Document of the World Bank

Document of The World Bank

Public Disclosure Authorized Report No: ICR0000358

IMPLEMENTATION COMPLETION AND RESULTS REPORT (IDA-29950)

ON A

Public Disclosure Authorized CREDIT

IN THE AMOUNT OF US$ 235 MILLION

(SDR 168.6 MILLION CREDIT)

TO THE

PEOPLES REPUBLIC OF BANGLADESH

FOR A

Public Disclosure Authorized PRIVATE SECTOR INFRASTRUCTURE DEVELOPMENT PROJECT (PSIDP)

January 30, 2008

Sustainable Sector Development World Bank Office: Dhaka

South Asia Region Public Disclosure Authorized

CURRENCY EQUIVALENTS

(Exchange Rate Effective)

Currency Unit = Bangladesh Taka US$ 1.00 = Tk.68.82 Taka 1.0= US$ 0.0145306, at project closing (March 31, 2007)

FISCAL YEAR Jlu1 to June 30

ABBREVIATIONS AND ACRONYMS

GOB Government of Bangladesh IDCOL Infrastructure Development Company Limited IIFC Infrastructure Investment Facilitation Center IPP Independent Power Producer MPL Meghnaghat Project (MPL) PFRAP Post Flood Recovery Assistance Program PPP Public Private Partnership PSIDP Private Sector Infrastructure Development Project

Vice President: Praful C. Patel Country Director: Mohamed Alhousseyni Toure Sector Manager: Salman Zaheer Project Team Leader: Md. Iqbal ICR Team Leader: Md. Iqbal

Bangladesh Private Sector Infrastructure Development Project

CONTENTS

Data Sheet A. Basic Information B. Key Dates C. Ratings Summary D. Sector and Theme Codes E. Bank Staff F. Results Framework Analysis G. Ratings of Project Performance in ISRs H. Restructuring I. Disbursement Graph

B. Key Dates...... iv C. Ratings Summary...... iv D. Sector and Theme Codes ...... v E. Bank Staff...... v F. Results Framework Analysis...... vi G. Ratings of Project Performance in ISRs ...... x H. Restructuring (if any)...... x I. Disbursement Profile...... xi 1. Project Context, Development Objectives and Design...... 1 2. Key Factors Affecting Implementation and Outcomes ...... 8 3. Assessment of Outcomes...... 20 4. Assessment of Risk to Development Outcome...... 24 5. Assessment of Bank and Borrower Performance ...... 24 6. Lessons Learned ...... 27 7. Comments on Issues Raised by Borrower/Implementing Agencies/Partners ...... 28 Annex 1. Project Costs and Financing...... 30 Annex 2. Outputs by Component ...... 32 Annex 3. Economic and Financial Analysis...... 34 Annex 4. Bank Lending and Implementation Support/Supervision Processes ...... 37 Annex 5. Beneficiary Survey Results (if any) ...... 39 Annex 6. Stakeholder Workshop Report and Results (if any)...... 40 Annex 7. Summary of Borrower's ICR and/or Comments on ICR ...... 41 Annex 8. Comments of Cofinanciers and Other Partners/Stakeholders...... 55 Annex 9. List of Supporting Documents ...... 56 Additional Annex 10: Post Flood Recovery Assistance Program...... 58 Additional Annex 12. Summary of Borrower's ICR for Post Flood Recovery Assistance Program...... 71 MAP

A. Basic Information Private Sector Country: Bangladesh Project Name: Infrastructure Development Project ID: P044789 L/C/TF Number(s): IDA-29950 ICR Date: 06/27/2007 ICR Type: Core ICR Lending Instrument: SIL Borrower: GOB Original Total XDR 168.6M Disbursed Amount: XDR 134.36 M Commitment: Environmental Category: A Implementing Agencies: Bangladesh Bank Ministry of Communication/Roads Highway Department Directorate of Secondary and Higher Education (MOE) Local Government Engineering Department Infrastructure Development Company Limited (IDCOL) Infrastructure Investment Facilitation Center (IIFC) Palli Karmo Sahayak Foundation (PKSF ) Directorate of Non-Formal Education Co-financiers and Other External Partners: CIDA and DfID

B. Key Dates Revised / Actual Process Date Process Original Date Date(s) Concept Review: 07/17/1995 Effectiveness: 04/29/1998 04/29/1998 Credit Appraisal: 06/28/1997 03/15/2005 Amendment: An MTR was not Approval: 10/28/1997 Mid-term Review: carried out. Closing: 12/31/2002 03/31/2007

C. Ratings Summary C.1 Performance Rating by ICR Outcomes: Moderately Unsatisfactory Risk to Development Outcome: Significant Bank Performance: Moderately Unsatisfactory Borrower Performance: Moderately Unsatisfactory

C.2 Detailed Ratings of Bank and Borrower Performance (by ICR) Bank Ratings Borrower Ratings Quality at Entry: Satisfactory Government: Satisfactory Moderately Implementing Moderately Quality of Supervision: Unsatisfactory Agency/Agencies: Unsatisfactory Overall Bank Moderately Overall Borrower Moderately Performance: Unsatisfactory Performance: Unsatisfactory

C.3 Quality at Entry and Implementation Performance Indicators Implementation QAG Assessments Indicators Rating Performance (if any) Potential Problem Project Quality at Entry No Highly Satisfactory at any time (Yes/No): (QEA): Problem Project at any Quality of Yes None time (Yes/No): Supervision (QSA): DO rating before Moderately

Closing/Inactive status: Unsatisfactory

D. Sector and Theme Codes Original Actual Sector Code (as % of total Bank financing) Central government administration 9 50. 5 Oil and gas 30 Power 31 49.5 Telecommunications 30

Theme Code (Primary/Secondary) Infrastructure services for private sector development Primary Primary Other financial services and private sector development Primary Primary Other urban development Primary Secondary Regulation and competition policy Primary Primary

E. Bank Staff Positions At ICR At Approval Vice President: Praful C. Patel Meako Nishimizu Country Director: Mohamed Alhousseyni Toure Pierre Landell-Mills Sector Manager: Salman Zaheer Alastair McKechnie Project Team Leader: Md. Iqbal S.Vijay Iyer ICR Team Leader: Md. Iqbal ICR Primary Author: Kyran O'Sullivan and Reefat Sultana

F. Results Framework Analysis

Project Development Objectives (from Project Appraisal Document)

The PDO as contained in the DCA was to assist in the development of a modern and efficient infrastructure system in Bangladesh by promoting private sector participation, inter alia, in the investment, operation, ownership and maintenance of infrastructure facilities. This translated into the specific objectives: (i) enable flow of private investment in the form of commercial equity and debt financing for infrastructure project; and (ii) enhance GOB’s capacity to attract and realize private sector interest and investment in infrastructure projects

Project Development Indicators (Values at start and target values for mid-term and completion are from the PAD).

PSIDP Performance Monitoring Indicators At Actual on At Mid-Term At Completion Indicators Start completion (target) (target) (target) Energy 700-800 MW Generation capacity in 700 MW 450 MW 0 under private sector operating operating construction Gas pipelines in private 100 km under 100 km or more 0 0 sector construction operating Other Sectors Project identified and developed for private

sector participation: (i) identified and/or 2 5 10 0 feasibility stage; (ii) under procurement 10 0 2 3

15 (with 8 (iii) under implementation 0 0 2 in

operation) Other Outputs BOT/BOO framework General BOT/BOO 0 in place framework in place Completed Under operation

PSIDP Performance Monitoring Indicators

GOB approved standard security agreements for 0 Completed In use 3 projects in other sectors (non-energy)

Promotion/road shows by IIFC for attracting 0 At least 2 At least 5 8 infrastructure investment At least US$ 350 realized and Over US$ 1 Non-GOB guaranteed debt At least US$ a further billion in finance in infrastructure 0 350 committed US$250 million pipeline projects equivalent projects committed At least $200 US$225 US$80 IDCOL financing 0 million disbursed million committed

Revised Project Development Objectives (as approved by original approving authority)

The objectives of the Post Flood Recovery Program (for which $154 million from PSIDP was allocated in March 2005) were: (i) rehabilitation of physical and social infrastructure damaged by September 2004 flood for speedy recovery of affected areas and population particularly the poor and vulnerable, while emphasizing on reduction on vulnerability over long term; and (ii) promotion of infrastructure projects for private participation and creation of a framework for the sustained and efficient operation of infrastructure by private sector including making the Private Sector infrastructure Guidelines (PSIG) operational.

(a) PDO Indicator(s)

Original Target Formally Actual Value Values (from Revised Achieved at Indicator Baseline Value approval Target Completion or documents) Values Target Years Primary and Secondary Road Networks: 14 Contract awards by RHD in Primary Indicator 1 : Road Network and 77 by LGED in Secondary Road Network rehabilitation. Value LGED's 77 62 contracts quantitative or Zero contracts completed and 11 Qualitative) implemented. partially completed. Date achieved 03/15/2005 03/31/2007 03/31/2007 Comments (incl. % 94% implemented (secondary road network only). achievement)

Original Target Actual Value Formally Values (from Achieved at Indicator Baseline Value Revised approval Completion or Target Values documents) Target Years Livelihood Restoration: Number (at least 6) of POs offer loans to the poor for Indicator 2 : post-disaster rehabilitation in accordance with guidelines, terms and conditions. At least six POs disburse the fund 119 POs delivered Value allocated under the 50% of funds to the quantitative or Zero livelihood poor in disaster Qualitative) restoration affected areas. program. Date achieved 03/15/2005 03/31/2007 10/ 31/ 2007 Comments 50% delivered to targeted poor and rest planned by December 2007, including (incl. % the 2007-floods affected one. Achievement) Indicator 3 : Municipal Infrastructure: Number of contract awards in 52 Pousashavas. 174 contracts Value covering 52 176 contracts quantitative or Zero Pourashavas completed. Qualitative) implemented. Date achieved 03/15/2005 03/31/2007 03/31/2007 Comments (incl. % 100% completed. Achievement) Indicator 4 : Primary Schools: Number of damaged schools reconstructed (918 nos). Rreconstruction of Rreconstruction of Value 853 schools and 746 schools and quantitative or Zero provision of provision of Qualitative) furniture (part furniture. under project). Date achieved 03/15/2005 03/31/2007 03/31/2007 Comments (incl. % 87% implemented. Achievement) Secondary Schools: Number of two-storied schools/flood shelters reconstructed Indicator 5 : etc. (69 schools with furniture and tube wells) Value 69 schools with 69 schools with quantitative or Zero supply of furniture supply of furniture Qualitative) Date achieved 03/15/2005 03/31/2007 03/31/2007 Comments (incl. % 100% implemented. Achievement) Indicator 6 : Quick Disbursing Support : $ 45 million Value quantitative or Zero Fully disbursed. Fully disbursed. Qualitative)

Original Target Actual Value Formally Values (from Achieved at Indicator Baseline Value Revised approval Completion or Target Values documents) Target Years Date achieved 03/15/2005 03/15/2007 03/30/2005 Comments (incl. % 100% completed. Achievement) Number of projects identified and developed by IIFC/line ministries in non- Indicator 7 : energy sectors 10 None in feasibility, Two non-energy projects identified/feasibilit Value 10 in procurement, identified/ developed for y stage, 3 under quantitative or 15 in private participation by procurement 2 Qualitative) implementation and IIFC/line ministries under 8 in operation. implementation. Date achieved 10/31/1997 03/31/2007 03/31/2007 Comments (incl. % Actual value crossed the original target. Achievement)

(b) Intermediate Outcome Indicator(s)

Original Target Actual Value Formally Values (from Achieved at Indicator Baseline Value Revised approval Completion or Target Values documents) Target Years Indicator 1 : Length of Road Rehabilitated (RHD 575 Km and LGED 1700 km) Value 888 km roads, 7 LGED: 1100 Km (quantitative Zero growth centres and roads built. or Qualitative) 237 m bridge built. Date achieved 03/15/2005 03/31/2007 3/31/2007 Comments (incl. % 94% implemented. achievement) Number of loans (400,000) provided by POs to poor and vulnerable households Indicator 2 : over the next 24 months. Around forty 119 POs thousand loans Value distributed 50% made by POs to (quantitative Zero loans to the their poor or Qualitative) disaster affected borrowers affected poor. by disasters. Date achieved 03/15/2005 03/31/2007 10/31/2007 Comments (incl. % 50% completed, rest expected to be completed by targeted December 2007. achievement)

G. Ratings of Project Performance in ISRs

Actual Date ISR No. DO IP Disbursements Archived (USD millions) 1 07/06/1998 Satisfactory Satisfactory 0.00 2 06/08/1999 Satisfactory Satisfactory 0.80 3 11/19/1999 Satisfactory Satisfactory 1.01 4 05/25/2000 Satisfactory Satisfactory 1.93 5 12/06/2000 Satisfactory Satisfactory 3.74 6 02/17/2001 Satisfactory Satisfactory 3.78 7 08/28/2001 Satisfactory Satisfactory 4.27 8 05/13/2002 Satisfactory Satisfactory 54.70 9 12/02/2002 Satisfactory Satisfactory 60.87 10 06/11/2003 Unsatisfactory Satisfactory 85.31 11 06/12/2003 Unsatisfactory Satisfactory 85.31 12 12/16/2003 Unsatisfactory Satisfactory 85.37 13 06/28/2004 Unsatisfactory Unsatisfactory 85.44 14 12/22/2004 Unsatisfactory Unsatisfactory 85.54 Moderately 15 06/27/2005 Moderately Satisfactory 138.49 Unsatisfactory Moderately Moderately 16 12/22/2005 139.37 Unsatisfactory Unsatisfactory Moderately 17 06/29/2006 Moderately Satisfactory 146.07 Unsatisfactory Moderately 18 02/01/2007 Satisfactory 163.87 Unsatisfactory Moderately 19 08/27/2007 Satisfactory *188.20 Unsatisfactory *The final disbursement figure stands at XDR 134.36 million (79.7% of appraisal) upon processing of adjustment for Special Account--C on December 3, 2007. This includes cancellation of XDR 25.35 million in Category 97 on February 13, 2006 and cancellation of unutilized XDR 8.878 million on December 3, 2007.

H. Restructuring (if any)

ISR Ratings at Amount Board Restructuring Disbursed at Restructuring Reason for Restructuring & Approved Restructuring Date(s) Key Changes Made PDO Change DO IP in USD millions 03/15/2005 MU MS 85.59 Note: The project was not formally restructured. However, on March 15, 2007 the DCA was amended to divert US$ 154 million to the Post Flood Recovery Assistance program to help GOB recover from the impacts of the 2004-floods.

I. Disbursement Profile

1. Project Context, Development Objectives and Design

1.1 Context at Appraisal

Country and Sector Background

At the time the project was being designed in the mid ‘90s Bangladesh stock of physical infrastructure was dilapidated and inadequate and as such was a constraint on both its international competitiveness and the growth of agriculture and rural incomes. Despite many years of support from IDA and other donors, Bangladesh's physical infrastructure suffered from under-investment and severe operational problems. All the infrastructure sectors (power, gas supply, roads, ports, telecom, water, etc) were thus affected. For example the situation with respect to power supply in 1998 was described as follows …generating capacity needs to be increased by almost 1,200 MW (an increase of almost 50%) ….because of inadequate capacity load shedding is frequent…inadequate capacity is compounded by massive system loss of over 35% due mainly to illegal connections and corrupt billing practices… Congestion and mismanagement at the Chittagong port and the other main ports was a major obstacle to increased trade.

The government that took office in 1991 had adopted a comprehensive program of stabilization and structural adjustment that by the mid-90s had resulted in commendable macro-stability and internal and external balance. Across almost all macroeconomic indicators, Bangladesh's stabilization performance stood out among IDA countries as exemplary. However progress on structural reform remained disappointing.

In the case of the power sector an inter ministerial working group had prepared a report on power sector reforms that led in 1996 to publication of a policy document pertaining to private investment in generation of electricity. This provided for fiscal incentives and outlined the institutional support and project approval process that would enable private investment in generation projects. It also outlined the financing arrangements envisaged including a fund that would provide concessional finance to projects. PSIDP would operationalize this fund through the setting up of IDCOL which was intended to act as a conduit for IDA financing for infrastructure development. At the time the project was being designed this policy was already being implemented. A unit (Power Cell) to facilitate transactions had been set up in the Ministry of Energy and Mineral Resources (MEMR) and competitive bidding with the participation of reputable internal developers was advanced for several large generation projects including the sub-project that would be later financed by PSIDP (Meghnaghat). Although key pricing and regulatory policies were under discussion and draft legislation on setting up a regulatory body had been prepared, these reforms had not been unambiguously formulated nor had legislation giving them effect been promulgated. However some significant sector restructuring had been carried out with the establishment of Dhaka Electric Supply Authority (DESA) in 1990 and subsequently of the Power Grid Company (for ownership of transmission assets) and the Dhaka Electric Supply Company (ownership of distribution assets in the Dhaka area except for the southern part of the city whose supply is the responsibility of DESA) under the Companies Act in 1996.

In telecommunications a draft regulatory framework for private sector involvement needed to be approved and implemented.

The CAS of March 1998 described the factors that stood in the way of structural reform “weak public institutions compromise private sector activities….. powerful vested interests, ponderous regulatory and judicial systems, loss-making state-owned enterprises, and the failure to develop a shared vision for pro-private sector reforms undermine sound policymaking and public management, frustrate private entrepreneurship, thwart competition, and breed corruption…”

Table1: Key infrastructure performance data – Bangladesh and selected countries at about the time PSIDP was approved Indicator Bangla- India Pakistan Sri Philippines Thailand Malaysia desh Lanka % households with 12 54 31 33 46 43 64 electricity System losses 35 44 24 18 19 11 16 Population with access to safe drinking water 78 73 55 60 81 77 78 (% countrywide) Telephone density 2 8 16 12 10.3 31 111.3 lines/thousand persons Paved Road Density 59 893 229 536 242 513 NA km/million persons Paved road in good 15 20 18 10 31 50 na condition (%) Notes Data generally pertains to 1990-94: Sources WDR 1994; A Survey of Asia’s Energy Prices; ITU; Bank staff estimates

Rationale for Bank Assistance

The project rationale presented in the PAD was built on the observed inadequacy of public financing to fund the massive investments needed in Bangladesh to construct, operate and maintain power supply and other infrastructure needed to promote sustained economic growth. Investment needs in infrastructure were estimated at $1.75 billion per annum against which annual budgetary allocations were less than $1.0 billion. In the case of power generation these investment needs were estimated at $4.4 billion for the period ’96 to ’05. As actual expenditures were less this implied a minimum shortfall in public expenditure on infrastructure of at least $750 million per annum. The project was designed on the premise that private participation would attract commercial finance thus easing public financing requirement and deliver efficient services. However Bangladesh presented then a very challenging environment for private sector participation in infrastructure development. Foreign private investment flows were very small and domestic capital markets too narrow and underdeveloped to provide significant equity or debt financing (i.e. of particular relevance to what PSIDP was designed to overcome was the fact that commercial lenders had low appetite for long-term debt exposure). These constraints were compounded by a poor policy environment characterized by weak legal and regulatory systems evidenced by lack of transparency in procurement.

