminate load shedding in the country as a whole and particularly in the northwest zone, facilitating industrial and commercial growth and employment generation. Historical data on generation capacity, power generation, and load shedding are given in Appendix 12.

15

In line with the report and recommendation of the ADB President for the program, the economic value of total generated electricity is based on the cost of alternative sources of energy, net of transmission and distribution losses. During the program period, the costs of alternative fuels increased approximately three times.

14

IV. OVERALL ASSESSMENT AND RECOMMENDATIONS

A. Overall Assessment

70. The program is rated successful, on the basis of a review of its relevance, effectiveness, efficiency, and sustainability.

71. The program was implemented as designed with only minor changes in scope. The changes in scope improved the control of the transmission grid. The objectives were generally achieved by the end of the program. Incremental increases in reliable power supply created by the program have reduced load shedding, improved voltage, minimized the frequency of supply disruptions, and enhanced economic activity in the country in general and in the northwest zone in particular. In the process, jobs have been created for many people.

72. The program helped accelerate some crucial sector reforms, including (i) corporatizing DESA, as part of BPDB generation and BPDB’s northwest zone distribution operations; (ii) rationalizing taxes and duties on imported goods; and (iii) raising funds from the market to reduce dependence on the government budget for investments in the power sector. B. Lessons

73. The BPDB corporatization target was a premature step, which underestimated the difficulties in the way of major reforms toward unbundling and corporatization in Bangladesh. The government has already changed its power sector reform agenda. Instead of corporatizing BPDB, it plans to restructure BPDB business functions into several generation and distribution strategic business units (SBUs), which will operate under the existing legal structure and be functionally separate with more financial authority. The effectiveness of the SBU approach remains to be seen.

74. The construction of oil-fueled power plants by the public and private sectors increased BPDB’s operational costs. The tariff increases by BERC in 2008–2012 were contrary to its tariff-setting methodology, which specifies at least a 10% return on assets. Rationalizing the tariff structure to provide an adequate margin to distribution entities can enable these entities to meet future financial requirements.

75. The cancellation of the NORAD funds and the delayed implementation of the NDF component affected consumer connection. A more reliable parallel financing arrangement has to be made to ensure the realization of designed project objectives. This matter needs to be addressed under ongoing and future loans16 for the power sector.

16

(i) ADB. 2007. Report and Recommendation of the President to the Board of Directors: Proposed Loan to the People’s Republic of Bangladesh for the Sustainable Power Sector Development Project. Manila; (ii) ADB. 2010. Report and Recommendation of the President to the Board of Directors: Proposed Loan to the People’s Republic of Bangladesh for the Bangladesh–India Electricity Grid Interconnection Project. Manila; (iii) ADB. 2011. Report and Recommendation of the President to the Board of Directors: Proposed Loan to the People’s Republic of Bangladesh for the Power System Efficiency Improvement Project. Manila; and (iv) ADB. 2012. Report and Recommendation of the President to the Board of Directors: Proposed Loan to the People’s Republic of Bangladesh for the Power System Expansion and Efficiency Improvement Program. Manila.

15

C. Recommendations

1. Program Related

76. Future monitoring. Biannual reports on the operation and maintenance of the program facilities and the status of compliance with covenants, in particular those concerning tariff reforms, may be sought by ADB from the executing agencies.

77. Covenants. Agreed technical and financial covenants were relevant to ensuring the proper operation and maintenance of program facilities and improving the financial and operational performance of the executing agencies. Monitoring should continue. Future loans should consider these covenants, with modifications if needed.

78. Further action or follow-up. Increased generation costs will invariably affect the financial position of incorporating sector entities in the absence of appropriate tariff enhancement. Any subsidy allowed for a consumer segment should be transparent, and the government should compensate the affected power sector entities. Follow-up is needed to address this issue.

79. Additional assistance. The power sector will require large investments to meet rising demand and sustain economic growth. As the government is unable to mobilize adequate resources for investment, the support of development partners will be essential, as will private sector participation. However, any future assistance from ADB to the power sector should preferably incorporate provisions for the implementation of reform initiatives under this program or other completed and ongoing projects.

80. Timing of the program performance evaluation report. The facilities created under the program have yet to attain capacity utilization because of an acute shortage of natural gas for power generation and continued load shedding. The situation is likely to improve by the end of 2014. Post evaluation of the program may therefore be carried out any time after 2014.

2. General

81. To avoid delays in project implementation, development partners should realistically assess the preparedness and capacity of the executing agencies and work out appropriate time frames for project implementation, allowing enough time for land acquisition and the procurement of goods and services based on past experience in the sector.

82. The government should accelerate sector reforms to sustain the benefits attained so far, further improve sector performance, and build the capacity of sector entities for project implementation.

83. In future loans, provision should be made for a procurement review for effective implementation, to reassess the procurement capacity of the executing agencies and the need for further support and to assess the effectiveness of record maintenance, particularly project accounts, inventory, etc.

16 Appendix 1

PROGRAM FRAMEWORK

Design Summary Performance

Indicators and Targets Assessment after

Completion Remarks Goal To achieve economic development and reduce poverty by improving governance, and financial and operating performance of the power sector

Applications for new electrical connections pending for not more than 2 months by 2008

Could not be attained becaue of generation constraint. Acute generation shortage led to the suspension of all types of new connections from September 2009 to mid- 2011.

Though the ban on new connections was lifted, a go-slow approach to new connections was adopted. Customers were forced to install solar systems for up to 2% of load, the use of air coolers was banned, and changes were made in the connection approval process.

Competitive dispatch of

power by generation station by 2006

Started following the operation of NLDC on 16 Sep 2010

Gradual decrease in government subsidies to the power sector

In view of the gas supply constraint, the large-scale addition of oil-based power generation plants by BPDB in both the public and the private sector, and the wide gap between BPDB’s buying and bulk selling price of power led to a sharp increase in the government subsidy to BPDB. In 2008–2012, BERC approved a 98% increase in BPDB bulk sales tariff over the 2007 level to minimize the subsidy.

Government’s budgetary support in the form of subsidy to BPDB increased from Tk69.0 billion in 2011 to Tk132.6 billion in 2012 on BPDB’s balance sheet. Subsidy was provided as loan from the government to BPDB. BPDB’s operating cost has increased as BPDB has to bear the interest burden of the loan. According to the IMF’s country report of April 2012, faster-than-envisaged adjustment in energy prices is necessary to contain subsidy-related costs in the budget.

Purpose

Reform of the power sector through the financial restructuring of two major companies (PGCB and DESCO), and preparation of the sector for long-term sustainability and gradual removal of support provided by the government to the sector

Power system losses decreased from 26% in 2001 to 18% of power imports by 2008 (DESCO)

DESCO’s power system losses decreased to 16.6% in 2005 and were further reduced to 8.54% in 2012.

Collection ratio >90% by 2008 (DESCO)

DESCO achieved a billing– collection ratio of 97% and a collection–import ratio of 89% in 2008.

Since 2008, DESCO has maintained its performance level or improved on it. (Appendix 9)

Appendix 1 17

Design Summary Performance

Indicators and Targets Assessment after

Completion Remarks

Regulatory system effectively enforced by 2006 and sustained thereafter

Following the passage in Parliament of the Energy Regulatory Commission Act 2003, the government established BERC in Mar 2004 as an independent energy regulator. The government appointed two members in Apr 2004 and a chairman on 4 Jun 2005.

BERC is now fully operational and is responsible for tariff setting for both the gas and power sectors. Oil pricing is still with the government.

Accounts receivable not to exceed 2 months’ billing

Accounts receivable average for all utilities as of 30 Jun 2012 was 2.21 equivalent months.

Average private sector accounts receivable (84% of total receivable) for all utilities as of 30 Jun 2012 was 1.99 equivalent months.

Improvement in customer service and quality of supply

New customers connected for the Northwest Zone Power Distribution Company, as follows: Residential: >250,000 Commercial: >40,000 Industrial: >15,000 Others: >5,000

Consumer connections during program implementation totaled only around 45,000.

Reasons for the low connection: non-completion of substations and almost 2 years’ embargo on new connections.

No load shedding by 2008

Load shedding sharply increased from 2006 onward (Appendix 12).

Though the government increased installed generation capacity from about 5,000 MW in 2005 to 8,716 MW in 2012 through both public and private sectors, gas supply constraint and BPDB’s inability to bear the high cost of liquid fuel led to substantial load shedding throughout the period.

Output Peak load power plant

Commissioning and full operation of the power plant by 2006

Peak load power plant was commissioned on 28 Nov 2011 following successful performance and acceptance test.

First unit was made operational on 20 Nov 2009, but generator stator failed in June 2010; recommissioned on 18 Sep 2011. Second unit was operational on 26 May 2010.

New Siddhirganj Power Station Company

Asset transfer from BPDB to the new company by 2004

Project-related assets were transferred before award of the contract on 10 Dec 2006.

BPDB handed over existing 1×210 MW steam power plant to EGCB in 2008, but took it back on 17 Jan 2011.

National Load Dispatch Center

Commissioning and full operation of the NLDC by 2007

NLDC was commissioned and made fully operational on 16 Sep 2010.

Construction covered revised and extended scope of work.

18 Appendix 1

Design Summary Performance Indicators

and Targets Assessment after

Completion Remarks

Upgraded distribution network in northwest zone of Bangladesh

New and upgraded distribution lines established: (i) 217 km 33kV (ii) 365 km 11kV (iii) 294 km 11/0.4kV (iv) 426 km 0.4kV

Distribution networks completed and commissioned by 31 Dec 2011: (i) 135.32 km 33 kV (ii) 190.10 km 11 kV (iii) 328.97 km 11/0.4 kV (iv) 543.61 km 0.4 kV

Physical works partially completed. Materials procured under the loan: (i) 222.0 km 33 kV (ii) 365.0 km 11 kV (iii) 329.0 km 11/0.4 kV (iv) 546.0 km 0.4 kV (v) 17 km 33 kV cable (vi) 4 km 11 kV cable

31 new and upgraded substations installed

NDF planned to finance 8 new substations. NORAD extended loan to finance 2 new and 6 renovated substations.

Physical works under NDF-financed contract for 6 substations began in Mar 2013 with a completion target of Jun 2014. NORAD later canceled its financing support for the project.

1,562 new transformers installed

Transformers installed: (i) 654 nos. 100 kVA (ii) 350 nos. 250 kVA

BPDB procured 660 units of 100 kVA transformers, and ordered 1,004 units of 250 kVA transformers. Of the 1,004 units of 250 kVA transformers, the supplier delivered 700, of which 350 were accepted; the rest were found defective. Court case ongoing.

109,600 new meters installed

5,055 units of 3-phase meters were procured and installed.

No single-phase meters procured. BPDB provided meters for connection.

All equipment to be installed and in full operation by 2007

Status of installation is given above. Physical works to complete distribution networks are ongoing.

Project scope has had to be curtailed because of fund limitations.

New Northwest Distribution Company

Asset transfer from BPDB to the new company by 2004

BPDB did not transfer any distribution assets to NWZPDCL.

