Completion Report
Project Numbers: 40517-013 and 40517-042 Loan Numbers: 2453 and 2454 Grant Numbers: 0253 and 0254 TA Number: 7143 September 2018
Bangladesh: Public–Private Infrastructure Development Facility
This document is being disclosed to the public in accordance with ADB’s Public Communications Policy 2011.
CURRENCY EQUIVALENTS
Currency Unit – taka (Tk)
At Appraisal At Project Completion 24 June 2008 31 December 2014 Tk1.00 = $0.01459 $0.01283 $1.00 = Tk68.5200 Tk77.9200
ABBREVIATIONS
ADB – Asian Development Bank ADF – Asian Development Fund DMF – design and monitoring framework ESSF – environmental and social safeguards framework FAPAD – Foreign Aided Project Audit Directorate IDB – Islamic Development Bank IDCOL – Infrastructure Development Company Limited JICA – Japan International Cooperation Agency LIBOR – London interbank offered rate MW – megawatt OCR – ordinary capital resources PPIDF Public–Private Infrastructure Development Facility PPP – Public–private partnership RRP – report and recommendation of the President SDR – special drawing rights SHS – solar home systems TA – technical assistance
NOTES
(i) The fiscal year (FY) of the Government of Bangladesh ends on 30 June. FY before a calendar year denotes the year in which the fiscal year ends, e.g., FY2018 ends on 30 June 2018. (ii) In this report, "$" refers to United States dollars.
Vice-President Wencai Zhang, Operations 1 Director General Hun Kim, South Asia Department (SARD) Director Manmohan Parkash, Bangladesh Resident Mission, SARD
Team leader Bidyut Kumar Saha, Senior Project Officer, SARD Team members Kamrun Nahar Chowdhury, Operations Assistant, SARD M.M. Zimran Khan, Associate Project Analyst, SARD Md. Golam Mortaza, Economist, SARD
In preparing any country program or strategy, financing any project, or by making any designation of or reference to a particular territory or geographic area in this document, the Asian Development Bank does not intend to make any judgments as to the legal or other status of any territory or area.
CONTENTS Page
BASIC DATA i I. PROJECT DESCRIPTION 1 II. PROJECT DESIGN 1 A. History 1 B. Scope of Operations 2 C. Relationship with ADB and Other Lenders 2 D. Project Design and Formulation 3 E. Technical Assistance 4 III. PROJECT IMPLEMENTATION 4 A. Lending Policies 4 B. Characteristics of Subloans 5 C. Implementation and Internal Operations of Subprojects 5 D. Organization and Operations of Infrastructure Development Company Limited 7 E. Portfolio of Infrastructure Development Company Limited 8 F. Financial Statements and Ratios 8 G. Covenants 9 IV. SUBLOAN IMPLEMENTATION 9 A. Loan Appraisal 9 B. Implementation 10 V. EVALUATION OF PROJECT PERFORMANCE 11 A. Relevance 11 B. Effectiveness 11 C. Efficiency 12 D. Sustainability 12 E. Development Impact 13 F. Performance of Infrastructure Development Company Limited 13 G. Performance of the Asian Development Bank 13 H. Overall Assessment 14 VI. ISSUES, LESSONS, AND RECOMMENDATIONS 14 A. Issues and Lessons 14 B. Recommendations 15
APPENDIXES 1. Design and Monitoring Framework 16 2. Solar Home System Program 20 3. Relationship with the Asian Development Bank and Other Lenders 23 4. Financing Plan 24 5. Technical Assistance Completion Report 25 6. Characteristics of Subloans 28 7. List of Subprojects 29
8. Safeguard and Procurement Compliance 31 9. Organization: Infrastructure Development Company Limited 34 10. Loan Portfolio of Infrastructure Development Company Limited 37 11. Portfolio Quality of Infrastructure Development Company Limited 38 12. Financial Performance of Infrastructure Development Company Limited 39 13. Status of Compliance with Loan and Grant Covenants 43 14. Outstanding Observations of Foreign Aided Project Audit Directorate 58 15. Economic Evaluation 60 16. Financial Evaluation 64 17. Calculation of Carbon-Di-Oxide Emission for Solar Home System 67
BASIC DATA
LOANS 2453-BAN(SF), L2454-BAN
A. Loan Identification
1. Country Bangladesh 2. Loan number and financing source 2453-BAN(SF), 2454-BAN (OCR) 3. Loan title Public–Private Infrastructure Development Facility 4. Borrower People’s Republic of Bangladesh 5. Name of financial intermediary Infrastructure Development Company Limited (IDCOL) 6. Amount of loans L2453-BAN (SF) SDR52,870,000 L2454-BAN (OCR) $82 million 7. Project completion report number PCR:BAN 1725
B. Loan Data
1. Appraisal – Date started 18 June 2008 – Date completed 24 June 2008 2. Loan negotiations – Date started 3 September 2008 – Date completed 4 September 2008 3. Date of Board approval L2453 2 October 2008 L2454 2 October 2008 4. Date of loan agreement L2453 21 October 2008 L2454 21 October 2008 5. Date of loan effectiveness L2453 – In loan agreement 3 February 2009 – Actual 24 February 2009 – Number of extensions 1 L2454 – In loan agreement 19 January 2009 – Actual 24 February 2009 – Number of extensions 2 6. Terminal date for commitments Not applicable – In loan agreement – Actual – Number of extensions 7. Loan closing date L2453 – In loan agreement 31 December 2013 – Actual 31 December 2013 – Number of extensions 1
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L2454 – In loan agreement 31 December 2013 – Actual 31 March 2015 – Number of extensions 2 8. Financial closing date L2453 – Actual 21 July 2014 L2454 – Actual 22 January 2018 9. Terms to the borrower L2453 – Interest rate 1% per annum during grace period and 1.5% per annum thereafter – Maturity (number of years) 32 – Grace period (number of years) 8 – Free limit None – Repayment terms Payable semiannually on 1 April and 1 October in each year in accordance with Schedule 1 of the Loan Agreement. L2454 – Interest rate Sum of LIBOR and 0.60% – Maturity (number of years) 25 – Grace period (number of years) 5 – Free limit None – Repayment terms Payable semiannually on 1 April and 1 October in each year in accordance with Schedule 1 of the Loan Agreement.
10. Terms of relending (if any) L2453 Component B: Bangladesh Bank Rate. Component C: 3% per annum or such higher rate to ensure that the implementing agency’s lending spread to participating organizations shall not at any time be more than 300 basis points. Component A: LIBOR plus 100 basis L2454 points. 11. Interest rate for subloans – Original Market-based – Revised –
12. Disbursements a. Dates a1. L2453 Initial Disbursement Final Disbursement Time Interval 30 March 2009 19 December 2012 44.6 months
Effective Date Actual Closing Date Time Interval 24 February 2009 December 2013 58.22 months
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a2. L2454 Initial Disbursement Final Disbursement Time Interval 30 March 2009 19 December 2012 44.6 months
Effective Date Actual Closing Date Time Interval 24 February 2009 December 2013 58.22 months
b. Amount (million) b1. L2453: (SDR52 million) Increased Canceled Last Original during during Revised Amount Undisbursed Allocation Implementation Implementation Allocation Disbursed Balancea Subloan (1) (2) (3) (4=1+2-3) (5) (6 = 4 – 5) Banglalion 2.38 0 0 2.38 2.38 0
Fiber@Home 0.92 0 0 0.92 0.92 0
Various partnersc 49.55 0 0 49.55 49.55 0 Total (SDR equivalent) 52.85 0 0 52.85 52.85 0 Total ($ equivalent) 83.00a 0 0 81.64 81.64b 0 Total (Tk equivalent) 6,078.69 0 0 6,078.69 6,078.69 0 SDR = special drawing right Note: There is an undisbursed amount of SDR23.05 for Loan 2453 as per partial cancellation on 21 July 2014. a United States dollar equivalent as per the report and recommendation of the President. b United States dollar equivalent as of the date of closing of the loan account. c Under the Public–Private Infrastructure Development Facility, 34 participating organizations were extended subloans to finance home solar systems in remote off-grid areas of Bangladesh. Source: The Asian Development Bank’s Loan Financial Information System.
b2. L2454: ($82 million) Increased Canceled Last Original during during Revised Amount Undisburse Allocation Implementation Implementation Allocation Disbursed d Balancea Subloan (1) (2) (3) (4=1+2-3) (5) (6 = 4 – 5) ECPVL 30.00 0 0 30.00 30.00 0
SMPCL 22.00 0 0 22.00 22.00 0
REPL 30.00 0 0 30.00 30.00 0 Total ($ equivalent) 82.00a 0 0 82.00a 82.00b 0 ECPVL = Energypac Confidence Power Venture Chittagong Limited, SMPCL = Summit Meghnaghat Power Company Limited, REPL = Regent Energy and Power Limited. Note: No partial cancellations and undisbursed balance. a United States dollar equivalent as per the report and recommendation of the President. b United States dollar equivalent as of the date of closing of the loan account. Source: The Asian Development Bank’s Loan Financial Information System.
C. Implementation Data 1. Number of subloans 29 2. Sector distribution of subloans
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Sector Number of Projects/POs Actual ($) Power 3 82,000,000 Telecommunications 2 4,999,981 Renewable Energy 24 76,664,037 Total 29 163,664,025 PO = partner organizations
3. Size of subloans (actual) Range Number of Subloans Aggregate Amount ($) Up to $5,000,000 24 25,573,397 From $5,000,001 to $15,000,000 0 0 From $15,000,001 to $25,000,000 2 37,972,223 Over $25,000,001 3 100,118,405 Total 29 163,664,025
18. Project Performance Report Rating Ratings Implementation Period Development Objectives Implementation Progress From 1 April 2011 to 30 June 2011 Satisfactory Satisfactory From 1 July 2011 to 30 September 2011 Satisfactory Unsatisfactory From 1 October 2011 to 31 December 2011 Satisfactory Satisfactory From 1 January 2012 to 30 June 2012 Satisfactory Partly Satisfactory From 1 July 2012 to 30 September 2012 Satisfactory Satisfactory From 1 October 2012 to 31 March 2013 Satisfactory Partly Satisfactory From 1 April 2013 to 30 June 2013 Satisfactory Satisfactory From 1 July 2013 to 30 September 2013 Satisfactory Partly Satisfactory From 1 October 2013 to 31 March 2018 Satisfactory Satisfactory
Single Project Rating From 1 April 2011 to 30 June 2011 On Track From 1 July 2011 to 30 September 2011 Actual Problem From 1 October 2011 to 31 December 2011 On Track From 1 January 2012 to 30 June 2012 Potential Problem From 1 July 2012 to 30 September 2012 On Track From 1 October 2012 to 31 March 2013 Potential Problem From 1 April 2013 to 30 June 2013 On Track From 1 July 2013 to 30 September 2013 Potential Problem From 1 October 2013 to 31 March 2018 On Track Source: eOps of the Asian Development Bank.
D. Data on Asian Development Bank Missions No. of No. of Specialization Name of Mission Date Persons Person-Days of Members a Fact finding 21–25 Oct 2007 5 25 a, b, c, d Appraisal 18–24 Jun 2008 7 35 a, b, d, e, f Inception 20–23 Apr 2009 2 4 a, d Loan review 25–28 Jul 2011 2 4 a, g Midterm project review 26–28 Sep 2011 2 6 a, g Consultation mission 29 Nov–1 Dec 2011 3 9 a, c, g Special loan administration 10–12 Jul 2012 2 4 a, i Loan review 6–12 Mar 2013 2 8 a, i Fact finding 14–22 Apr 2013 5 45 a, c, g, i Loan review 18–24 Nov 2013 3 21 a, h, i Loan review 2 Nov 2017 3 3 a, h, i Project completion review 14–15 May 2018 2 4 a, i a a = project officer, b = economist, c = finance officer, d = financial management officer, e = legal officer, f = financial control officer, g = financial sector officer, h = safeguard officer, i = project analyst.