The focus of PSIDP was on facilitating transactions with private sector participation. The project therefore was focused on providing sufficient commercial debt and on making the transaction regime more efficient in order to attract private investment on the scale required to implement large infrastructure sub-projects. TA in the project was intended to improve processes for procuring competitive investment projects with private sector participation thus demonstrating good practices in the design, procurement and completion of private infrastructure sub-projects. Overarching policy issues having to do with pricing, sector structure and legal and regulatory reform were not a focus of the project and was a conscious design choice. These were to be taken up as part of technical assistance in other sector loans. In making this choice a premise of the design was that improving procurement of infrastructure (transparent selection and competitive bidding, etc) would lead to efficiency gains and a further premise was that in order to sustain these efficiency gains wider sectoral reform would need to be implemented.

1.2 Original Project Development Objectives (PDO) and Key Indicators

As stated in the Project Appraisal Document and in the Development Credit Agreement the project sought to support Bangladesh develop modern and efficient infrastructure by promoting private sector participation in the investment, operation, ownership and maintenance of infrastructure facilities. The more detailed objectives were to: (i) proactively develop and market sound infrastructure sub-projects for private investment; (ii) establish speedy competitive and transparent procurement processes for realizing private sector participation in such sub-projects; (iii) providing appropriate mechanisms for reasonable risk sharing and mobilizing commercial investment in the form of equity and debt financing for infrastructure sub-projects; and (iv) creating suitable legal and regulatory structures in the various infrastructure sub-sectors for the sustained and efficient operation of private infrastructure facilities.

The project benefits postulated in the PAD were: (i) addition of thermal power generation capacity in the private sector; (ii) enhancement in available gas transmission infrastructure; (iii) development of sub-projects to enhance port capacity, establish new toll highways and augment water supply; (iv) developing policies, strengthening regulations and building appropriate capacity in Government to select, develop and market soundly structured projects for private participation; (v) establish government capacity for promoting environmentally sustainable and socially acceptable implementation arrangements for privately sponsored infrastructure projects.

The agreed performance indicators are described in the PAD as follows: (i) overall increase in the country's infrastructure capacity at the beginning and at the end of the project; (ii) increase in the share of private ownership and operation of infrastructure assets; (iii) amount of non-guaranteed debt finance mobilized for infrastructure projects; ( iv) number of infrastructure projects identified and developed for private sector participation; and (v) establishment of processes and frameworks for promoting such participation. Project performance indicators presented in the PAD are contained in Annex 1.

1.3 Revised PDO (as approved by original approving authority) and Key Indicators, and reasons/justification

The project was not formally restructured. However in March 2005 IDA provided funding of $200 million to the Post-Flood Recovery Assistance program by reallocating unallocated proceeds from five ongoing credits1 and PSIDP was amended to provide the largest share ($154 million). Project (The objective of the Post-Flood Recovery program objective was: to support the speedy recovery of the country and of the affected population, particularly the poor and vulnerable, while emphasizing disaster vulnerability reduction over the long-term.

As the Post-Flood Recovery Program is entirely different in nature to the original project it is evaluated separately in the ICR. See Box 1 and Annex 10.

Box 1: Post-Flood Recovery Program (PFRAP)

Background: Between July and September 2004, Bangladesh experienced devastating floods that caused significant damage to the economy, especially key infrastructure (housing, schools, roads, municipal infrastructure etc.), the agriculture sector and livelihood. PFRAP was financed through reallocation of $200 million from five ongoing credits with 77% ($154 Million) of the total coming from PSIDP.

Project Design: PFRAP had three parts (i) short-term rehabilitation (ii) medium-term reconstruction and recovery and (iii) longer-term, multi-hazard risk management needs of the country. A quick disbursing budget support for US$ 45 million included financing critically needed eligible imports (e.g. food grains, edible oils & fertilizers).

Implementation: At credit closing disbursement averaged 70% with 95% of physical works completed. A component to provide small loans to 400 thousand affected households only a little more than a third of them had received loans by April 2007 with the remainder to receive loans by December 2007.

M&E: PMUs set up within each concerned line ministry and department/executing agency was accountable for its respective infrastructure rehabilitation sub-component. A post-review work combining Procurement, Financial Management and Technical Audits commenced in March 2007 and being completed now. Preliminary outcome suggest that out of total 2642 post review contracts in infrastructure rehabilitation, 36 (about 1%) contracts are to be declared mis-procurement. There are other shortcomings in procurement, financial and technical audit. Upon finalization of the report in December 2007, IDA will take this up with GOB appropriately.

1 The other credits are: Post Literacy and Continuing Education Project (Cr. 3467), Female Secondary Education Project (Cr.3614), Municipal Services Project (Cr.3177), Female Secondary Education Assistance Project II (Cr.3614) and Fourth Fisheries Project (Cr. 3217).

Box 1: Post-Flood Recovery Program (PFRAP)

Safeguard and Fiduciary : Procurement processes followed Bank guidelines with the exception of 14 works contracts for US$ 36.4 Million in the Primary Roads component was cancelled due to miss-procurement. An integrated post review (combing procurement, financial management and technical aspects) of all (2,599) small value contracts PFRAP carried out, less than 0.25% (7 contracts) contracts assessed with major deviation on combined review. A suspected case of collusion in bidding for a Secondary School funded by other credit was cancelled by IDA.

Relevance of Objectives, Design and Implementation: These remain relevant. Another devastating flood took place in July –August 2007.

Achievement of Project Development Objectives: The PFRAP can be rated satisfactory since it rehabilitated 95% of the infrastructure identified in need of rehabilitation albeit with delay. Components of quick disbursing loans to affected households and disaster vulnerability reduction fell short of their objectives. However, 50% of the fund became very effective in restoring the livelihood of the 2007-flood affected poor. Assessment of Risk to Development Outcome: Bangladesh faces major challenges in reducing its vulnerability to flooding. Assessment of Bank and Borrower Performance: The Bank and GOB agencies coordinated well to design and implement the program. Lessons Learned: Disaster preparedness should continue to be a central part of the Bank’s Country Assistance Strategy (CAS). Climate proofing infrastructure will need to be systematically addressed. Floods rehabilitation being multi-sectoral, coordination has strong impact to achieve quality implementation in both GOB and IDA sides. Future IDA projects on disaster should appropriately design implementation arrangement to minimize risks in coordinating the various bodies and activities. Packaging of works contracts with due consulting support in assessment and supervision will improve procurement and construction quality. Independent consultants financed by IDA can minimize implementation risks.

1.4 Main Beneficiaries,

As stated in the PAD of the original project the beneficiaries of the project were identified to be: (i) the people of Bangladesh, who would have increased access to more adequate and efficient infrastructure services; (ii) the government of Bangladesh which would benefit through addition of infrastructure development resources and introduction of private sector efficiency and management culture in the infrastructure sectors; and (iii) private sector investors, both local and foreign, who would receive financial, institutional and policy related comfort for investment in new infrastructure projects in the country.

The PAD described the macroeconomic benefits which would have accrued from successful implementation of the project and which would have included: (i) reduced need for public investment in infrastructure development, thus enabling the government to deploy more funds to meet poverty alleviation and social development objectives; (ii) rapid development of a modem and efficient infrastructure system in Bangladesh through the financial, technical

and managerial resources of the private sector; (iii) increased flow of foreign investment into new infrastructure projects; (iv) enhanced Government capacity to tackle the policy, regulatory and project related issues in the different infrastructure sectors; and (v) significant employment generation in the construction and operation of new infrastructure projects.

1.5 Original Components (as approved)

The project had two components - project financing and sub-project2 transaction development.

Component 1. The financing component was designed to provide support for investment sub- projects with private sector participation. PSIDP provided a long-term debt facility (SDR 159.6 million US$225 million) in form of a line of credit from GOB to IDCOL a non-bank financial institution. The credit was to be used to provide long-term finance to special purpose entities established for the construction and operation of commercial infrastructure projects on the basis of a subproject pipeline available at appraisal. This component included technical assistance (SDR 4.67 million US$ 7 million) for investment advisory services to strengthen IDCOL’s capacity in project financing. The subproject financing institution, IDCOL was in the process of being established at the time PSIDP was being designed.

Component 2. The second component was aimed at strengthening the capacity of line ministries and parastatals to undertake transaction development (involving the conduct of competitive and transparent procurement processes, marketing of sub-projects and managing the entire process of structuring, documentation, bidding, negotiation and award of concessions) of infrastructure projects for private sector investment. An Infrastructure Investment Facilitation Center (IIFC) was established two years after PSIDP was effective for subproject transaction development.

2 The ICR for consistency purposes applies the same terminology as the project documents wherein “project” refers to the IDA credit i.e. PSIDP and “sub-project” refers to the pipeline of sub-projects available at appraisal of the PSIDP comprising sub-projects in the power, gas, roads, telecom, and other sectors.

The two components were designed to be complementary as illustrated in Figure 1 below.

Figure 1. Private Project Development and Financing

Transaction Financing Development (IDCOL and (IIFC and GOB other financing agencies) institutions) Market Identification assessment Feasibility Appraisal Project Structuring ► ◄ Structuring Pipeline Promotion Closing Marketing Disbursement Procurement Construction Contracting Operation Permitting Repayment Regulation

1.6 Revised Components Refer to Addendum 1 (Post-Flood Recovery Assistance Program Assessment)

1.7 Other significant changes (in design, scope and scale, implementation arrangements and schedule, and funding allocations)

The project was extended three times, for two years from December 2002 to December 2004, for three months from December 2004 to March 2004 and for three years from March 2004 to March 2007.

The initial extension to the project was provided partly in response to the two-year delay that occurred in establishing IIFC and to provide time to allow IDCOL disburse the US$ 80 million to Meghnaghat-1 IPP.

The 2nd extension was justified at the time on the basis of the following: • positive signs for private involvement in small-scale infrastructure provision; • developments in the legal and regulatory environment (telecoms regulator was functioning by then and the law establishing the energy regulator had been passed; • high-level Government interest in the development of an appropriate legal and process environment for BOT type private involvement; and • progress on several infrastructure investments that could provide a viable pipeline of sub-projects for IDCOL. This pipeline of sub-projects at the time of this extension included the Khanpur inland container terminal, rural piped water projects, a bus terminal/car park and a number of rural on and off-grid power projects under the RAPPS

scheme. However, the largest prospective sub-project for PSIDP financing that was then being developed was the Sirajganj 450MW power station and it consequently weighed greatly in the decision to grant extension of the project (c.f. Box 2 below).

The 3rd extension of the project in March 2004 was to facilitate financing to potential pipeline projects above considering that it would take at least 36 months to implement a large infrastructure project, such as a 450 MW IPP.

2. Key Factors Affecting Implementation and Outcomes

2.1 Project Preparation, Design and Quality at Entry (including whether lessons of earlier operations were taken into account, risks and their mitigations identified, and adequacy of participatory processes, as applicable)

QAG’s review of quality at entry rated the project highly satisfactory with respect to it having adequately reflected the lessons of experience. The project design took note of positive and negative aspects of similar initiatives launched in Pakistan, India, Jamaica and Sri Lanka and the experience of various investment promotion agencies in East Asia. The PAD described some key experiences incorporated in the design:

(a) In Sri Lanka, sub-project development and promotion initiatives were the subject of another project, leading to lack of synergy between the development and financing aspects. PSIDP therefore supported both i.e. IIFC was established under PSIDP to be responsible for sub-project transaction development;

(b) by placing responsibility for appraisal and financial structure of sub-projects with IDCOL and responsibility for transaction development and facilitation with IIFC the project was designed to mitigate lack of capacity in government agencies whose role was to be limited to granting of concession and permits. This followed from the experience of the CCPAP-BOT Center in Philippines;

(c) although the project did not have explicit political risk mechanisms associated with it, provision of IDA financing that necessitated Bank approval for sub-projects was thought to give a measure of comfort to private developers and commercial banks participating in sub-projects thus mitigating country risk elements; and

(d) with its focus on developing clean procurement processes the project was designed to overcome political meddling in sub-project procurement.

Reform to address weakness in the legal and regulatory environment in the various infrastructure sub-sectors was not addressed in the project and was a conscious design choice. Analysis of the policy environment was contained in the PAD and concluded it was conducive to private sector participation in the power sector, less so in telecom and not conducive in the other sub-sectors. The main risk identified arising from uncertainty on the reform program in the power sector was that the offtaker BPDB would not be able to pay for private power given its poor financial and operational performance. The analysis concluded however that the risk was mitigated by the assumption that IPPs would be phased in a way

that gave adequate time to adjust tariffs and improve performance. In the project’s design, projects other than PSIDP were to be the vehicles of the reform program and these are detailed in the PAD. For example in the power sector these were ADB’s 9th Power Project approved prior to PSIDP and a mooted IDA project for FY99 and in the telecom sector a IDA project – the Telecom Regulatory Support project – was being prepared at the time.

The project design (reflected in the project agreement between IDA and IDCOL) assumed that PSIDP would support major sub-projects where the private sector would have majority ownership. This was reasonable at the time the design was finalized given the pipeline of major sub-projects and the substantial degree of foreign private sector interest. Thus, sub- projects with other forms of private sector participation such as joint ventures, concessions and management contracts were not envisaged. In addition some kinds of infrastructure were excluded e.g. captive industrial power generation capacity. In retrospect, the design of PSIDP was unnecessarily constrained in what it could finance. Its success was thus dependent on the major sub-projects with majority private sector ownership being successfully realized. If other kinds of public-private sector arrangements and more types of infrastructure had been eligible and if IDCOL had been able to participate in their financing, these could have catalyzed the project.

Table 2: Project Risks Risks Identified in the Risk Mitigating Measures identified in the PAD ICR review of Risk outcome PAD IDCOL's capacity to perform (i) Appropriate agreements regarding commercial orientation and Risk not realized. IDCOL did perform per commercial principles. Its as per commercial principles autonomy reached with GOB, (ii) Substantial private sector professionalism was as strong factor in it financing the Meghnaghat and deliver results on a representation on the IDCOL Board, (iii) Quality international sub-project with PSDIP financing and telecom sub-projects with sustained basis. professionals made available under the Investment Advisory contract PSIDP reflows. IDCOL is well established and has financed two Rating: Moderate for managing IDCOL's activities. land ports under its balance sheet and is an implementing agency for projects in rural energy financed by donors including the World Bank. GOB unable to overcome line Line ministry officials and trade unions are averse to privatization of Risk not realized and analysis justified. Resistance to private sector ministry and trade union existing assets. However, opposition to creation of new assets in the deals for new assets in the power sector has been muted. resistance towards private and private sector is not evident objective of the project) in the private privatization of existing assets. sector is not evident. GOB's ability to carry out fundamental reforms Rating: Low in energy and has an impact on the sustainability of private participation. Hence, telecom; moderate in other measures to compliment sector reform efforts are built in and the sectors proposed IIFC will play an advocacy role.

Failure of first few (i) Sound structuring of sub-projects with rigorous financial and Transactions did not proceed quickly due to inability of line transactions to proceed technical analysis, exploring private sector interest, international ministries to structure and market sub-projects in a professional and quickly competitive bidding processes and well conceived security transparent manner. In the power sector, Power Cell was able to Rating: Low to moderate arrangements (ii) Adequate resources for conducting the process carry through a few successful transactions (Meghnaghat financed professionally adopting best industry standards ( iii) Incentives to the from PSIDP and Haripur being the most successful). Investment Advisory Services Provider (i.e. IIFC) for achieving faster financial closure on deals and maintain effective implementation monitoring. Transactions delayed in Ownership of sub-project issues which are the main cause for lack of During the first few years of the project, IIFC that was newly implementation due to lack of support will be addressed in the IIFC governance and decision established did not have the capacity or networks in place to enable support by line ministries and making structure (ii) Project Development Units would be within it to be an effective agent in assisting line agencies structure sub- project agencies. line Ministries but high profile IIFC leadership will help overcome projects. Rating: Low to moderate stress points. Macroeconomic risks – Project cannot address this, but can provide early warning of Risk not realized decline in macroeconomic possible adverse impacts from sub projects to be financed under the fundamentals adversely PSIDP. affecting investment attractiveness. Rating: Moderate

Table 2: Project Risks Risks Identified in the Risk Mitigating Measures identified in the PAD ICR review of Risk outcome PAD Decline in GOB commitment Varies by sector, is low in energy and telecommunication sectors A lack of transparency in procurement of infrastructure projects to private sector participation and moderate in others. However, the strength of the GOB played a role in reducing the deal flow. It may be inferred that in infrastructure development commitment and the fact that investment compulsions exist, reduce failure to establish IIFC in a timely fashion or to empower and Rating: Low to moderate this risk substantially. Additionally the project resource technical units in the line ministries in a way that would proposes to maintain a close linkage with the sector reform dialogue have made them effective agents in improving transaction processes and compliment the broader reform agenda in each sector. was reflective of then weak government commitment to ensuring competitive transparent procurement of sub-projects. As a result no new large power generation projects with private sector participation have been constructed since 2002 to date. Slow down or lack of success The Bank and other leading donors have a fairly well developed Private financing of large-scale infrastructure is constrained by in financial sector reforms, agenda to address financial sector deficiencies especially capital governance issues. and/or capital markets fail to markets development and banking sector reforms. Hence by the time develop to the point where PSIDP closes, Bangladesh is likely to have a credit rating strong private financing of enough to let capital markets dictate private resource mobilization. infrastructure can be market- The PSIDP does not directly address capital market development but led. would maintain a close linkage with such efforts to ensure that it Rating: Moderate to high compliments the overall direction of Bank and GOB efforts in the financial sector. Possible Controversial Aspects The extent of funding Though providing 40 % of sub-project cost as loan may not be In the single project financed by project IDA support did not crowd (maximum 40% of sub-project necessary for power generation projects, it may be necessary for out commercial financing. IDA support was 26% of project cost. cost) from the project being road and environment type of projects, which have lower revenue too high. earning capacity in early years. The limit of 40% is thus a general ceiling. The limit for each sub-project would be determined on a case by case basis, with due regard to minimizing PSIDP involvement and the fact that it is 'lending of last resort'. This will also be ensured by providing incentives to the IASP for leveraging other sources of financing to sub-project transactions. The project support, especially Though chances of conflict on loan decisions are minimal, the sub- Internal IDCOL good governance and professionalism was such that on financing from IDCOL project several points of interface between IDA and IDCOL fairly it did not propose questionable deals. being sought for questionable early on in the appraisal stages, so that inappropriate or questionable or controversial transactions would be precluded from proceeding further IDA and IDCOL did have difference of opinion on lending transactions, where decisions. IDCOL considered that PSIDP was unnecessarily transparency of procurement is restrictive in what types of projects in could finance and that IDA at issue. could have been more flexible in interpreting its procurement rules (Also includes the possibility to allow local procurement practices to apply. (c.f. discussion in 2.1

of IDCOL and IDA difference above and in 2.2. below) of opinion on lending decisions)

2.2 Implementation

No single factor accounts for the fact that only one, albeit major, sub-project was implemented with PSIDP. Ensuring that the transaction regime worked efficiently and transparently was the key condition in order that PSIDP participate in financing sub-projects. At the time the project was designed and before it came effective, at least two sub-projects (Haripur and Meghnaghat) had been procured competitively and transparently. However the transaction processes developed and followed in these sub-projects were not applied in subsequent IPP solicitations nor in solicitations in other sectors. Explanation of failure to do so is due to interplay of the following key factors:

Procurement Issues

By the terms of the Project Agreement between IDA and IDCOL, in order for IDCOL to participate in financing sub-projects, the Bank’s procurement guidelines applied. Essentially, these required either that (a) the sponsor be selected on the basis of international competitive bidding (ICB), in which case the goods and works required for construction could be procured according to the procedures of the sponsor; or (b) when the sponsor was not selected on the basis of ICB, then goods and works to be financed by IDCOL would have to be procured on the basis of ICB or with prior approval of IDA by using limited competitive bidding (LCB).