NWZPDCL is now inactive.

Activities Incorporation of new peak load power station and Northwest Zone Power Distribution Company

Start: 1 Nov 2003 Complete: 1 Jun 2004 Responsibility: BPDB

Start: 1 Nov 2003 Complete: 3 Aug 2005

EGCB was registered with Registrar of Joint Stock Companies and Firms of Bangladesh on 16 Feb 2004. EGCB management was recruited in Aug– Sep 2005. NWZPDCL was registered with Registrar of Joint Stock Companies and Firms of Bangladesh on 3 Aug 2004.

Appendix 1 19

Design Summary Performance Indicators

and Targets Assessment after

Completion Remarks

Incorporation of BPDB and DESA

Start: 1 Nov 2003 Complete: 31 Dec 2004 Responsibility: BPDB

BPDB has not been incorporated. DESA was incorporated as DPDC on 25 Oct 2005.

Appointment of board of directors Appointment of management

DPDC board of directors was appointed on 1 Jun 2006. DPDC management was appointed in May 2007.

Transfer of distribution assets and staff to the Northwest Zone Power Distribution Company from BPDB

Start: 1 Jan 2004 Complete: 31 Dec 2005 Responsibility: BPDB

BPDB did not transfer distribution assets and staff to NWZPDCL.

NWZPDCL activities have been stalled by BPDB.

Installation of new national load dispatch center

Start: 1 Jan 2004 Complete: 31 Dec 2007 Responsibility: PGCB

Start: Apr 2004 Complete: 16 Sep 2010

NLDC is in full operation.

Installation of new power plant

Start: 1 Jan 2004 Complete: 31 Dec 2006 Responsibility: BPDB and the new Siddhirganj Power Station Company

Start: Oct 2004 Complete: 28 Nov 2011

Turnkey contract was awarded on 10 Dec 2006. Program suffered implementation delays because of setback during shipment and failure of one unit following commissioning.

New distribution power lines installed

Start: 1 Jan 2004 Complete: 31 Apr 2004 Responsibility: West Zone Power Distribution Company

Start: Dec 2006 Complete: Major part of distribution networks installed by 31 Dec 2011. Implementation of NORAD-financed substation dropped as NORAD declined to extend the loan closing date. Construction of NDF-financed 6 new substations began in Mar 2013 with completion target of 30 Jun 2014.

Remaining line materials procured under ADB finance were used in the same project area by BPDB. BPDB is exploring sources of financing for the installation of the remaining new substations and the upgrading of existing substations.

Input Financing Construction Consulting services EGCB PGCB

FX $195.6 million LC $132.9 million 136 person-months 168 person-months

FX $179.64 LC $ 78.73 234 person-months 232 person months

BERC = Bangladesh Energy Regulatory Commission, BPDB = Bangladesh Power Development Board, DESA = Dhaka Electric Supply Authority, DESCO = Dhaka Electric Supply Company, DPDC = Dhaka Power Distribution Company, EGCB = Electricity Generation Company of Bangladesh, IMF = International Monetary Fund, kV= kilovolt, kVA = kilovolt-ampere, PGCB = Power Grid Company of Bangladesh, MW = megawatt, NDF = Nordic Development Fund, NLDC = national load dispatch center, NORAD = Norwegian Agency for Development Cooperation, NWZPDCL = Northwest Zone Power Distribution Company.

20 Appendix 2

CAPITAL COST ESTIMATES

Table A2.1: Capital Cost Estimates for the Bangladesh Power Development Board Peak Load Power Station Component (Part A)

($ million)

Serial No.

Item

Appraisal Cost Actual Cost

Foreign

Curr. Local Curr. Total

Foreign Curr.

Local Curr. Total

1

Preconstruction cost

1.1

Survey and basic design 0 0.40 0.40 0 0 0

1.2

Environment and social study 0 0.10 0.10 0 0 0

1.3

Land development 0 0.30 0.30 0 0 0

Subtotal 0 0.80 0.80 0 0 0

2

Civil works

2.1

Nonresidential building 0 0.70 0.70 0 0.18 0.18

2.2

Other civil works 0 0.70 0.70 0 0.49 0.49

Subtotal 0.00 1.40 1.40 0 0.68 0.68

3

Power station installation

3.1

Dismantling of existing plant 0 2.00 2.00 0.04 0.28 0.32 3.2

Installation of 2×100 MW new plant 66.00 6.00 72.00

108.01 7.23 115.24

3.3

Upgrading of substation (dismantling of substation)

1.00 0.50 1.50 0 0.07 0.07

Subtotal 67.00 8.50 75.50 108.04 7.59 115.63

4

Consulting services 0.80 0.50 1.30 1.25 0.22 1.47

5

Overhead 0 0.80 0.80 0 0.37 0.37

6

Training 0.20 0 0.20 0 0 0 7

Duties and taxes (30% of foreign exchange cost)

0 22.30 22.30 0 20.64 20.64

Total Base Cost 68.00 34.30 102.30 109.29 29.50 138.79

8

Interest during construction 2.30 3.30 5.60 4.49 20.03 24.51

9

Physical contingency 3.40 1.70 5.10 0 0 0

10

Price contingency 4.00 2.00 6.00 0 0 0

Total Cost 77.70 41.30 119.00 113.78 49.53 163.30 BPDB = Bangladesh Power Development Board, MW= megawatt.

Source: ADB's appraisal report and project accounts of the Electricity Generation Company of Bangladesh.

Appendix 2 21

Table A2.2: Capital Cost Estimates for the Power Grid Company of Bangladesh

NLDC Component (Part B) ($ million)

Serial No.

Item

Appraisal Cost Actual Cost

Foreign

Curr. Local Curr. Total

Foreign Curr.

Local Curr. Total

1

Preconstruction Cost 1.1

Survey and basic design 0 0.50 0.50

0 0 0

1.2

Land development 0 0.50 0.50

0 0 0

Subtotal 0 1.00 1.00

0 0 0

2

Civil works 2.1

NLDC building 0 1.50 1.50

0 0.95 0.95

2.2

Residential buildings 0 1.00 1.00

0 0.28 0.28

2.3

Other civil works 0 1.50 1.50

0 0 0

Subtotal 0.00 4.00 4.00

0.00 1.23 1.23

3

Load dispatch center 3.1

SCADA 22.20 3.50 25.70

19.59 2.33 21.92

3.2

EMS 5.00 0 5.00

1.29 0 1.29

3.3

Communication 21.80 4.50 26.30

14.57 1.31 15.88 3.4

Renovation/Upgrading of substation equipment

4.50 1.00 5.50 0 0 0

3.5

Miscellaneous equipment 0.50 0.10 0.60

0.28 0.04 0.32

Subtotal 54.00 9.10 63.10

35.72 3.68 39.40

4

Consulting services 2.00 0.60 2.60

1.72 1.01 2.72

5

Training 0.80 0 0.80

0 0.11 0.11

6

Overhead 0 0.50 0.50

0 0.96 0.96 7

Duties and taxes (30% of foreign exchange cost)

0 18.10 18.10 0 6.99 6.99

Total Base Cost 56.80 33.30 90.10

37.44 13.97 51.41

8

Interest during construction 3.00 10.50 13.50

1.74 6.07 7.81

9

Physical contingency 2.80 1.70 4.50

0 0 0

10

Price contingency 3.10 3.40 6.50

0 0 0

Total Cost 65.70 48.90 114.60 39.17 20.04 59.21 EMS = energy management system, NLDC = national load dispatch center, PGCB = Power Grid Company of Bangladesh, SCADA = supervisory control and data acquisition (system).

Source: ADB's appraisal report and project accounts of Power Grid Company of Bangladesh.

22 Appendix 2

Table A2.3: Capital Cost Estimates for Bangladesh Power Development Board Distribution Component (Part C)

($ million)

Serial No.

Item

Appraisal Cost Actual Cost

Foreign

Curr.

Local Curr. Total

Foreign Curr.

Local Curr. Total

1

Preconstruction Cost 1.1

Survey and design 0

0.10 0.10

0 0 0

1.2

Environment and social study

0

0.20 0.20

0 0 0

Subtotal 0

0.30 0.30

0 0 0

1.3

Land acquisition 0

0.20 0.20

0 0.13 0.13

1.4

Land development 0

0.00 0.00

0 0.00 0.00

Subtotal 0

0.20 0.20

0 0.13 0.13

2

Civil works 0

0 2.1

Residential building 0

1.50 1.50

0 0.03 0.03

2.2

Nonresidential building 0

0.60 0.60

0 0.67 0.67

2.3

Other civil works 0

1.00 1.00

0 0.18 0.18

Subtotal 0

3.10 3.10

0 0.88 0.88

3

Distribution lines 15.80

2.10 17.90

20.60 0.71 21.30

4

Substations 18.30 3.70 22.00

0.00 0.00 0.00

5

Transformers 3.70

1.30 5.00

3.43 0.00 3.43

6

Meters 5.50

0 5.50

1.17 0.00 1.17

7

Other materials 1.30

0 1.30

0.32 0.02 0.34

8

Internal transportation 0

1.00 1.00

0 0.35 0.35

9

Installation cost 0

3.00 3.00

0 1.15 1.15

10

Consulting services 0

1.20 1.20

0 0.55 0.55

11

Overhead 0

1.00 1.00

0 1.14 1.14

12

Training 0.30

0 0.30

0 0 0

13

Computerization and billing 0.40

0 0.40

0 0 0 14

Duties and taxes (30% of foreign exchange cost)

0 15.30 15.30 0 3.81 3.81

Total Base Cost 45.30

32.10 77.40

25.52 8.73 34.25

15 Interest during construction 2.10 5.10 7.20 1.17 0.43 1.60

16

Physical contingency 2.20

1.60 3.80

0 0 0

17

Price contingency 2.60

3.90 6.50

0 0 0

Total Cost 52.20 42.70 94.90 26.69 9.16 35.85 BPDB = Bangladesh Power Development Board, kV= kilovolt, kVA = kilovolt-ampere, LS = lump sum, VHF = very high frequency.

Source: ADB's Appraisal Report and Northwest Zone Power Distribution Company's Project Account

Appendix 3 23

Table A3: Loan Utilization, at Appraisal and Actual

Category

Original Allocation

($)

Last Revised

Allocation

($)

Net Available Amount

($)

Amount Disbursed

($)

Undisbursed Balance

($)

Power station 67,000,000 110,000,000 110,000,000 108,041,042 1,958,958 National load dispatch center

54,000,000 38,000,000 38,000,000 35,718,380 2,281,620

Distribution lines and other materials Substations (meters) Operational vehicles

26,300,000

8,700,000 400,000

27,200,000

0 0

27,200,000

0 0

20,484,303

5,031,254 0

6,715,697

(5,031,254) 0

Training 1,300,000 0 0 0 0 Consulting services 2,800,000 3,400,000 3,400,000 2,966,289 433,711 Front-end fee 930,000 930,000 930,000 930,000 0 Interest and commitment charge

6.470,000 6,470,000 6,470,000 6,470,000 0

Unallocated 18,100,000 0 0 0 0 Total 186,000,000 186,000,000 186,000,000 179,641,268 6,358,732

Source: Asian Development Bank Loan Financial Information System.