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E. Related Loans Loan Loan No. Date of Agreement Amount Second Public-Private Infrastructure 3045-BAN 6 April 2014 $100,000,000 Development Facility 3046-BAN(SF) 6 April 2014 SDR6,599,000
Third Public-Private Infrastructure 3554-BAN 19 November 2017 $250,000,000 Development Facility–Tranche 1 3555-BAN (COL) 19 November 2017 SDR7,229,000
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GRANTS 0253-BAN(SF), 0254-BAN(EF)
A. Grant Identification
1. Country Bangladesh 2. Grant number and financing 0253-BAN(SF), 0254-BAN(EF) source 3. Grant title Public–Private Infrastructure Development Facility 4. Borrower People’s Republic of Bangladesh 5. Name of financial intermediary Infrastructure Development Company Limited 6. Amount of grants G0253-BAN (SF) $1.3 million (Climate Change Fund) G0254-BAN (EF) $2.0 million (Asian Clean Energy Fund)
7. Project completion report number PCR:BAN 1725
B. Grant Data
1. Appraisal – Date started 19 October 2010 – Date completed 2 November 2010 2. Grant negotiations – Date started 24 January 2011 – Date completed 28 January 2011 3. Date of grant approval G0253 17 May 2011 G0254 17 May 2011 4. Date of grant agreement G0253 29 June 2011 G0254 29 June 2011 5. Date of grant effectiveness G0253 – In grant agreement 27 September 2011 – Actual 7 December 2011 – Number of extensions 1 G0254 – In grant agreement 27 September 2011 – Actual 7 December 2011 – Number of extensions 1 6. Terminal date for commitments Not applicable – In loan agreement – Actual – Number of extensions 7. Grant closing date G0253 – In grant agreement 30 June 2014 – Actual 31 December 2014 – Number of extensions 1
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G0254 – In grant agreement 30 June 2014 – Actual 30 June 2014 – Number of extensions 1 8. Financial closing date G0253 – Actual 1 October 2015 G0254 – Actual 21 July 2014
9. Disbursements a. Dates a1. G0253 Initial Disbursement Final Disbursement Time Interval 15 November 2012 22 December 2014 25.3 months
Effective Date Actual Closing Date Time Interval 7 December 2011 31 December 2014 36.82 months
a2. G0254 Initial Disbursement Final Disbursement Time Interval 19 November 2012 30 April 2014 17.4 months
Effective Date Actual Closing Date Time Interval 7 December 2011 30 June 2014 30.77 months
b. Amount ($) b1. G0253: ($1,300,000) Increased Last Original during Cancelled during Revised Amount Undisbursed Subgrant Allocation Implementation Implementation Allocation Disbursed Balance
(1) (2) (3) (4=1+2-3) (5) (6 = 4 5) – 3801: Training 233,000 0 0 233,000 241,833 (8,833)
3901: Technical 130,000 (29,249) 0 100,751 982,98 2,453 Inspections, technical audit and independent engineers’ costs
4801: Program 357,000 6,749 0 363,749 366,651 (2,902) Support Administration Cost
Grant for other RE
4802: Solar mini-grid 0 422,925 0 422,925 421,434 1,491 project
4803: Solar mini-grid 580,000 (475,000) 0 105,000 104,538 462 project
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Increased Last Original during Cancelled during Revised Amount Undisbursed Subgrant Allocation Implementation Implementation Allocation Disbursed Balance
(1) (2) (3) (4=1+2-3) (5) (6 = 4 5) – 4804: Fiberglass bio- 0 74,575 0 74,575 67,247 7,328 digesters Total 1,300,000 0 0 1,300,000 1,300,000 0 RE = renewable energy. Notes: Numbers may not sum precisely because of rounding.
b2. G0254: ($2,000,000) Original Increased during Cancelled during Revised Amount Undisbursed Subgrant Allocation Implementation Implementation Allocation Disburse Balance (1) (2) (3) (4=1+2-3) (5) (6 = 4 – 5) 4801: Others 2,000,000 0 0 2,000,000 2,000,000 0 (Buy-down grants for SHS) Total 2,000,000 0 0 2,000,000 2,000,000 0 SHS = solar home systems.
C. Grant Data 1. Grant Performance Report Rating
Ratings Implementation Period Development Objectives Implementation Progress From 1 October 2011 to 31 March 2014 Satisfactory Satisfactory From 1 April 2014 to 30 June 2014 Satisfactory Unsatisfactory From 1 July 2014 to 30 September 2014 Satisfactory Partly Satisfactory From 1 October 2014 to 31 December 2015 Satisfactory Satisfactory Single Project Rating From 1 October 2011 to 31 March 2014 On Track From 1 April 2014 to 30 June 2014 Actual Problem From 1 July 2014 to 30 September 2014 Potential Problem From 1 October 2014 to 31 December 2015 On Track
I. PROJECT DESCRIPTION
1. On 21 October 2008, the Asian Development Bank (ADB) approved the Public–Private Infrastructure Development Facility (PPIDF), a $165 million facility consisting of $82 million from ADB’s ordinary capital resources (OCR) and $83 million from the Asian Development Fund (ADF). The objective of the project was to directly support the infrastructure development agenda of the Government of Bangladesh by providing long-term funds for infrastructure development in the private sector.1 In addition, two supplementary grants totaling $3.3 million were approved on 17 May 2011 for the renewable energy program of the Infrastructure Development Company Limited (IDCOL).2 ADB also provided an associated capacity development technical assistance (TA) of $500,000 to IDCOL.3
2. At appraisal in 2008, public investments in infrastructure in Bangladesh were found to be stagnant (footnote 1). Inadequate energy supply, congested ports, and underdeveloped transport imposed a major and growing drag on economic performance. The envisaged impact of the facility was to improve infrastructure in Bangladesh through the increased participation of the private sector. The outcome of the project was to help address infrastructure deficiencies by providing long-term debt financing and catalyzing private sector participation. Given the severe shortage of infrastructure, the facility served to attract commercial financing through increased private sector participation, thereby reducing pressure on the public budget. The project also assisted in providing renewable energy solutions to rural households. The design and monitoring framework (DMF) containing the impact, outcome, and output parameters is in Appendix 1.
II. PROJECT DESIGN
A. History
3. In the mid-1990s, Bangladesh’s physical infrastructure suffered from under-investment and severe operational problems. Infrastructure across all sectors was affected, including power, energy, roads, ports, telecommunications, and water. In 1996, an inter-ministerial working group prepared a report on power sector reforms to facilitate private investment in electricity generation. The report recommended fiscal incentives and outlined the institutional support and project approval process that would enable private investments in power generation. It also outlined the financing arrangements, establishing a fund that would provide concessional finance to infrastructure subprojects.4 All these measures had the aim of catalyzing private sector investments in infrastructure.
4. In this context, IDCOL came into existence with the purpose of filling the investment gap in infrastructure subprojects by catalyzing private sector financing. The government established the company on 14 May 1997 with assistance from the World Bank as part of the Private Sector Infrastructure Development Project (footnote 4). IDCOL is registered as a public limited company with its share capital subscribed by the government. IDCOL’s initial function was to administer the fund established under the infrastructure development project. Since 2005, IDCOL has broadened
1 ADB. 2008. Proposed Loans and Technical Assistance Grant to the People’s Republic of Bangladesh for the Public– Private Infrastructure Development Facility. Manila. 2 ADB. 2011. Proposed Supplementary Grant and Administration of Supplementary Grant to the People’s Republic of Bangladesh: Public–Private Infrastructure Development Facility. Manila. 3 ADB. 2008. Technical Assistance Report–Bangladesh: Capacity Development of the Infrastructure Development Company Limited. Manila. 4 World Bank. 2008. Implementation Completion and Results Report–Private Sector Infrastructure Development Project. Washington.
2 its operation and started financing on its own balance sheet after the government injected further equity capital.
B. Scope of Operations
5. Investment in infrastructure and public–private partnership. IDCOL provides long- term loans in foreign or local currency to private sector infrastructure subprojects. The company invested in 14 power subprojects with a 1,665 megawatt (MW) aggregate capacity (12% of the country’s power generation) and in two inland container subprojects having 190,000 twenty-foot equivalent unit (TEU) aggregate capacity (16% of country’s export container capacity) as of 31 December 2017. IDCOL is also involved in financing energy-efficient industrial subprojects. Infrastructure subprojects were 47% of IDCOL’s loan portfolio as on 31 December 2017. IDCOL has not made any equity investments or provided any loan guarantees although this is allowed under its charter.
6. Investment in renewable energy. IDCOL invests in solar home systems (SHS) and in other renewable energy applications. IDCOL provided loans and grants to households through partner organizations for the installation of 4.13 million SHS, thus providing clean energy to an estimated 18 million rural people living in off-grid areas of Bangladesh. Apart from SHS, IDCOL provided loans and grants for 1,031 solar irrigation pumps, 25 solar mini-grids, 47,500 biomass plants, 9 biogas-based power plants, and two biomass-based power plants. Renewable energy subprojects contributed 53% of IDCOL’s loan portfolio (31 December 2017). IDCOL has developed a unique model for financing SHS through partner organizations (Appendix 2).
7. Investment advisory. IDCOL has established an investment advisory unit to disseminate knowledge and expertise on financing renewable energy and infrastructure subprojects. The company provides training on infrastructure financing and offers corporate advisory services on due diligence, project feasibility analysis, and bid document preparation, among others.
8. Funding operations. IDCOL’s funding base is its equity capital from the government. Apart from equity, IDCOL obtains finance through long-term concessionary loans from development partners, including ADB. The intermediary loans from development partners stood at Tk63,563 million ($803 million) as of 30 December 2017.
C. Relationship with ADB and Other Lenders
9. Relationship with ADB. IDCOL’s relationship with ADB dates back to 2008 when ADB approved the $165 million equivalent PPIDF. Subsequently, ADB approved $110 million equivalent Second Public–Private Infrastructure Development Facility in 2013 and $526 million equivalent Third Public–Private Infrastructure Development Facility in 2017.5 With a total approved amount of approximately $804 million in loans and grants, ADB is the largest financier to IDCOL. ADB’s assistance has primarily been concentrated on traditional infrastructure subprojects (84%) while a smaller amount (16%) has been for SHS and other renewable energy subprojects. The list of ADB facilities, with terms and amount, is in Appendix 3.
5 ADB. 2013. Proposed Loans to the People’s Republic of Bangladesh for the Second Public–Private Infrastructure Development Facility. Manila; ADB. 2017. Proposed Multitranche Financing Facility and Technical Assistance Grant– People’s Republic of Bangladesh: Third Public–Private Infrastructure Development Facility. Manila.
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10. Relationship with other lenders. IDCOL was established as part of a World Bank initiative to promote private investment in the infrastructure sector.6 The company started its operations by administering a $225 million debt facility provided by the World Bank to the government in 1997. The World Bank, Japan International Cooperation Agency (JICA), and the Islamic Development Bank (IDA) have provided an aggregate amount of $563 million to IDCOL for financing SHS, renewable energy and energy-efficient subprojects. The list of financing by other financiers is in Appendix 3.
D. Project Design and Formulation
11. The Public–Private Infrastructure Development Facility was relevant at appraisal. At the time the project was designed, the Global Competitiveness Report, 2007–2008 ranked Bangladesh 120 out of 131 countries for the quality of its infrastructure and the country’s position was lower than most of other South Asian countries (footnote 1).7 Surveys of businesses consistently cited access to power among the top obstacles to investment, and only 35% of the population had access to national grid. Trade facilitation (ports and transportation) was not faring well imposing significant costs on exporting and importing firms.8 Against this backdrop, the facility directly supported the government’s infrastructure development agenda by catalyzing long-term private investment to improve the delivery of infrastructure.
12. The facility aligned with government and ADB priorities. The government’s National Strategy for Accelerated Poverty Reduction recognized the infrastructure deficiencies and expressed its commitment to increased private participation to alleviate infrastructure bottlenecks.9 In its outline perspective plan, the government introduced the goal of mainstreaming public–private partnerships (PPP) to scale-up the development of infrastructure.10 The ensuing Sixth Five-Year Plan, FY2011–FY2015 further articulated the objective of increasing infrastructure delivery with private sector investment from 2% to 6% of gross domestic product (GDP) during the plan period.11 The facility was in line with ADB’s Country Partnership Strategy, 2006–2010, which prioritized the need for supporting private sector-led infrastructure development and focused on fostering PPP to provide essential infrastructure and services.12 Further, the project objectives conformed with ADB’s financial sector operational plan, which prioritized capital market development for infrastructure finance and financial inclusion.13 The facility complemented ADB’s parallel initiatives in governance, capital market development, and PPP promotion.14
13. Project design. The facility’s design was largely built on consultations with relevant stakeholders, including the government, private sector, and development partners. At appraisal, the facility was divided into three main components: (i) component A used ADB’s $82 million OCR funds to finance large infrastructure subprojects (project costs higher than $30 million); (ii) component B provided $50 million equivalent ADF support to finance small- and medium-sized infrastructure subprojects (project costs lower than $30 million), especially in the energy sector;
6 World Bank. 1997. Bangladesh: Private Sector Infrastructure Development Project. Washington. 7 World Economic Forum. 2008. The Global Competitiveness Report, 2007–2008. Geneva. 8 World Bank. 2007. Bangladesh: Strategy for Sustained Growth. Dhaka. 9 Government Bangladesh. 2005. National Strategy for Accelerated Poverty Reduction. Dhaka. 10 Government of Bangladesh. 2012. Making Vision 2021 a Reality. Dhaka. 11 Government of Bangladesh. 2011. Sixth Five-Year Plan: FY2011–FY2015. Accelerating Growth and Reducing Poverty. Dhaka. 12 ADB. 2005. Bangladesh: Country Strategy and Program, 2006–2010.Manila. 13 ADB. 2011. Financial Sector Operational Plan. Manila. 14 ADB. 2014. Technical Assistance Completion Report–Public–Private Partnership Program Operationalization. Manila.