The processes followed for a number of sub-projects, most notably Haripur (also including the LaFarge Cement captive power plant and the Comilla power project) were deemed by the Bank not to have followed these requirements, this making them ineligible for PSIDP.

GOB and IDCOL made vigorous representations to the Bank to allow procurement rules pertaining to financial intermediaries in the Bank’s guidelines apply. These allow procurement according to “established private sector or commercial practices “ to apply. However as IDCOL was at that point in time a fund manager and not a financial intermediary as it did not on-lend credit proceeds to sub-projects and absorb the credit risk of such sub- loans, the Bank determined that the procurement requirements obtaining to financial intermediaries should not apply. It went on to state that the objective, nature and size of loans made under the PSIDP is fundamentally different from the 'line of credit' operations to which procurement in loans to financial intermediaries apply.

In the case of the Haripur project that was supported by an IDA Partial Risk Guarantee the Bank’s guidelines for procurement of loans guaranteed (i.e. not financed) by the World Bank applied. These stipulate that goods and works be procured with due attention to economy and efficiency in accordance with basic quality, price, and delivery requirements. GOB counterparts found it difficult to accept that the Bank could insure a sub-projects’ political risk when it could not allow use of IDA financing.

IIFC could conceivably have been influential in ensuring that the procurement requirements were followed but delay in establishing and resourcing IIFC meant that it could not play this role in the critical early years of the project. IDCOL has pointed out that as it was not

involved directly in the procurement process and because the selection of sponsor was usually made by a government agency it did not have enough leverage to ensure compliance with the provisions of the Bank’s procurement guidelines. The line ministries receiving IIFC supports in developing and structuring private sector infrastructure transactions and formulating related policies were not found committed to implement or award these to the potential private sector sponsors.

IDCOL endeavored to approach procurement agencies at an early stage of the process about the need to comply with IDA guidelines applicable to the selection of sponsors/ entrepreneurs. IDCOL held workshops for public and private sector stakeholders to raise the level of awareness about the applicability of Bank guidelines in developing projects by private sector sponsors on several occasions.

Though the procurement requirements in the Project Agreement between IDA and IDCOL cannot be regarded a flaw in the project design because it was simply a case of the project applying Bank rules, nevertheless the requirements and the considerable effort expended by Bank and GOB counterpart staff in analyzing and reviewing the individual cases to determine whether or not they complied with the requirements sapped the project’s momentum, gave rise to considerable frustration among Bank staff and GOB counterparts and thus had a damaging impact on implementation.

Box 2: Procurement issues in the Haripur, REB 3x10MW Power Projects and Sirajgangj Projects.

Haripur 360 MW Power Project: the process of selecting a sponsor for Haripur started with a set of pre- existing unsolicited proposals submitted by potential sponsors of different projects and then developed a bidding format for a single defined project. It thus did not canvass expressions of interest from the universe of potential sponsors through an open advertisement process. As a result the Bank’s Operations Procurement Review Committee (OPRC) held twice that the process did not meet this key requirement of international competitive bidding (ICB). Following the 2nd OPRC review the matter was referred to the Bank’s Appeals Committee which again found that the lack of open advertisement at the start of the process a compelling reason for not waiving the ICB requirement notwithstanding that the process had obtained a very competitive tariff and that internationally reputed developers had participated in the process. If AES had been able to conduct a downstream procurement for goods, works or services in the project in accordance with ICB, use of PSDIP funds could have been used for these. However AES could not do so and as a result, IDCOL could not participate in financing of the project. However, IDA has provided a Partial Risk Guarantee to support the project.

(b) REB 3x10MW Power Projects. On February 23, ‘00, the Bank's OPRC expressed its inability to accept IDCOL's and the project team's recommendations for no-objection for two principal reasons. It found that the differential prequalification criteria adopted by the Rural Electricity Board (REB) were inconsistent with IDA's Procurement Guidelines, and does not satisfy the test of "equal opportunity to bid" required under para. 2.1 of the Guidelines. It was also argued that the finally selected sponsor would have qualified even under the higher standard prescribed for foreign firms under the bid. On this point OPRC opined that the process did not ensure full competition since the project opportunity had not been advertised internationally.

Sirajganj 450MW Power Project. The procurement procedures followed by BPDB for the development of the 450 MW Sirajganj power plant were formally reviewed by the Bank in January 2004 and deemed acceptable. Though deficient, the process was deemed robust enough to lead to an acceptable result in particular since the outcome in terms of tariff offered by the sponsor was recognized to be competitive (US cents 2.7895 per kWh). However the government did not proceed with issuing the license to the sponsor despite strenuous representation by the Bank pointing out the implications of re-tendering the project. In communicating its finding that the bid submitted by Summit was non-compliant, the Power Division in September 2004 cited the sponsor not having been the lead sponsor for the development of a 110 MW plant at Khulna (a key technical requirement was prior experience in developing an IPP). This aspect had in fact been reviewed by the Bank which in providing its no objection, had advised how the sponsor’s perceived lack of experience would be addressed (i.e. downstream EPC contracts in the project would be with world-class companies). The Government’s decision to re-tender the project after a bidding process that had been deemed by Bank review to have been transparent was very disappointing and drained confidence that PSIDP could achieve its main objective of financing a large pipeline of generation sub-projects. The project would in all likelihood have been closed then were it not for the reallocation of the credit for the Post Flood Recovery Assistance Program.

Governance and Sector Policy Reform

Poor governance manifested in lack of transparency in procurement of infrastructure projects played reduced the deal flow. In her capacity as Chair of the Local Consultative Group, the World Bank Country Director wrote to the Prime Minister in 2004 to point out that as a result of a pattern of questionable tendering and re-tendering by GOB of power generation projects, no new generation projects were brought on stream in the two year period through September 2004. While on visit to Dhaka in August 2005, the World Bank President was quoted in the Bangaldeshi press ‘Big power projects unfortunately are one of the principal targets for corruption. So, that is an area where reforms are necessary.’

The decision to pursue the objectives of PSIDP in a weak policy environment was to become controversial during the course of implementation especially with regard to the power sector. Bank teams responsible for management of the project after 2002 were skeptical that a project designed to facilitate private sector investment in the sector could be successful absent substantive measures to raise electricity prices and improve corporate governance and management in BPDB and DESA.

Failure to embed transparency in transaction processes in solicitation of infrastructure contributed to weariness with the project among Bank teams that dealt with it. As the project progressed Bank teams became increasingly skeptical that the design of the project was viable given its avowed focus on ensuring good transaction processing. The mechanisms to ensure this in the design (the role of IIFC and the line agencies) were clearly not working in the way that had been envisaged. This led project teams to conclude that the focus of the project (i.e. providing sufficient commercial debt and making the transaction regime more efficient in order to attract private investment for large infrastructure sub- projects c.f. Rationale for Bank Assistance above) was misplaced and that an approach which would tackle sector reform across a broad front would be necessary.

International financial crises coming soon after the project was made effective caused reputable sponsors of private infrastructure to retreat from emerging markets

At the time PSIDP was being designed there was strong foreign private sector interest in infrastructure sub-projects. PSIDP project preparation assessed 9 sub-projects (5 of them power sector) as having moderate to high probability of becoming PSIDP transactions. The financial crises of 1997 in Asia and 1998 in Russia, and subsequent economic instability had a damaging effect on infrastructure project finance in emerging markets, and specifically in Asia. When the project was being designed in '96 private investment in electricity sector in developing countries had grown exponentially from less than $1 billion in '91 to $43 billion in '97. However the Asian financial crisis hit in '97 (and the Russian in '98) and by the time the project became effective in '97 and set about mobilizing private investment for the prospective infrastructure projects assessed in the design phase of the project, the investors were already pulling back though it was not apparent then if it would be a temporary setback or more enduring. Private investment in the infrastructure sectors in fact peaked in '97. In '98 worldwide private investment in the power sector halved and declined further in subsequent years and by 2002 had fallen to $6.7billion. So in the five years after PSIDP became

effective, the prospects for attracting private investment in the sector had soured or in other words after '97 there were many less serious and reputable sponsors chasing projects in developing countries. In the event only one of these sub-projects, the 450MW Meghnaghat gas combined cycle was financed with participation of IDCOL power project using PSIDP credit proceeds. However several of the sub-projects including the 360MW Haripur gas combined cycle project and the100 MW Khulna Barge Mounted Power project were supported by World Bank Group instruments though not by PSIDP3.

Delay in making IIFC operational; Lack of capacity in IIFC and line ministries.

IIFC started operating in January 2000, two years after project effectiveness. Delay in making IIFC operational may have been due in part to lack of consensus in the early phase of the project on the role it should play. During project identification, it was agreed that in addition to the role of line ministries in project promotion, a “professionally staffed Infrastructure Development Unit” should be established. It was pointed out at this time that line agencies “do not take favorably to another institution encroaching on their turf and this leads to weak ownership of potential projects” and that the structure of what was to become IIFC would be such to accommodate line agency interests also.

Delay in making IIFC operational imposed financing constraints on it (it had lost 62.5% of its eligibility-weighted fund utilization) that impacted on the expertise it could mobilize. IIFC’s capacity was only slowly developed and was lacking in the early years of the project. IIFC has received significant technical assistance from CIDA and DFID4. In IIFC’s own assessment, consultants provided by the two consortia could be mobilized quickly but that their knowledge of transactions processes was lacking in many cases. IIFC has pointed out that the “procurer model” on which its services were based, whereby it acted as conduit of consultants to government agencies, limited its effectiveness as the consultant’s remuneration was not based on clear success criteria. Another drawback was that the rates allowed precluded it engaging suitably qualified but high-priced commercial management consultants. IIFC later began to perform small assignments on a success-fee basis but could not apply this to larger projects because of lack of resources.

In its early years IIFC did not have the network of contacts to be effective in its coordination with government. IIFC therefore could not play a substantive role to facilitate transaction processing of the 10 sub-projects identified during project design. Even in the case of the power sector, where the Power Cell had been set up inside the Power Division to guide policy making, it did not intervene effectively to improve the transaction regime.

3 An IDA partial risk guarantee (PRG) supports the 360 MW Haripur Power Project, which was the first major private power plant developed in Bangladesh. IFC supported the 100MW Khulna project with an A Loan of US$23.5 million, B Loan of US$37 million and equity of US$3.3 million.

4 CIDA and DFID’s technical assistance was delivered by two consortia of consultants who provided support on legal and regulatory frameworks for private participation in specific sectors and support on specific transactions.

It may be inferred that failure to establish IIFC in a timely fashion or to empower and resource technical units in the line ministries in a way that would have made them effective agents in improving transaction processes was reflective of then weak government commitment to ensuring competitive transparent procurement of sub-projects.

IDCOL was restricted in the use it could make of the PSIDP credit

IDCOL initially could provide subordinated debt only. Later, the Project Agreement was adjusted so that it could provide senior debt. It could not provide equity. It could only lend to green-field sub-projects. It could only provide foreign currency loans.

A Mid Term Review was not carried out

Such a review was proposed by the Bank to be carried out in June 2001 subject to the Government commissioning a report on the project’s implementation and TOR were prepared for such a report. Failure to carry out the MTR seems to have been in part due to the perception that the project would be closed early because of lack of deal flow obviating the need for an in-depth assessment of implementation experience that would have provided grounds and directions for restructuring the project.

However a Mid-Term Review of DFIF/CIDA support to IIFC was carried out in December 2002 with participation of World Bank staff. It pointed out that IIFC had no executive authority or decision making responsibility with respect to transactions or policy changes and concluded that lack of progress in developing transactions and taking policy decisions was largely attributable to government agencies. It proposed steps to widen membership of IIFC’s Board to include secretaries of the line ministries. If a mid-term review of PSIDP had been carried out perhaps these and other measures would have been considered and implemented with positive impacts on the project.

2.3 Monitoring and Evaluation (M&E) Design, Implementation and Utilization

As described in the PAD, M&E was designed to monitor: (a) assessment of sub-project quality, costs, compliance with operational and financial criteria; (b) regular performance audits of IDCOL; (c) the effectiveness of TA to IIFC and line ministries would be monitored; and (d) environment and social mitigation in sub-projects.

Monitoring of sub-project quality only applied to the single project (Meghnaghat) supported by PSIDP. Also regular monitoring of entity audit reports of IDCOL and IIFC were carried out by IDA with no qualified observation.

2.4 Safeguard and Fiduciary Compliance

There were no major deviations from safeguard and fiduciary policies in the case of the original project.

Environmental Safeguards with respect to Meghnaghat: In 2000, ESG International, consultants for AESML, submitted a Draft ESAR which included an Environmental Impact Assessment ("EIA") and a Social Impact Assessment ("SIA"). Subsequently on June 12, 2000, a Draft Resettlement Action Plan ("RAP") was delivered to IDCOL in support of an application for the loan. These documents were assessed by Multinational Environment and Social Assessment Services (“MESAS”), IDCOL’s external advisor for environmental and social matters.

Resettlement: Within the framework of the RAP, AESML committed to five actions to assist former households affected by the BPDB purchase of land: • Provision of scholarships for vocational training of one member of each project affected household that experienced loss of income in excess of 20 percent of its annual income; • Priority hiring of project affected persons subject to availability and suitability during construction of the Project; • Construction of a school on land provided by project affected persons in Islampur; • Contribution to construction of an access road to the Village of Islampur on land to be provided by project affected households; and • Building of a hospital near the project site intended to service the local community.

2.5 Post-completion Operation/Next Phase

The Power Sector Development Technical Assistance Project was approved in 2004. This ongoing project is designed to create capacity in power and energy ministry and government agencies to develop sector policies, industry structure and regulation and to prepare, structure and implement a few power sector investment projects.

Currently a number of IDA investment operations with institutional capacity components are being prepared that take into account lessons learned in PSIDP (c.f. Section 6 Lessons Learned below). These are:

• The Siddhirganj Peaking Power Project in FY08 will support an integrated gas-to- power project that will provide 300 MW peaking power capacity with financing for the plant itself, a gas pipeline and transmission line. It will also support institutional capacity strengthening in the Electricity Generation Company of Bangladesh the owner of the plant, including through outsourcing of plant operations and maintenance for a period of about six years.

• The South Zone Power Distribution Project (Chittagong Area) in FY09 will support a key reform measure in the sector i.e. the unbundling of BPDB’s distribution network activities into five regional corporatized entities. The project will finance rehabilitation and expansion of the network of South Zone Power Distribution Company Limited and support its institutional strengthening as well as supporting a program of policy and regulatory development focused on South Zone.

• An Energy Sector DPL in FY09 will advance governance and regulatory reforms and initiate financial restructuring of sector enterprises.

3. Assessment of Outcomes

3.1 Relevance of Objectives, Design and Implementation

Relevance: High

The project objective of developing modern and efficient infrastructure was and remains highly relevant. For example in the case of the power sector the project was designed to address the then current generation capacity shortfall. The project in fact was successful in curtailing the shortfall. At the time the Meghnaghat power plant financed by the project began operating in November 2002 power supply matched demand. Since then, in part because of failure to apply the good procurement and contracting practices used for the Meghnaghat project, the gap has widened and is currently a shortage of almost 2500 MW during the hours of peak demand. During the last five years only one project (80 MW capacity) has been undertaken. Faced with this crisis, measures to curtail demand such as closing markets by 7 pm and load shedding has curtailed economic activity (for example, electricity use for irrigation has dropped by 50% between FY04 and FY07) and imposed hardship on the population.

The project design of seeking to catalyze significant participation of the private sector in financing, constructing and operating infrastructure facilities remains consistent with GOB’s priorities and with the Bank’s assistance strategy in the sector. The GOB has on several occasions reiterated its policy of seeking private participation in power generation in the form of IPPs. This is entirely consistent with the Bank’s operational guidance for staff that states that private financing is preferred for generation and that public support in the form of IDA/IBRD guarantees and other forms of credit enhancement are critical.

The project in successfully demonstrated professional, competitive and transparent processes for infrastructure development is highly relevant. Political will is needed to mainstream these processes.

3.2 Achievement of Project Development Objectives

Rating: Moderately Unsatisfactory

The project development objectives were not achieved although it did achieve positive outcomes.

Overall Objective: Develop modern and efficient infrastructure by promoting private sector participation in the investment, operation, ownership and maintenance of infrastructure facilities. PSIDP did not succeed in its overarching objective of facilitating and financing the development of infrastructure with private participation on such a large scale as to have a transformative impact. PSIDP’s vision of developing vital and sizeable projects in all the sectors that would demonstrate the attributes of efficient private sector led infrastructure and

thus lead the way in modernizing Bangladesh’s infrastructure stock was not realized. However PSIDP did provide financing for a major power plant - the 450 MW combined cycle at Meghnaghat. This and the Haripur project (supported with an IDA guarantee) were world-class projects from the point of view of their financial structure (Meghnaghat was Project Finance magazine’s joint Asia Power Deal of the Year 2001), timely construction, competitive cost of power and, subsequently, their excellent operational record.

The Meghnaghat and Haripur projects established a benchmark that badly structured and opaquely bid projects could not attain. Thus it may be argued that the Meghnaghat and Haripur projects had a large influence in fending off poor quality sub-projects.

Objective 1: Proactively develop and market sound sub-projects for private investment;

Through its technical assistance, PSIDP supported the development of transparent procurement approaches, regulatory frameworks, and risk sharing mechanisms for private sector infrastructure promotion and operations.

The technical assistance that was made available through IIFC to support the line ministries in project preparation of individual subprojects that were identified as suitable for private sector participation, was not by itself sufficient to prepare and structure them so that they would be eligible for IDCOL financing. Despite the outreach activities of IIFC to disseminate good practices in sub-project solicitation and to work with line ministries in attracting and negotiating private sector infrastructure projects in wasn’t enough to overcome inertia and lack of initiative in line ministries where the senior personnel charged with handling development of these sub-projects worked in a environment without clear rules of how to apply the policy and who were subject to interference in their decision making by their political superiors. This sub-component did thus not achieve its objective of providing concentrated know-how to Government officials through support of a private projects deal flow, but financed some relevant training.

However a major outcome of the project is that two viable institutions were created and strengthened that are well positioned to play key roles in infrastructure development in a more favorable and enabling political environment in the future.

Objective 2: establish speedy competitive and transparent procurement processes for realizing private sector participation in such sub-projects; Competitive procurement and licensing processes were followed for the Meghnaghat power sub-project financed by PSIDP and for the Haripur project which was mooted for PSIDP financing. It is disappointing that these processes were largely discarded in subsequent sub- project development with the result that few large scale projects with private sector participation have since been implemented. A satisfactory outcome would have been that the procedures and processes used in Meghnaghat and Haripur were embedded as rules in a legal regime that would have been immune to political interference.

Objective 3: provide appropriate mechanisms for reasonable risk sharing and mobilizing commercial investment in the form of equity and debt financing for infrastructure sub- projects;

This Objective was achieved as demonstrated by the Meghnaghat sub-project.