24 A

pp

end

ix 4

Item of expenses

Original Revised

$ $ 2005 2006 2007 2008 2009 2010 2011 2012 Total ($)

Power Stations BPDB/EGCB 67,000,000 110,000,000 0 0 10,847,654 20,861,609 54,639,339 2,096,310 490,464 19,105,665 108,041,042

National Load Dispatch Centre PGCB 54,000,000 38,000,000 0 2,677,612 2,791,362 10,121,947 6,047,752 2,929,705 11,150,003 0 35,718,380

Distributions Lines and Other

Materials BPDB/NWZPDCL 26,300,000 27,200,000 0 3,329,065 13,354,918 3,746,137 5,085,437 0 0 0 25,515,557

Substations BPDB/NWZPDCL 8,700,000 0 0 0 0 0 0 0 0 0 0

Operational Vehicles BPDB/NWZPDCL 400,000 0 0 0 0 0 0 0 0 0 0

Training 1,300,000 0 0 0 0 0 0 0 0 0 0

Consulting Services 2,800,000 3,400,000

BPDB/EGCB 0 108,507 56,398 320,136 323,968 297,973 142,219 0 1,249,201

PGCB 118,881 393,650 385,803 342,526 200,015 149,411 126,801 0 1,717,088

Subtotal (Base Cost) 160,500,000 178,600,000

BPDB/EGCB 0 108,507 10,904,052 21,181,745 54,963,307 2,394,283 632,683 19,105,665 109,290,242

PGCB 118,881 3,071,263 3,177,165 10,464,473 6,247,766 3,079,116 11,276,804 0 37,435,469

BPDB/NWZPDCL 0 3,329,065 13,354,918 3,746,137 5,085,437 0 0 0 25,515,557

Front-end fee 930,000 930,000

BPDB/EGCB 388,500 0 0 0 0 0 0 0 388,500

PGCB 328,500 0 0 0 0 0 0 0 328,500

BPDB/NWZPDCL 213,000 0 0 0 0 0 0 0 213,000

Interest and Commitment

Charge 6,470,000 6,470,000

BPDB/EGCB 174,553 267,085 1,254,132 2,371,603 30,428 0 0 0 4,097,801

PGCB 111,385 301,550 183,738 811,616 2,643 0 0 0 1,410,932

BPDB/NWZPDCL 35,280 217,453 513,809 193,294 1,431 0 0 0 961,267

Unallocated 18,100,000 0 0 0 0 0 0 0 0 0

Total 186,000,000 186,000,000

BPDB/EGCB 563,053 375,592 12,158,185 23,553,348 54,993,735 2,394,283 632,683 19,105,665 113,776,544

PGCB 558,766 3,372,813 3,360,904 11,276,089 6,250,410 3,079,116 11,276,804 0 39,174,901

BPDB/NWZPDCL 248,280 3,546,518 13,868,727 3,939,430 5,086,868 0 0 0 26,689,823

Sources: Asian Development Bank Loan Financial Information System: Loan Agreement

BPDB = Bangladesh Power Development Board, EGCB = Electricity Generation Company of Bangladesh Limited, NWZPDCL = North West Zone Power Distribution Company Limited, PGCB = Power Grid Company of Bangladesh Limited

Table A4: Disbursement by Category and Financial Year

AllocationExecuting AgencyDisbursement by Finacial Year, Actual ($)

App

end

ix 5

25

PROGRAM IMPLEMENTATION SCHEDULES

Figure A5.1: Bangladesh Power Development Board Generation Component (Part A)

Description Year

Month 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 100

PQ T CA C

pq

T CA C

PQ T CA DA C

T CA DA C

PQ T CA DA C

Extention of substation

T CA C

Consultant services

PQ T CA C

T CA C

Training

T = Tender, PQ = prequalification, CA = Contract Award, DA = Design approval, C= Commissioning

Appraisal

Actual

Source: ADB's Appraisal Report and PGCB's PCR

2007 2008 20092003 2004 2005 2006

Dismantling of 3x10 MW and 1x50 MW

plants

Design, supply, erection, testing and

commissioning of 2x100 MW gas turbine power

plant

2010 2011

26 Appendix 6

26

App

end

ix

5

Figure A5.2: Power Grid Company of Bangladesh Limited NLDC Component (Part B)

Description YearMonth 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96

PQ T CA DA S C

PQ T CA C

PQ T CA DA S C

PQ T CA C

CA C

CA C

PQ T CA DA S C

Not Applicable

T CA C

T CA C

T CA C

T = Tender, PQ = prequalification, CA = Contract Award, DA = Design approval, S = Supply, C= Commissioning

Appraisal

Actual

Source: RRP and PGCB's Project Completion Report

NLDC Building Construction

Consulting

services

Training

2010 2011

Design, supply, erection, testing

and commissioning of

associated communications

systems

Renovation/upgrading of

substation equipment

Design, supply, erection, testing

and commissioning of EMS and

SCADA

2007 2008 20092003 2004 2005 2006

App

end

ix 5

27

Figure A5.3: Bangladesh Power Development Board Distribution Component (Part C)

Description Year

Month 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 100 101 102 103 104 105 106 107 108 109 110 111 112

T CA DA C

T CA DA ICA C CS

T CA DA C

T CA DA ICA C CS

T CA DA C

T CA DA ICA C CS

T CA DA C

T ICA C CS

T CA DA C

T CA DA CS ICA C

T CA DA C

T CA DA CS ICA C

T CA DA C

T CA DA C

T CA DA C

T CA C

C

T CA C

T CA

T CA C

C = Commissioning, CA = Material Contract Award, CS = Completion of Supply, DA = Design approval, ICA = Installation Contract Award, T = Material Tender, PQ = prequalification, CS = Copletion of Supply, ICA = Installation Contract Award

Appraisal

Actual

Source: BPDB's project completion report

201220102008 20092003 2004 2005 2006

0.4 kv overhead line

renovation (221 km)

33/11 kV new substations (11

nos.)

33 kV new

overhead network

(115 km)

0.4 kv new overhead line

(205 km)

20112007

33 kV overhead network

upgrading (102 km)

11 kV and 11/0.4 kV new

overhead lines (377 km)

11 kV and 11/0.4 kV

overhead lines

renovation(282 km)

Training

33/11 kV substations

upgrading (19 nos.)

132/33 kV substation

upgrading (1 no.)

Computerization of billing and

accounting

Customer connection

Consulting services

28 Appendix 6

COMPLIANCE WITH COVENANTS

SN. Covenant

Reference in Loan and Project Agreement Status

Conditions for Loan Effectiveness

1. Borrower’s Executive Committee of the National Economic Council (ECNEC) shall have approved the Project Concept Paper (PCP) for the project as set forth in the Project Loan Agreement.

LA, Section 6.01(a)

Complied with: (i) PCP for peaking plant approved

by ECNEC on 25 Feb 2004. (ii) PCP for NLDC approved by

ECNEC on 17 Mar 2004. (iii) PCP for 10 towns approved by

ECNEC on 17 Mar 2004.

2. Borrower shall have caused the wheeling charge accruing to PGCB to increase by Tk0.05/kWh and shall have caused issuance by the relevant authorities of a tariff notification reflecting the PGCB’s wheeling charge and DESCO’s power purchase costs.

LA, Section 6.01(b)

Complied with. MPEMR issued notification increasing PGCB’s wheeling charge by Tk0.05/kWh on 24 Mar 2004.

3. Borrower shall have caused issuance by the relevant authorities of a notification setting a ceiling of 30% of CIF value for CDVAT and such other duties levied on importation of goods purchased by power sector entities, including but not limited to BPDB, PGCB, DESCO and the other new companies to be established under the Borrower’s Companies Act, 1994, as amended, pursuant to the terms of this Loan Agreement.

LA, Section 6.01(c)

Complied with. NBR issued office order on 11 Jul 2004 fixing the ceiling of both CD and VAT at 15%, and waiving all other duties and taxes on the import of goods by power sector entities.

4. Relevant authorities of the Borrower shall have approved reorganization of BPDB and Dhaka Electric Supply Authority (DESA) as corporate bodies organized under the Borrower’s Companies Act, 1994, as amended.

LA, Section 6.01(d)

Complied with; (i) Cabinet Committee on

Economic Affairs approved the proposal for corporatization of BPDB on 12 Jan 2004.

(ii) Cabinet Committee on Economic Affairs approved the proposal for corporatization of DESA on 8 Jul 2004.

5. Relevant authorities of the Borrower shall have approved the transfer of all management, operational and fiscal authority relating to (i) Siddhirganj Power Station located at Siddhirganj, near Dhaka including any currently existing and under construction facilities, plant and equipment for a 210 MW gas fired steam power plant and the 2 X 100 MW peaking power generation facility to be established pursuant to the terms of this Project; and (ii) North West Zone Distribution including but not limited to BPDB’s electricity distribution network in the districts of Rajshahi, Serajganj, Bogra, Pabna, Rangpur, Dinajpur, Joypurhat, Thakurgaon, Nilphamari, and Gaibandha towns in the northwest Bangladesh, including all improvements and extensions to such distribution networks provided under the Project Loan Agreement, shall be duly transferred.

LA, Section 6.01(e)

Complied with: (i) Meghnaghat Power Co. (MPCL)

created by BPDB in 1996 would take over assets of Siddhirganj Power Station. BPDB renamed MPCL the Electricity Generation Co. of Bangladesh (EGCB). BPDB assigned EGCB to implement BPDB’s generation component financed by ADB.

Prime Minister approved proposal for corporatization of BPDB’s northwest zone distribution during approval of summary for loan negotiation. On 8 Jan 2004, Administrative Committee (Secretaries’ Committee) gave post-facto consent on Memorandum and Articles of

Appendix 6 29

Association for the proposed Northwest Zone Distribution Co. Cabinet Committee on Economic Affairs approved the proposal on 3 Mar 2004.

6. The PGCB/NLDC Subsidiary Loan Agreement, in the form and substance satisfactory to each of the Borrower, PGCB and ADB, and shall have been duly executed and delivered on behalf of the Borrower and PGCB and shall have become fully effective and binding upon the parties thereto in accordance with its terms, subject only to the effectiveness of this Loan Agreement.

LA, Section 6.01(f)

Complied with.

7. The BPDB/Siddhirganj Power Station Company Subsidiary Loan Agreement, in the form and substance satisfactory to each of the Borrower, BPDB and ADB, and shall have been duly executed and delivered on behalf of the Borrower and BPDB and shall have become fully effective and binding upon the parties thereto in accordance with its terms, subject only to the effectiveness of this Loan Agreement.

LA, Section 6.01(g)

Complied with.