4 and (iii) component C provided $33 million equivalent ADF support for renewable energy systems, such as SHS. Due to slow fund utilization, an amount of $45 million was reallocated from component B to component C which boosted the penetration of electricity to remote off-grid population.15 In view of innovative structure of SHS program (Appendix 3), the market dynamics, operating model, and governance structure of SHS program could have been more adequately assessed at appraisal.
14. The DMF captured the basic theme—catalyzing private investment in infrastructure. Some DMF output indicators were overambitious, poorly framed, and not well-aligned with outcome and impact indicators (Appendix 1). As promoting private sector investment in infrastructure was the overarching objective of the project, the DMF should have had clear and specific indicators, such as private capital leveraged in infrastructure and increase in the number of private sector infrastructure subprojects over the years. ADB’s follow-on projects have substantially addressed this deficiency (footnote 5).
15. The facility was complemented by two supplementary grants—(i) grant 0253 ($1.3 million from Climate Change Fund) and (ii) grant 0254 ($2.0 million from Asian Clean Energy Fund)— supporting renewable energy subprojects and providing buy-down grants to reduce the high cost of SHS. Overall, the project design was largely appropriate and captured the core objective of catalyzing private investment in infrastructure. There was a provision of $100 million parallel co- financing by the Islamic Development Bank (IDB) for large infrastructure subprojects ($85 million) and SHS program ($15 million). IDB provided $18 million independently for SHS program but did not fund large infrastructure subprojects. The financing plan of the project is in Appendix 4.
E. Technical Assistance
16. The attached $500,000 TA was implemented over a period of 33 months and played an important role in implementing and ensuring the sustainability of the facility. The TA implemented a comprehensive environmental and social safeguards framework (ESSF) and established an Environmental and Social Safeguards Management Unit. Three minor changes in implementation arrangements were made, predominantly to provide enhanced capacity development support to IDCOL in safeguards due diligence. The TA prepared a set of reports on diagnostic, best practices, and market practices on renewable energy, environmental framework, and sector regulatory policies. The TA facilitated the development of an institutional and regulatory framework, which eventually culminated in the enactment of the Bangladesh Public-Private Partnership Act, 2015. Overall, the TA is rated successful in achieving the intended outcome of strengthening the capacity of IDCOL and creating an enabling environment for PPP development. A separate technical assistance completion report is in Appendix 5.
III. PROJECT IMPLEMENTATION
A. Lending Policies
17. Lending principles. IDCOL is guided by the principle of financing the government’s thrust sectors, as stated in its lending policy adopted in 2015.16 The policy stipulates that a minimum equity injection of 15% of the total subproject cost is required from sponsors, compared to 20% when the facility was formulated. Furthermore, private sector sponsors must now hold at least
15 Loan 2453-BAN (ADF): PPIDF–Minor Change in Scope and Reallocation dated 3 June 2011; and Loan 2453-BAN (ADF): PPIDF–Minor Change in Scope and Reallocation dated 1 August 2011. 16 IDCOL. 2015. Lending Policy (updated up to August 2017). Dhaka.
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51% shareholding and management control during the tenure of IDCOL loans. IDCOL is also required to maintain a margin of at least 3% over its cost-of-fund to compensate for funding costs and earn a risk-adjusted return from its lending activities.
18. Exposure limit. Prior to formulation of the facility, IDCOL provided loans covering up to 40% of the subproject cost. In contrast, according to IDCOL’s current lending policy (2015), IDCOL’s maximum exposure to projects is up to 60% of subproject cost for infrastructure and PPP, 70% for energy efficiency, and 85% for renewable energy. While IDCOL does not have a specific sector lending limits, the social infrastructure has a cap of Tk2,000 million and the tourism infrastructure has a cap of Tk2,500 million per year.
19. Lending terms. IDCOL has been moving gradually towards more market-based lending terms by revising the lending terms provided to partner organizations under its SHS program. During the period 2008–2012, IDCOL reduced the tenor of loans to 5–7 years (including a grace period of 0.5–1 year) from 10 years (including a grace period of 2 years) and increased the applicable interest rates up to 7% per annum from 6% per annum. During this period, the company also reduced the maximum reimbursement amount up to 70% from 80% to increase the contribution from the private sector and make the SHS program more commercially sustainable.
B. Characteristics of Subloans
20. Component A. IDCOL disbursed the allocated $82 million, in United States dollars, to three new large power subprojects, each costing more than $30 million. This conforms to the report and recommendation of the president (RRP), which specifically stipulated the power subprojects as the top priority due to the acute power shortage in the country. The disbursed loan constituted 17% of the total subproject cost. The sectoral distribution of the subloans is in Basic Data, section C.
21. Component B. Component B provided financing, in local currency, to subprojects costing less than $30 million while IDCOL’s maximum exposure was limited to $10 million. Financing small- and medium-sized subprojects turned out to be a difficult proposition because of the lack of such subprojects willing to comply with IDCOL’s stringent ESSF requirements. IDCOL disbursed $5 million, which is 8% of total subproject cost, to two telecom subprojects.
22. Component C. With $78 million (after the $45 million reallocation from component B), the facility financed 349,199 SHS in remote off-grid areas, generating 16.3 MW power and providing access to electricity to an estimated 1.5 million people. In addition, grants provided by the facility subsidized an additional 81,315 SHS and supported three renewable energy subprojects (bio- digesters, solar mini-grid, and solar irrigation pumps) in remote areas. The subprojects implemented under components A, B, C and grants are spread all over the country. The characteristics of the facility’s subloan portfolio in terms of sector, currency, type, and ADB financing are in Appendix 6.
C. Implementation and Internal Operations of Subprojects
23. Infrastructure subprojects; components A and B. IDCOL started its disbursement with $5.0 million to two telecom subprojects in November 2011, 34 months after facility effectiveness because of unavailability of investment-worthy subprojects. Initially, IDCOL lacked the capacity to develop and assess infrastructure subprojects, which it addressed successfully with the contribution from the associated TA. Subsequently, IDCOL efficiently disbursed $82 million to three large power subprojects during May 2013–March 2015. All power subprojects were
6 implemented within budget; however, went into operation with a 13-month average delay compared to estimate at appraisal by IDCOL. The power subprojects are selling electricity to the government under power purchase agreements and in profitable operation, with 20% average operating margin during the period 2015–2017. The average capacity utilization of power subprojects has been 56% during 2015–2017 as government utilizes liquid fuel-based subprojects as peaking plants. Only one telecom subproject has been facing operational problems because of technological obsolescence (footnote 32). The subloan ($3.6 million) provided for this subproject has been provisioned by IDCOL. The other telecom subproject is in operation.17 The list of infrastructure subprojects is in Appendix 7.
24. Solar home systems and other renewable energy subprojects; component C. IDCOL started disbursement to SHS in June 2009 because of the strong readiness of its SHS program. The SHS, mini-grid, bio-digesters and solar irrigation pumps are in operation without any technical difficulties as IDCOL implemented a quality assurance system. Some partner organizations are facing collection problems due to the expansion of the national grid, commercialization of the SHS market, and a government initiative to provide free SHS under the social safety-net program. There has been concentration risk in the facility’s SHS component as 84% of SHS funds were disbursed through two partner organizations. A list of SHS subprojects financed by the facility is in Appendix 7.
25. Procurement. Under component A, all three build-own-operate subprojects were selected by the government through competitive bidding, and the subprojects followed the procurement procedures stipulated in the loan agreements. Under components B and C, subprojects were not large and followed private sector commercial practices for efficiency and reliability as permitted in the loan agreement. IDCOL selected the partner organizations following the criteria stipulated in the loan agreements. The procurement compliance procedures and lessons learned are in Appendix 8.
26. Safeguards. IDCOL developed and implemented the environmental and social safeguards framework (ESSF) in 2008 to comply with ADB’s Safeguard Policy. IDCOL updated the ESSF in 2011 in line with ADB’s Safeguard Policy Statement (2009). The facility was categorized FI (financial intermediary) for the environment and A for involuntary resettlement (IR) and indigenous people (IP).18 The ESSF for the project, disclosed in May 2008, acknowledge the loan to be FI category.19 The ESSF applied to the subproject level for components A and B and at the program level for component C. IDCOL prepared and submitted safeguard due diligence reports for all subprojects, except for two smaller telecom subprojects and a bio-digester subproject that had insignificant safeguard impacts. All large infrastructure subprojects under component A were categorized B for the environment and B or C for indigenous peoples and involuntary resettlement. As component B dealt with smaller telecom subprojects apparently with insignificant safeguard impacts, IDCOL did not formally assess the safeguard categorizations of these subprojects. Component C and grants dealt with SHS and other renewable energy subprojects that had no adverse impacts due to the renewable nature of the subprojects. IDCOL submitted annual environment and social compliance reports for all large infrastructure
17 The operational and financial reports of infrastructure subprojects have been analyzed individually and the aggregate performance is presented in this PCR as private subjects prefer not to divulge operational and financial results in public documents. [confirm it is ‘this’ PCR. If not, provide the relevant information]. 18 Project Data Sheet for Public–Private Infrastructure Development Facility. https://www.adb.org/projects/40517-013/main#project-pds (accessed 3 February 2018). 19 ADB. 2008. Environment and Social safeguard Framework–Bangladesh: Public–Private Infrastructure Development Facility. Manila (para. 13).
7 subprojects disclosed on ADB’s website. IDCOL discloses on its website its annual compliance report of battery suppliers and recyclers of the SHS program, its compliance report on environmental and social safeguards of solar irrigation pumps and solar mini-grid subprojects.20 The compliance procedures and lessons learned on safeguards are in Appendix 8.
27. Project management and reporting. IDCOL did not formally establish a project monitoring unit as stipulated in the loan agreement to review the performance of the project. However, IDCOL did closely monitor the performance of each subproject and took actions as required. IDCOL provided quarterly progress reports on the infrastructure subprojects and operations committee minutes on the SHS program. The facility and subprojects were adequately managed by IDCOL and the executing agency with the support from the Economic Relations Division of the Ministry of Finance.
D. Organization and Operations of Infrastructure Development Company Limited
1. Organization, Management, and Staffing
28. IDCOL is managed by a nine-member (eight at appraisal) independent board of directors comprising five senior government officials (four at appraisal), three prominent entrepreneurs from the private sector, and an appointed chief executive officer. The chief executive officer heads the management team, supported by five heads of departments to ensure the efficient and effective operations of the company. IDCOL’s organizational structure has improved significantly since the appraisal of the facility. Based on ADB’s recommendation during the processing of the second facility (Second Public–Private Infrastructure Development Facility), IDCOL established a dedicated Credit Risk Management unit in 2015. The company established a PPP and Corporate Advisory Unit in 2015 to focus on PPP deals. During 2016–2018, IDCOL appointed a chief risk officer, head of special asset management, an internal auditor, and a senior officer in the infrastructure finance unit, following ADB’s recommendations under the third facility (Third Public– Private Infrastructure Development Facility). The governance structure, organization chart, and key management profile are in Appendix 9.
2. Personnel Administration
29. IDCOL’s staff have increased from 106 in 2011 to 268 in 2017 (21% women in executive positions and 2% in non-executive positions) to support its extensive renewable energy operations. To attract and retain talent, IDCOL has a policy of reviewing its compensation package every 3 years. The last review took place in 2013 when the company revised its salary package to make it more competitive and plans to conduct a comprehensive salary review in 2018. During 2016–2017, IDCOL adopted a revised performance management system, gender policy, and whistleblower protection policy to further enhance the transparency of incentives, career progression, women’s participation, and a safer work environment. In FY2017, IDCOL arranged overseas training for 27 staff and local training for 24 staff on renewable energy, infrastructure projects, gender equality, and arbitration.