Objective 4: create suitable legal and regulatory structures in the various infrastructures sub- sectors for the sustained and efficient operation of private infrastructure facilities.

IIFC has been directly involved in preparing the following policies and regulations • the public switched telephone network (PSTN) regulations (licensing procedures) issued by the Bangladesh Telecommunications Regulatory Commission (BTRC) in 2004. • Private Sector Infrastructure Guidelines in 2004 • Remote Area Power Supply Systems Guidelines (RAPSS) for micro electricity supply enterprises approved in 2007 • Draft Coal Policy in 2007

A general objective of these policies and regulations is to promote the role of the private sector in infrastructure. However it would need a stronger legal and regulatory regime of governance for the sectors in order that private sector infrastructure facilities are developed on a very large scale.

3.3 Efficiency

The economic and financial analysis of the PSIDP is carried out for AES Meghnaghat Project (MPL) which is the only investment made by IDCOL.

The economic analysis suggests that the MPL project has a positive economic NPV of $1724 million and an EIRR of 65 % at 10 percent discount rate. The EIRR is very sensitive to the assumption of WTP as the price at which the power is valued drives the economic returns. Even assuming a conservative lower bound estimate of 8 Taka/kWh, the EIRR is significantly higher than the 14% EIRR at the project appraisal stage. This implies that the project has been favorable to the beneficiaries of improved power and succeeded in alleviating the grave power situation in Bangladesh.

The financial NPV and FIRR are estimated to be $11 million and 11 percent respectively using a 10 % discount rate. The financial returns are relatively modest. However, the investment of US$ 300 million for a 450 MW power plant with a tariff of US$ 0.03/kWh with good plant availability and off-take can be considered a financially viable project particularly in the context of Bangladesh with nascent experiences with independent power producers. The sensitivity analysis reveals that FIRR increases to 21% if the sale price is assumed to increase to $0.04/kWh.

3.4 Justification of Overall Outcome Rating

Rating: Moderately Unsatisfactory

The overall rating of MU is justified on it not realizing the scale of development that was originally envisaged nor achieving a mainstreaming of good procurement and implementation practices. However the use of $80 million of IDA proceeds to demonstrate a world-class 450MW IPP is itself a notable achievement that has made a significant contribution to Bangladesh’s economic growth and development.

The project had significant shortcomings in that it did not realize its overall objective of facilitating and financing the development of infrastructure with private participation on a large scale. However it did provide financing provided ($80 million in long-tenor, dollar- denominated debt) for a major power plant (450 MW combined cycle at Meghnaghat) and supported, in coordination with other donors, the development of transparent procurement approaches, regulatory frameworks, and risk sharing mechanisms for private sector infrastructure promotion and operations. However the procurement and contracting practices that were developed were not mainstreamed i.e. they were not applied routinely in IPP solicitations nor in solicitations in other sectors.

3.5 Overarching Themes, Other Outcomes and Impacts

(a) Poverty Impacts, Gender Aspects, and Social Development

The Meghnaghat project that was commissioned in November 2002 eliminated the power supply deficit, albeit for a short period. Today it provides approximately 17% of Bangladesh’s power supply. Without Meghnaghat, economic activity would be reduced in Bangladesh with negative impact on employment and poverty reduction.

(b) Institutional Change/Strengthening

The project supported (with other donors) the creation of two viable institutions, IIFC and IDCOL, to facilitate infrastructure development.

Since its inception, IIFC has built up its capacity in project development and policy advisory work. Consultancy services that it has provided to line ministries and executing agencies include project identification and pre-feasibility studies, road shows to potential sponsors, bid preparation and bid evaluation, negotiation of concession agreements (e.g. for land ports telecom and remote area power supply), regulation and policy development (e.g. telecom regulations, coal policy and private sector infrastructure guidelines). IIFC now only provides fee-based services to line ministries.

IDCOL is also well established. From the reflows of its financing to Meghnaghat IDCOL financed a telecom and a satellite earth station project. Since 2002 IDCOL is implementing part of the Rural Electrification and Renewable Energy Development Project (REREDP) jointly funded IDA, GEF, GTZ and KfW. Under the project, IDCOL has a target to finance

through 15 (Fifteen) participating Organisation (PO), 198,000 Solar Home System (SHS) & few wind, micro-hydro and biomass projects by 2009. In 2006, IDCOL undertook the National Domestic Biogas & Manure Programme (NDBMP) with assistance from SNV- Netherlands Development Organisation. Under this project IDCOL through its 12 PO's intends to finance about 60,000 domestic size biogas plants in the remote rural areas of the country by the year 2010. In addition IDCOL from the reflows of its earlier loans & government contribution has financed several projects including a power plant, network expansion of a telecom project and two land ports.

N.A.

3.6 Summary of Findings of Beneficiary Survey and/or Stakeholder Workshops (optional for Core ICR, required for ILI, details in annexes)

None were carried out.

4. Assessment of Risk to Development Outcome

Rating: Significant

Government commitment that insists on transparent solicitation and transaction processing has not been demonstrated. If such commitment is forthcoming the technical competencies of the institutions established (IIFC and IDCOL) as well as the line ministries can ensure sound structuring of investment projects.

The demonstration effect of Meghnaghat financed by PSIDP is difficult to asses but the fact that none of the opaquely processed IPPs over the last 5 years or so have reached financial closure is in part due to the competitive outcomes resulting from Meghnaghat. The transparent and competitive process that was followed for it (and also for Haripur), the low price that resulted and its operational record of high reliability since commissioning provide a high standard against which proposed projects can be benchmarked.

5. Assessment of Bank and Borrower Performance

5.1 Bank Performance

(a) Bank Performance in Ensuring Quality at Entry

Rating: Satisfactory

The project was included in the first Quality at Entry report conducted by the Quality Assurance Group and was rated overall as highly satisfactory. Aspects of the project that scored highly satisfactory were its Concept, Objectives and Approach; Technical and Economic Aspects; and Readiness for Implementation; Risk Assessment and Sustainability.

All other aspects were rated satisfactory i.e. Environmental Aspects; Poverty and Social Aspects; Institutional Capacity Analysis; and Bank Inputs and Processes.

The project design assumed that PSIDP would support major sub-projects where the private sector would have majority ownership. This was reasonable at the time the design was finalized given the pipeline of major sub-projects and the substantial degree of foreign private sector interest. Thus, sub-projects with other forms of private sector participation such as joint ventures, concessions and management contracts were not envisaged for PSIDP support. In addition some kinds of infrastructure were excluded e.g. captive power generation (i.e. industry owned generation capacity). In retrospect, the design of PSIDP was unnecessarily constrained in what it could finance. If other kinds of public-private sector arrangements and more types of infrastructure had been eligible and if IDCOL had been able to participate in their financing, these could have catalyzed the project.

(b) Quality of Supervision

Rating: Moderately Unsatisfactory

As may be inferred from the number and extent of reviews of procurement in several sub- projects proposed for PSIDP support (see Box 2 above), the project received considerable supervision effort in the context of these reviews.

As the project progressed, and it became clear very few sub-projects were being developed in a way that would make them eligible for PSIDP support, Bank sector staff and management responsible for supervising the project grew increasingly skeptical that the objectives of the project would be realized absent implementation of far reaching sector reform measures and improvement of sector governance. In addition, similar projects to PSIDP involving financial intermediation for private financing of infrastructure (e.g. in Sri Lanka) had not performed well. Consequently sector management and staff formed the view after 2001 that the project was inherently flawed and that the Bank’s supervision effort would not succeed in turning the project around.

During 2004, Bank supervision of the project questioned the role of IDCOL in the design. This view held that IDCOL had not been able to act as a commercially oriented entity but acted rather as an agent of government. In addition, the supervision team took a negative view of the way in which IDCOL was the sole beneficiary of reflows from the sub-loan to Meghnaghat (the interest spread and principal repayments under the sub-loan revert to a special fund which is segregated from the standard Government budgetary processes and can be allocated only by the IDCOL Board). Disagreement on these issues had a negative effect on the relationship with IDCOL at this time. .

The Bank was proactive and forceful in urging successive governments to address governance issues in the power sector. For example in her capacity as Chair of the Local Consultative Group, the World Bank Country Director wrote to the Prime Minister in 2004 to point out that as a result of a pattern of questionable tendering and re-tendering by GOB of power generation projects, no new generation projects were brought on stream in the two year period through September 2004. While on visit to Dhaka in August 2005, the World

Bank President was quoted in the Bangladesh press ‘Big power projects unfortunately are one of the principal targets for corruption. So, that is an area where reforms are necessary.’

Supervision of the project in the Bank passed from the energy group SASEI in the South Asia region to the private sector group in December 2003 and back again to the SASEI in February 2005. This discontinuity had a negative impact.

Rating: Moderately Unsatisfactory

It was inevitable given its long life that the composition of teams supervising the project would change. It was perhaps not so inevitable that the Bank approach to the project would undergo such discontinuity in approach leading to loss of ownership on the Bank side.

During long periods insufficient Bank expertise was mobilized to address the lack of deal flow to which a somewhat hands-off approach was followed. This reflected a period when the Bank also gave greater attention to sector policy reform issues to the detriment of getting investment projects prepared and implemented.

Both the Bank and Borrower can also be faulted for not carrying out a mid-term review of the project. Failure to carry out the MTR seems to have been in part due to the perception that the project faced lack of deal flow obviating the need for an in-depth assessment of implementation experience that would have provided grounds and directions for restructuring the project.

5.2 Borrower Performance

(a) Government Performance

Rating: Moderately Unsatisfactory

A lack of transparency in procurement of infrastructure projects played a role in reducing the deal flow. It may be inferred that failure to establish IIFC in a timely fashion or to empower and resource technical units in the line ministries in a way that would have made them effective agents in improving transaction processes was reflective of then weak government commitment to ensuring competitive transparent procurement of sub-projects. As a result no new large power generation projects with private sector participation have been constructed since 2002 to date.

(b) Implementing Agency or Agencies Performance

Rating: Bangladesh Bank Satisfactory Ministry of Unsatisfactory Communication/Roads Highway Department Directorate of Secondary and Satisfactory Higher Education (MOE) Local Government Moderately Satisfactory Engineering Department IIFC Satisfactory IDCOL Satisfactory PKSF Moderately Satisfactory Directorate of Non-Formal Moderately Satisfactory Education

Rating: Moderately Unsatisfactory

Competitive transaction processes were used to secure two IPPs (Haripur and Meghnaghat) that are “world class” due to the very competitive price of power produced from the plants, their cost, and their excellent operating and environmental record. However these processes were not mainstreamed in subsequent infrastructure development. The rating of Borrower Performance is justified by the achievement of having demonstrated competitive procurement processes in the case of the Meghnaghat that was financed with PSIDP and by subsequent failure to mainstream the processes.

6. Lessons Learned

The project’s main instrument – an infrastructure fund – was not sufficient to catalyze private sector investment absent government commitment to ensure solicitation of sub-projects through transparent and competitive process. Although the project had technical assistance components to assist line ministries in sub-project preparation this was ineffective in a weak governance environment.

The original project design envisaged that IDCOL would finance major greenfield investment projects with majority private sector ownership. Other forms of private sector projects such as joint ventures were not envisaged. If other kinds of public-private sector arrangements and more types of infrastructure had been eligible, IDCOL could have built a more diversified portfolio of investments that could have catalyzed the project.

Bank assessments of other projects like PSIDP involving financial intermediaries similar to IDCOL that are agencies of government but at the same time independent of government have concluded that such structures are inherently flawed due to governance and control

issues stemming from acting as a fiduciary without a clear mandate and clear delegation of responsibility. However this does not appear to have been the case in the PSIDP project as IDCOL did in fact demonstrate its competency when it financed the Meghnaghat sub-project under PSIDP and in subsequent project financings without PSDIP support. In addition as the experience of financial intermediaries such as the Infrastructure Leasing and Financial Services company and IREDA in India would suggest, it is not impossible in principle to establish such public sector agencies with a high degree of professional competence that are able to act entrepreneurially with operational independence at arms length from government.

Reform of the infrastructure sectors has advanced in Bangladesh under successive governments. For example, in the power sector, there has been restructuring and unbundling of previously integrated utilities and policy for private investment in generation has been put in place. Reform in other areas, notably price reform and governance in public sector entities has lagged. Being responsive to country conditions requires donors such as the World Bank to build their engagement on the reform initiatives that the government has taken, to assist with those reform steps the government can pursue in the near term and to acknowledge that some reforms will have to await favorable political circumstances. There is considerable scope in Bangladesh for the World Bank and other donors to design projects that build on reform initiatives undertaken. The power sector projects that the Bank has under implementation and preparation demonstrate this (section 2.5 above) by supporting institution building in newly created entities and by supporting investment projects that are vehicles for knowledge transfer across a wide range of core sector competencies such as system planning, operation of advanced technology, procurement, human resource development, financial and environmental management. In tandem with such projects, dialogue on sector policy issues such as long term financing strategy is being pursued.

7. Comments on Issues Raised by Borrower/Implementing Agencies/Partners

(a) Borrower/implementing agencies

Issues raised by Borrower/implementing agencies include: • Delay in making IIFC operational • Ineligibility of some kinds of infrastructure for PSIDP financing such as captive generation owned by industry • Procurement rules of IDA that prevented use of PSIDP funds for some sub-project proposed

It is undoubted that delay in making IIFC operational meant that in the early years of the project it was not available to line ministries as a source of technical expertise and facilitation.

The project design assumed that PSIDP would support major sub-projects where the private sector would have majority ownership. Sub-projects with other forms of private sector participation such as joint ventures, concessions and management contracts were not envisaged. In addition some kinds of infrastructure were excluded e.g. captive industrial power generation capacity. In retrospect, the design of PSIDP was unnecessarily constrained in what it could finance. Its success was thus dependent on the major sub-projects with

majority private sector ownership being successfully realized. If other kinds of public-private sector arrangements and more types of infrastructure had been eligible and if IDCOL had been able to participate in their financing, these could have catalyzed the project.

IDA procurement rules were a contentious issue in the project when some sub-projects proposed for PSIDP financing were deemed not to have complied with key requirements of international competitive bidding. In the case of the Haripur IPP for example, since the selection process for the concessionaire had started with a list of pre-existing unsolicited proposals, review by the Bank found that all potential sponsors had not been canvassed and thus Haripur could not be financed using PSIDP although IDA did support it with a Partial Risk Guarantee (which requires procurement in accordance with established private sector or commercial practices which are acceptable to the Bank). It is may be noted that in the case of the Sirajganj project (see Box 2 above) the Bank did provide its no objection to selection of the sponsor even though the Bank found the process deficient. It was then disappointing that subsequently the Government chose to re-tender the sub-project.

(b) Cofinanciers

DFID: We have no substantive comments - the lessons learnt are very relevant.

CIDA: No comments available.

Annex 1. Project Costs and Financing

(a) Project Cost by Component (in USD Million equivalent) Appraisal Estimate Actual Estimate Percentage of Components (USD millions) (USD millions) Appraisal FINANCING FOR PRIVATE 225.00 98.75014002 43.88 PARTICIPATION

TECH. ASSIST. FOR ON- 7.00 3.61637008 51.66 LENDING ACTIVITY

TECH. ASSIST. FOR STRENGTHENING GOB

CAPACITY TO REALIZE 3.00 3.07359532 102.45* PRIVATE SECTOR

INVESTMENT IN INFRASTRUCTURE PROJECTS. FINANCING FOR EGCB 0.00 0.00 0.00 ASSETS (SIDDHIRGANJ) Reallocated Funds 0.57559544 Primary Road Networks 32.00 1.8

17.28981369 Secondary Road Networks 25.00 69.16

8.79253713 Municipal Infrastructure 11.00 79.93

20.67483029 Primary Schools 26.00 79.52

4.04664725 Secondary Schools 5.00 81

10.679775.66 Livelihood Restoration 10.00 106.8*

46.383652.63 Quick Disbursing Support 45.00 103*

IIFC support for private sector infrastructure including RAPSS 3.3 0.595038.00 18 Fund

Total Baseline Cost 235.00 214.477995 91.26

Physical Contingencies 0.00 0.00 0.00

Price Contingencies 0.00 0.00 0.00 Total Project Costs 0.00 0.00 0.2152+0.1821 Project Preparation Fund 0.65 61.12 =0.3973 Front-end fee IBRD 0.00 0.00 .00 Total Financing Required 235.65 214.875 91.18

(b) Financing Appraisal Actual/Latest Percentage of Type of Estimate Estimate Source of Funds Appraisal Cofinancing (USD (USD % millions) millions) Borrower 0.36 0.35 77.2 CANADA: Canadian International 7.50 7.50 100 Development Agency (CIDA) International Development Association 235.00 214.5 91.3 (IDA) UK: DEPT. FOR INTERNATIONAL 3.50 3.50 100 DEVELOPMENT * due to US Dollar /XDR conversion.

Annex 2. Outputs by Component

The project had two components - project financing and sub-project5 transaction development.

Project Financing Component: The financing component was designed to provide support for sub-projects where the sub-project sponsors had reached the limit of mobilizing market based financing. PSIDP provided a long-term debt facility (SDR 159.6 million US$225 million) in form of a line of credit from GOB to IDCOL a non-bank financial institution. The credit proceeds were to be used to provide long-term finance to special purpose entities established for the construction and operation of commercial infrastructure projects on the basis of a subproject pipeline available at appraisal. This component included technical assistance (SDR 4.67 million US$ 7 million) for investment advisory services to strengthen IDCOL’s capacity in project financing.

IDCOL successfully financed the 450MW Meghnaghat power plant with $80 million financing ($20 million senior debt and $60 million subordinated debt). Reflows form this investment were utilized to finance the DNS SatComm VSAT Hub Station and expansion of Pacific Telecom Limited.

IDCOL arranged workshops, presentations and seminars on opportunities for infrastructure investment with potential investors and financial institutions.

Transaction Development Component: The second component was aimed at strengthening the capacity of line ministries and parastatals to undertake transaction development of infrastructure projects for private sector investment. The coordinating institution for sub- project transaction development was the Infrastructure Investment Facilitation Center (IIFC).

IIFC provided consultancy services on investment strategies & transaction development to the following agencies: • Bangladesh Telecom Regulatory Commission • Ministry of Shipping • Bangladesh Land Ports Authority • Power Grid Company of Bangladesh • BEPZA • Bangladesh Inland Water Transport Authority • Chittagong Port authority • Bangladesh Road Transport Corporation • Power Division

5 The ICR for consistency purposes applies the same terminology as the project documents wherein “project” refers to the IDA credit i.e. PSIDP and “sub-project” refers to projects for private sector financing i.e. the pipeline of sub-projects available at appraisal of the PSIDP and later and comprising sub-projects in the power, gas, roads, telecom, and other sectors.

• Energy Division

IIFC has been directly involved in preparing the following policies and regulations • the public switched telephone network (PSTN) regulations (licensing procedures) issued by the Bangladesh Telecommunications Regulatory Commission (BTRC) in 2004. • Private Sector Infrastructure Guidelines in 2004 • Remote Area Power Supply Guidelines (RAPPS) for micro electricity supply enterprises in 2007 • Draft Coal Policy in 2007.