8. The BPDB/Northwest Zone Power Distribution Company Subsidiary Loan Agreement, in the form and substance satisfactory to each of the Borrower, BPDB and ADB, and shall have been duly executed and delivered on behalf of the Borrower and BPDB and shall have become fully effective and binding upon the parties thereto in accordance with its terms, subject only to the effectiveness of this Loan Agreement.

LA, Section 6.01(h)

Complied with.

9. The Program Loan Agreement shall have been duly executed and delivered on behalf of the Borrower, and all conditions precedent to its effectiveness (other than a condition requiring the effectiveness of this Loan Agreement) shall have been fulfilled.

LA, Section 6.01(i)

Complied with.

10. The PGCB/NLDC Subsidiary Loan Agreement has been duly authorized or ratified by, and executed and delivered on behalf of, the Borrower and PGCB, and is legally binding upon the parties thereto in accordance with its terms subject only to the effectiveness of this Loan Agreement.

LA, Section 6.02(a)

Complied with.

11. The BPDB/Siddhiganj Power Station Company Subsidiary Loan Agreement has been duly authorized or ratified by, and executed and delivered on behalf of, the Borrower and BPDB, and is legally binding upon the parties thereto in accordance with its terms subject only to the effectiveness of this Loan Agreement.

LA, Section 6.02(b)

Complied with.

12. The BPDB/Northwest Zone Power Distribution Company Subsidiary Loan Agreement has been duly authorized or ratified by, and executed and delivered on behalf of, the Borrower and BPDB, and is legally binding upon the parties thereto in accordance with its terms subject only to the effectiveness of this Loan Agreement.

LA, Section 6.02(c)

Complied with.

30 Appendix 6

SN. Covenant

Reference in Loan and

Project Agreement Status

Particular Covenants

1. The Borrower shall cause PGCB and BPDB (including its relevant successor entities) to carry out the Project with due diligence and efficiency and in conformity with sound administrative, financial, engineering, environmental and power sector development practices.

LA, Section 4.01(a)

Complied with.

2. In carrying out the Project and operation of the Project facilities, the Borrower shall perform, or cause to be performed, all obligations set forth in Schedule 6 of the Loan Agreement.

LA, Section 4.01(b)

Complied with.

3. The Borrower shall make available to PGCB and BPDB (including its relevant successor entities), promptly as needed and on terms and conditions acceptable to ADB, the funds, facilities, services, land and other resources which are required, in addition to the proceeds of the Loan, for carrying out the Project

LA, Section 4.02

Complied with.

4. The Borrower shall ensure that the activities of its departments and agencies with respect to the carrying out of the Project and operation of the Project facilities are conducted and coordinated in accordance with sound administrative policies and procedures.

LA, Section 4.03

Complied with.

5. The Borrower shall take all action which shall be necessary on its part to enable PGCB and BPDB (including its relevant successor entities) to perform its obligations under the relevant Project Agreements, and shall not take or permit any action which would interfere with the performance of such obligations.

LA, Section 4.04

Complied with.

6. The Borrower shall exercise its rights under the Subsidiary Loan Agreements in such a manner as to protect the interests of the Borrower and ADB and to accomplish the purpose of the Loan.

LA, Section 4.05(a)

Complied with.

7. No rights or obligations under any of the Subsidiary Loan Agreements shall be assigned, amended, abrogated or waived without the prior written concurrence of ADB.

LA, Section 4.05(b)

Complied with.

Project Executing Agency

1. Component A (Peak Load Power Station) shall be executed by BPDB until such date as the Siddhiganj Power Station Company is incorporated and commences operations and from such date all remaining activities under Component A shall be carried out by Siddhirganj Power Station Company.

LA, para. 1(a), schedule 6

Complied with. BPDB assigned MPCL (subsequently renamed EGCB and incorporated under the Companies Act) to implement the project through an office order dated 7 Dec 2003.

Appendix 6 31

SN. Covenant

Reference in Loan and Project Agreement Status

2. Component B (National Load Despatch Center) shall be executed by PGCB.

LA, para. 1(b), schedule 6

Complied with.

3. Component C (Distribution) will be executed by BPDB until such date as the North-West Zone Power Distribution Company is incorporated and come into operation and from such date all remaining activities under Component C shall be carried out by North-West Zone Power Distribution Company.

LA, para. 1(c), schedule 6

Not complied with. BPDB neither allowed the North-West Zone Power Distribution Company to operate nor assigned it to carry out the project. BPDB retained control o project execution.

4. Direct supervision of subproject implementation and monitoring of subproject operation performance will be the responsibility of PGCB and BPDB (or its relevant successor entities) and the Borrower. Each of PGCB and BPDB (or its successor Siddhirganj Power Station Company and North-West Zone Power Distribution Company) will provide quarterly progress reports to ADB covering their respective responsibilities within 30 days from the end of each quarter. ADB will review the implementation and operation of the Project based on these reports and meet the Borrower and each of the executing agencies semi-annually to discuss project programs. ADB will also monitor the overall performance of the Project.

LA, para. 2, schedule 6

Complied with.

Support in Project Implementation

1. The Borrower shall at all times ensure and otherwise respect and support the autonomy and operational independence required to secure, protect and advance the commercial and administrative interest of the sector entities, including but not limited to BPDB, PGCB, DESA, and DESCO and such other entities as and when they are organized under the Borrower’s Companies Act 1994, as amended or similar statutory authorities of the Borrower. Specifically, the Borrower will not intervene, directly or indirectly, in the conduct of policies or actions of the sector entities, including their organizational structure, operational, financial and commercial responsibilities. Borrower shall further refrain from taking any action, directly or indirectly, that inhibit, curb or otherwise limit the independence of such entities.

LA, para. 3, schedule 6

Partly complied with.

2. The Borrower shall ensure that within six months of the Effective Date, each of Siddhirganj Power Station Company and North-West Zone Power Distribution Company are incorporated under the Borrower’s Companies Act, 1994, as amended, the Borrower shall further ensure that the board of directors of

LA, para. 4, Schedule 6

Partly complied with. EGCB was incorporated on 16 Feb 2004, but NWZDCL was incorporated on 3 Aug 2005, a year and a half later.

32 Appendix 6

SN. Covenant

Reference in Loan and Project Agreement Status

each of Siddhirganj Power Station Company and North-West Zone Power Distribution Company are constituted in accordance with principles and procedures acceptable to ADB, provided that at least fifty percent of the members of all such boards shall be persons who are neither current employees nor have employees in the preceding three years of the Borrower or any public or semi-public sector organizations. At least 25% of the board members of each of the entities shall be representatives of independent consumers or professional interests.

3. The Borrower and its agencies shall expedite or assist in expediting the issuance of required permits and licenses for the formation and operation of BPDB’s DESA’s successor entities.

LA, para. 5, schedule 6

Partly complied with. DESA was corporatized and made operational under the name of DPDC, but BPDB corporation has been put on hold.

Funds and Other Financial Covenants

1. The Borrower shall ensure that all local currency funds required for the implementation of the Project are allocated and made available to the appropriate entities in a timely manner.

LA, para. 6, schedule 6

Complied with.

2. In the event PGCB is unable for any reason to successfully raise all or any part of the sum of Taka 2,000 million through issuance of commercial bonds within two years of the Effective Date as presently contemplated, the Borrower shall make appropriate budgetary arrangements in a form to be determined by the Borrower’s government to fund PGCB under customary terms and conditions an amount up to 2,000 million that PGCB is unable to raise through bond issuance.

LA, para. 7, Schedule 6

Complied with. PGCB attempted to raise funds through a bond issue, but abandoned the process after considering the cost of capital. PGCB’s actual local fund requirement was Tk1,385.5 million, which the government provided in the form of debt and equity at a ratio of 60:40.

3. The Borrower shall ensure that each of PGCB, DESCO and the new power companies established pursuant to the terms of this Loan Agreement comply at all times with the following financial covenants: (a) a debt-service coverage ratio of not less than

1.2; (b) an annual rate of return on equity after tax of not

less than 10%; (c) an annual rate of return on fixed assets of not

less than 5%; (d) a debt-equity ratio not exceeding 70:30; and (e) accounts receivable not exceeding more than

two months of cumulative billings.

LA, para. 8, schedule 6

Complied with except for return on equity in 2012, which was 8% (Appendix 7).

4. The Borrower shall ensure that the Vendor’s Agreement dated 30 December 2002 between BPDB and PGCB regarding transfer of BPDB assets to PGCB shall be revised (i) to value the assets transferred at their historical value minus accumulated depreciations and (ii) to provide for purchase of such transferred assets through (A) loan on customary terms and conditions from BPDB to PGCB in an amount that is equivalent to 70% of the value of such assets as determined by (i) above and

LA, para. 9, schedule 6

Complied with.

Appendix 6 33

SN. Covenant

Reference in Loan and Project Agreement Status

(B) increased equity of BPDB in PGCB in an amount equal to 30% of the value of such assets as determined by (i) above. For avoidance of doubt, no debt service charges or other interest that may have accrued to BPDB with respect to transferred assets prior to the date of actual transfer of the subject assets to PGCB shall be assumed by PGCB.

Monitoring and Review

1. The Borrower shall cause each of the Project Executing Agencies to carry out performance monitoring and reviews during project implementation, to evaluate the scope, implementation arrangements, benefit monitoring, progress and achievement of the objectives of their respective Components of the Project, with due participation of nongovernmental and community based organizations, all in accordance with Project Management Systems Handbook. These reviews shall include verification of (i) the numbers of additional connections provided; (ii) the consumer categories of the new connections; (iii) the improvements in service for existing consumers in the Project area; and (iv) institutional parameters such as accounts receivables, accounts payable and system losses.

LA, para. 10, schedule 6

Complied with.

Land

1. The Borrower shall ensure that all land, rights in land or rights of way obtained for the Project is either (a) government-owned land that is free of liens or any other encumbrances, or (b) private land that is purchased through arm’s-length negotiations, and in no event shall such land be acquired through any compulsory land acquisition procedures

LA, para. 11, schedule 6

Complied with.

Resettlement

1. The Borrower shall ensure that the Project Executing Agencies execute their respective Components of the Project, including all land acquisition and land clearing activities, if any, in full compliance with ADB’s Involuntary Resettlement Policy. Although no land acquisition or land clearing activity is currently anticipated for the execution of the Project, in the event such activity becomes necessary, Borrower will prepare a resettlement plan and submit it to ADB for approval prior to any action on such matters.

LA, para. 12, schedule 6

Complied with.

Social Protection

1. The Borrower shall cause the Project Executing Agencies to require contractors for all civil works contracts to provide information at worksites on the risks of sexually transmitted diseases and HIV/AIDS as part of health and safety measures of those employed during construction.

LA, para. 13, schedule 6

Complied with.

34 Appendix 6

SN. Covenant

Reference in Loan and Project Agreement Status

2. The Borrower shall cause each of the Project Executing Agencies to ensure that all Project related activities are carried out in compliance with all applicable labor laws and regulations, including equal pay for equal work and no child labor as such term is defined under the relevant provisions of the International Labor Organization Convention shall be employed in any Project activities.