3. Lending Operations
30. IDCOL conducts comprehensive due diligence covering technical, marketing, economic, financial, environmental, and social safeguard aspects. Depending on the complexity of a subproject, it generally takes 4–12 months to process a subloan application. IDCOL prepares
20 IDCOL. http://idcol.org/home/ens (accessed 2 May 2018).
8 detailed financial models to assess financial viability; however, its economic analysis requires improvement to be aligned with ADB standards. IDCOL’s aggregate maturity for infrastructure loans has increased from 6.1 years in 2011 to 10.2 years in 2017 while average maturity of renewable energy loans has increased from 7.1 in 2011 to 7.4 in 2017. IDCOL actively monitors the implementation and operation of all subprojects and makes periodic field visits. IDCOL also conducts monthly operational meetings with partner organizations to assess their operational and repayment performance.
4. Other Operations
31. IDCOL’s principal activity is lending and it has not made any equity investments or provided any guarantees. IDCOL provides local currency loans for SHS and renewable energy and energy efficient subprojects. IDCOL has played a major role in disseminating project finance knowledge and promoting renewable energy technologies. Since 1999, IDCOL has arranged 23 project financing, 19 financial modeling and two power project training workshops for 1,500 professionals from government agencies, banks, financial institutions, project sponsors, and development organizations. IDCOL has arranged experience sharing programs for nine delegations from seven African countries and trained more than 100 senior government and private sector officials.21
E. Portfolio of Infrastructure Development Company Limited
32. Portfolio. During 2008–2017, IDCOL’s loan portfolio grew from Tk1,221 million to Tk42,037 million. This increase in the loan portfolio was primarily attributed to the rapid expansion of the renewable energy portfolio, particularly the SHS program, which accounted for 93% of the renewable energy portfolio in 2017. IDCOL focused on expanding its flagship SHS program for accelerating access to clean electricity for the off-grid population in rural areas. However, since 2014, the growth in the renewable energy portfolio has tapered-off due to declining demand. As a result, IDCOL’s focus has been shifting towards medium- to large-sized infrastructure subprojects. Sector growth trend, tenor growth trend, and loan portfolio mix are in Appendix 10.
33. Portfolio quality. IDCOL follows the Bangladesh Bank’s guidelines on loan classification and provisioning.22 IDCOL’s classified loans have increased from 0.0% in FY2009 to 9.8% in 2017. During 2008–2017, IDCOL rescheduled 29 accounts with an aggregate value of Tk14,020 million, which equated to 34.0% of the loan portfolio as of 31 December 2017. This change in asset quality is primarily due to the SHS portfolio, as its collection efficiency decreased from 88% in 2015 to 38% in 2017 (Appendix 2). IDCOL initiated a special collection efficiency improvement program in January 2016, to improve the declining collection in the SHS program. ADB approved a TA for enhanced integrated risk management capacity of IDCOL which may assist in enhancing portfolio quality in future.23 IDCOL’s portfolio quality trend is presented in Appendix 11.
F. Financial Statements and Ratios
34. Balance sheet. During FY2008–2017, IDCOL’s assets increased rapidly, from Tk2,089 million to Tk76,636 million, comprising Tk42,037 million in loans (54.7%), Tk31,957 million in cash and term deposits (41.7%), and Tk2,643 million in other assets (3.4%). The term deposits with financial institutions have increased from 10.7% in FY2008 to 40.6% in 2017, signifying
21 Ethiopia, Guinea, Mauritania, Niger, Senegal, Sudan, and Uganda. 22 Bangladesh Bank. 2011. Prudential Regulations for Financial Institutions. Dhaka. 23 ADB. 2017. TA 9344-BAN: Capacity Development in Infrastructure Development Company Limited. Manila.
9 suboptimal asset investment and treasury management. IDCOL still depends entirely on development partners’ intermediary loans and it has not yet explored any commercial borrowing from the banking sector or capital markets to diversify its liability portfolio. IDCOL’s comparative balance sheet and composition of asset growth are in Appendix 12.
35. Income statement. IDCOL’s operating profit has grown robustly during FY2008–FY2014. However, operating profit remained almost stagnant despite a 56.9% asset growth during FY2014–2017 due to interest margin compression from 5.9% to 3.5% during the period. Net profit has decreased significantly from Tk2,605 million in FY2014 to Tk1,557 million in 2017 because of Tk2,779 million provisioning for loans. Interest on term deposits became a major source of income for IDCOL, comprising 43.4% of interest income in 2017 compared to 20.1% in FY2010. Comparative income statement and trend in profitability is in Appendix 12.
36. Cash flow statement. IDCOL’s primary funding source is intermediary loans from development partners and retained earnings. During FY2008–2017, IDCOL received Tk59,474 million intermediary loans while it invested Tk39,921 million, creating additional surplus liquidity. With Tk31,596 million in cash and equivalents, IDCOL is a liquid company because of the longer- tenor liability (weighted average maturity 72 months) and shorter-tenor asset profile (weighted average maturity 41 months), and partial utilization of drawn funds. This liquidity may disappear shortly as IDCOL starts repaying the government loans. Comparative cash flow statement and trend of loans and advances are provided in Appendix 12.
37. Key ratios. Since FY2011, IDCOL has maintained capital adequacy ratio above the required 10% due to substantial profit retention. IDCOL’s rising non-performing loans (0.0% in FY2008 and 9.8% in 2017), coupled with decreasing net interest margin (5.9% in FY2008 and 3.5% 2017) might impair its equity base despite healthy current capital adequacy ratios (8.6 in FY2008 and 13.4 in 2017) resulting from favorable higher maturity liabilities. IDCOL’s return on equity fell from 25.6% in FY2008 to 8.4% in 2017 due to higher provisioning. IDCOL’s debt-equity ratio remained stable between 10.1–10.2 during FY2014–2017. Ratio analysis is in Appendix 12.
G. Covenants
38. IDCOL has substantially complied with covenants and undertakings laid out in the loan and grant agreements with few exceptions. There were 129 covenants (mostly duplications because of 2 loan agreements, 1 grant agreement and 1 project agreement), of which 108 covenants were fully complied, 19 covenants partly complied (7 duplications), and 2 covenants (1 duplication) not complied. IDCOL was to form a project management unit (PMU; para. 43), which was not formally established, primarily because IDCOL officials implementing the facility were in close communication with each other and discharged the deliverables of PMU. IDCOL also monitored the covenants for the infrastructure subprojects on a regular basis. The assessment of loan covenants is in Appendix 13.
IV. SUBLOAN IMPLEMENTATION
A. Loan Appraisal
1. Distribution of Subloans
39. At appraisal, the distribution of the subloans was projected to be (i) $82 million for large infrastructure subprojects (49.7%), (ii) $50 million to small- and medium-sized subprojects (30.3%), and (iii) $33 million to renewable energy systems, particularly SHS (20%). The actual
10 distribution was 49.7% for large infrastructure subprojects, 3.0% for small- and medium-sized subprojects, and 47.3%, for renewable energy systems including SHS, due to the reallocation of $45 million from small- and medium-sized subprojects (component B) to SHS (component C) to address the scarcity of commercially viable small- and medium-sized infrastructure subprojects and strong demand for SHS. IDCOL adhered to the distribution criteria as stipulated in the loan agreements and amendments thereof.
2. Covenants
40. There has been no technical default in the covenants of the loan agreements. The original covenants and other undertakings in place between IDCOL, the government, and ADB in relation to the facility did not require any modifications or waivers. The facility was audited by an independent auditor and Foreign Aided Project Audit Directorate (FAPAD). The independent auditor provided unqualified opinion and certified that payments have been made in accordance with the relevant agreements. FAPAD made eight observations related to the grants. IDCOL has responded to these observations, which are expected to be resolved by December 2018. IDCOL has submitted its audited annual financial statements and quarterly progress reports to ADB in line with ADB reporting requirements. There is no observation by FAPAD on the reconciliation of funds from ADB. The list of FAPAD observations is in Appendix 14.
41. As per Section 5.02 of the loan agreement, the maximum subloan funded by the facility to a subproject shall not exceed 40% of the total project costs. While such an exposure limit was appropriate at appraisal, IDCOL should try to leverage more financing from the commercial market. As the commercial market for providing SHS solutions to households has been developing, for any potential future ADB projects, a new covenant may be added restricting IDCOL’s exposure to this market. The loan agreement required a monthly project performance review, which is too frequent and should be changed to a semiannual basis.
3. Quality of Appraisal
42. ADB’s appraisal of the facility was largely adequate, with a pipeline analysis, sector analysis, general economic scenario, and IDCOL’s viability assessment, among others. The eligibility of pipeline subprojects could have been assessed to determine investment suitability. The RRP provided a comprehensive assessment of IDCOL’s governance, financial, managerial, and staff competence. However, the findings of the assessments were not sufficiently captured in the project design to improve the technical capacity and corporate governance in IDCOL’s operations. The RRP mentioned that IDCOL would enter into strategic partnerships with international organizations involved in infrastructure investments and advisory services, but no such initiative was taken.24 Overall, while assessments at appraisal were comprehensive, it would have been better if priorities (such as strategic partnerships) were reflected in project design.
B. Implementation
43. The implementation arrangement was largely adequate. There was confusion over the designated executing agency. The RRP (para. 69) mentions the Finance Division of the Ministry of Finance as the executing agency. The delegation memorandum mentions the Economic Relations Division of the Ministry of Finance as the executing agency.25 Despite the confusion,
24 Para. 101 of the RRP. 25 ADB. South Asia Department. 2011. Public–Private Infrastructure Development Facility: Delegation of Project Administration to the Bangladesh Resident Mission. Manila.
11 both government agencies provided the required support and guidance in project implementation and their performance is rated satisfactory. The Finance Division informed that Economic Relations Division was a more appropriate executing agency if IDCOL was the implementing agency.26 While IDCOL did not formally establish a PMU as required by the loan agreement, it has effectively performed the stipulated duties of the PMU. Future financial intermediary loans should consider the establishment of a PMU as a precondition for fund disbursement. The financial closing was delayed by 3 years to resolve a noise-related issue in a power subproject to the satisfaction of ADB (para. 59).
V. EVALUATION OF PROJECT PERFORMANCE
A. Relevance
44. PPIDF was relevant at appraisal and at completion. The project was aligned with the government strategies–National Strategy for Accelerated Poverty Reduction, Making Vision 2021 a Reality, and Sixth Five-Year Plan FY2011–FY2015, which expressed the necessity for private sector participation in infrastructure delivery and mainstreaming PPP for addressing infrastructure deficiencies (footnote 9, 10, 11). The facility was also closely knitted with ADB’s Bangladesh Country Strategy 2006–2010 and Financial Sector Operational Plan, which prioritized the need for supporting private sector-led infrastructure development to provide essential infrastructure and services (para. 12, footnote 12, 13). The project is also consistent with ADB’s Strategy 2030 and Country Partnership Strategy 2016–2020 which promote private investment.
45. The facility was built largely on consultations with and lessons learned from stakeholders, including the government, private sector, and donor agencies. The facility captured the overarching theme of leveraging private investment in infrastructure, though some DMF output indicators were overambitious and not well-aligned with outcome and impact indicators (Appendix 1). ADB commissioned comprehensive due diligence on IDCOL before designating it as the financial intermediary.27 Despite minor deficiencies in design (paras. 14, 42), the modality and structure of the facility were suitable and served the broader purpose of the project adequately. The success of the facility in catalyzing private investment in infrastructure paved the way for two follow-on projects for bridging the infrastructure financing gaps as stipulated in the government’s Seventh Five-Year Plan FY2016–FY2020 (footnote 5).
B. Effectiveness
46. The facility is rated less than effective. It achieved five outcome indicators fully and one partially. The project achieved three output indicators and six output indicators were not achieved, signifying that achievement of outcomes cannot be substantially attributed to the outputs (Appendix 1). As a pioneering project, the facility fostered awareness for establishing an enabling regulatory and institutional framework in PPP, which culminated in the enactment of the Bangladesh Public-Private Partnership Act, 2015 and operationalization of the PPP Authority in 2010. Apart from extending finance to infrastructure subprojects, the facility endeavored to ensure the sustainability of IDCOL by implementing the ESSF, which enabled a better evaluation of infrastructure subprojects. The facility showed the way for catalyzing private investment in infrastructure through achieving more than 83% of outcome indicators. However, non- achievement of 67% of output indicators, though mostly unrealistic, have diluted the significant results attained. This could have been avoided by revising the DMF indicators appropriately.