Annex 3. Economic and Financial Analysis

The economic and financial analysis of the PSIDP is carried out for AES Meghnaghat Project which is the only investment made by IDCOL.

This analysis at the ICR stage recomputes the financial and economic analysis at the appraisal using observed data for 2002 through 2006. The analysis projects the net benefits forward till 2022 which is assumed to be the useful life of the plant. The costs and benefits are estimated using constant 2001 US$.

Financial Analysis

The project costs amounted to $300 million with $220 million in debt and sponsor’s equity contribution amounting to $80 million. The spending of the resources was spread over three years between 2000-2002 and the plant began its operations in 2002. The plant sells power to Bangladesh Power Development Board (BPDB), which is distributed to residential and nonresidential consumers in Bangladesh. Therefore, the financial realization to MPL would be the difference between revenues from selling the generated power to BPDB and the capital, fuel, and O & M cost of constructing and operating the plant.

Table 3: Generation: Cost and Financial Revenues Net Fuel Cost O & M Cost Price of Sale of Generation (2001 USD (2001 USD Power (2001 USD) (MWH) Million) Million) 2002 287207 2.79 0.22 1.35 2003 3028695 29.32 2.54 1.35 2004 3014638 29.43 2.24 1.46 2005 3225046 29.30 2.00 1.58 2006 2712141 23.11 3.39 1.69 Source: Globeleq

The financial NPV and FIRR are estimated to be $11 million and 11 percent respectively, discounted at 10 percent over the life of the project. The financial returns are relatively modest. However, the investment of US$ 300 million for a 450 MW power plant with a tariff of USD 0.03/kWh with good plant availability and off-take can be considered a financially viable project particularly in the context of Bangladesh with nascent experiences with independent power producers. The sensitivity analysis reveals that FIRR increases to 21% if the sale price is assumed to increase to $0.04/kWh.

Economic Analysis

In order to estimate the economic valuation of MPL, two elements are needed. First, an indicative value of the economic value of the sale price to BPDB or a consumer willingness to pay for the newly generated power is required. This would depend on the cost of the counterfactual. What would have happened if the power plant was not built and what would the consumers pay in the absence of power? The consumers (both residential and non-

residential) would continue to depend on a second best (substitute) fuel that can meet their energy needs. As the plant supplies electricity to primarily urban consumers, the substitutes are assumed to be available in the market at a specific price. For lighting, the second best alternative is kerosene. For cooking, either gas or woody biomass is utilized and the use of electricity is negligible in Bangladesh. Running motive power is most important use of electricity for industry, water lifting and irrigation. Non-residential consumers employ diesel or gas engines instead of electrical motors if electricity is not available. Therefore, lack of electricity for residential consumers will cause lack of light only and for nonresidential lack of electricity will cause lack of light and running a motor.

The willingness to pay (WTP) for the power generated from MPL can be expected to be similar to the current prices paid by consumers using gas, diesel, and kerosene to satisfy their energy demands. The current price for kerosene and diesel is 40 Taka/liter and CNG prices are $1.14/mcf. The market price for gas is much lower than the economic value of gas at $4.5/mcf assumed to estimate the economic fuel cost of the plant.

If approximately similar proportions of residential and non-residential consumers in the population are assumed, a simple average of the individual prices for each use weighted by the respective population results in a price of 8 Taka/kWh. This estimation is similar compared to the WTP computation by ADB for the Power Sector Master Plan where a lower bound of 8 Taka/kWh and a higher bound figure of 14 Taka/kWh emerged.

Table 4: Alternatives to Electricity to Meet Residential and Non-Residential Needs Residential Non-Residential WTP Proportion in 0.5 0.5 (taka/kWh) Population Use Lighting Cooking Lighting Running Motors Proportion in 0.5 NA 0.15 0.175, 0.175 8 Population Fuel Used Kerosene LPG Kerosene Gas, Diesel Fuel Prices 11 NA 11 1 (Taka/kWh) Note: Electricity is not a commonly used option for cooking

Second, the economic value of gas used in operating the plant is computed. The gas price in Bangladesh is regulated and kept below the economic cost which would take into account the scarcity value of gas. A value of 4.5 $/mcf is assumed to arrive at the gas economic cost.

Table 5: Economic value of gas Total gas Net heat Actual Gas Total gas economic rate Net Gas calorific Gas economic economic cost (BTU/ generation requirement value requirement cost cost ($ M/ Year kWh) (kWh) (BTU) (mcf) (mcf) ($/mcf) ($/mcf) mcf) 2002 7696 287207000 2.21035E+12 1033770 2138140 4.5 7055862.3 7.06 2003 7696 3028695000 2.33088E+13 1033770 22547411 4.5 74406455 74.41 2004 7696 3014638000 2.32007E+13 1033770 22442762 4.5 74061115 74.06 2005 7560 3225046000 2.43813E+13 1033770 23584886 4.5 77830124 77.83 2006 7607 2712141000 2.06313E+13 1033770 19957299 4.5 65859085 65.86 Note: 2004, 2005, 2006 figures from annual operating reports

Meghnaghat Project Background

The project company that developed the project was AES Meghnaghat Limited (AESML) wholly-owned by AES Corporation, Inc. ("AES" or "Sponsor") of the United States. The power plant consisted of a 450 MW combined cycle gas turbine ("CCGT") power plant built on a 70-hectare site located at Meghnaghat, north of the Meghna River approximately 27 kilometer south of Dhaka. The project was built by two Hyundai group subsidiaries, namely, Hyundai Engineering and Construction Company Ltd. (“HECCL”), providing installation, erection and construction services and Hyundai Heavy Industries Company Ltd. (“HHICL”), responsible for supply of major equipment. Major equipment components include two gas turbine generators manufactured by Ansaldo Energia s.p.a. of Italy under a licensing arrangement issued by Siemens GmbH of Germany; two heat recovery system generators manufactured by Vogt-Nem, Inc. of the USA ("Vogt"); and one steam turbine generator manufactured by Fuji Corporation of Japan ("Fuji").

At the time, the 22-year agreement secured the world's lowest tariff for BPDB, with the Development Board taking the electricity generated up to 85% plant load factor.

In 2003, CDC Globeleq paid around $437 million, including equity and assumed debt, for the 450MW Meghnaghat and 360MW Haripur plants in Bangladesh.

Annex 4. Bank Lending and Implementation Support/Supervision Processes

(a) Task Team members Responsibility/ Names Title Unit Specialty Lending Team Leader S. V. Iyer Financial Analyst SASEI

Legal issues on private Peter Kyle Sr. Legal Counsel Legal sector ASM Bashirul Huq Sr. Energy Specialist SASEI Energy Specialist Infrastructure Arun Banerjee Team Leader, E&I SASEI Specialist and Economic Analysis Ramesh Ramankurty Environment Specialist SASEN Environment Ismail Mobarek Lead Infrastructure Specialist SASEI Ports Thampil Pankaj Lead Infrastructure Specialist SASEI Highways Pedro Correira da Silva Country Lawyer Legal Lawyer Owaisse Sadat Team Leader, PSD & F SAFP PSD John Sachs Financial Analyst Financial Analysis Janice William Panelzuela Operations Analyst SASEI operations

Supervision/ICR Livelihood Shamsuddin Ahmad Sr Financial Sector Spec. SASFP restoration Zahed H. Khan Sr Urban Spec. SASEI Urban development Pema Lhazom Operations Officer SASHD Education Primary and Mohi Uz Zaman Quazi Sr Transport. Engr. SASEI Secondary roads Reefat Sultana Project Analyst SASEI -Do-/ICR Livelihood Sadruddin Muhammad Salman Operations Analyst SASFP restoration Kyran O’Sullivan Sr. Energy Specialist ETWEN ICR

(b) Staff Time and Cost Staff Time and Cost (Bank Budget Only) Stage of Project Cycle USD Thousands (including No. of staff weeks travel and consultant costs) Lending FY96 66.34 FY97 158.13 FY98 49.07 FY99 1.74 FY00 2.51 FY01 0.00 FY02 0.00

Staff Time and Cost (Bank Budget Only) Stage of Project Cycle USD Thousands (including No. of staff weeks travel and consultant costs) FY03 0.00 FY04 0.04 FY05 0.00 FY06 0.00 FY07 0.00

Total: 277.83 Supervision/ICR FY96 0.00 FY97 0.00 FY98 25.79 FY99 54.05 FY00 49 102.31 FY01 33 82.74 FY02 13 36.02 FY03 16 42.88 FY04 32 122.91 FY05 20 52.06 FY06 28 27.99 FY07 21 24.37

Total: 212 571.12

Annex 5. Beneficiary Survey Results:

N. A.

Annex 6. Stakeholder Workshop Report and Results:

N. A.

Annex 7. Summary of Borrower's ICR and/or Comments on ICR

Overall Assessment

The PSIDP has brought benefits to the people of Bangladesh through development of infrastructure in private sector by providing support on capacity building, debt financing and mobilization of capital; restoration of infrastructures and livelihood damaged by the floods. The PSID part by IIFC did exceptionally well. It has been working under PSIDP TA support to strengthen GOB capacity to secure private investment and expertise in infrastructure projects. Under this, IIFC has been structuring several infrastructure projects for private participation and providing support to the line ministries to bid out these projects for ownership and operation by private sector on long term basis. IIFC has already provided significant support in power, roads and communication, water supply, capacity building of various ministries and line agencies. In addition to developing and structuring several infrastructure projects in several sectors, it has been working on preparing a few policies such as Private Sector Infrastructure Guidelines (PSIG), Coal Policy, Captive Power Policy, RAPSS Guidelines and other sectoral restructuring work.

The Meghnaghat-1 IPP a large base-load private sector power plant was financed and built under PSIDP with US$ 80 million IDA debt-financing through IDCOL. This has been supplying reliable and cheap power to the national grid since 2002. Later on, IDCOL tried hard to finance in the pipeline projects in power, transport, port, container terminal, telecom and other sectors but due to different factors including restrictions on use of funds and ineligibility of some kinds of infrastructure, the rest of about US$ 145 million IDA fund could not be utilized.

Implementation of the Project

The overall support provided by World Bank in familiarizing PPP concept and promoting project on PPP models was praiseworthy, except for the two years delay in inception for establishing IIFC. In addition, the support from DfID and CIDA to IIFC was very good and appreciable, by providing consultancy support in the initial phase of the project. The rapid drawdown arrangement worked well, as Ministries and agencies could obtain consultancy support very rapidly. However, there was tremendous pressure from the DfID and CIDA supported consulting firms to draw more consultants’ effort (billing) in the early phase. This support could be more effective after creating some sort of enabling environment for private sector investment; like, development of policy, law, guidelines, etc.

The emphasis in the project design should have been given to the Project Development Function so as to generate more infrastructure projects (and hence businesses, generating employment and giving a service to the nation) and then concentrate on the financing arm to provide financing those sub-projects, only where there is a shortfall and commercials banks do not come forward.

The IIFC was started two years late, in late 1999. Under the Bank’s sliding scale system, IIFC had already lost 62.5% of its eligibility-weighted fund utilization time by the time it became operational. This was a serious setback for the company. Although this was planned to be corrected at the mid-term review, as the review did not occur, the correction could not be carried out.

Infrastructure Development Company Limited Since its inception, IDCOL considered a number of projects for financing. However, IDCOL only financed Meghnaghat 450 MW combined cycle power project. The following table shows the projects considered by IDCOL and their status:

Table 6: IDCOL Pipeline of Projects Project Disposition IDCOL could not finance the project due to the project's inability AES Haripur Power Project to meet Bank’s international competitive bidding (ICB) guidelines. Sponsor walked away when it could not persuade BPDB to modify Cynergy Baghabari the technical configuration of the plant from open cycle to combined cycle. This "inside-the-fence" power generation project was ruled

LaFarge Cement ineligible for IDCOL financing under IDA guidelines.

Although IDA initially gave no-objection to the issuance of United Summit Comilla 10X3 Preliminary Letter of Support (PLS), later the project was deemed MW Power Project not to be in conformity with ICB guidelines.

AES Meghnaghat Power IDCOL has successfully financed this Project. The project reached Project commercial operation in November 2002. Following receipt of IDA's concurrence, IDCOL issued a PLS for this project. The progress of the project was restrained by a lower SSAB Container Port court judgment that declared the award of the project illegal. The government had appealed against the lower court decision and reportedly lost the appeal. WorldTel Fixed Line IDA has expressed reservations regarding proposed operator of the Extension project. This project did not qualify as physical infrastructure. Imperial Hospital

IDA initially declined to provide no-objection because the project Sirajgonj Power Project would require disbursement after the PSIDP closing date.

Some of the above-mentioned projects however materialized with financing from other sources outside the scope of PSIDP. If IDCOL could have participated in all or most of the above projects, all the funds under PSIDP would have been exhausted within the original project closing date. But project eligibility criteria under IDA credit had been very restrictive. Therefore, IDCOL had very limited options for financing the projects.

Operational Experience

Infrastructure Investment Facilitation Center

From an organisation structure point of view, IIFC was created as a procurer of consultants (the “Procurer Model”) by the UK based consultants Profina Associates. Immediately after starting activities, IIFC strongly advocated, and obtained concurrence from the World Bank that IIFC should act as the provider of consulting services (the “Provider Model”) to line ministries and agencies. IIFC provided consulting services and the recommendations to the line ministries to implement. This approach required a larger in-house expertise. However, IIFC has been able to go on a path of commercialization by providing consultancy services to many line ministries, their agencies, donors and private sector.

Infrastructure Development Company Limited

Despite considerable demand in the market, IDCOL could not exploit the opportunities due to constraints imposed under the Development Credit Agreement (DCA). However, to facilitate private sector participation and to raise institutional investors’ confidence into infrastructure projects, IDCOL arranged several workshops, presentations, and seminars. These were aimed at introducing investors, development partners (representatives of all the donor agencies), local banks and financial institutions with IDCOL’s services, selection of private sponsors for infrastructure projects through international competitive bidding, and clarifying difference between project finance and other forms of traditional loans.

IDCOL also made two presentations, one for the ICT sector and another at the Federation of Bangladesh Chamber of Commerce and Industry (FBCCI) to explain in details the revised steps taken by IDA: including relaxed and pragmatic interpretations of ICB guidelines, introduction of local currency loans, and other measures contemplated for utilization of PSIDP funds. New projects that entered in IDCOL’s pipeline afterward were the results of such efforts, which largely promoted private sector participation in infrastructure investments.

The first success of IDCOL was the 450 MW power plant at Meghnaghat where it invested US$ 80 million. The re-flows from this investment were utilized to finance the DNS SatComm VSAT Hub Station Project and expansion of Pacific Bangladesh Telecom Limited. Through its successful processing of the Meghnaghat-I (450 MW) private power project, IDCOL gained appreciation not only of the World Bank, but also of the ADB and international banks.

Further, IDCOL was able to attract organizations like ADB, GTZ and Kfw as its donor agencies for its commendable excellence in increasing access to adequate efficient infrastructure services and in promoting private sector participation in Bangladesh financial sector. The Solar Home System program under the Rural Electrification and Renewable Energy Development Project (REREDP), started in 2002, is a remarkable success of IDCOL through which it has been able to finance 110,000 systems up to March 2007 in rural areas of Bangladesh.

Assessment of Outcome

Achievement of Objectives

The financial performance of PSIDP (excluding the PFRAP Components) is provided below, based on the original allocations and the allocations after the restructuring of the project through the PFRAP.

Table 7: PSIDP Financial Performance (US$ millions) (Excluding PFRAP Components)

Fund Fund Revised Utilization Original Disbursed Utilization Components Allocation (%) Allocation Fund (%) after PFRAP on Revised on Original Allocation IIFC (IDA) 3.0 6.3 3.4 112.3 53.9

IIFC (Co-financing by CIDA & DFID) 11.0 11.0 11.0 100.0 100.0

IIFC (Total) 14.0 17.3 14.4 102.6 83.3

IDCOL 232.0 92.0 92.0 39.6 100.0

Total 246.0 109.2 106.3 43.2 97.4

On the basis of the original allocation, the fund utilization of IIFC was 112.3% for IDA and 100% for the co-financing by CIDA and DfID. The fund utilization of IDCOL was 39.6% on the original allocation. With the revised allocation after the restructuring of the project, the fund utilization of IIFC was 53.9% for IDA and 100% for the co-financing. After the credit amendment, the fund utilization for IDCOL was 100%. The assessment of IIFC and IDCOL with respect to the PSIDP Performance Monitoring Indicators set out in the PAD is provided in Attachment A. The assessment indicates that the majority of the indicators have been exceeded under the project.

Infrastructure Investment Facilitation Center The objectives of the PSIDP project and the broad outcomes of IFIC are provided in the table below:

Table 8: PSIDP Objectives and IIFC Achievements

PSIDP Objectives IIFC Achievements

i. Provide access to IIFC has been instrumental in opening up two sectors – one in adequate efficient shipping through the development of BOT land ports and the other infrastructure services in fixed line telephony. In telecommunications, backbone optic fiber network of PGCB has also been leased out through IIFC assistance. Additionally, several innovative schemes such as RAPSS and inland container terminals are under development. The new companies created as a result of the IIFC projects is ii. Promote dynamic private provided below: sector participation in provision of infrastructure Name of the Company Business 1. Banglabandha Land Port Limited Ports 2. Shepherd Comilla Land Port Limited Do 3. Birol Land Port Limited Do

4. Panama Hili Port Link Limited Do 5. Panama Sonamasjid Port Link Limited Do 6. United Land Port Teknaf Ltd. Do 7. Ranks Telecom Telecom 8. Dhaka Telephone Company Do 9. National Telecom Do 10. Tele Barta (Jubok Phone) Do 11. Jalalabad Telecom Do 12. Westec (Bay Phone) Do 13. One Tel Communication Do 14. Bangla Phone Do The creation of the large number of companies reflects IIFC’s success is making the private investors come forward in the infrastructure sectors. iii. Develop appropriate IIFC has been directly involved in the following policies and policies and regulations regulations: for private sector a) The public switched telephone network (PSTN) regulations participation issued by the Bangladesh Telecommunication Regulatory Commission (BTRC). b) Bangladesh Private Sector Infrastructure Guidelines prepared by the Prime Ministers Office, leading to the creation of the Private Infrastructure Committee (PICOM) c) Captive Power Policy d) The Remote Area Power Supply Systems (RAPSS) Guidelines

PSIDP Objectives IIFC Achievements e) The Bangladesh Coal Policy (under approval) f) Several concession agreement packages for public-private- partnerships(PPP), such as for: i. The land ports ii. RAPSS iii. Optic fiber cables iv. Inland container terminals iv. Enable flow of private The companies in item ii above are organizing their commercial investment in the form of debt and equity financing. For example, a syndicated facility of commercial equity and BDT 1.01 billion was carried out for RanksTel by 12 financial debt financing for institutions led by IIDFC. infrastructure projects

v. Enhance Governments All executing agencies that have been the clients of IIFC have capacity to attract and significantly benefited and developed their capacities to attract realize private sector private sector investment. The major ones are: interest and investment a. Bangladesh Telecom Regulatory Commission in infrastructure b. Ministry of Shipping projects. c. Bangladesh Land Ports Authority d. Power Grid Company of Bangladesh Ltd e. BEPZA f. Bangladesh Inland Water Transport Authority g. Chittagong Port Authority h. Bangladesh Road Transport Corporation i. Power Division j. Energy Division Note: Under the Private Sector Infrastructure Guidelines, there is an extensive training programme being planned, with the support of the PICOM (BOI) and the Bangladesh Bank.