LA, para. 14, schedule 6

Complied with. Provisions were incorporated in the bidding documents

Environment

1. The Borrower shall cause Project Executing Agencies to ensure, with respect to their respective Components, that the environmental mitigation measures identified in the initial environmental examination are incorporated and followed during construction, operation and maintenance of Project facilities.

LA, para. 15, schedule 6

Complied with.

2. The Borrower shall ensure that Project Executing Agencies implement their respective Components in accordance with ADB’s Environment Guidelines 2003, and ADB’s Environment Guidelines for Selected Infrastructure Projects 1993, as amended.

LA, para. 16, schedule 6

Complied with.

3. The Borrower shall cause BPDB to establish in its reorganized corporate structure a special unit dedicated to handling environment and safety issues.

LA, para. 17, schedule 6

Not complied with. BPDB is yet to be reorganized as a corporate entity.

4. The Borrower shall cause the Project Executing Agencies to adopt provisions in relevant contract documents requiring contractors implementing any aspect of the Project to adopt mitigation measures to minimize adverse environmental impact during dismantling and removal of plant and equipment as well during construction of facilities.

LA, para. 18, schedule 6

Complied with.

5. Borrower shall ensure that Project Executing Agencies routinely monitor and at least once a year assess and document the Project’s compliance with the Bangladesh Environmental Conservation Act 1995 and Bangladesh Environmental Conservation Rules 1997.

LA, para. 19, schedule 6

Complied with.

6. Borrower shall ensure that BPDB (or its successor entity, Siddhirganj Power Station Company) shall not commence any construction related to Siddhirganj Power Plant as contemplated under the Loan Agreement until after obtaining all due clearances and approvals from Borrower’s Department of Environment (DOE). Borrower shall further ensure that DOE holds all required public consultations prior to granting such clearances or approvals.

LA, para. 20, schedule 6

Complied with. EGCB submitted its environmental impact assessment report to DOE on 29 Nov 2004 and it was approved by DOE on 16 Jul 2005.

Particular Covenants in Project Agreements

1. BPDB and PGCB shall carry out the Project with due diligence and efficiency, and in conformity with sound administrative, financial, engineering, environmental and power sector development practices.

PAs, section 2.01(a)

Complied with.

Appendix 6 35

SN. Covenant

Reference in Loan and

Project Agreement Status

2. In carrying out the Project and operation of the Project facilities, BPDB and PGCB shall perform all obligations set forth in the Loan Agreement to the extent that they are applicable to BPDB and PGCB, respectively.

PAs, section 2.01(b)

Complied with.

3. BPDB and PGCB shall make available, promptly as needed, the funds, facilities, services, equipment, land, and other resources which are required, in addition to the proceeds of the Loan, for carrying out the Project.

PAs, section 2.02

Complied with.

4. In carrying out the Project, BPDB shall employ competent and qualified consultants and contractors, acceptable to ADB, to the extent and upon terms and conditions satisfactory to ADB.

PAs, section 2.03(a)

Complied with.

5. Except as ADB may otherwise agree, all goods and services to be financed out of the proceeds of the Loan shall be procured in accordance with the provisions of Schedule 4 and Schedule 5 of the Loan Agreement. ADB may refuse to finance a contract where goods or services have not been procured under procedures substantially in accordance with those agreed between the Borrower and ADB or where the terms and conditions of the contract are not satisfactory to ADB.

PAs, section 2.03(b)

Complied with.

6. BPDB and PGCB shall carry out the Project in accordance with plans, design standards, specifications, work schedules and construction methods acceptable to ADB. BPDB and PGCB shall furnish, or cause to be furnished, to ADB, promptly after their preparation, such plans, design standards, specifications and work schedules, and any material modifications subsequently made therein, in such detail as ADB shall reasonably request.

PAs, section 2.04

Complied with.

7. BPDB and PGCB shall take out and maintain with responsible insurers, or make other arrangements satisfactory to ADB for insurance of their Project facilities to such extent and against such risks and in such amounts as shall be consistent with sound practice.

PAs, section 2.05(a)

Not complied with. The practice of taking out and maintaining insurance for project facilities does not exist among public sector power entities in Bangladesh.

8. Without limiting the generality of the foregoing, BPDB and PGCB undertake to insure, or cause to be insured, the goods to be imported for the Project, and to be financed out of the proceeds of the Loan against hazards incident to the acquisition, transportation and delivery thereof to the place of use or installation, and for such insurance any indemnity shall be payable in a currency freely usable to replace or repair such goods.

PAs, section 2.05(b)

Complied with.

36 Appendix 6

SN. Covenant

Reference in Loan and

Project Agreement Status

9. BPDB and PGCB shall maintain, or cause to be maintained, records and accounts adequate to identify the goods and services and other items of expenditure financed out of the proceeds of the Loan, to disclose the use thereof in the Project, to record the progress of the Project (including the cost thereof) and to reflect, in accordance with consistently maintained sound accounting principles, its operations and financial condition.

PAs, section 2.06

Complied with.

10. ADB and BPDB and PGCB shall cooperate fully to ensure that the purposes of the Loan will be accomplished.

PAs, section 2.07(a)

Complied with.

11. BPDB and PGCB shall promptly inform ADB of any condition which interferes with, or threatens to interfere with, the progress of the Project, the performance of its obligations under this Project Agreement or the BPDB/Siddhirganj Power Station Company Subsidiary Loan Agreement and PGCB/NLDC Subsidiary Loan Agreement, or the accomplishment of the purposes of the Loan.

PAs, section 2.07(b)

Complied with.

12. ADB and BPDB and PGCB shall from time to time, at the request of either party, exchange views through their representatives with regard to any matters relating to the Project, BPDB and PGCB and the Loan.

PAs, section 2.07(c)

Complied with.

13. BPDB and PGCB shall furnish to ADB all such reports and information as ADB shall reasonably request concerning (i) the Loan and expenditure of the proceeds thereof; (ii) the goods and services and other items of expenditure financed out of such proceeds; (iii) the Project; (iv) the administration, operations and financial condition of BPDB and PGCB; and (v) any other matters relating to the purposes of the Loan.

PAs, section 2.08(a)

Complied with.

14. Without limiting the generality of the foregoing, BPDB and PGCB shall furnish to ADB quarterly reports on the execution of the Project and on the operation and management of the Project facilities. Such reports shall be submitted in such form and in such detail and things, progress made and problems encountered during the quarter under review, steps taken or proposed to be taken to remedy these problems, and proposed program of activities and expected progress during the following quarter.

PAs, section 2.08(b)

Complied with.

15. Promptly after physical completion of the Project, but in any event not later than three (3) months thereafter or such later date as ADB may agree for this purpose. BPDB and PGCB shall prepare and furnish to ADB a report, in such form and in such detail as ADB shall reasonably request, on the execution purpose. BPDB and PGCB shall prepare and furnish to ADB a report, in such form and in such detail as ADB shall reasonably request, on the execution and the accomplishment of the purposes of the Loan.

PAs, section 2.08(c)

Delayed compliance.

Appendix 6 37

SN. Covenant

Reference in Loan and Project Agreement Status

16. BPDB and PGCB shall (i) maintain separate accounts for the Project and for its overall operations; (ii) have such accounts and related financial statements (balance sheet, statement of income and expenses, and related statements) audited annually, in accordance with appropriate standards consistently applied, by independent auditors whose qualifications, experience and terms of reference are acceptable to ADB; and (iii) furnish to ADB, promptly after their preparation but not later than nine months after the close of the fiscal year to which they relate, certified copies of such audited accounts and financial statements and the report of the auditors relating thereto (including auditors’ opinion on the use of Loan proceeds and compliance with the covenants of the Loan Agreement) all in English language. BPDB shall furnish to ADB such further information concerning such accounts and financial statements and the audit thereof as ADB shall from time to time reasonably request.

PAs, section 2.09(a)

Complied with.

17. In addition to annual audited financial statements referred to in paragraph (a) of this Section, BPDB and PGCB shall furnish to ADB, within six months following the end of each year, its unaudited annual statements on its operations for such fiscal year.

PAs, section 2.09(b)

Complied with.

18. BPDB and PGCB shall enable ADB, upon ADB’s request, to discuss their financial statements and their financial affairs from time to time with their auditors, and shall authorize and require any representative of such auditors to participate in any such discussions requested by ADB, provided that any such discussion shall be conducted only in the presence of an authorized officer of BPDB and PGCB unless BPDB and PGCB otherwise agree.

PAs, section 2.09(c)

Complied with.

19. BPDB and PGCB shall enable ADB’s representatives to inspect the Project, the goods financed out of the proceeds of the Loan, all other plants, sites, works, properties and equipment of the BPDB and PGCB and any relevant records and documents.

PAs, section 2.10

Complied with.

20. BPDB and PGCB shall, promptly as required, take all action within its powers to maintain its corporate existence, to carry on its operations, and to acquire, maintain and renew all rights, properties, powers, privileges and franchises which are necessary in the carrying out of the Project or in the conduct of its business.

PAs, section 2.11(a)

Complied with.

21. BPDB and PGCB shall at all times conduct its business in accordance with sound administrative, financial, environmental and power sector development practices, and under the supervision of competent and experienced management and personnel.

PAs, section 2.11(b)

Complied with.

38 Appendix 6

SN. Covenant

Reference in Loan and

Project Agreement Status

22. BPDB and PGCB shall at all times operate and maintain their plants, equipment and other property and from time to time, promptly as needed, make all necessary repairs and renewals thereof, all in accordance with sound administrative, financial, engineering, environmental, power sector development, and maintenance and operational practices.

PAs, section 2.11(c)

Complied with.

23. Except as ADB may otherwise agree, BPDB and PGCB shall not sell lease or otherwise dispose of any of its assets which shall be required for the efficient carrying on of its operations or the disposal of which may prejudice its ability to perform satisfactorily any of its obligations under this Project Agreement.

PAs, section 2.12

Complied with.

24. Except as ADB may otherwise agree, BPDB and PGCB shall apply the proceeds of the Loan to the financing of expenditures on the Project in accordance with the provisions of the Loan Agreement and respective Project Agreement, and shall ensure that all goods and services financed out of such proceeds are used exclusively in the carrying out of the Project.

PAs, section 2.13

Complied with.

25. Except as ADB may otherwise agree, BPDB and PGCB shall duly perform all its obligations under the BPDB/Siddirganj Subsidiary Loan Agreement and PGCB/NLDC Subsidiary Loan Agreement, respectively, and shall not take or concur in, any action which would have the effect of assigning, amending, abrogating or waiving any rights or obligations of the parties under the BPDB/Siddirganj Subsidiary Loan Agreement and PGCB/NLDC Subsidiary Loan Agreement.

PAs, section 2.14

Complied with.

26. BPDB and PGCB shall promptly notify ADB of any proposal to amend, suspend or repeal any provision of Borrower’s President’s Order No. 59 of 1972 (The Bangladesh Water and Power Development Boards Order, 1972, establishing BPDB) and PGCB’s constitutional and other related organizational document and shall afford ADB an adequate opportunity to comment on such proposal prior to taking any action thereon.