26 ADB.2018. Aide Memoire: Project Completion Report: Public–Private Infrastructure Development Facility. Dhaka. 27 ADB. 2007. Viability Assessment of a Loan Facility to Infrastructure Development Company Limited (IDCOL). Manila.
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C. Efficiency
47. The facility is rated efficient. The $168 million facility efficiently catalyzed $517 million private investment yielding a leverage of 308%. The ADF facility for SHS ($78 million) was disbursed within the original loan closing date; and the OCR facility ($83 million) for large- and medium-sized infrastructure subprojects was disbursed within 12 months of the original closing date, despite an initial delay of 44 months due to a weak pipeline of investment-worthy infrastructure subprojects, which is not unusual for a pioneering project. IDCOL eventually enhanced its origination capacity to develop a sustained pipeline. All subprojects were implemented within the budget.28
48. An economic evaluation has estimated the post-implementation aggregate economic internal rate of return (EIRR) of the facility at 17.4%, which is higher than the benchmark discount rate of 12.0% (Appendix 15). The SHS is the least cost option for reaching off-grid rural population in a country widely dispersed and crisscrossed by numerous rivers.29 The facility provided $80 million for SHS in off-grid areas and supported $30 million for a gas-based power plant, which is the least cost option for grid electricity. Given the shortage of natural gas, the facility provided $52 million for two liquid fuel-based power subprojects, which was the most feasible option. The RRP could have calculated the facility’s EIRR, particularly for SHS and a few representative subprojects at appraisal. Overall, the project followed least-cost options wherever possible, leveraged significant private sector financing, implemented subprojects within budget and reasonable timeframe, and is underpinned by strong post-implementation EIRR.
D. Sustainability
49. The facility is rated likely sustainable. It facilitated establishing the concept of private investment to bridge infrastructure financing gaps. During 1997–2007, 22 PPP subprojects reached financial closure with a total project cost of $1,182 million. In the next decade (2008– 2017), 48 PPP subprojects reached financial closure with an aggregate project cost of $3,970 million.30 The sustainability of the facility’s outcomes is augmented by the enactment of the Bangladesh Public-Private Partnership Act, 2015, issuance of procurement guidelines for PPP projects in 2016, and operationalization of the PPP Office in 2010, which was elevated to the PPP Authority in 2015. The PPP Authority has developed a pipeline of 44 PPP social and transport projects.31 The government’s new Seventh Five-Year Plan (FY2016–FY2020) commits to invigorate the PPP agenda.
50. IDCOL’s financial performance has weakened since FY2015 because of non-performing assets and reduced profitability, primarily due to the poor collection from its SHS portfolio. However, IDCOL has been proactive in taking mitigating measures, including a collection improvement program and focusing more on infrastructure subprojects to rebalance its portfolio. IDCOL also developed a strategic business plan in 2017 through an international consulting firm and employed a national research institution in 2018 for developing its exit strategy from the SHS portfolio. All PPIDF subprojects are in operation except one small subproject because of
28 The projected total cost of all subprojects before implementation was $656 million and estimated actual cost after implementation was $649 million. 29 World Bank. 2011. Proposed Additional Credit in the Amount of SDR107.6 Million to the Peoples Republic of Bangladesh for the Rural Electrification and Renewable Energy Development Project. Washington, D.C. 30 World Bank. Private Participation in Infrastructure Database. https://ppi.worldbank.org/ (accessed 2 May 2018). 31 ADB. 2017. Public–Private Partnership Monitor. Manila.
13 technological obsolescence.32 The aggregate financial internal rate of return of the facility is estimated to be 9.0% against the calculated weighted average cost of capital (WACC) of 6.6% (Appendix 16).33 The robust policy framework, functional PPP subprojects in power, government’s commitment, and private sector’s enhanced interest, have strongly established PPP on a strong footing. The sustained success of the facility enabled ADB to approve two follow-on projects with an aggregate funding of $636 million (footnote 5), while the World Bank approved a $357 million equivalent follow-on project in 2017.34 The follow-on projects will focus on financing core infrastructure subprojects and enhancing the capacity of infrastructure financing stakeholders.
E. Development Impact
51. The project’s overall impact is satisfactory. Given the acute power crisis at appraisal, the primary objective of the facility was to facilitate access to electricity by financing power subprojects and by providing renewable energy systems in off-grid areas.35 The facility supported adding 551 MW generation capacity to the national grid (5% of the national generation). In addition, the facility supported 430,514 SHS, which provided access to electricity to an estimated 1.9 million rural off- grid people (1.2% of the country’s population). The achievement of some impact indicators (such as road network, use of gas as a primary fuel) was not directly attributed to facility outputs; however, the facility assisted in freeing up public funding for these projects. The facility played a catalytic role in leveraging private sector participation in infrastructure as reflected in the successful financial closure of 48 PPP projects during 2008–2017. The facility also facilitated the creation of enabling regulatory and institutional framework. The facility achieved its intended development impact despite minor deficiencies in the alignment of output indicators.
F. Performance of Infrastructure Development Company Limited
52. IDCOL’s performance is rated satisfactory. IDCOL has shown a deep level of project ownership. They conducted extensive due diligence covering technical, managerial, market, financial, environmental, and social due diligence for all large infrastructure subprojects. Though IDCOL has not formally established a project management unit as stipulated in the project administration manual, it has performed project monitoring responsibilities diligently and provided monitoring and annual environmental and social safeguard reports. IDCOL played a laudable role in resolving the noise issue of one power subproject by convincing the subproject sponsors to make additional investments to the satisfaction of ADB (para. 59). IDCOL complied with effectiveness conditions efficiently and been receptive to ADB’s requests for strengthening its human resource and corporate governance standards for subsequent projects.
G. Performance of the Asian Development Bank
53. The performance of ADB is rated satisfactory. ADB fielded loan review, midterm project review and special review missions which monitored the implementation progress and recommended for corrective measures with regards to contract awards and disbursements. ADB took corrective measures and reallocated funds to the renewable energy program from small- and
32 The small project in question is a communications subproject using WiMAX technology (a broadband wireless data communications technology providing point to multipoint wireless networking). The facility’s investment was $3.6 million (2.1% of total facility) and unlikely to affect its sustainability. 33 Detailed FIRR evaluation along with WACC have been carried out for four representative subprojects that constitute 96.6% of the facility. 34 World Bank. 2017. Project Appraisal Document–Bangladesh Investment Promotion and Financing Facility Project II. Washington. 35 Paras. 40, 43, 47, and 48 of the RRP.
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medium-sized infrastructure subprojects in 2011. This timely action paved the way for the full disbursement of funds under the project, thereby supporting the achievement of the project outcome. ADB did not conduct any formal yearly review mission after 2013 as no significant issues were outstanding since ADB was in close dialogue with IDCOL.
H. Overall Assessment
54. The facility is rated successful. The facility is relevant for its strong alignment with the government’s development priorities and ADB’s policies for catalyzing private investment for infrastructure delivery. Though the facility achieved its envisaged outcome indicators, it is less than effective considering the non-attainment of some output indicators. The project is efficient as it provided least-cost solutions in an economically feasible manner and attracted significant private capital. The achieved outcomes are likely sustainable as evidenced in the successful commercial operation of subprojects, the robust regulatory and institutional framework, and the strong PPP pipeline. Overall, the facility was a pioneering project which contributed to the mainstreaming of the government’s PPP agenda demonstrating that infrastructure financing gaps can successfully be bridged by private participation. The overall ratings are in Table 1.
Table 1: Overall Ratings Criteria Rating Relevance Relevant Effectiveness Less than effective Efficiency Efficient Sustainability Likely sustainable Overall Assessment Successful Impact Satisfactory Performance of IDCOL Satisfactory Performance of ADB Satisfactory ADB = Asian Development Bank, IDCOL = Infrastructure Development Company Limited. Source: Asian Development Bank.
VI. ISSUES, LESSONS, AND RECOMMENDATIONS
A. Issues and Lessons
55. Project design. Project performance indicators should be more coherent and realistic (Appendix 1). The facility could have secured a better rating if overambitious and unrealistic indicators were avoided.
56. Project readiness. The first disbursement for infrastructure subprojects was delayed by 44 months from approval because of a weak pipeline of subprojects. Only 1 out of the 21 prospective pipeline subprojects as mentioned in the RRP was financed under PPIDF.36 This underscores the importance of ensuring credible and investment-worthy pipeline subprojects at project approval.
57. Market and governance dynamics. IDCOL became a victim of its success in the SHS program. Falling collection efficiency threatens IDCOL’s capital impairment requiring a potential bail-out in the future (Appendix 3). In view of innovative structure of SHS program, the market dynamics, operating model and governance structure of SHS program could have been more adequately assessed at appraisal.
36 Supplementary Appendix D of the RRP.
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58. Core competence. IDCOL’s small investment ($3.6 million) in a telecom subproject, using WiMAX technology, is not performing (footnote 32). It is important to develop the adequate technical capacity to assess subprojects in new sectors prior to making an investment.
59. Collaborative attitude. ADB found a higher level of noise in a power subproject in 2015, after funds disbursement, and requested IDCOL to address the issue. IDCOL and the subproject sponsors, as a testament to their commitment to the environment, implemented crucial remedial measures with additional investment, which were visited and validated by ADB safeguard officers. This has been a good example of a collaborative approach between ADB, IDCOL, and the subproject, where a critical problem was resolved even after the disbursement of funds.
B. Recommendations
60. Diversification. IDCOL has developed good expertise in appraising power subprojects, but now needs to develop its expertise in business development, appraisal, and management in other priority sectors in line with government’s development objectives, particularly in transport.
61. Future monitoring. Developing a comprehensive monitoring framework is necessary to assess the asset quality and financial performance of IDCOL, projects, and subprojects periodically (preferably semi-annually). The framework should also allow for the monitoring of the DMF performance indicators on a regular basis.
62. Covenants. With 53% of loan portfolio, IDCOL’s SHS program constitutes a concentration risk. To reduce this concentration risk, ADB assistance may introduce additional covenants that encourage diversification and caps sector exposure as far as practicable.
63. Further action or follow-up. It is important to periodically monitor the collection progress of the SHS portfolio and performance of infrastructure subprojects. Additional assistance in coordination with development partners is required to enhance the capacity of IDCOL in technical, management, risk assessment, and treasury operations.
64. Timing of the project performance evaluation report. ADB could prepare the project performance evaluation report in 2019 as there are no significant outstanding issues that would necessitate postponement, except for the resolution of FAPAD observations.
65. One ADB. ADB is suitably poised to making the government’s PPP agenda a success. ADB’s PPP Office can support the government to develop bankable deals, relevant sector divisions can provide sovereign financing (viz., viability gap funding), and private sector operations can finance directly to the PPP subprojects.
66. Institutional development. Infrastructure financing is risky and complex. There should be a time-bound, step-by-step development plan for IDCOL in certain quantifiable indicators (such as classified loan and portfolio diversification) so that IDCOL can be a more sustainable institution.
16 Appendix 1
DESIGN AND MONITORING FRAMEWORK
Design Performance Summary Indicators/Targets Achievements Assessment Impact Access to electricity Achieved. Access to electricity PPIDF-supported subprojects Improved per capita from present 38% to increased to 68% in FY2015 added 551MW electricity to the infrastructure 60% of population and 80% in FY2017.1 national grid which is about availability by 2015 3.5% of the national generation capacity in 2017.6 The project directly contributed to increased access to electricity.
Total road network Achieved. Total road network of PPIDF did not finance any road increased by 25% the country increased from subproject, however, it by 2015 150,687km in FY2007 to facilitated by freeing up public 190,654km in FY2015 and investment from power projects 195,238km in FY2017. Growth for other infrastructure in road network during FY2007- subprojects, including transport. FY2015 was 27%.2 There could be some specific output indicators related to this impact indictor.
Increased Achieved. Number of PPIDF did not finance any percentage of customers using gas has energy subproject, however, it population using increased from 1.9 million in facilitated by freeing up public gas as a primary FY2008 to 3.5 million in resources for other fuel from 6% to 10% FY2016.3 Assuming 4.5 persons infrastructure subprojects, by per household, it is calculated including energy. There could 2015 that 10% population in FY2016 be some specific output were using gas as primary fuel.4 indicators related to this impact indictor.