Infrastructure Development Company Limited

IDCOL had access to SDR 159.6 million for financing eligible infrastructure projects. However, due to restrictive nature of IDA credit IDCOL only financed SDR 61.892 million in a 450 MW power plant. The remaining SDR 97.7 million was reallocated for Post Flood Recovery Assistance Program (PFRAP), and the DCA was revised accordingly. Despite the limitations, IDCOL could report the following successes: IDCOL successfully conducted due diligence and loan negotiations of AESML 450 MW Power Project, the only project it was allowed to participate in. IDCOL has invested US$ 80 million in the project. IDCOL is successfully implementing a major part of the renewable energy component of the Rural Electrification and Renewable Energy Development Project (REREDP).

IDCOL has experienced a successful investment advisory services technology transfer. Since June 2002, IDCOL is doing all its financial, engineering and legal due diligence work of its own without any foreign technical assistance. IDCOL has become a self-financing organization independent of financial support under PSIDP from IDA (except for IA services) or GOB. It is meeting its operational expenses and has purchased office space from its own resources.

Assessment of Outcome

Companies Rating of outcome

Infrastructure Investment Facilitation Center MS

Infrastructure Development Company Limited MS

Assessment of Risk to Development Outcome

Infrastructure Investment Facilitation Center After the end of PSIDP, IIFC is expected to become a commercial organization. However, many of its mandated activities do not have strong earning potential (e.g. poverty alleviation infrastructure such as RAPSS, innovative ideas etc.). In IIFC’s activity focus, these are likely to suffer in the long-term.

Infrastructure Development Company Limited No significant risk was identified for development outcome.

Evaluation of Borrower’s Own Performance

Evaluation of Government’s and Implementing Agency’s Performance

Implementing Government’s Overall Companies Agency’s Performance Performance Performance Infrastructure Investment Facilitation S S S Center Infrastructure Development Company S S S Limited

Infrastructure Investment Facilitation Center

1. A large portion of TA provided to IIFC was from DfID and CIDA under a drawdown concept with two consultant consortiums led by KPMG and Canada Bangladesh Infrastructure Consultants (CBIC). The arrangement had the advantage of very high speed of mobilization (well liked by ministries and executing agencies). The disadvantages were that consultants were generally more experienced in technical areas, environmental areas and gender issues. Knowledge of public-private-partnership (PPP) transactions was lacking6 in many cases. As a result, project progress slowed down, while consultants focused on issues considered not fundamental for the project. Moreover, one single factor deterred IIFC in effectively controlling the consultants – there was no provision for IIFC to sign or approve the consultant’s invoices. DfID carried out a mid-term review and most of their recommendations possess a lot of merit for a future grant-funded project. 2. The grant-funded consultants were engaged by DfID and CIDA before IIFC became operational. As a result, IIFC had limited ability to influence the arrangements between the consultants and IIFC for receiving the technical support. 3. IIFC could never achieve full staffing strength due to the two-year delay in setting it up, lack of financing and inappropriate organizational structure created by Profina Associates that advocated a procurer model for IIFC operation. 4. IIFC has conceived and executed several times, the concept of success-fee based consulting for project development from the initial project recognition to financial close. This is a practice not seen anywhere in the world, for all the phases of project development taken together. The model possesses strong advantages of quick project progression, but due to IIFC’s small balance sheet cannot be applied to larger projects. More study and understanding is needed, with World Bank support, to thoroughly understand it and also encourage private consultants to enter into the area of success fees consulting. 5. Section 5.9 c of the Bangladesh Private Sector Infrastructure Guidelines states that, “To the extent possible, the Executing Agency shall match the technical, financial, commercial, legal and negotiation skills of the Investors. Each Ministry will prepare a plan for capacity building on Private Infrastructure Projects. In addition, the speed and flexibility of employing good consultants shall match that of the Investors”. In order to achieve this, a centralized fund is needed to be set up within the Government that may provide TA funds to executing agencies upon request. Infrastructure Development Company Limited Lack of infrastructure projects in the market was one of the major obstacles in utilization of IDA fund. GOB could increase the creation of opportunities for private participation in infrastructure projects. In future, GOB should provide special attention in this regard.

6 Frequently, it was stated that the rates allowed under the contract could only support such technically oriented consultants and not high-priced commercial/management consultants.

Evaluation of Bank’s Performance

Evaluation of Bank’s Performance on Ensuring Quality at Entry and Supervision Bank’s Performance on Bank’s Performance on Components Ensuring Quality at Ensuring Quality of Entry Supervision Infrastructure Investment Facilitation S MS Center Infrastructure Development Company S MS Limited

Infrastructure Investment Facilitation Center

1. The Project Development Function (e.g. IIFC) and the Project Financing Function (e.g. IDCOL) are two distinct functions necessary for developing and progressing a private infrastructure project through its seven stages of development7. In PSIDP, the Bank concentrated largely on the Project Financing Function. But facilitation in project preparation activities should have also been equally important. Generally speaking, commercial lenders can step in to provide financing, but private sector sponsors cannot step in to develop an infrastructure project. The executing agencies need to have the vision, financial and technical resources of the sponsors for developing an infrastructure business and the government officials are not expected to possess business acumen. The suggestion is therefore for the Bank to concentrate solely on developing the Project Development Function in Bangladesh as this is by itself a very large area. It is to be noted that the role of PICOM is primarily in the Project Development Function area. 2. IIFC was created two years after IDCOL. IIFC should have been created at least two to three years before. The PSIDP design was such that 10 large infrastructure projects were identified in the PAD for IDCOL financing but IIFC was not there to facilitate in the project preparation process. 3. No mid-term review was conducted by the Bank, although it was very necessary in view of IIFC’s start-up delayed by two years, its severe financing constraints and PSIDP being a complicated project (not off-the-shelf for the Bank). 4. The Bank financing modalities for a private infrastructure project and a public infrastructure project are different. These differences relate to (a) the timing of the financial close in the project cycle (b) procurement rules (c) tender documents and the philosophies behind it (d) approvals or concurrences necessary and (e) environmental approvals.

7 The stages refer to that described under the Bangladesh Private Sector Infrastructure Guidelines.

5. The staff of the Bank involved with the project possessed a high level of technical competency and understanding (in some cases, more than that by consultants). By contrast, the Banks processes and procedures are inflexible, slow and geared towards its traditional public sector financed projects. 6. Given that executing agencies have a long history of working on publicly funded projects, where the contract documents are well established and the executing agencies are told not to change or negotiate any clauses, the opposite is true for PPP, being a risk sharing process. The Bangladesh Private Sector Infrastructure Guidelines (PSIG) issued by GOB on PPP projects should be recognized and followed.

Infrastructure Development Company Limited Major shortcoming of PSIDP, as already mentioned, was the restrictive nature of fund utilization. Development of infrastructure facility through private sector participation will be successful once the World Bank adopts flexible instruments for financing such projects. Utilization of SDR 159.6 million fund by IDCOL was subjected to the following restrictions: IDCOL was initially created to provide subordinate debt only. Later the scope was widened to include senior debt as well. IDCOL could not make equity investments although there was considerable demand in the market. Its target market was limited to privately-owned green-fields infrastructure-either utility interactive or for public use- characterized as gas and related power generation, bulk water supply, telecommunications, municipal facilities and information and communication technology. IDCOL could provide only foreign currency loans, local currency loans were not allowed. Its targeted project must meet international competitive bidding (“ICB”) criteria approved by IDA, which was the most constraining factor.

Proposed Arrangements for Future Operation

Infrastructure Investment Facilitation Center The signing of forty-five consulting assignments with ministries and their agencies in its initial seven years of operation indicates the good progress made by IIFC in providing services to client ministries/ agencies and other organizations. IIFC services are in high demand. Many of these projects will make fundamental changes in the country by providing infrastructure services through private financing. IIFC is actively pursuing long-term sustainability and self-reliance. The approach is to become commercially viable by moving from its budget-based funding arranged through the Private Sector Infrastructure Development Project (PSIDP) during its set-up phase, to a long- term sustainable basis through consultancy fee based and success fee based earnings. Over the last seven years of operation, IIFC has been able to create a high demand for its

services among the different ministries, executing agencies and in private sector. Since its inception, one of the main targets of IIFC was to operate on a self-sustaining basis by becoming commercial through earning fees for service. IIFC has introduced an innovative model of engagement like success fees based consulting. It is being well accepted by the executing agencies since they can engage IIFC within one month or less. This unique model of engaging IIFC has certain advantages including ensuring good project recognition, quick mobilization of consultant, ensuring faster progress of projects and speeding up deliverables with the focus of deal making. This model has proven to be successful with different clients and is liked by clients for its advantages and strong in-house consulting skills. IIFC has also participated in a few solicited consultancy works with internationally reputed consultancy firms.

IIFC has provided services to many projects in various areas including power, telecommunications, land ports, policy development and so on. It has developed its capability in project development, project processing, policy development and creation of transactions.

The Government’s recent initiative, the Private Sector Infrastructure Guidelines, is expected to have far reaching impact on the development and implementation of infrastructure projects in Bangladesh through private sector financing. IIFC has actively supported the preparation of the Guidelines, approved by the Government in October 2004. The Guidelines will increase private sector infrastructure projects substantially. With the view of operationalising the Guidelines quickly, IIFC has been appointed as the Technical Advisor to the Private Infrastructure Committee (PICOM). IIFC’s work for PICOM is expected to result in long- term changes in the country IIFC signed agreement with the Bangladesh Bank for two years for providing support for the Investment Promotion and Financing Facility (IPFF) project as Technical Advisor. IPFF will provide support to PICOM, with IIFC acting as Technical Advisor to both PICOM through the Board of Investment (BOI) and the Bangladesh Bank.

IIFC will continue to provide consultancy services to its other clients in areas like power, telecommunications, land ports, water supply, roads etc. IIFC is taking initiatives for the capacity building of both public and private sectors in public private partnership (PPP) concepts. It is developing a capacity building plan for the nation and creating countrywide awareness on PPP and the guidelines.

Infrastructure Development Company Limited While created in 1997, IDCOL’s sole function was to administer the Private Sector Infrastructure Development Fund (PSIDF) and on-lend funds to eligible privately sponsored infrastructure projects. Projects were designed to be funded off-balance sheet and IDCOL was eligible for some up-front and monitoring fees only. It was envisaged that IDCOL’s role as a lender would continue only as long as the international capital markets were unable to meet Bangladesh’s requirements for long term finance for infrastructure projects and then be merged with a private or public financial institution as its project finance division.

IDCOL’s Board in its 83rd meeting dated 17 April 2005 decided to convert IDCOL from a mere fund manager into a full fledged financial intermediary. Subsequently, GOB contributed BDT 350 million to IDCOL as equity and would provide further BDT 150 million shortly. Two land ports, two power plants and one cellular telecom project were financed under IDCOL’s balance sheet. Although IDCOL still remains committed to finance physical infrastructure projects only, in addition to financing large infrastructure, IDCOL now considers small and medium infrastructures for financing.

Apart from large and medium infrastructure projects, IDCOL is the pioneer financial institution promoting renewable energy in remote rural areas of Bangladesh. IDCOL, with the support of its partner organizations visibly changed lives in nearly 110,000 households and businesses in remote areas of Bangladesh through its successful solar energy program. With support from SNV, Netherlands Development Organization and KfW, Germany, IDCOL has undertaken ‘National Domestic Biogas and Manure program’, under which 60,000 domestic size biogas plants will be installed in Bangladesh by the year 2010.

IDCOL’s stakeholders include the government, private sector, NGOs, multilateral institutions, academics and the people of Bangladesh at large. Already supported by the World Bank, Kfw, GTZ, SNV, DGIS, and with likely financing from ADB, IDCOL has emerged as a partner of choice for bilateral and multilateral institutions.

Attachment-A PSIDP Performance Monitoring Indicators At Actual on At Mid-Term At Completion Indicators Start completion (target) (target) (target) Energy 700-800 MW Meghnaghat and Generation capacity in 700 MW 0 under Haripur together private sector operating construction added 810 MW. Gas pipelines in private 100 kms under 100 kms or more 0 0 sector construction operating Other Sectors PICOM Project identified and identified 18 developed for private private sector sector infrastructure participation: projects. (i) identified and/or 2 5 10 0 feasibility stage; Total 10: 5 land ports, 4 RAPSS, one (ii) under procurement optic fibre, one 0 2 3 children’s park and one power project in BEPZA. (iii) under implementation 14 0 0 2

Other Outputs General BOT/BOO BOT/BOO 0 framework in place Completed Under operation framework in

place GOB approved standard security agreements for 3 packages in 0 Completed In use projects in use other sectors (non-energy)

27 major Promotion/road shows by promotional IIFC for attracting 0 At least 2 At least 5 workshops infrastructure

Investment

PSIDP Performance Monitoring Indicators At Actual on At Mid-Term At Completion Indicators Start completion (target) (target) (target) At least US$ 350 realized and Non-GOB guaranteed debt Over US$ 1 At least US$ a further finance in infrastructure 0 billion in 350 committed US$250 million projects pipeline projects equivalent committed At least $200 US$225 IDCOL financing 0 million US$80 million disbursed committed

Annex 8. Comments of Co-financiers

DFID:

We have no substantive comments - the lessons learnt are very relevant.

CIDA:

No comments available.

Annex 9. List of Supporting Documents

Implementation Completion Report No 26684 for Private Sector Infrastructure Development Project, Sri Lanka

Country Assistance Review March 1998, Operations Evaluation Department;

Country Assistance Strategies of September 1996 and March 1998

Private Sector Power Generation Policy of Bangladesh, Ministry of Energy and Mineral Resources, October 1996.

Report No. 17455-BD Bangladesh; Country Assistance Review; March 6, 1998; Operations Evaluation Department

Bangladesh - Post-Flood Recovery Assistance Program - proposed amendments to five Development Credit Agreements; World Bank Board report 2/10/2005

Letter Subject: Possible Power Supply Crisis; Letter from Ms. Wallich, World Bank Country Director to HE. Begum Khaleda Zia, September 26, 2004

New Age, August 22, 2005. http://www.newagebd.com/2005/aug/22/front.html

Identification Mission Aide Memoire, November 24 – December 6, 1995

Office Memorandum, January 25, 1996 Per Ljung

Letter of Bank Acting Head in Bangladesh office to Secretary ERD April 12, 2001. State of the Bangladesh Economy in FY2007 and Outlook for FY2008. Center for Policy Dialogue, June 2007.

Private Power Generation Policy of Bangladesh.

Operational Guidance for World Bank Group staff; Public and Private Sector Roles in the Supply of Electricity Services, February 2004

Project Concept Review Note: Investment Promotion and Finance Facility (IPFF) project. June 24, 2004

Letter Subject: Possible Power Supply Crisis; Letter form Ms. Wallich, World Bank Country Director to HE. Begum Khaleda Zia, September 26, 2004

New Age, August 22, 2005. http://www.newagebd.com/2005/aug/22/front.html

Supervision Missions Aide Memoires, March 19-29, 2007 and December 12, 2006-January 7, 2007

Performance Audit Report for Post Review of Contracts (procurement, financial management and technical) under post flood recovery assistance program, December 2007, Rahman Rahman Huq.

Annex 10: Post Flood Recovery Assistance Program.

The project was not formally restructured. However in March 2005 IDA provided funding of $200 million to the Post-Flood Recovery Assistance program by reallocating unallocated proceeds form five ongoing credits. PSIDP was amended to provide the largest share ($154 million). As the Post-Flood Recovery Program had entirely different objectives to those of the original project it is evaluated separately in the ICR.

Objectives of the Post Flood Recovery Assistance Program. This was to support the speedy recovery of the country and of the affected population, particularly the poor and vulnerable, while emphasizing disaster vulnerability reduction over the long-term

1. Key factors affecting implementation and outcomes

1.1 Project Preparation and Design

During the monsoon and later, between July and September 2004, Bangladesh experienced devastating floods that caused significant damage to the economy, especially key infrastructure (such as housing and buildings; primary, secondary and municipal roads, etc.) and the agriculture sector. With approximately 38% of the country, including the capital Dhaka, already inundated, a localized monsoon depression in late September brought additional flooding to the central and southwest parts of the country.

Subsequently, the World Bank and the Asian Development Bank (ADB) put together a joint cross-sectoral Flood Response Team in response to the Government of Bangladesh’s (GOB) request. This team carried out an assessment of the flood damages and the post-flood rehabilitation requirements and formulated a recovery program in close collaboration with GOB and in consultations with non-government organizations (NGOs), other donors, academics and the private sector; the assessment also included field visits to a sample of affected districts. A joint WB-ADB report, which included social, economic, environmental and sector specific assessments, was finalized in January 2005 with GOB’s comments.

The total impact of the 2004 floods was assessed to be about US$ 2.3 billion (or 4% of the GDP), with 36 million people (or 26.5% of the country’s then population) in 47 (out of 64) districts affected. The GOB and several NGOs did a commendable job in responding immediately to the emergency flood situation by providing cash grants, roofing materials, and by starting food-for-work and cash-for-work programs. In addition, the Bangladesh Red Crescent Society helped reconstruct housing and shelter in several areas and also provided agricultural inputs. The international response amounting US$ 76 million was mainly used for immediate relief and rehabilitation needs, and several bilateral donors channeled their resources through the NGOs for the post-flood relief and rehabilitation programs.

Initially the Bank’s 2004 Post-Flood Recovery Assistance Program (PFRAP) had a three part, unbundled strategy to help Bangladesh respond to these devastating floods. At the time it was conceived, the recovery program aimed to take into consideration (1) short-term

rehabilitation (2) medium-term reconstruction and recovery and (3) longer-term, multi- hazard risk management needs of the country. The PFRAP was financed through the reallocation of US$ 200 million from various categories under five ongoing Credits: (1) Post-Literacy and Continuing Education Project (PLCE, Cr. 3467-BD) (2) Female Secondary School Assistance Project II (FSSAP-II, Cr. 3614-BD) (3) Private Sector Infrastructure Development Project (PSIDP, Cr. 2995-BD) (4) Municipal Services Project (MSP, Cr. 3177- BD) and (5) Fourth Fisheries Project (FFP, Cr. 3276-BD). Given that a large portion of the PSIDP faced imminent cancellation, 77% (US$ 154 Million) of the total reallocation came from PSIDP. Although the Development Credit Agreements (DCAs) for these five projects were amended to accommodate the revised disbursement categories, the Project Development Objectives (PDOs) of the PSIDP were not formally revised.

Initially, the PFRAP had a livelihood restoration component for US$ 10 million which was fully IDA-financed and an infrastructure rehabilitation component for US$178.09 million. The infrastructure rehabilitation component initially included (1) Primary Road Network for US$40 million (Bank financing of US$ 32 million) (2) Secondary Road Network for US$ 31.25 million (Bank financing of US$ 25 million) (3) Municipal Infrastructure for US$ 30.33 million (Bank financing of US$ 26 million) (4) Primary Schools for US$ 49.38 million (Bank financing of US$ 40 million) (5) Secondary Schools for US$ 24.78 million (Bank financing of US$ 20 million) and (6) Fisheries for US$ 2.35 million (Bank financing of US$ 2 million).