PAs, section 2.15

Complied with.

BPDB = Bangladesh Power Development Board; CDVAT = customs duty and value-added tax; CIF = cost, insurance, and freight; kWh = kilowatt-hour; kV = kilovolt; LA = loan agreement; PA = project agreement; PGCB = Power Grid Company of Bangladesh; REB = Rural Electrification Board; VAT = value-added tax; WZPDCL = West-Zone Power Distribution Company.

Appendix 7 39

Table A7: Status of Compliance with Financial Covenants, 2011 and 2012

Power Sector Entity Year

Debt-Service Coverage

Ratio

Return on Equity

(%)

Return on Fixed

Assets

(%)

Debt–Equity Ratio

Accounts Receivable

(months)

1.20 10.00 5.00 70:30 2.00

PGCB 2011 1.48 12.21 6.85 70:30 2.01

2012 1.78 15.60 8.90 72:28 1.98

DESCO 2011 3.04 15.00 18.00 67:33 2.43

2012 2.00 8.00 9.00 66:34 2.05

DPDC 2011 2.31 - 8.72 103:-03 3.69

2012 1.27 - 2.89 108:-08 2.80

EGCB 2012 - 5.00 3.00 85.8:14.2 2.00

NWZPDCL Not applicable

DESCO = Dhaka Electric Supply Company, DPDC = Dhaka Power Distribution Company, EGCB = Electricity Generation Company of Bangladesh, NWZPDCL = North-West Zone Power Distribution Company, PGCB = Power Grid Company of Bangladesh. Source: PGCB, DESCO, DPDC, and EGCB.

40

App

end

ix 8

Year 2007

Effective Date

01

March,

2007

BERC Order No

and Date

Utility NameTariff

(TK/kWh)

Tariff

(TK/kWh)

%

Increase

Tariff

(TK/kWh)

%

Increase

Tariff

(TK/kWh)

%

Increase

Tariff

(TK/kWh)

%

Increase

Tariff

(TK/kWh)

%

Increase

Tariff

(TK/kWh)

%

Increase

Tariff

(TK/kWh)

%

Increase

Tariff

(TK/kWh)

%

Increase

BPDB-132 KV 2.1132 2.4150 14.28% 2.7575 14.18% 2.9410 6.65% 3.5650 21.22% 4.2050 17.95% 4.5300 7.73% 5.3250 17.55% 2.91 120%

BPDB-33 KV 2.1069 2.4452 16.06% 2.6710 9.23% 2.8490 6.66% 3.4250 20.22% 3.9850 16.35% 4.2550 6.78% 4.9775 16.98% 2.53 104%

DPDC-132 KV 2.1132 2.4150 14.28% 2.7575 14.18% 2.9410 6.65% 3.5650 21.22% 4.2050 17.95% 4.5300 7.73% 5.3250 17.55% 2.91 120%

DESCO-33 KV 2.1069 2.4452 16.06% 2.7825 13.79% 2.9680 6.67% 3.6050 21.46% 4.2450 17.75% 4.5700 7.66% 5.4050 18.27% 2.96 121%

WZPDCL-33 KV 2.1069 2.4452 16.06% 2.6415 8.03% 2.8175 6.66% 3.1550 11.98% 3.4750 10.14% 3.7400 7.63% 4.4300 18.45% 1.98 81%

REB-33 KV

(Solvent)2.1069

REB-33 KV

(Marginal/Non-

Solvent)1.8209

Average

BST/Increase2.04 2.37 16% 2.63 11% 2.80 6.66% 3.27 16.79% 3.740 14.39% 4.02 7.49% 4.70 16.92% 2.33 98%

Average Bulk Supply Tariff (Without Wheeling Charge) (TK/KWh) 4.7000

Average Bulk Supply Tariff (With Wheeling Charge-33 KV Level) (TK/KWh)4.9291 (Wheeling Charge-33 KV Level: 0.2291 Tk/kWh)

Average Bulk Supply Tariff (With Wheeling Charge-132 KV Level) (TK/KWh)4.9268 (Wheeling Charge-132 KV Level: 0.2268 Tk/kWh)

Source = Bangladesh Energy Regulatory Commission

2.6395 6.67% 2.9150

BERC Order No:

2008/01,

Dated:

29 September,

2008

BERC Order No:

2011/02,

Dated:

08 February, 2011

(BST Effective for

Stage-2)

BERC Order No:

2011/07,

Dated:

24 November, 2011

(BST Effective for

Stage-1)

BERC Order No:

2011/07,

Dated:

24 November, 2011

(BST Effective for

Stage-2)

Table A8.1: Bulk Tariff Increase Since 2008

BERC = Bangladesh Energy Regulatory Commission, BPDB = Bangladesh Power Development Board, BST = Bulk Sale Tariff, DESCO = Dhaka Electric Supply Company Limited, DPDC = Dhaka

Power Distribution Company Limited, KV = kilovolt, KWh = kilowatt-hour, REB = Rural Electrification Board, WZPDCL = West Zone Power Distribution Company Limited

01 Oct 2008

2012

01 September

2012

2.3089 - 4.0325 18.45%

BERC Order No:

2012/10,

Dated:

22 September,

2012

7.80%2.4745 7.17% 1.72 75%

2011

01 Feb 2012

2008

01 Feb 2011 01 Aug 2011 01 Dec 2011

10.44% 3.1750 8.92%

01 March 2012

(Fuel Cost Pass

Through)

BERC Order No:

2012/08,

Dated:

29 March, 2012

3.4225

Bulk Tariff

Increase

(2008-2012)

BERC Order No:

2011/02,

Dated:

08 February, 2011

(BST Effective for

Stage-1)

App

end

ix 8

41

Year

Effective

Date

01

March,

2007

Utility Name

Average

Tariff

(TK/kWh)

% Increase%

Increase

Average

Tariff

(TK/kWh)

%

Increase

Average

Tariff

(TK/kWh)

% Increase

Average

Tariff

(TK/kWh)

%

Increase

Average

Tariff

(TK/kWh)

%

Increase

Average

Tariff

(TK/kWh)

%

Increase

Average

Tariff

(TK/kWh)

%

Increase

Average

Tariff

(TK/kWh)

PDB 3.54 No Increase 3.54 6.03% 3.75 5.00% 3.94 13.62% 4.48 6.74% 4.78 6.25% 5.08 15.35% 5.86 65.69% 2.32

DPDC 3.74 No Increase 3.74 6.99% 4.00 5.00% 4.20 15.02% 4.83 7.76% 5.20 6.25% 5.53 14.83% 6.35 69.85% 2.61

DESCO 3.88 No Increase 3.88 6.29% 4.12 5.00% 4.33 14.16% 4.94 7.44% 5.31 6.25% 5.64 14.36% 6.45 66.40% 2.57

WZPDCL 3.54 No Increase 3.55 5.98% 3.76 5.00% 3.94 12.69% 4.44 6.94% 4.75 6.25% 5.05 15.25% 5.82 64.04% 2.27

REB 3.40 6.57% 3.19 6.57% 3.40 5.00% 3.58 10.74% 3.96 6.58% 4.23 6.25% 4.49 15.14% 5.17 62.05% 1.98

Average - - 3.45 6.32% 3.67 5.24% 3.86 13.79% 4.39 7.15% 4.70 6.25% 5.00 15.00% 5.75 66.77% 2.30

Source = Bangladesh Energy Regulatory Commission

BERC = Bangladesh Energy Regulatory Commission, BPDB = Bangladesh Power Development Board, BST = Bulk Sale Tariff, DESCO = Dhaka Electric Supply Company Limited, DPDC = Dhaka Power

Distribution Company Limited, KV = kilovolt, KWh = kilowatt-hour, REB = Rural Electrification Board, WZPDCL = West Zone Power Distribution Company Limited

Table A8.2: Retail Sales Tariff Increase Since 2009

Tariff Increase

(2009-2012)01 March 2012 (Interim-Fuel Cost Pass

Through)

01 September 2012

(Interim-BST Pass

Through)

01 Dec 2009

01 Dec 2009 (REB)

01 March 2010

(PDB,DPDC,DESCO

,WZPDCL)

01 Feb 2011 (Adhoc-

BST Pass Through)

01 Dec 2011

(Stage-1)01 Feb 2012 (Stage-2)

21.28% 21.28%

23.94% 23.94%

20.90%

22.65%

20.51%

2009 2009/2010 2011 2012

Total % Increase

According to BERC

Order, Date:22 Dec

2011

Total % Increase

According to BERC

Order, Date:22 Dec

2011

22.65%

20.51%

18.03%18.03%

42 Appendix 9

FY2003 FY2004 FY2005 FY2006 FY2007 FY2008 FY2009 FY2010 FY2011 FY2012

Generation, GWh

BPDB +non-grid RPPs (Gross) 12,881 13,342 14,067 15,417 15,495 16,155 16,431 17,064 15,525 16,073

BPDB + non-grid RPPs (Net) 12,159 12,584 13,223 14,456 14,539 15,167 15,449 16,072 14,673 15,200

IPP (BPDB) 6,531 7,718 7,939 8,286 8,245 9,094 8,832 8,369 8,564 8,707

RPP (BPDB) 44 1,342 3,029 6,248 9,495

REB SIPP & Captive (Non-grid) a/ 446 207 252 546 776 1,777 1,838 1,722

Gross Total 19,412 21,060 22,452 23,910 23,991 25,839 27,380 30,240 32,175 35,997

Net Total 18,691 20,316 21,609 22,949 23,035 24,851 26,398 29,247 31,323 35,124

Energy Import and Sales, GWh

PGCB Import 18,458 20,075 21,166 22,742 22,783 24,733 25,797 27,032 29,699 32,909

PGCB Transfer to Distribution Entities 17,710 19,363 20,385 21,677 22,323 23,919 24,972 26,274 28,949 31,965

Gross BPDB Sales 16,317 18,023 19,196 20,962 21,181 22,622 23,937 25,744 27,668 31,445