Increase by 10% in Achieved. Number of private PPIDF played a demonstrative number of private sector and PPP infrastructure role in promoting private sector sector and PPP projects increased from 27 in investment in infrastructure infrastructure 2008 to 66 in 2015 and 70 in subprojects in Bangladesh. projects financed by 2017. Growth rate during 2008– 2015 2015 was 44%.5
Access to electricity Partly achieved. Grant G0254- This is an additional indicator of by additional 80,000 BAN(SF) supported an the supplementary grant poor households additional 81,315 households approved in May 2011. The under part 1 and gain access to electricity under indicator contains apparently additional 100,000 part 1. Part 2 of the grant immaterial differentiation low-income provided training to an between “poor” and “low- households under estimated 145,625 rural people income” households which part 2 by 2012. for using SHS and provided could not be captured by the Currently, only direct access to electricity to implementing agency. The about 4 million rural 517 households by connecting indicator apparently in households have them to a solar mini-grid. duplication with the grant’s access to electricity. outcome indicator.
1 World Bank data. https://data.worldbank.org/indicator/EG.ELC.ACCS.ZS?locations=BD (accessed 2 May 2018). 2 Ministry of Finance. 2017. Bangladesh Economic Review–English, Chapter 11, Transport and Communication. Dhaka. 3 Bangladesh Oil, Gas and Mineral Resources. 2017. Annual Report 2016. Dhaka. 4 Bangladesh Bureau of Statistics. 2010. Report of the Household Income and Expenditure Survey 2010. Dhaka. 5 Source: http://ppi.worldbank.org/snapshots/country/bangladesh (accessed in May 2018). 6 Power Division. 2017. Annual Report 2016-17. Dhaka.
Appendix 1 17
Design Performance Summary Indicators/Targets Achievements Assessment Outcome Enhanced private 3 large subprojects Achieved. PPIDF disbursed Though private financing in two sector participation with private $82.0 million, under component subprojects was below the in infrastructure financing of at least A, to three large subprojects in $100.0 million mark, the development $100 million each by the energy sector having private average private sector financing 2013 financing of $296.7 million, has been $138 million. The $62.8 million, and $54.2 million objective of PPIDF was to in these subprojects (Appendix leverage private financing and it 7). catalyzed $413.7 million private financing for 3 large subprojects. The $100 million floor criterion apparently conflicts with the RRP (para. 39) which set the benchmark at $30 million.
1 medium sized Achieved. PPIDF disbursed Achieved. The original target of subprojects with $3.6 million to a wireless 10 medium-sized subprojects as private financing of telecom subproject having mentioned in RRP was revised at least $30 million private financing of $43.9 to 1 medium-sized subproject each by 2013 million. Additionally, this following reallocation of $45.0 component funded $1.4 million million from component B to for setting up a nationwide component C.9 The $30 million telecom transmission network floor criterion conflicts with the with a total project cost of $14.5 RRP (para. 39) which set the million (Appendix 7). benchmark at $30 million.
At least 216,363 Achieved. The original target of SHS was a major deliverable. solar energy home 100,000 solar home systems Even though no biomass/biogas systems, 15 was revised to 216,363 power plants were financed biomass power following the reallocation of because of the scarcity of such plants, and 100 $45.0 million from component B projects, Grant 0253 financed biogas power plants to component C. PPIDF three important renewable installed by the financed the installation of energy applications–(i) the private sector by 430,514 SHS in remote off-grid installation of 100 fiberglass bio- 2013 rural areas. Of the total, 349,199 digester plants, (ii) a 141 kWp SHSs were financed under Loan solar photovoltaic based mini- 2453 and 81,315 SHS under grid, and (iii) seven 78.71 kWp Grant 0254 (Appendix 7) solar PV-based irrigation pumps.
Reduction of at least Achieved. It is calculated that This outcome indicator was 10 258,750 tons of CO2 PPIDF intervention helps reduce included in 2011. The indicator emissions at the carbon dioxide emissions by is not well-defined. It should end of project period 500,284 tons over a period of have specifically mentioned the (5 years) five years (Appendix 17).7 base year and base value. A similar indicator for the grant sets the timeframe at 2.5 years creating inconsistencies.
7 Data sources for calculation of carbon dioxide savings: Intergovernmental Panel on Climate Change; https://www.engineeringtoolbox.com/specific-gravity-liquids-d_336.html; International Carbon Bank and Exchange; IDCOL. 9 Loan 2453-BAN (ADF): Public-Private Infrastructure Development Facility–minor Change in Scope and Reallocation dated 3 June 2011; and Loan 2453-BAN (ADF): Public-Private Infrastructure Development Facility–minor Change in Scope and Reallocation dated 1 August 2011. 10 Loan 2453-BAN (ADF): Public-Private Infrastructure Development Facility–minor Change in Scope and Reallocation dated 3 June 2011; and Loan 2453-BAN (ADF): Public-Private Infrastructure Development Facility–minor Change in Scope and Reallocation dated 1 August 2011.
18 Appendix 1
Design Performance Summary Indicators/Targets Achievements Assessment At least 80,000 solar Achieved. Grant G0254 This is an additional indicator of energy home supported 81,315 SHS. Grant the supplementary grant systems, 5 biomass 0253 supported i) 100 fiberglass approved in May 2011. power plants, 10 bio-digester plants, (ii) a 141 Feasibility of biomass/biogas biogas power kWp solar photovoltaic based power plants should have plants, and 10 solar mini-grid, and (iii) seven 78.71 carried out before including irrigation pumps kWp solar PV-based irrigation such indicators. Though no installed by 2013 pumps (Appendix 7). biomass/biogas power plants were financed because of the unavailability of such projects, the grant supported 100 bio- digesters for cooking purposes which replaced Kerosene and wood consumption.
Reduction of at least Partly achieved. The grant This is an additional indicator of 69,000 tons of CO2 supported 81,515 SHS, 100 the supplementary grant emissions at the fiberglass bio-digesters, a approved in May 2011. The end of the project 141kWp solar mini-grid, and 7 indicator is not well-defined. It period (2.5 years) solar irrigation pumps, all of should have specifically which combinedly reduces mentioned the base year and carbon dioxide emissions by base value. 49,139 tons over a period of 2.5 years.8
Outputs 1. Improved lending Reduction in Not Achieved. IDCOL The indicator, in its present terms of IDCOL average borrowing managed to reduce its weighted form, is not useful to capture for infrastructure costs by 20% for average borrowing cost from borrowing efficiency as interest subprojects IDCOL by 2013 3.29% in FY2011 to 3.04% in rates are largely market-driven. FY2017 (a reduction of IDCOL depends on 7.83%).11 development partners entirely and should have diversified its funding source even at a higher borrowing cost as development assistance should not be taken for granted for perpetuity.
Increase in tenor of Not achieved. The average IDCOL’s lending policy on tenor available financing maturities of IDCOL’s financing appears to be prudent given the provided by IDCOL were 7.0 years in FY2013 and maturity profile of its funding to 25 years by 2013 7.7 years in FY2017. As per basket which is lower than 25 current lending policy of IDCOL, years. This indicator is not an maximum financing tenor is appropriate indicator in its restricted to 15 years, including present form. Tenor should be a maximum grace period of 3 guided by the cashflow profile of years. the subprojects. Moreover, it should not create any asset- liability mismatch.
2. Improved ability Issuance of at least Not achieved. IDCOL is yet to This has been an overambitious of IDCOL to 2 debt market issue any debt instruments as it indicator given the virtual mobilize long- instruments by enjoys adequate access to absence of corporate debt term capital IDCOL by 2013 moderately priced credit lines instruments in Bangladesh from the development partners. capital market.
8 Data sources for calculation of carbon dioxide savings: IDCOL; Intergovernmental Panel on Climate Change; International Carbon Bank and Exchange. 11 Source: IDCOL.
Appendix 1 19
Design Performance Summary Indicators/Targets Achievements Assessment At least 5 Achieved. During 2008-2017, IDCOL played a major role in syndications by IDCOL arranged syndicated mobilizing long term financing IDCOL for the loans for 5 subprojects and co- for infrastructure projects in financing of arranged loans for 3 Bangladesh. It also provides infrastructure subprojects.12 training on project finance and subprojects by 2013 financial modelling to officers of local banks and financial institutions.
3. Enhanced Improved local Not achieved. In 2015, IDCOL This timeframe of 2009 was not governance at credit rating of obtained AAA rating by a local realistic as the loan became IDCOL IDCOL from AA to credit rating agency which was effective in 2009 and TA AAA by 2009 downgraded to AA in 2017. consultants were fielded in 2009.
IDCOL obtains a Not achieved. IDCOL is rated IDCOL informed that it will credit rating from an by local credit rating agencies consider obtaining credit rating internationally only. from an international rating accepted agency in agency once it intends to raise 2010 funds from the international capital market. However, as a good practice, IDCOL should be rated by an international rating agency even it does not have any imminent plan to issue debt securities in the international market.
4. Enhanced ESSF reports from Achieved. ESSF has been IDCOL established a separate capacity for 2008 onwards updated and posted on IDCOL’s team for ESSF. application of website since 2012. environmental and social Year-on year Achieved. IDCOL has applied All infrastructure subprojects are safeguards increase in number the ESSF for subprojects under subject to ESSF. standards of subprojects PPIDF. assessed for compliance under ESSF by 10% annually.
5. Enhanced Reduction in Not achieved. For the three This indicator is inappropriate efficiency of processing time for large subprojects financed with unrealistic timeframe. Large IDCOL in new proposals from under the OCR loan of PPIDF, infrastructure subprojects developing and 6 months to 4 the average processing time require comprehensive due financing months by 2010 (i.e. from the date IDCOL diligence. Subprojects having infrastructure received the proposal until the multiple lenders’ approvals subprojects time of IDCOL’s Board require longer processing time. approval) was approximately 12 The average processing time for months. However, the an infrastructure subproject is at processing time for smaller least 12 months, on average. projects or projects funded from IDCOL’s own resources are often shorter than 4 months. ADB = Asian Development Bank, ESSF = environmental and social safeguards framework, FY = fiscal year, IDCOL = Infrastructure Development Company Limited, kWp = kilowatt power, MW = megawatt, OCR = ordinary capital resources, PPIDF = Public-Private Infrastructure Development Facility, SHS = solar home systems, RRP = report and recommendation of the President. Source: Asian Development Bank.
12 Source: IDCOL.
20 Appendix 2
SOLAR HOME SYSTEM PROGRAM
1. Background. Infrastructure Development Company Limited (IDCOL) started solar home system (SHS) program in January 2003. The program is implemented through partner organizations (POs) which are mostly local non-government organizations (NGO), micro-finance institutions (MFI) and private enterprises. The objective of the program is to meet the basic electricity requirements in the rural areas of Bangladesh by supplementing the Government’s vision of ensuring access to electricity for all by 2021. As of March 2018, the program provided access to electricity for 18 million people (12% of the total population) in off-grid areas. IDCOL’s long-term objective is commercialization of the SHS program and gradually transfer it to the private sector.
2. Program structure. IDCOL has developed an innovative and unique model for dissemination of SHS. The model has been proved effective and accepted by the beneficiaries under the program. It introduced ownership model through micro-finance/cash sale rather than fee-for-service model. The following figure shows the basic structure of the program:
Figure A2.1: Program Structure of Solar Home System
IDCOL = Infrastructure Development Company Limited, NGO = non-government organization, PO = partner organization, SHS = solar home systems Source: IDCOL
3. Project cost and financing structure. Total project cost of the SHS program is $1.1 billion which has been funded by $600 million loan, $96 million grant, $250 million PO contribution, and $150 million household equity. IDCOL receives credit support from the World Bank, ADB, Islamic Development Bank, and Japan International Cooperation Agency, and grant support from GPOBA, GIZ, KfW, USAID and DFID for the program. As of January 2018, IDCOL disbursed $600 million loan to the POs of which $330 million has been repaid. The financing structure for a 20wp SHS is provided in the following table.