A quick disbursing budget support for US$ 45 million was made to GOB to ensure immediate rehabilitation of the affected population, infrastructure rehabilitation, and for economic recovery by financing critically needed eligible imports (which included food grains, edible oils, fertilizer, industrial plant machinery and raw materials).

While the initial targets for some of the above-mentioned components demonstrated a sense of reality, it can be said fairly safely, in hindsight, that most of the initial targets were not fully based on robust assessment and hence tended to be over-optimistic. Due to the monsoon rains, the construction period in almost all areas of Bangladesh is generally limited to only five-six months a year and that, given the short time span of two working (dry seasons) under PFRAP, completion of the post-flood infrastructure construction was constrained. In addition, national political turmoil, especially in the later part of the last year of implementation, took a certain toll on the rehabilitation of some components, the secondary road network in particular. In the light of these problems most of the components were restructured as implementation continued.

The PFRAP’s overall objective and implementation strategy was to support the speedy rehabilitation and recovery of the economy and the affected population, particularly the poor and vulnerable, and at the same time emphasize disaster vulnerability reduction in the longer run. However, no attempt was made to front-load policy conditionality on the project in recognition of the fact that such conditionality would impede the emergency recovery objectives of the program during its rapid preparation and implementation. The program objective, although simple was strategic since it was based on intense interaction and collaboration with GOB, other donors, and stakeholders involved.

1.2 Implementation

Project implementation has been successful with the rehabilitation activities covering infrastructure and livelihoods in almost half of Bangladesh, in 47 districts and 262 upazilas. At Credit closing on March 31, 2007, disbursement averaged 70% with 95% of physical works being completed. Since the success of the emergency assistance depended on the speed of obtaining sustainable results on the ground, effective implementation of post- disaster assistance activities was critical. Emergency recovery operations should take into consideration local implementation capacity and the fact that the capacity might be hindered in the aftermath of a disaster. Anticipating the fact that implementing agencies need to be empowered in order to take timely decisions and to be able to access funds without cumbersome bureaucratic requirements while maintaining acceptable fiduciary controls, actual implementation under PFRAP was assigned to existing project management units (PMUs) or project coordination units (PCUs) under the ministries (except for the secondary school rehabilitation which was implemented by the Education Engineering Department of the Ministry of Education).

Due to the emergency nature of the reconstruction program and the need to minimize the time required to engage new consultants, consulting services were procured, using the sole source selection method, from consultants already employed for existing works under the different projects. Also, the complex multi-sectoral operations needed a lot of central oversight and protracted decision making processes would have to be avoided. In this context, the coordinating role of the Economic Relations Division (ERD) was crucial as it helped speed up the program implementation; in particular, the four biweekly implementation review meetings held in February and March 2007 prevented several works contracts from any cancellation as was initially apprehended.

The evaluation of 14 work packages for the Primary Road network component had been under IDA procurement review and consequently an INT investigation was completed in this regard. Subsequently, in February 2006, IDA processed the cancellation of US$ 36.4 million related to this component due to misprocurement. However, this entailed the cancellation of US$ 4.4 million from the other components’ ongoing implementation activities, in addition to US$ 32 million cancelled from the Primary Road allocation; as a result works in the other sectors/projects were affected as well. [Meanwhile, the Roads and Highways Department (RHD) has made a refund to IDA, an amount for approximately US$ 3,000 is still to be refunded.] Cancellation of these funds has put a dent on GOB’s commitment to the flood program and on overall governance in donor-aided projects. Since the primary road network component was cancelled, there was hardly any contribution to this important sector under the program. But, as stated above, GOB’s procurement procedures need to be more transparent with due diligence at all stages in order to avoid such cancellations.

It was envisaged at inception that 1,700 kilometers (km) of upazilla Roads, including rehabilitation and reconstruction of bridges and culverts and 13 growth center markets would be undertaken as part of the Secondary Roads component. During implementation these targets were revised to 1,100 km of Upazilla Roads, 13 growth center markets and 1,051

meters of bridges and culverts. Eventually, under PSIDP funding, 888.41 km of the roads, 7 growth centre markets and 832 meters of bridges/culverts were rehabilitated.

Under the Municipal Infrastructure component, 1,350 km of urban roads, 1,125 meters of bridges and culverts, and 42 km of drainage in 119 municipalities were planned to be rehabilitated with IDA financing, including US$ 11 million under PSIDP and US$ 15 million from the MSP. The re-fixed targets during implementation were 620 km of roads, 85 meters of bridges and 7 km of drainage, all of which were completed on time.

However, weak implementation of the bridges/culverts rehabilitation works, compared to the road rehabilitation, has raised the concern that overall road connectivity, for the secondary road network as well as in the municipal infrastructure component, may not be fully adequate. 4 contracts and 12 partial contracts were cancelled under the secondary road network and under the municipal infrastructure 10 contracts were dropped during implementation.

Under the Primary School component, rehabilitation activities initially included repairs to 17,000 schools and reconstruction of 918 fully damaged schools which would be used as flood shelters in the future. Provision for supplying furniture was also there. The Bank financed US$ 14 million from PLCE and US$ 26 million from PSIDP. For the Secondary School Component, construction of 181 two storied schools/flood shelters, vertical extension of 179 schools and supply of furniture to 360 schools were planned to be financed through FSSAP II (US$ 15 million) and PSIDP (US$ 5 million). Due to duplications of site selection, remoteness of locations, river erosion (land problems), no tender being dropped, etc, the targets for the Primary Schools was revised to cover reconstruction of 746 schools and 69 for the Secondary Schools. In addition, the implementation of the secondary school construction and vertical extension was also contingent upon ensuring sufficient allocation and release of GOB’s Annual Development Program (ADP) fund. For the Primary Schools, the Bank delayed its recovery of the initial deposit of the Special Accounts up to March 2007 in order to help the agencies tackle the demand for uninterrupted cash flow. In addition to the supervision by the executing agencies for implementation of the works in damaged Primary and Secondary Schools, the existing teachers and local school management committees also had an opportunity to supervise and obtain quality construction.

The Livelihood Restoration component, administered through the Palli Karma Sahayak Foundation (PKSF) and its Partner Organizations (POs), consisted of a micro-credit program designed to provide 400,000 loans to eligible families for rehabilitation needs. Recovered funds would also be available for lending in successive years. 119 POs have been selected to disburse the amount of US$ 10 million to 314, 334 borrowers by December 2007 for purposes like renovation of damaged houses, rehabilitation of post-flood microcredit activities, raising tube-well bases, ensuring availability of seeds, providing alternative livelihood for hilsha fry catchers, and the rehabilitation of existing income-generating activities.

However, there was a delay of more than a year for the Livelihood Restoration Program (LRP) which the PKSF had encountered while negotiating with the Ministry of Finance to channel the LRP funds on a grant basis. Although the LRP has been disbursed 100% to 119

POs at the end of the credit, only 36.4% has reached the poor as of April 2007 and the subsequent delivery is expected to be completed by December 2007. This expectation is based on PKSF’s strong institutional capacity; PKSF is also expected to create a permanent Disaster Management Fund (DMF) upon completion of the LRP.

The Fisheries component included rehabilitation of 31 flood affected fish farms under the Department of Fisheries and was fully completed using US$ 2.0 million reallocated from FFP. These were completed on time with no major implementation issues.

1.3 Monitoring and Evaluation (M&E) Design, Implementation and Utilization

The PFRAP identified and supported those sectors where the Bank was already financing regular investments in order to ensure rapid and effective implementation. Each concerned line ministry and department/executing agency was accountable for its respective infrastructure rehabilitation sub-component, and the actual implementation was assigned to existing project management units (PMUs) or project coordination units (PCUs). As such, a large part of the program was implemented by the Local Government Engineering Department (LGED) under the Ministry of Local Government, Rural development and Cooperatives, with which the Bank has had a long and successful working relationship. The LGED, with its existing quality control laboratories and a robust MIS system, could readily provide updated information for ongoing contracts.

However, despite LGED being recognized as a competent implementing agency, several contracts under the Secondary Roads and Primary Schools components had to be cancelled. While there were some extenuating circumstances, such as lack of land, river erosion, remote areas with limited accessibility, etc., LGED could have taken more stringent measures through proactive monitoring and evaluation from the very beginning to ensure timely completion of the cancelled contracts. Six months prior to project deadline (March 31, 2007), ERD took an unprecedented initiative to regularly coordinate and monitor the implementation of the infrastructure rehabilitation and livelihood components that accelerated the implementation and provided IDA with more frequent updates on implementation progress and likely cancellations. This measure helped IDA and the executing agencies to build greater partnership through this complex operation that continued in the ICR preparation process and ended in ERD providing consoloidated Borrower’s comments on IDA’s draft ICR.

1.4 Safeguard and Fiduciary Compliance

Due to the emergency nature of the flood-damage rehabilitation program, an environmental assessment was not carried out. However, a rapid environmental assessment was undertaken as part of the damage and needs assessment exercise. Since the program only supported rehabilitation and reconstruction of damaged infrastructure and school facilities but no new construction, potential environmental impacts were envisaged to be low. The rehabilitation and reconstruction works did not have any adverse social impacts either and no land acquisition and resettlement was involved. The rehabilitation of infrastructure was conducted

on the basis of the environmental and resettlement frameworks that had already been agreed and were being applied under each project.

The program had very large number (2,599) of contracts subject to post review. Recognizing the fiduciary risks on emergency nature of floods operation requiring fast restore damages and economic recovery, IDA contracted a qualified Chartered Accountant Firm to carry out an integrated post review of contracts (combing procurement, financial management and technical review) to determine compliance of operation with defined rules/guidelines of Bank and the Government and assess implementation capacity. The consultants’ assignment comprised of performance audit with respect to procurement, financial management and technical/physical inspection. The report was finalized with review of the executing agencies and IDA. Only less than 0.25% contracts are suspected for major deviation.

Procurement

Overall experience related to the procurement process of PFRAP is mixed: although most of the contracts under implementation picked up pace in the last nine months, there was a substantial number of contracts which could not be completed on time and hence had to be cancelled.

The procurement process of the PFRAP under the credits MSP, FSSAP II and PLCE were in line with the agreed implementation schedule and followed Bank guidelines. The respective executing agencies regularly updated their procurement plans and shared them with the Bank.

Mis-procurement: Cancellation of Credit proceeds for the 14 works contracts under the Primary Roads component amounting to US$ 36.4 Million was done in February 2006. Meanwhile, a suspected case of collusion in bidding for a Secondary Schools contract (NW- 01) is cancelled.

Financial Management

Financial Management progress of some of the components, namely the Primary Schools and Secondary Schools, has been constrained due to the delay in the release of GOB funds and GOB authorization to use IDA funds. Timely issuance of authorization to enable agencies to use IDA allocation and quick release of the funds approved under ADP within the disbursement closing date would have helped physical implementation progress further. The size of the special account for the Secondary Schools had been identified to be an issue hindering smooth flow of the funds in a timely manner and, as such, corrective measures were taken.

Financial Audit

An audit report including audit findings from the five different public entities was submitted to IDA which has been reviewed with suggestions for revisions. However, the Quick Disbursing Support executed by the Bangladesh Bank was not audited by private auditors. The Bank will need to review a consolidated audit report on the PFRAP for the cumulative

period from the inception of the program till the end of FY 06. [The issue was highlighted in the March 2007 Implementation Review Mission Aide-Memoire as well.] Although the ERD has requested the Foreign Aided Project Audit Directorate (FAPAD) to conduct the pending audit, line ministries’ involvement in ensuring the required cooperation from some implementing agencies and more proactive and timely actions from FAPAD is needed.

Disbursement

The revised total amount funded from PSIDP, upon cancellation for the primary road network, is US$ 117.6 million and with a further US$ 46 million allocated from other credits, the total funds allocated for PFRAP was US$ 163.6 million. Of this amount 70% or $114.5 million has been disbursed as of March 31, 2007. A further US$ 10.05 million will be cancelled as part of the contracts cancelled under the secondary roads and primary schools.

Post Completion Operation/Next Phase

A post-review work combining Procurement, Financial Management and Technical Audits was started from March 2007 for a period of four months but took longer period to reconcile the consultants’ initial findings with the concerned executing agencies. Being a first such integrated post audit work in the country, it is aimed to highlight the program sustainability including assessing government’s and executing agencies practices of fiduciary/ accountability framework and cover the use of hazard resistant standards and adequate operation and maintenance. Besides a handful post review contracts (16 out to total 2,599) identified to have apparent collusion, there are other shortcomings identified in contract procurement and execution by the consultants that have modest detrimental impact in terms of procurement, FM and technical requirements in infrastructure rehabilitation works. Finally, there is a need to review flood program implementation arrangement and contract packaging for effectiveness in all future flood program design and implementation.

Meanwhile, GOB will review the progress of the on going contracts under the three remaining Credits (MSP, FSSAP II and PLCE) which have not yet closed. If situation so demands, it was agreed that the biweekly meetings with the executing agencies and IDA may restart. Also, the respective implementing agencies will submit bi-weekly progress reports to IDA.

While no specific transition arrangements are envisaged for this emergency rehabilitation project, it will be useful to explore more programmatic approaches to financing disaster recovery, at the sectoral level, including the possibility of innovative IDA credits for this purpose. As is the case in Bangladesh, recovery funding for more regular natural hazards should be treated as a recurrent expenditure and while the exact location and type of hazard will vary from year to year, an average annual cost may be estimated and financed through a revolving fund, a Disaster Management Fund (DMF). The DMF could be funded from regular budgetary appropriations as well as external financing. Also, building elevated roads or two-storied school buildings (which could also be used as flood shelters) in flood-prone areas may also be included in future infrastructure project design.

2. Assessment of Outcomes

2.1 Relevance of Objectives, Design and Implementation

The development objectives, design and implementation remain relevant and are consistent with the country’s ongoing development priorities. It is important that financing activities that are consistent with long-term disaster risk management, which in turn is critical to sustainable economic growth and poverty reduction, become central to the Bank’s Country Assistance Strategy (CAS) and sectoral assistance strategies. The current CAS (2006-2009) emphasizes the fact that the Bank, along with its CAS partners, will support efforts to mainstream disaster management in relevant government institutions and will continue to support the improvements Bangladesh has made in disaster management.

In the case of PFRAP 2004, the premise of emergency disaster relief, in which a rapid response is desirable, is debatable since the Bank did not put the program in place and disburse until several months after the floods started receding in late September 2004. This was because initially the source of funding was not agreed upon although, eventually, the funds for rehabilitation had to be reallocated from several ongoing credits. In comparison, GOB, NGOs, and other international agencies, responded quickly, with the Bank doing so only with the Quick Disbursing component of PFRAP. The experience and lessons from this program following the 2004 floods in Bangladesh will be instrumental for the design and development of future emergency rehabilitation projects in the country.

2.2 Achievement of Project Development Objectives

The PFRAP can be rated satisfactory since it achieved its emergency recovery objectives. Its design objective fed directly into the primary outcome objective of assisting in the recovery of the affected population through supporting flood damaged infrastructure rehabilitation, livelihood revival, and reduction of vulnerability, which was also in line with the country’s Poverty Reduction Strategy (PRS).

The Quick Disbursing Support Component helped ensure successful rehabilitation of the affected population, infrastructure and for economic recovery as it financed critically needed eligible imports.

On the other hand, for the Livelihood Restoration component, PKSF encountered a delay of more than a year while negotiating with the Ministry of Finance on channeling the LRP funds on a grant basis. Speedier decision-making of the Government on channeling the funds to PKSF would have timely benefited the flood-affected poor people upfront. Also, the maximum ceiling of loan size (Taka 3000) for each borrower was insufficient compared to the needs, given the increase in prices of essentials. Additional consultations with all stakeholders could have made this scheme a more pragmatic one which could have benefited the poor significantly.

The Primary Road Network component was dropped from the program altogether following the cancellation of US$ 36.4 million. Given this experience, it is obvious that the GOB agencies and their consultants have to ensure due diligence to the actual requirements of rehabilitation in the context of the unit rates and the resource envelope. Because of these irregularities in this component and the Credit cancellation, the repair and rehabilitation work on the ground was not carried out and the consequent suffering is (still) being borne by the general public.

The Secondary Road Network Component achieved more than 80% of the road rehabilitation, 79% for the bridge rehabilitation and accomplished 76.9% for the growth center markets. The growth centre market management committee as well as LGED should have provided more attention to timely completion of this component. For short term infrastructure emergency rehabilitation needs, small contracts, without multiple slices, might have allowed the works to complete on time and facilitated participation of more contractors.

Reconstruction of the Primary and Secondary Schools faced an inordinate delay initially of almost one year, as it awaited GOB/ECNEC approval of the Project Proforma (PP). However, the executing agencies expedited the procurement process by finalizing preparation of the bid documents during this time and awarded the contracts once the PP was approved. Timely availability of counterpart funding also delayed the implementation of the rehabilitation/reconstruction works. Implementation provided an opportunity to the teachers and local school management committees to supervise the quality of repair and reconstruction of the damaged schools. However in future, it may be considered whether such repair works may be avoided since it is difficult to quantify and supervise such small works spread throughout the country.

Under the Municipal Infrastructure component financed by PSIDP, with works in 52 municipalities in Dhaka division, the decentralized units of the executing agency LGED, were used effectively to monitor and supervise the works instead of creating new implementation units in each municipality. In addition to the revised target of 629 km of roads, 7 km of drainage and 85 m of bridges rehabilitated, a further 900 m of slope protection work and construction of more than 3000 m of retaining wall were also constructed.

2.3 Efficiency

No NPV or ERR was calculated for this emergency rehabilitation project. No financial rates of return were calculated either.

2.4 Justification of Overall Outcome Rating

The overall outcome of the project is rated Moderately Satisfactory, based on the new Guidelines (August 2006) on Implementation and Completion Results Report (ICR).

2.5 Overarching Themes, Other Outcomes and Impacts

(a) Poverty Impacts, Gender Aspects and Social Development:

Rehabilitated infrastructure provides physical connectivity to restore the lost economic activities. The schools provide better facility for education and are very effectively used by the affected people in the 2007 floods and Sidr. LGED’s rural road maintenance program provides livelihood supports to the destitute women.

(b) Institutional Change/Strengthening: The program strengthened the institutional capacity in assessment of damage, design of infrastructures to be restored, construction management and quality control. The post audit review did not come up with gross deficiency in project implementation.

Roads rehabilitated became source of shelters during the 2007-floods and Sidr.

2.6 Summary of Findings from Beneficiary Survey and/or Stakeholder Workshop

Not Applicable.

3. Assessment of Risk to Development Outcome

The overall risk that the project’s development outcomes will not be realized is moderately substantial, since its sustainability is likely -- mostly in terms of follow-on projects which could provide similar short-term emergency rehabilitation support if required (similar to PFRAP 2004) or, looking ahead and learning from this experience, more systematic ways to address post-disaster risks. Emergency projects have to be related to longer-term efforts for disaster management and mitigation.

4. Assessment of Bank and Borrower Performance

4.1 Bank

(a) Bank Performance in Ensuring Quality at Entry

Shortening the initial delays in making the program effective quickly, through reallocations from five different credits, may have helped upfront the affected people since the floods started receding in September 2004 but the Bank loan was effective only from March 2005.