Import by BPDB Zones 6,230 6,281 5,989 5,180 5,305 5,639 6,042 6,747 7,338 8,136

Sales by BPDB Zones 4,838 4,941 4,791 4,193 4,426 4,827 5,222 5,862 6,380 7,148

Import by DESA/ DPDC 5,171 4,860 5,126 4,836 5,243 5,214 5,452 5,749 5,909 6,276

Sales by DESA/DPDC 3,471 3,185 3,590 3,862 3,915 4,107 4,457 4,980 5,251 5,656

Import by DESCO 856 1,740 1,843 2,023 2,191 2,574 2,743 2,934 3,123 3,402

Sales by DESCO 676 1,405 1,536 1,696 1,897 2,293 2,475 2,694 2,848 3,111

Import by REB 5,680 6,728 7,485 8,270 8,292 9,201 9,808 11,303 12,198 14,259

Sales by REB 4,888 5,805 6,457 7,197 7,001 7,845 8,438 9,629 10,475 12,264

Import by WZPDCL - - 389 1,368 1,283 1,377 1,492 1,674 1,843 2,030

Sales by WZPDCL - - 306 1,147 1,094 1,198 1,310 1,477 1,628 1,793

13,873 15,336 16,680 18,094 18,333 20,270 21,902 24,642 26,582 29,973

System Loss, Percent

BPDB b/ 15.94 14.42 12.77 11.56 10.78 10.56 10.03 9.55 8.80 8.26

PGCB Transmission Loss 4.06 3.55 3.69 4.68 2.02 3.29 3.20 2.81 2.52 2.87

BPDB Zones c/ 22.35 21.33 20.01 19.06 16.58 14.40 13.58 13.11 13.06 12.15

DESA/DPDC c/ 32.87 34.46 29.97 20.13 25.33 21.24 18.24 13.38 11.14 9.87

DESCO c/ 21.06 19.24 16.64 16.20 13.44 10.91 9.79 8.18 8.79 8.54

REB c/ 13.94 13.72 13.73 12.98 15.57 14.73 13.97 14.81 14.13 13.99

WZPDCL c/ - - 21.30 16.21 14.72 12.99 12.22 11.74 11.66 11.66

Overall Distribution Loss 22.66 21.79 19.93 16.53 17.84 15.56 14.24 13.25 12.59 12.11

25.78 24.51 22.81 21.16 20.41 18.43 17.03 15.75 15.14 14.67

Billing and Collection, Million Taka

BPDB Bills 40,541 43,998 43,524 45,855 47,811 53,485 61,331 68,533 77,348 112,143

BPDB Collection 36,568 39,887 40,379 44,484 52,799 54,060 58,911 66,776 74,303 102,236

BPDB Zones Bills 16,530 14,199 15,265 17,199 18,568 21,224 24,283 31,411

BPDB Zones Collection 16,049 14,180 17,168 17,171 18,078 20,344 23,493 29,852

DESA/DPDC Bills 17,389 13,647 12,543 12,747 13,298 14,997 17,061 19,634 22,191 28,702

DESA/DPDC Collection 15,919 14,458 12,530 13,149 14,950 15,592 17,011 19,391 22,008 27,752

DESCO Bills 2,217 4,902 5,466 6,424 7,381 9,094 9,888 10,911 12,400 16,095

DESCO Collection 1,643 4,306 5,306 6,207 7,706 9,095 9,709 10,775 12,271 15,860

REB Bills 16,781 20,139 22,404 25,736 26,132 29,283 31,625 37,460 42,474 55,993

REB Collection 16,807 19,918 21,820 24,598 26,320 29,359 31,252 36,692 41,812 53,764

WZPDCL Bills - - 1,098 4,105 3,971 4,445 4,816 5,556 6,524 8,359

WZPDCL Collection - - 1,227 4,735 4,965 4,366 4,680 5,432 6,377 7,961

Collection, as percent of Billing

BPDB 90.20 90.66 92.77 97.01 110.43 101.07 96.05 97.44 96.06 91.17

BPDB Zones 97.09 99.86 112.47 99.84 97.36 95.85 96.74 95.04

DESA /DPDC 91.55 105.95 99.90 103.15 112.42 103.97 99.71 98.76 99.18 96.69

DESCO 74.10 87.84 97.07 96.63 104.40 100.01 98.18 98.75 98.96 98.54

REB 100.16 98.91 97.39 95.58 100.72 100.26 98.82 97.95 98.44 96.02

WZPDCL - - 111.69 115.34 125.03 98.24 97.18 97.76 97.75 95.24

Collection-generation/

Collection-import ratio, Percent

BPDB Collection-generation 77.19 79.08 80.93 85.79 98.53 90.40 86.42 88.13 87.61 83.64

BPDB Zones Collection-Import 77.67 80.83 93.82 85.47 84.14 83.29 84.11 83.50

DESA/DPDC Collection- import 72.81 77.36 69.97 82.38 83.95 81.89 81.52 85.54 88.13 87.15

DESCO Collection- import 58.50 70.94 80.92 80.98 90.37 89.10 88.57 90.67 90.26 90.13

REB Collection- import 82.80 83.49 84.02 83.18 85.04 85.49 85.02 83.45 84.53 82.59

WZPDCL Collection-import - - 87.90 96.64 106.63 85.48 85.31 86.29 86.35 84.13

a/ - Data for the years 2003 and 2004 are merged in BPDB's gross b/ - As percent of gross generation, c/ - As percent of import, d/- As percent of net generation

Source = Monthly management reports from various sector entities

Table A9: Operational Performance of The Power Sector

Overall Power System (Transmission & Distribution

Loss) d/

Total sales by BPDB zones, REB, DESA/DPDC, DESCO &

WZPDCL

BPDB = Bangladesh Power Development Board, DESA = Dhaka Electric Supply Authority, DESCO = Dhaka Electric Supply Company Limited, DPDC = Dhaka Power Supply Company Limited,

GWh = Gigawatt-hour, IPP = Independent Power Project, REB = Rural Electrification Board, RPP = Rental Power Project, SIPP = Small Independent Power Project, WZPDCL = West Zone Power

Distribution Company Limited,

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43

Financial Year

Agency

Accounts

receivable,

Tk. million

Months

eqv.

Accounts

receivable,

Tk. million

Months

eqv.

Accounts

receivable,

Tk. million

Months

eqv.

Accounts

receivable,

Tk. million

Months

eqv.

Accounts

receivable,

Tk. million

Months

eqv.

Accounts

receivable,

Tk. million

Months

eqv.

Accounts

receivable,

Tk. million

Months

eqv.

Accounts

receivable,

Tk. million

Months

eqv.

BPDB

Govt. 360 2.84 434 4.55 214 2.81 299 2.94 349 3.53 424 4.32 486 3.99 494 3.54

Semi-gov/ Autonomous Bodies 3,186 14.56 1,601 17.70 313 4.82 474 4.21 494 4.75 696 5.15 788 5.86 869 5.80

Private 3,479 3.46 3,245 3.06 2,988 2.96 2,917 2.37 3,310 2.45 3,923 2.64 4,474 2.14 5,929 2.58

Total 7,025 5.20 5,280 4.24 3,515 3.05 3,690 2.55 4,153 2.67 5,043 2.93 5,748 2.45 7,292 2.82

DESA/DPDC

Govt. 184 3.70 334 6.75 149 2.93 195 3.84 271 3.81 360 6.20 518 8.33 733 9.61

Semi-gov/ Autonomous Bodies 1,103 11.16 1,132 12.17 281 3.00 409 4.50 813 6.45 695 7.09 826 6.88 734 5.51

Private 4,454 5.43 5,453 6.03 4,592 4.02 4,206 3.53 3,849 3.00 4,205 2.74 4,191 2.49 5,088 2.34

Total 5,741 4.83 6,919 6.61 5,022 3.91 4,810 3.61 4,933 3.33 5,260 3.11 5,536 2.97 6,555 2.75

DESCO

Govt. 360 7.33 360 6.56 119 2.56 63 1.31 101 2.14 181 3.77 284 5.36 450 6.42

Semi-gov/ Autonomous Bodies 377 12.42 339 11.11 124 2.74 138 2.68 180 3.39 190 3.33 183 2.68 143 1.69

Private 1,441 3.83 1,695 3.77 1,826 3.49 1,874 2.85 1,968 2.72 2,013 2.50 2,046 2.24 2,155 1.78

Total 2,177 4.78 2,394 4.48 2,069 3.36 2,075 2.74 2,248 2.73 2,384 2.62 2,513 2.43 2,748 2.01

WZPDCL

Govt. 144 4.84 181 5.54 62 2.53 83 2.85 102 3.63 108 3.62 119 3.00 157 4.04

Semi-gov/ Autonomous Bodies 1,482 37.47 804 25.62 96 6.02 164 6.39 211 8.81 260 9.30 311 8.00 346 8.31

Private 1,199 3.71 1,105 3.65 932 3.29 992 3.19 1,061 3.09 1,130 2.84 1,216 2.20 1,462 2.45

Total 2,825 7.31 2,090 5.70 1,090 3.36 1,238 3.39 1,374 3.84 1,498 3.29 1,645 2.61 1,966 2.91

REB

Govt. 76 2.20 162 4.76 42 1.37 57 1.82 95 2.87 128 4.13 166 3.58 205 4.23

Semi-gov/ Autonomous Bodies 69 3.97 120 4.03 61 2.07 67 2.51 80 2.75 80 2.86 90 2.98 102 2.90

Private 3,210 1.77 3,473 1.67 3,640 1.69 3,642 1.53 3,907 1.52 4,562 1.49 4,977 1.68 6,927 1.51

Total 3,355 1.80 3,756 1.75 3,743 1.69 3,766 1.54 4,082 1.55 4,770 1.53 5,233 1.72 7,234 1.55

All Utilities

Govt. 1,124 3.88 1,472 5.52 586 2.56 697 2.67 917 3.31 1,201 4.53 1,573 5.68 2,039 5.56

Semi-gov/ Autonomous Bodies 6,216 15.35 3,997 14.52 874 3.54 1,252 4.07 1,778 5.29 1,921 5.55 2,198 6.09 2,194 4.93

Private 13,783 3.18 14,971 3.12 13,979 2.73 13,631 2.36 14,095 2.25 15,834 2.17 16,904 2.09 21,561 1.99

Total 21,123 4.03 20,439 3.83 15,439 2.76 15,580 2.46 16,790 2.44 18,956 2.40 20,674 2.22 25,795 2.21

Source: Power Cell

2008 2009

Table A10: Status of Accounts Receivable of Power Sector Entities

BPDB = Bangladesh Power Development Board, DESA = Dhaka Electric Supply Authority, DESCO = Dhaka Electric Supply Company Limited, DPDC = Dhaka Power Distribution Company Limited, REB = Rural Electrification

Board, WZPDCL = West Zone Power Distribution Company Limited

2010 2011 20122005 2006 2007

44 Appendix 11

PROJECT FINANCIAL AND ECONOMIC ANALYSES

A. Assumptions

1. The economic analysis requires that all incremental input and output be expressed in terms of opportunity cost. That could be expressed either in domestic prices or in border prices. As the output of this project is a non-tradable product, all input and output is expressed in domestic prices, i.e., in 2007 domestic taka prices. 2. The economic analysis considered 20 years of benefit stream after the construction of the facilities. No salvage value at the end of the period was considered. 3. Economic costs are based on financial prices, excluding taxes and duties and interest during construction. The economic cost of power is the long-run marginal cost of generation (Tk3.01/kWh). A wheeling charge of Tk0.23 per kilowatt-hour (kWh) was subtracted from the distribution agencies’ purchase price of power, as the wheeling charge is part of the benefits in this case where the transmission and distribution parts of the project are lumped together. 4. The economic benefit of electricity consumption consists of non-incremental and incremental benefits. As severe load shedding is the norm in the country, it was assumed that savings from the displacement of alternative sources of energy by electricity would be the only sources of benefit. Although incremental benefit could be a factor, it was assumed to be too small for consideration. 5. Alternative sources of energy to be displaced by electricity would be kerosene for lighting in the case of domestic consumers, and diesel generator sets for industrial and commercial consumers. The actual savings would depend on the relative consumption levels of various sectors. Weighted average economic resource cost savings were assumed to be Tk22.46/kWh for domestic, irrigation, commercial, and industrial consumers. 6. Operation and maintenance (O&M) costs were assumed to be 5% of the capital costs for the Electricity Generation Company of Bangladesh (EGCB) power plant (increased to 10% every sixth year for major overhauling), and for PGCB, NLDC, and BPDB distribution. As in appraisal, the economic and financial benefits of the project were calculated after generation, transmission, and distribution losses of the system were taken into account. System losses markedly improved during project implementation and were assumed to decrease only marginally during the remaining years under consideration. 7. The capital cost of BPDB distribution includes the cost of the ongoing substation contract under the Nordic Development Fund (NDF) loan, and the cost of remaining substations to be incurred in 2015–2016. For the financial analysis, the capital cost excludes interest during construction but includes taxes and duties. No adjustment using a shadow exchange rate was used. The cost of purchase of power is the price paid by the distribution entities to the generator minus transmission cost. 8. Revenue was calculated on the basis of the sale price of Bangladesh Power Development Board (BPDB) distribution. The price varies for customer categories. The weighted average price was calculated separately for each agency. Corporate income tax was assumed to be 35% for EGCB, PGCB and BPDB.