Appendix 2 21
Table A2.1: Financing Structure of Solar Home System (a) Market Price of a 20 Wp SHS $140 (b) Buy-down Grant (Grant A) $20 (c) System Price for Household [(b)-(a)] $120 (d) Down Payment from Household to PO [15% of (c)] $18 (e) Loan Payable from Household to PO [(c)-(d)] $102 Loan Tenor 1–3 years Interest Rate 12%–16% p.a. Monthly Installment Amount $5 (f) IDCOL Refinance [70% of (e)] $71 Loan Tenor 5–7 years Interest Rate 4% p.a. p.a. = per annum, PO = partner organizations, SHS = solar home systems, Wp = watt peak. Source: IDCOL
4. Benefits of the program. The program has ensured supply of solar electricity to 18 million rural population by installing 4.1 million SHS in rural areas. The program has so far saved consumption of 1.14 million tons of kerosene worth $411 million (considering $0.30 per liter) and will save 3.6 million tons of kerosene in next 15 years. This program has positive impact on greenhouse gas emissions by reducing CO2 production. Bangladesh Institute of Development Studies (BIDS) conducted impact assessment of SHS Program in 2013 which has identified good social and economic impact, such as:
(i) Study hours and schooling. According to BIDS, students in SHS households have longer study hours compared to their counterparts in non-SHS households. The SHS study also found that boys and girls in SHS households have completed more schooling than those in non-SHS households;
(ii) Safety and amenities. The study revealed that SHS households enjoy higher safety, comfort and convenience compared to non-SHS households. For instance, SHS households have higher sense of security at night. SHS households have access to various electronic appliances, such as television, radio, fan, and mobile charger;
(iii) Health impact. SHS households suffer less from several types of preventable illness, such as general ailment, respiratory diseases, and GI illness. Adoption of SHS was found to have positive effect on population control of our country;
(iv) Benefits for women. Women have been one of main target beneficiaries of SHS program. SHS has a positive influence on women’s mobility, general and economic decision-making. Women are found to use more time for tutoring children, watching TV, socializing, visiting friends and neighbors with the adoption of SHS; and
(v) Employment. The program has contributed towards development of local support industries and creation of more than 75,000 direct or indirect jobs.
22 Appendix 2
5. Challenges. IDCOL’s SHS program is one of largest in the world. After experiencing exponential growth during 2003–2013, installation of SHS decreased significantly due to several reasons not foreseen earlier. These include rapid expansion of the national electricity grid by the Rural Electrification Board, free distribution of SHS under TR/KABITA (a social safety-net program by the government), development of unregulated commercial market, and availability of cheap SHS. IDCOL’s collection efficiency from the POs has decreased from 88% in 2015 to 38% in 2017. The following figure shows the trend of yearly installation of SHS program.
6. Initiatives by IDCOL to meet challenges. IDCOL’s SHS rendered significant social and economic benefits by providing access to clean electricity to the rural people. However, IDCOL need to improve its collection efficiency to remain a financially strong institution to continue its development activities. IDCOL’s SHS program has largely become a victim of its own success through successful commercialization of SHS, which was the objective of the program. IDCOL has taken the following major steps to improve collection efficiency:
(i) In 2016, IDCOL launched “Collection Efficiency Improvement Program” to strengthen its collection efforts by engaging with local administration and REB and introduced prepaid system;
(ii) IDCOL and its POs have now been engaged in the distribution of SHS under the government’s safety-net program thus having visibility over the PO’s cashflow;
(iii) IDCOL engaged with Sustainable and Renewable Energy Development Authority (SREDA) for setting up a national standard for SHS and jointly conducted awareness campaign; and
(iv) IDCOL appointed BIDS for an assessment of its SHS portfolio.
Appendix 3 23
RELATIONSHIP WITH THE ASIAN DEVELOPMENT BANK AND OTHER LENDERS
Table A3.1: Asian Development Bank’s Financial Assistance to Infrastructure Development Company Limited as of 31 Dec 2017
ADB Board Amount Interest Rate Tenor Drawdown Loan/Grant Number Approval (million) (per annum) (years) (million)
PPIDF Loan 2453-BAN(SF) 02-Oct-08 SDR52.87 1-1.5% 25 SDR52.87 Loan 2454-BAN 02-Oct-08 $82.00 LIBOR+0.6% 25 $82.00 Grant 0253-CLCF 17-May-11 $1.30 n/a n/a $1.30 Grant 0254-ACEF 17-May-11 $2.00 n/a n/a $2.00
PPIDF2 Loan 3045-BAN 17-Oct-13 $100.00 LIBOR+0.6% 25 $85.00 Loan 3046-BAN(SF) 17-Oct-13 SDR6.60 2% 25 $9.01
PPIDF3 Loan 3554-BAN 18-Jul-17 $500.00 LIBOR+0.5% 20 not started Loan 3555-BAN(COL) 18-Jul-17 $26.00 2.00% 25 not started ADB = Asian Development Bank, IDCOL = Infrastructure Development Company Limited, LIBOR = London interbank offered rate, PPIDF = Public-Private Infrastructure Development Facility, PPIDF2 = Second Public-Private Infrastructure Development Facility, PPIDF3 = Third Public-Private Infrastructure Development Facility. Source: Asian Development Bank.
Table A3.2: Other Lenders’ Financial Assistance to Infrastructure Development Company Limited as of 31 Dec 2017
Approval Amount Tenor Lenders Name of Project/Program Year (million) (years) Rural Electrification and Renewable Energy World Bank 02-Sep-09 $81.81 20 Development Program (Credit No. 4643)
Rural Electrification and Renewable Energy World Bank 14-Nov-11 $117.82 20 Development Program (Credit No. 5013)
Rural Electrification and Renewable Energy World Bank 23-Oct-12 $110.80 20 Development Program (Credit No. 5158)
Rural Electrification and Renewable Energy World Bank 30-Jun-14 $69.85 20 Development Program (Credit No. 5514)
Participation in the Financing of Improving Rural IDB Households Livelihood through Solar Energy 26-Nov-09 $18.00 20 Project in Bangladesh (Loan No. 151BD) Renewable Energy Development Project (Loan JICA 10-Mar-13 $115.60 20 No. BD P75) Energy Efficiency and Conservation Promotion JICA 29-Jun-16 ¥4,989.00 20 Financing Project (Loan No. BD P90) IDB = Islamic Development Bank, JICA = Japan International Cooperation Agency. Source: Infrastructure Development Company Limited.
24 Appendix 4
FINANCING PLAN ($ million) Planned Actual Source Foreign Local Currency Foreign Local Currency Exchange Exchange
Asian Development Bank (OCR) 82.0 0.0 82.0 0.0
Private Sector Sponsors and Banks 328.0 0.0 413.8 0.0 (large subprojects)*
Asian Development Bank (ADF) 83.0 0.0 83.0 0.0
Private Sector Sponsors and Banks 0.0 332.0 0.0 57.1 (SMIPs and renewable energy)***
Asian Clean Energy Fund 2.0 2.0
Climate Change Fund 1.3 1.3
Islamic Development Bank*** 85.0 15.0 0.0 18.0
Total 581.0 347.0 581.8 75.1 ADF = Asian Development Fund, OCR = ordinary capital resources, SMIP =small and medium-sized infrastructure subproject. * Assuming equity investment by sponsors and investment by other local and international commercial financiers were made in foreign currency ** Assuming equity investment by sponsors and investment by other local and international commercial financiers were made in local currency *** The RRP (para 60, 62) specified a parallel co-financing by the Islamic Development Bank (IDB) of $100 million, of which $15 million was allocated towards IDCOL’s SHS program (component C) and $85 million to fund large infrastructure subprojects (component A). As per the RRP, a joint ADB-IDB mission was conducted in 18-24 June 2008 to introduce IDB to the intervention. IDB financed $18 million, as informed by IDCOL, to the SHS program independently and no fund was provided by IDB for any large infrastructure subprojects. It may be noted that no formal co-financing arrangements were made between ADB and IDB, there was no administrative relationship, and there was no transaction-specific co-financing by ADB and IDB in any of the subprojects where financing amount was shared.
Appendix 5 25
TECHNICAL ASSISTANCE COMPLETION REPORT
Division: Bangladesh Resident Mission TA Number, Country, and Name: Amount Approved: $500,000 TA 7143-BAN: Capacity Development for the Infrastructure Revised Amount: N/A Development Company Limited
Executing Agency: Source of Funding: Amount Undisbursed: Amount Utilized: Finance Division, Ministry of TASF-OTH $34,481.33 $465,518.67 Finance TA Approval TA Signing Fielding of First TA Completion Date Date: 2 October Date: 14 Consultants: June 2009 Original: 31 August 2010 Actual: 30 September 2011 2008 January 2009 Account Closing Date Original: 31 August 2010 Actual: 31 October 2011 Description Infrastructure deficiency has been identified as a key constraint to economic growth and poverty reduction in the government of Bangladesh’s national poverty reduction strategy. Given that public investments in infrastructure remained stagnant and private sector participation is limited, the government’s strategy was to bridge the infrastructure deficit through public-private partnership (PPP). Based on the above, ADB approved the $165 million Public-Private Infrastructure Development Facility (PPIDF) to be on-lent to the Infrastructure Development Company Limited (IDCOL).1 The PPIDF aimed to help addressing infrastructure deficiencies by catalyzing private sector financing, which was not available in the financial market. In this context, IDCOL requested advisory technical assistance from the ADB to strengthen its capacity. ADB approved a TA project aimed to (i) assist line ministries in the drafting of proper PPP frameworks and policies in Bangladesh based on IDCOL's experience in financing private sector-led infrastructure subprojects upon request of those line ministries; (ii) provide the government and its agencies with feedback about bottleneck, issues, and concerns from the market and from private sector sponsors and offer advice and solutions; (iii) conduct economic, sector, and industry studies; (iv) support the development of additional capacity within IDCOL to appraise subprojects, manage its expanding subproject portfolio, and supervise the implementation of its renewable energy program; (v) provide training to staff in relevant government agencies in credit and risk assessment, management, and mitigation; and (vi) provide training to IDCOL in the environmental and social assessment of subprojects.
Expected Impact, Outcome, and Outputs The impact of the TA was improved infrastructure development. The outcomes included: (i) creation of an enabling environment for PPP; (ii) assistance to PPIDF for catalyzing PPP development in Bangladesh; and (iii) capacity development to IDCOL and other relevant government staff. Through this process, it was expected that more private sector resources would be leveraged under PPP modality, which will then be mainstreamed into the country’s infrastructure development process on a long-term basis. The intended specific outputs of the TA were: • Output 1. Diagnostic review of the capacity shortfalls at IDCOL; • Output 2. Design, plan and implementation of training programs reflecting the results of the diagnostics; • Output 3. Study tours and exposure visits for benchmarking and best practice; • Output 4. Training on environment and social safeguards; • Output 5. Training to government and other public-sector entities’ staff; • Output 6. Successful absorption of the ADB loan by IDCOL; • Output 7. PPP policy; • Output 8. PPP mainstreamed in public sector entities.
Delivery of Inputs and Conduct of Activities Adequacy of formulation. The basic design of the TA was well-conceived and emphasized on capacity development of IDCOL for successful absorption of PPIDF by way of internal capacity development of IDCOL and creation of enabling environment for PPP. The scope of the TA was diverse and full implementation proved to be difficult considering the readiness of PPP stakeholders. The terms of reference of the TA was largely appropriate. Selection
1 ADB. 2013. Report and Recommendation of the President to the Board of Directors: Proposed Loans to the People’s Republic of Bangladesh for the Second Public-Private Infrastructure Development Facility. Manila.
26 Appendix 5 of the consulting firm and the individual consultants were conducted in accordance with ADB's Guidelines on the Use of Consultants (2007, as amended from time to time).
Performance of consultants, executing agency and ADB. CRISIL Risk & Infrastructure Solution Ltd., the TA consulting firm, commenced work in June 2009. The firm produced diagnostic and strategy reports on IDCOL’s operations and conducted trainings on environment and social safeguards for IDCOL staffs. Consultants did not provide the final report and it was not followed up by any stakeholder and ADB. Apart from this, performance of the consultants, executing agency and ADB has been rated satisfactory.
Changes during implementation. Three minor changes in implementation arrangement were made in November 2009, October 2010 and June 2011 primarily to assist IDCOL in assessing the environmental and social impacts of infrastructure subprojects and strengthening financial management capacity. Despite ADB’s assistance in the preparation of a comprehensive Environmental and Social Safeguards Framework (ESSF), the company displayed deficiencies in safeguard planning processes and procedures. This became particularly evident during due diligence process of subprojects which were submitted to ADB for review and approval. Therefore, uncommitted balance of $140,710 was utilized to recruit four individual consultants in October 2011 on short-term basis to assist IDCOL staff, particularly those in the Environmental and Social Safeguards Management Unit (ESSMU) under output 4. All changes in implementation arrangement were appropriate.