(b) Quality of Supervision

Overall the quality of supervision is rated as Moderately Satisfactory. Implementation issues and solutions were correctly identified and timely discussed with the Borrower. The Bank’s missions had technical experts in all major project sectors who helped solve technical

bottlenecks and ensured better coordination among various GOB agencies. The procurement and FM teams provided timely and quality advice. Given complex nature of the operation spreading over 6 executing agencies, this put burden of coordination both within the Bank and with the executing agencies. In retrospect, the Bank may have taken earlier action to formally notify the Borrower about the cancellation of the Primary Road Network Component since it was not until February 2006 that the Borrower was formally informed.

The Bank Performance is rated as Moderately Satisfactory due to points (a) and (b) above.

4.2 Borrower

(a) Government Performance

Overall Government Performance is rated as Moderately Satisfactory. Government showed commitment for implementation throughout the project period but avoiding delays while negotiating with the Ministry of Finance to channel the LRP funds on a grant basis (for the Livelihood Restoration Component) and ECNEC approval of the Project Proforma (PP) for the Primary and Secondary Schools Component would have expedited satisfactory project outcomes. In addition, mis-procurement under the Primary Road Network has put a dent on GOB’s commitment to the overall program.

The coordinating effort from ERD’s side, mostly in the second year of the project execution, by managing five implementing agencies, ultimately led to successful implementation of this type of time-bound emergency rehabilitation project. The fortnightly coordination meetings, chaired by ERD, were found to be very effective.

5. Lessons Learned

PFRAP 2004 addressed mostly investment needs, largely in infrastructure, by allocating funds from five different credits. While this arrangement supported the recovery of the country and of the affected population at the time, it is felt that such an arrangement may be avoided in future. Instead GOB needs to have its own Disaster Management Fund (DMF), which could be funded from regular budgetary appropriations and external financing, to address the vulnerability of the poor during recurrent disasters. The use of the DMF would vary year to year depending on needs and the Fund could also be used to finance recurrent expenditures on mitigation measures.

In addition, tailoring objectives to emergency needs have to be reflected clearly in GOB’s strategic vision and project goals have to be aligned to desirable outcomes on the ground. In this respect, flexible but strict fiduciary and procurement frameworks should be put in place so that project implementation is not delayed. Experienced and adequately trained staff, wherever possible, should be relied upon to ensure smooth implementation. Most importantly, sufficient Operation and Maintenance (O&M) funding has to be ensured afterwards so that the rehabilitated and/or reconstructed infrastructure is maintained at a

certain standard. Future Bank assistance should focus more on improving the institutional framework within which Disaster Management is managed and financed.

For the Livelihood Restoration Program timely decision making of GOB in channeling funds to PKSF could have benefited the actual flood affected people when assistance was sorely needed. Further consultation with various stakeholders could have assessed the maximum ceiling of the loan size at a more pragmatic one; in many cases, the size of the loans (maximum Taka 3000) was insufficient vis-à-vis the actual financial need for disaster preparedness or other disaster rehabilitation activities of the affected people. In addition, helping the poor during a disaster by involving them in different Income Generating Activities (IGAs) is found to be necessary as part of such a rehabilitation program.

For the Primary Roads Component, Roads and Highways Department’s (RHD) public procurement processes need significant improvement to ensure transparency and accountability. Compliance by the RHD (as well as other agencies) in introducing and adhering to the GOB’s Public Procurement Act needs to be strengthened further. Drawing from the mis-procurement case for the Primary Road Network, risk mitigation measures should be introduced early on in future procurements, such as introduction of electronic government procurement (e-GP) which will ensure bidding documents available electronically, electronic submission of bids, and appointment of an independent advisor to ensure due diligence of the bid evaluation process.

It is important to re-examine whether an umbrella approach, such as used in the 2004 PFRAP, is an appropriate and suitable approach since the approaches and types of work, their requirements and concomitant processes (for example, procurement) vary within each sector (and counterpart agency). Alternatively, each sectoral post-flood rehabilitation component could have also been funded from ongoing sectoral investment projects with slight amendments to the DCAs. For example, the MSP already had a flood rehabilitation component with a separate disbursement category in its DCA and this could have been utilized to speedily implement the flood damage rehabilitation requirements of the affected municipalities within the project itself. Also, the Bank’s appointment of a single Task Team Leader to supervise all components of PFRAP covering different sectors, and that only from April 2006, was not a very timely decision. But the strong support and coordinating supervision from the Country Management Unit (CMU) helped disbursement and achievement of the program benefits.

Despite the fact that Bangladesh has made notable progress over the years in its capacity to deal with natural disasters, particularly through strengthening weather monitoring and early warning systems, the endemic nature of natural hazards for a country such as this suggests that disaster preparedness should continue to be a central part of the Bank’s Country Assistance Strategy (CAS). In future a way to establish clear recovery objectives is to explore if investment projects, particularly in the infrastructure sector, can be made ‘disaster sensitive’ by having the flexibility for rapid disbursement and rehabilitation in the event of a catastrophic natural disaster.

Floods being multi-sectoral, coordination within IDA and Government is crucial to assess damage, design and supervise such projects. Program implementation need to be rethought to avoid lack of coordination that ERD took up only at the fag end of PSIDP. Again contract packing needs to be rethought also for speedy implementation as small sized contracts do not draw attention of large/ quality conscious construction firms.

Annex 12. Summary of Borrower's ICR for Post Flood Recovery Assistance Program

Implementation of the Project

Livelihood Restoration Project

For successful implementation of this project adequate stakeholders were involved. General project management was satisfactory, except delay in signing of SGA between PKSF and Ministry of Finance. PKSF engaged adequate staff and management capacity to administer the fund effectively. Through formulation of a Disaster Management Loan Policy (DMLP), PKSF selected POs and sought loan demand from them in more structured ways. Moreover, standard performance indicators were developed for effective monitoring of the project. Being pleased with the effective utilization of fund Government of Bangladesh (GOB) has decided to declare it as grant to PKSF.

Primary Road Network

RHD adopted all sorts of possible efforts to make the project successful. Even consultants were engaged for design and supervision. But due to misprocurement the project was not finally implemented.

Secondary Road Network

Time was a constraint for successful implementation of the project. To achieve the planned physical target within a short span of time of two years was very difficult. In addition, sudden price hike of the construction materials also affected in achieving the full-target.

Municipal Infrastructure

The project was incorporated with another ongoing World Bank financed project (Municipal Services Project). Thus a significant amount of time was saved bypassing the conventional procedure of approving a new project. Considering the limited institutional capacity of the smaller municipalities, the field offices of the LGED were given the prime responsibilities to implement the project. As the numbers of municipalities were quite large (52) and their locations were widely dispersed, the decentralized units of LGED (offices at the sub-district level) were used without creating implementation units at each of the municipalities.

Primary Schools

The project was highly successful. There were no major implementation issues of the project. Approval process of the project was slightly more lengthy than expected. So, the startup of the project was delayed by about six months. LGED used its proven institutional experience and capacity to complete the project timely instead of initial delays.

Secondary Schools

The project took only 12 months to be implemented. Completion of preliminary site survey,

planning, design, soil investigation within scheduled time made the project successful. Timely tabulation of tenders and prompt disposal were experienced in this project. Throughout the project there was satisfactory project management by EED. The provision of responsibility of 80% fund to non-technical Project Director posted from the outside EED and 20% GOB fund controlled by the Chief Engineer caused delay in case of payment to the contractors. But the regular supervision of the field engineers worked as motivational factor for the contractors to implement the project within scheduled time.

Quick Disbursing Support

Timely engagement of required staff and effective management including provision of all inputs by the Bangladesh Bank authority made the project a successful one. Required goods were imported from the countries complying with World Bank Procurement Guidelines. No more than 50% of the component was used in the aggregate for the import of any single item on the positive list. Cost of imports made only after July 2004 was considered eligible for replenishment.

Operational Experience

Livelihood Restoration Project

The experience of this project would encourage PKSF to take realistic and large scale project to face disasters with all out cooperation of World Bank in future. Access to Disaster Management Fund (DMF) along with regular micro credit program has increased the acceptability of the POs among the borrowers.

Primary Road Network

The project was cancelled.

Secondary Road Network

It was experienced that for short-term physical construction operations, small contract would have been the better options rather than taking three-five roads under the same contract. Construction of one road in one contract and one bridge in one contract including one market in one contract would have been the most suitable option for quick construction as well as facilitating the participation of more contractors.

Municipal Infrastructure

LGED provided quality supervisory support, through its district quality control labs, for ensuring timely completion of the packages under the project by establishing a robust MIS system, which provided updated information. During implementation no operational problem was encountered.

Primary Schools

The program was spread over 34 districts. The communities extended their help for site selection and security of the constructions materials. LGED provided quality supervisory support for ensuring timely completion by establishing an MIS system. During implementation, there was no operational problem.

Secondary Schools

Through this project EED gained considerable experience about dealing with a high- prioritized project with limited time and manpower. This experience will definitely help in future to deal with such type of urgent project more systematically.

Quick Disbursing Support

Fund withdrawal time from the World Bank was very short. But authorized commercial banks responded positively. They cooperated to collect the relevant L/C documents promptly.

Assessment of the Outcome of the Operation

Achievement of Objectives

The overall fund allocation and fund disbursement for the PFRAP is illustrated below:

Table 9: Allocation vs Disbursement (in million USD as of March 2007) Fund Components Allocated Fund Disbursed Fund Utilization (%) Livelihood Restoration 10 10.0 100.0 Primary Road Network 32 0.28 0.9 Secondary Road Network 25 14.42 57.7 Municipal Infrastructure 11 6.79 61.7 Primary Schools 26 13.01 50.0 Secondary Schools 5 4.15 67.8 Quick Disbursing Support 45 43.9 97.6 Total 154 91.79 59.6 Exchange rate used 1 SDR = 1.43 US$ Considering that the project implementation period was less than two years, the disbursement (fund utilization) is quite high, especially if the US$ 32 million allocated to RHD, but not utilized due to misprocurement, is taken into account.

Disbursement by the time of the loan closing date is expected to increase, as payments waiting to be disbursed will be completed by that time.

Additionally, many sub-project areas were located in remote disaster affected areas and they could not all be reached within the timeframe of the project.

Livelihood Restoration Project

World Bank disbursed the proposed US$ 10 million to PKSF. Through 119 POs PKSF will disburse the total fund to 3,14,334 borrowers by the end of December 2007. The progress of the project was considered 100%. PKSF is working systematically to successfully achieve the ultimate objective. It is expected that this program would be able to bring positive changes in the lives of flood-affected people by providing them the opportunity to restart economic activities in a more organized way. Due to intervention of the program their awareness towards health care and safe drinking water has also increased. Rehabilitation of various Income Generating Activities (IGAs) has enabled them to increase their household income, which would increase socio-economic status.

Primary Road Network

The project was cancelled.

Secondary Road Network

About 94% of the physical target of the project was achieved. 994 km of upazila roads, 10 growth center markets and 850 meters of bridges/culverts were constructed. Of the proposed US$ 25 million, US$ 1.704 million was cancelled. The main economic benefits of road improvements are expected to save vehicle operating costs and travel time. The main benefits of market improvement are envisaged to be increased market turnover. The project compulsorily ensured involvement of at least 30% women in the construction and maintenance activities and did not allow any wage discrimination between male and female which have ultimately far reaching contribution to the gender equity i.e. empowerment of women.

Municipal Infrastructure

100% operational objective of the project was achieved. Under this project it was planned to rehabilitate 716 km of roads, 18 km of drainage, and 509 meters of culverts/bridges. However, during implementation phase, the targets were re-fixed. Towards the end, 629 km of roads, 7 km of drainage and 85 meters of bridges/culverts were rehabilitated. In addition, 911 meters slope protection work and construction of 3,231 meters retaining wall was also accomplished.

Primary Schools

It was planned to reconstruct 853 flood-damaged primary schools. However, due to duplication of site selection, the revised target was set for 745 schools, which were successfully reconstructed within scheduled time and the overall progress of the project was 87.65%.

Secondary Schools

The objectives of the project were achieved 100%. EED completed the construction of planned 69 institutions with required furniture and tubewells spending US$ 4.15 million against the proposed US$ 5 million financed by the World Bank. Activities of this project are aimed at improving the quality of secondary education in rural areas. An in-house baseline survey to investigate the initial impact of the project in rural population revealed positive impact in the rural life of the people.

Quick Disbursing Support

World Bank gave US$ 43.9 million against the agreed US$ 45.0 million. 100% objectives of the project were achieved. Total amount was transferred to the Government account of Bangladesh Bank for budgetary assistance. The fund was used to purchase food grains, edible oil, fertilizers and machinery parts.

Assessment of Outcome Rating of outcome Components Livelihood Restoration Project S Primary Road Network US Secondary Road Network S Municipal Infrastructure S Primary Schools S Secondary Schools HS Quick Disbursing Support S

Assessment of Risk to Development Outcome

Livelihood Restoration Project

Not available.

Primary Road Network

As the project was cancelled for being misprocured, no risk was identified to development outcome.

Secondary Road Network

The sudden price hike of petroleum and some construction materials was a major risk. Therefore, it is recommended to keep provision for price escalation in the contract. As government initiated its flood rehabilitation works simultaneously through different agencies, there was a possibility to face the shortage of bidder. LGED strongly handled the issue by

motivating the bidders to participate in the bids and overcame the delay due to political unrest by rescheduling the work plan and running all possible works simultaneously.

Municipal Infrastructure

Roads below the normal flood level was raised and rehabilitated with adequate number of cross drainage structures. In vulnerable cases rehabilitation of road works included slope protection and retaining wall. In wet prone locations (inside markets, through water bodies on both sides) RCC/CC pavements were constructed instead of conventional bituminous pavement. The overall risk to development outcome appeared to be low.

Primary Schools

As this was an emergency operation and resources were mobilized from unspent money of existing projects and there was no structured project preparation and appraisal, there was risk of failure in achieving complete development outcome. However, LGED overcame all drawbacks through effective institutional integrity.

Secondary Schools

As the institutions were planned to undertake construction in remote areas, there was possibility of non-cooperation by the local people whether local people would accept the project as a participatory one. Moreover, due to the remoteness, it was really difficult to start works within the scheduled time, which was a significant risk against successful timely implementation of the project. Through effective project management, EED mitigated the possibility of all risks.

Quick Disbursing Support

No significant risk was assessed to development outcome while operating the project.

Evaluation of Borrower’s Own Performance Evaluation of Government’s and Implementing Agency’s Performance Implementing Government’s Overall Components Agency’s Performance Performance Performance Livelihood Restoration S S S Primary Road Network4 S MS US Secondary Road Network5 S S S Municipal Infrastructure S S S Primary Schools8 S S S

Secondary Schools HS HS HS Quick Disbursing Support S S S

The PFRAP was created as a response to the 2004 floods in Bangladesh and a number of projects, notably the PSIDP was restructured to provide funds for it. The Government performance, especially which of ERD, was remarkable in the sense that, without their rapid response, the flood-affected areas would not have received any benefit under this project. Nevertheless, the management of such a large number of projects, through a number of executing agencies was a difficult proposition that ERD ultimately managed successfully. The enormity of the situation can be gauged when the complexities are considered. The PFRAP was planned to implement through five (5) executing agencies in seven (7) projects within a period of less than two (2) years. Both ERD and the World Bank played key roles in accelerating the pace of the implementation. At one stage, fortnightly co-ordination meetings were held in ERD with all stakeholders and the World Bank.

Lessons Learned

Livelihood Restoration Project

To implement Livelihood Restoration Project prompt & timely action should be taken by the all stakeholders. Better coordination is needed among all stakeholders for smooth functioning. Loan size should be determined in accordance with the losses of the affectees. To reduce vulnerability of the affectees different insurance product should be introduced. Steps could be taken to involve the affectees in different IGAs at the time of disaster. Along with instant long-term action plan should be adopted to cope up with disasters.

4 In view of misprocurement declared by World Bank, the project could not be completed satisfactorily.

8 Performance rating based on revised targets.

Primary Road Network

All concerned should take appropriate actions to follow the procurement rules and regulations strictly.

Secondary Road Network

Due to expansion of the road network, necessity of the maintenance cost increases up by 15% annually. It is recommended that the growth center market management committee should provide more training and motivation as well as enforcements.

Municipal Infrastructure

Implementing agency suggested that some sorts of ‘unallocated fund’ in the GOB budget might be more effective for disaster management. Capacity building program for municipal staff to undertake similar activities is necessary. For expeditious implementation of the emergency projects, the government might consider reducing the steps of project approval.

Primary Schools

Not available.

Secondary Schools

The implementation of the project provided a good example of successful co-ordination among EED, contractors and consultant. The operation offered considerable experience for future guidance of EED in implementing similar type of high-prioritized project.

Quick Disbursing Support

Not available.

Evaluation of Bank’s Performance

Evaluation of Bank’s Performance on Ensuring Quality at Entry and Supervision

The World Bank came forward to assist the Government of Bangladesh in a very timely manner during the floods of 2004. In spite of the complexities, the approval processes for restructuring the project was effected quickly, giving sufficient time for the executing agencies to carry out their work before the project closed on 31 March 2007.

Evaluation of Bank’s Performance Bank’s Performance on Bank’s Performance on Components Ensuring Quality at Ensuring Quality of Entry Supervision Livelihood Restoration S S Primary Road Network S MS Secondary Road Network S S Municipal Infrastructure S S Primary Schools HS HS Secondary Schools HS HS Quick Disbursing Support S S

Lessons Learned

Livelihood Restoration Project

The project has been able to achieve remarkable progress due to all out cooperation of World Bank. Long-term relationship between World Bank & PKSF helped for smooth functioning of this project.

Primary Road Network

Not available.

Secondary Road Network

Not available.

Municipal Infrastructure

On emergency government request, instead of following a long process of project preparation, available and identified unspent resources of ongoing projects/ programs may be reallocated to address the urgent requirements of the country. Donors could be more expeditious in implementation of the emergency projects by reducing layers of project approval.

Primary Schools

Not available.

Secondary Schools

Successful implementation of this type of time-bound project depends on good understanding and cooperation between EED and the World Bank.

Quick Disbursing Support

Not available.

Proposed Arrangement for Future Operation

Livelihood Restoration Project

PKSF will create a permanent Disaster Management Fund. After the completion of LRP the fund will be merged with PKSF’s own Disaster Management Fund. This fund will be used as revolving loan fund to provide loan to the disaster-affected persons at the time of disaster or disaster preparedness activities. Along with PKSF, POs will enrich their own Disaster Management Fund.

Primary Road Network

Not available.

Secondary Road Network

In future projects, where the duration is short, small sized contracts should be encouraged in order to avoid implementation delay and broaden the base for participation.

Municipal Infrastructure

Not available.

Primary Schools

On emergency government request, instead of following a long process of project preparation, available identified unspent resources of on-going projects may be reallocated to address the urgent requirements of the country. The GOB and the World Bank could be more expeditious in implementation of the emergency projects by reducing layers of project approval. Site selection of the emergency rehabilitation should be verified before final approval of the government for expediting the implementation and directing benefits to the beneficiaries as early as possible without hampering the regular education of students.

Secondary Schools

This was a closed project and had no scope of future operation unless World Bank funds a similar new project. If a new project is taken up, the experience gathered by EED shall be useful.

Quick Disbursing Support

Not available.