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B. Tables 9. Details of the financial internal rate of return (FIRR) for all the executing agencies are given in Tables A10.1, A10.2, and A10.3 and those of the economic internal rate of return (EIRR) in A10.4, A10.5, and A10.6.

Year O&M Cost Total Cost Benefits Net Cash Flow

2005 0.0 0 0.0 0 0.0

2006 8.4 0 8.4 0 -8.4

2007 806.4 0 806.4 0 -806.4

2008 2382.4 0 2382.4 0 -2382.4

2009 4357.8 0 4357.8 0 -4357.8

2010 451.0 0 451.0 0 -451.0

2011 82.2 0 82.2 0 -82.2

2012 1529.2 404.4 1933.6 1419.0 -514.6

2013 404.4 404.4 1564.6 1160.2

2014 404.4 404.4 1564.6 1160.2

2015 404.4 404.4 1872.2 1467.8

2016 404.4 404.4 1500.4 1096.0

2017 404.4 404.4 1500.4 1096.0

2018 808.8 808.8 1500.4 691.6

2019 404.4 404.4 1500.4 1096.0

2020 404.4 404.4 1500.4 1096.0

2021 404.4 404.4 1500.4 1096.0

2022 404.4 404.4 1500.4 1096.0

2023 404.4 404.4 1500.4 1096.0

2024 404.4 404.4 1500.4 1096.0

2025 808.8 808.8 1500.4 691.6

2026 404.4 404.4 1500.4 1096.0

2027 404.4 404.4 1500.4 1096.0

2028 405.4 405.4 1500.4 1095.0

2029 406.4 406.4 1500.4 1094.0

2030 407.4 407.4 1500.4 1093.0

2031 408.4 408.4 1500.4 1092.0

2032 409.4 409.4 1500.4 1091.0

FIRR= 7.7%

FIRR = financial internal rate of return

Source : Staff Estimates

(Tk million)

Table A11.1: Financial Internal Rate of Return for the Electricity Generation

Company of Bangladesh Limited

Capital

Investment

46 Appendix 11

Year Cost O&M Total Cost Benefits Net Cash Flow

2005 26.8 0 26.8 0 -26.8

2006 242.9 0 242.9 0 -242.9

2007 407.1 0 407.1 0 -407.1

2008 1010.3 0 1010.3 0 -1010.3

2009 600.4 0 600.4 198.4 -402.0

2010 363.7 0 363.7 213.1 -150.6

2011 906.7 0 906.7 233.3 -673.4

2012 0.0 35.6 35.6 238.5 202.9

2013 35.6 35.6 250.4 214.8

2014 35.6 35.6 262.9 227.3

2015 35.6 35.6 276.0 240.5

2016 35.6 35.6 289.8 254.3

2017 35.6 35.6 304.3 268.8

2018 35.6 35.6 319.5 284.0

2019 35.6 35.6 335.5 299.9

2020 35.6 35.6 352.3 316.7

2021 35.6 35.6 369.9 334.3

2022 35.6 35.6 388.4 352.8

2023 35.6 35.6 407.8 372.3

2024 35.6 35.6 428.2 392.6

2025 35.6 35.6 449.6 414.1

2026 35.6 35.6 472.1 436.5

2027 35.6 35.6 495.7 460.1

2028 36.6 36.6 520.5 483.9

2029 37.6 37.6 546.5 509.0

2030 38.6 38.6 573.9 535.3

2031 39.6 39.6 602.6 563.0

2032 40.6 40.6 632.7 592.1

FIRR= 7.2%

FIRR = financial internal rate of return

Source : Staff Estimates

(Tk million)

Table A 11.2: Financial Internal Rate of Return for the Power Grid Company of

Bangladesh Limited

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Year O&M Cost Total Cost Benefits Net Cash Flow

2005 0.0 0.0 0.0 0.0 0.0

2006 242.6 0.0 242.6 0.0 -242.6

2007 1085.9 0.0 1085.9 30.7 -1055.2

2008 357.8 0.0 357.8 70.7 -287.2

2009 487.8 0.0 487.8 91.7 -396.0

2010 80.0 108.7 188.7 338.6 150.0

2011 61.9 112.7 174.7 347.1 172.4

2012 41.1 115.8 156.9 143.4 -13.5

2013 104.13 117.9 222.0 211.9 -10.0

2014 937.09 123.1 1060.1 331.6 -728.5

2015 100.00 169.9 269.9 586.9 316.9

2016 1020.00 174.9 1194.9 640.2 -554.7

2017 174.9 174.9 721.7 546.8

2018 174.9 174.9 1106.7 931.8

2019 174.9 174.9 1223.1 1048.2

2020 174.9 174.9 1355.6 1180.7

2021 174.9 174.9 1463.5 1288.6

2022 174.9 174.9 2079.0 1904.1

2023 174.9 174.9 2849.4 2674.5

2024 174.9 174.9 3573.2 3398.3

2025 174.9 174.9 3790.0 3615.1

2026 174.9 174.9 3996.2 3821.3

2027 174.9 174.9 4240.2 4065.3

FIRR= 16.9%

FIRR = financial internal rate of return

Source : Staff Estimates

Capital

Investment

Table A11.3: Financial Internal Rate of Return for 10 -Town of the Bangladesh

Power Development Board

(Tk million)

48 Appendix 11

Year

Capital

Investment

O&M Cost Total Cost Net Benefits Net Cash Flow

2005 1.7 - 1.7 - (1.7)

2006 8.5 - 8.5 - (8.5)

2007 845.0 - 845.0 - (845.0)

2008 1,573.1 - 1,573.1 - (1,573.1)

2009 4,083.0 - 4,083.0 - (4,083.0)

2010 411.8 - 411.8 - (411.8)

2011 75.9 - 75.9 - (75.9)

2012 1,415.8 350.0 1,765.8 4,909.3 3,143.5

2013 420.7 420.7 6,965.6 6,544.8

2014 420.7 420.7 6,965.6 6,544.8

2015 420.7 420.7 6,965.6 6,544.8

2016 420.7 420.7 9,513.3 9,092.6

2017 420.7 420.7 9,513.3 9,092.6

2018 841.5 841.5 9,513.3 8,671.8

2019 420.7 420.7 9,513.3 9,092.6

2020 420.7 420.7 9,513.3 9,092.6

2021 420.7 420.7 9,513.3 9,092.6

2022 420.7 420.7 9,513.3 9,092.6

2023 420.7 420.7 9,513.3 9,092.6

2024 420.7 420.7 9,513.3 9,092.6

2025 841.5 841.5 9,513.3 8,671.8

2026 420.7 420.7 9,513.3 9,092.6

2027 420.7 420.7 9,513.3 9,092.6

2028 420.7 420.7 9,513.3 9,092.6

2029 420.7 420.7 9,513.3 9,092.6

2030 420.7 420.7 9,513.3 9,092.6

2031 420.7 420.7 9,513.3 9,092.6

2032 420.7 420.7 9,513.3 9,092.6

EIRR= 39.1%

EIRR = economic internal rate of return

Source : Staff Estimates

Table A11.4: Economic Internal Rate of Return for the Electricity Generation Company of

Bangladesh Limited

(Tk million)

Appendix 11 49

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Year

Capital

Investment O&M Cost Total Cost Net Benefits Net Cash Flow

2005 28 0 28 0 (28)

2006 252 0 252 0 (252)

2007 268 0 268 0 (268)

2008 822 0 822 0 (822)

2009 516 0 516 0 (516)

2010 324 0 324 0 (324)

2011 934 0 934 0 (934)

2012 - 157 157 1,514 1,356

2013 157 157 1,626 1,469

2014 157 157 1,780 1,623

2015 157 157 1,819 1,662

2016 157 157 1,910 1,753

2017 157 157 2,005 1,848

2018 157 157 2,066 1,908

2019 157 157 2,127 1,970

2020 157 157 2,191 2,034

2021 157 157 2,257 2,100

2022 157 157 2,325 2,168

2023 157 157 2,394 2,237

2024 157 157 2,466 2,309

2025 157 157 2,540 2,383

2026 157 157 2,617 2,459

2027 157 157 2,695 2,538

2028 157 157 2,776 2,619

2029 157 157 2,859 2,702

2030 157 157 2,945 2,788

2031 157 157 3,033 2,876

2032 157 157 3,124 2,967

EIRR= 29.0%

EIRR = economic internal rate of return

Source : Staff Estimates

Table A 11.5: Economic Internal Rate of Return for the Power Grid

Company of Bangladesh Limited

(Tk million)

50 Appendix 11

Year Cost O&M Total Cost Net Benefits Net Cash Flow

2005 1 0 1 0 (1)

2006 241 0 241 0 (241)

2007 1,020 0 1,020 0 (1,020)

2008 316 0 316 106 (210)

2009 423 0 423 208 (216)

2010 56 0 56 320 264

2011 59 0 59 1,340 1,281

2012 39 106 144 1,360 1,215

2013 107 108 215 1,688 1,473

2014 841 113 954 1,853 899

2015 105 155 260 2,031 1,771

2016 924 160 1,084 2,218 1,133

2017 207 207 2,415 2,208

2018 190 190 2,623 2,433

2019 190 190 2,843 2,653

2020 190 190 3,086 2,896

2021 190 190 3,334 3,144

2022 190 190 3,598 3,407

2023 190 190 3,876 3,686

2024 190 190 4,172 3,981

2025 190 190 4,212 4,022

2026 190 190 4,252 4,062

2027 190 190 4,293 4,103

EIRR= 37.6%

EIRR = economic internal rate of return

Source : Staff Estimates

Table A11.6: Economic Internal Rate of Return for 10 -Town of the

Bangladesh Power Development Board(Tk million)

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