Evaluation of Outputs and Achievement of Outcome
Output 1. Diagnostic review of the capacity shortfalls at IDCOL–achieved. A diagnostic review report was prepared which focused on areas internal to IDCOL such as operating policies and procedures, credit policy asset acquisition guidelines, portfolio and pipeline review, funding operations; and areas external to IDCOL such as national policy, procurement and guidelines, and sector policies. The diagnostic report helped to identify capacity shortfall of IDCOL thus helping the preparation and subsequent adoption of ESSF.
Output 2. Design, plan and implementation of training programs reflecting the results of the diagnostics–partly achieved. Based on IDCOL’s weakness in safeguard planning processes and procedures, training was provided to IDCOL on risk management particularly on environment and social safeguard due diligence. There should be a written report on planned implementation of training program which could have been useful to provide more training under the TA and follow-up capacity development in future.
Output 3. Study tours and exposure visits for benchmarking and best practice–not achieved. There had been no study tours or exposure visits conducted under the TA as consultants concentrated more for in-house capacity development of IDCOL.
Output 4. Training on environment and social safeguards–achieved. A change in TA implementation arrangements was appropriately made to accommodate training for IDCOL’s ESMMU staff to ensure that they can carry out the environmental and social safeguard assessments of its subprojects and can certify project compliance with ESSF without external assistance once the TA concludes. This training has been particularly useful in developing much- needed capacity of IDCOL in ESSF which enabled it to utilize the full PPIDF amount and developed its long-term sustainability.
Output 5. Training to government and other public-sector entities staff–not achieved. No formal training was provided to civil servants and other public-sector entities as consultants concentrated more for in-house capacity development of IDCOL.
Output 6. Successful absorption of the ADB loan by IDCOL–achieved. Despite initial delays in disbursement of PPIDF, training to IDCOL staff on environment and social safeguards enabled the successful absorption of PPIDF and paved the way for approval of Second Public-Private infrastructure Development Facility in 2013 and Third Public-Private infrastructure Development Facility in 2017.
Output 7. PPP policy–achieved. The TA consulted with the government and private sector stakeholders and assisted in sensitization of the PPP concept for infrastructure development and laid the basic groundwork for subsequent ADB intervention in PPP. Eventually, the PPP law was passed by the parliament in 2015. The law provides a robust legal framework to attract the interest of national and international private sector investors.
Output 8. PPP mainstreamed in public sector entities–achieved. Government officials from various ministries were sensitized on PPP concepts through discussions and meetings. The PPP has been mainstreamed gradually as a continuation of the efforts following the implementation of the TA. Government established PPP Authority under the Ministry of Finance and PPP Unit under the Prime Minister’s Office to focus on the PPP agenda.
Appendix 5 27
Achievement of Outcome. The TA largely achieved its intended outcomes. By way of sensitizing the government and private stakeholders on the concept of PPP, the TA seeded the creation of an enabling PPP environment in the country. The government gradually developed the institutional framework, such as, PPP Authority and PPP Unit; and regulatory environment, such as, Policy and Strategy for Public-Private Partnership, Guideline for Viability Gap Funding and Guideline for PPP Technical Assistance Financing. The TA developed the capacity of IDCOL in financing PPP projects that catalyzed private sector investment in PPP projects. The full $165 million facility under PPIDF was disbursed which leveraged $517 million private sector investment. The PPP has now been substantially mainstreamed with high level of commitment by the government as reflected in the new Seventh Five Year Plan (FY2016-FY2020) to reinvigorate the PPP initiatives further for bridging infrastructure financing gaps. 2 The PPP authority has developed a list of 47 PPP subprojects at different stages of development.3 On continued good progress in PPP reforms, institutional framework and operational maturity, Bangladesh ranks fifth in the emerging PPP market group.4
Overall Assessment and Rating Overall, the TA is rated successful. The TA is relevant in enhancing the absorption and sustainability of PPIDF in alignment with government priorities and ADB policies. Basic design of the TA was well-captured and emphasized on capacity development of IDCOL and creation of enabling environment for PPP. The TA is rated effective as it developed IDCOL’s capacity particularly in environmental and socials safeguard due diligence which helped successful absorption of the PPIDF facility. It delivered the key outputs and achieved the intended outcomes substantially. The TA augmented the concept of PPP modality which assisted in the development of an enabling institutional, regulatory and financial framework in the country. The TA is rated efficient for its successful absorption of the loan facility within three years of the TA closing. The TA is rated likely sustainable because of enhanced and sustained capacity of IDCOL and development of the PPP sector. The follow-on Second PPIDF is expected to be fully absorbed before the scheduled closing date while the Third PPIDF has already been approved. The TA facilitated in mainstreaming the PPP concept with increasing government and private sector involvement and expected to play a more important role in bridging infrastructure gaps.
Major Lessons Preparation of this TCR was challenging given the dearth of institutional memory on activities conducted under the TA. In particular, the final report of the TA could be not located despite reasonable efforts by the PCR team. A key lesson is that activities and outputs from consultancies should be well-documented and stored, electronically or in hard copies. The executing agency, IDCOL and ADB should have ensured submission of the consultant’s final report. Two outputs were not achieved, and these could have been appropriately framed.
Recommendations and Follow-Up Actions Infrastructure financing is a highly challenging discipline. IDCOL needs to continuously develop its capacity and improve its corporate governance for long-run sustainability and growth in risk-measured manner. It is noted that ADB approved a TA for further development of IDCOL’s capacity in integrated risk management. It is recommended that capacity development should not be limited to developing and adopting policies, the adopted policies should be practiced, and a good governance culture should be inculcated in all aspects of IDCOL’s operations. A strategic partnership between IDCOL with an internationally reputed infrastructure financing institution can provide IDCOL access to technical knowledge and ensure better governance. ESSF = Environment and Social Safeguards Framework, IDCOL = Infrastructure Development Company Limited, PPIDF = Public Private Infrastructure Development Facility, PPP = public-private partnership, TA = technical assistance.
Prepared by: Bidyut K. Saha Designation and Division: Senior Project Officer, BRM, SARD
In preparing any country program or strategy, financing any project, or by making any designation of or reference to a particular territory or geographic area in this document, the Asian Development Bank does not intend to make any judgments as to the legal or other status of any territory or area.
2 Government of the People’s Republic of Bangladesh. 2016. 7th Five Year Plan (FY2015/16-FY2019/20)–Accelerating Growth, Empowering Citizens. Dhaka. 3 Public Private Partnership Authority. PPP Projects. http://www.pppo.gov.bd/projects.php (accessed 2 May 2018). 4 ADB–Economist Intelligence Unit. 2015. Evaluating the Environment for Public-Private Partnerships in Asia-Pacific: The 2014 Infrascope. Manila.
28 Appendix 6
CHARACTERISTICS OF SUBLOANS
LIST OF SUBPROJECTS
Table A7.1: Infrastructure and Renewable Subprojects Financed by Public-Private Infrastructure Development Facility
Investment ADB Equity from ADB Commercial Project Cost by Other Loan/Grant Name of Subprojects Location Sector Capacity Borrower Financing Operation ($ million) Financiers Number ($ million) ($ million) Date ($ million) Energypac Confidence Power L2454-BAN Patia, Chittagong Power 108 MW 92.86 32.46 30.00 30.40 14-Jan-15 Venture Chittagong Ltd.
L2454-BAN Regent Energy and Power Ltd. Polash, Norshingdi Power 108 MW 84.18 30.18 30.00 24.00 16-Jul-14
Summit Meghnaghat Power L2454-BAN Meghnaghat, Naryanganj Power 335 MW 318.73 136.73 22.00 160.00 1-Jun-15 Company Ltd.
L2453-BAN(SF) Banglalion Communications Ltd. Bangladesh Telecom - 47.52 18.60 3.61 25.32 5-Jul-05
L2453-BAN(SF) Fiber@Home Ltd. Bangladesh Telecom - 14.54 7.20 1.39 5.95 1-Jun-10
L2453-BAN(SF) Solar Home Systems Bangladesh Renewable Energy 16.3 MW 108.33 10.83 78.00 19.50 30-Mar-09
L0254-BAN(EF) Solar Home Systems Bangladesh Renewable Energy 19.8 MW 16.67 1.67 2.00 13.00 30-Mar-09
G0254-BAN(SF) Bio-digesters Bangladesh Renewable Energy 100 nos 0.75 0.15 0.07 0.52 30-Dec-14
G0253-BAN(SF) Solar Mini-grid Project Bagha, Rajshahi Renewable Energy 141 kWp 0.84 0.17 0.42 0.25 9-Mar-15
G0253-BAN(SF) Solar Irrigation Pumps Meherpur and Kushtia Renewable Energy 78.71 kWp 0.26 0.05 0.10 0.10 27-Aug-14
TOTAL 684.68 238.04 167.60 279.04 7 Appendix Source: IDCOL
29
Table A7.2 Solar Home Systems Implemented by Participating Organizations 30
Loan 2453-BAN(SF) Grant 0253/0254-BAN Total Number of SHS Total Amount (Tk) Sl. Name of Partner Organization Number of SHS Amount (Tk) Number of SHS Amount (Tk) Total % of Total Total % of Total 7 Appendix 1 Association for Development Activity of Manifold Social Work (ADAMS) 197 379,225 197 0.0% 379,225 0.0% 2 Al-Falah Aam Unnayan Sangstha (AFAUS) 234 4,402,728 132 249,050 366 0.1% 4,651,778 0.1% 3 AVA Development Society 1,548 28,981,184 1,153 2,306,000 2,701 0.6% 31,287,184 0.5%
4 Bangladesh Rural Integrated Development For Grub-Street Economy (BRIDGE) 5,131 83,026,818 1,776 2,947,799 6,907 1.6% 85,974,617 1.5% 5 BRAC Foundation 9,354 158,796,367 9,354 2.2% 158,796,367 2.7% 6 Centre for Mass Education in Science (CMES) 1,361 24,682,624 110 220,000 1,471 0.3% 24,902,624 0.4% 7 Clean Energy Foundation (CEF) 165 317,625 165 0.0% 317,625 0.0% 8 COAST Trust 1,537 21,981,445 1,537 0.4% 21,981,445 0.4% 9 DESHA 1,426 23,375,479 1,426 0.3% 23,375,479 0.4% 10 Green Housing & Energy Limited (GHEL) 156 2,449,404 156 0.0% 2,449,404 0.0% 11 Grameen Shakti 177,240 3,017,084,452 60,758 121,516,000 237,998 55.3% 3,138,600,452 53.3% 12 HAMKO Corporation Limited 163 313,775 163 0.0% 313,775 0.0% 13 Hilful Fuzul Samaj Kallyan Sangstha 12,990 175,318,446 12,990 3.0% 175,318,446 3.0% 14 INGEN Technology Limited 651 11,512,629 651 0.2% 11,512,629 0.2% 15 Integrated Development Foundation (IDF) 2,817 48,293,334 2,817 0.7% 48,293,334 0.8% 16 MAKS Renewable Energy Company Limited 713 1,372,525 713 0.2% 1,372,525 0.0% 17 Network for Universal Services and Rural Advancement (NUSRA) 1,264 19,861,501 1,264 0.3% 19,861,501 0.3% 18 Padakhep Manabik Unnayan Kendra (PMUK) 666 11,698,520 666 0.2% 11,698,520 0.2% 19 Palli Daridra Bimochon Foundation (PDBF) 1,284 21,630,514 257 514,000 1,541 0.4% 22,144,514 0.4% 20 Panna Rural Development Foundation (PRDF) 1,979 3,809,575 1,979 0.5% 3,809,575 0.1% 21 Rural Energy and Development Initiative (REDI) 179 2,989,860 179 0.0% 2,989,860 0.1% 22 Resource Development Foundation (RDF) 525 4,274,264 1,927 2,745,975 2,452 0.6% 7,020,239 0.1% 23 RIMSO Foundation 173 2,705,261 173 0.0% 2,705,261 0.0% 24 Rural Services Foundation (RSF) 111,822 1,782,818,132 5,385 8,077,500 117,207 27.2% 1,790,895,632 30.4% 25 Saif Powertec Limited 1,398 2,691,150 1,398 0.3% 2,691,150 0.0% 26 Samaj Unnayan Palli Sangstha 128 246,400 128 0.0% 246,400 0.0% 27 Shakti Foundation for Disadvantaged Women 757 1,514,000 757 0.2% 1,514,000 0.0% 28 Shubashati 688 12,389,822 292 584,000 980 0.2% 12,973,822 0.2% 29 Solar-En Foundation 3,006 34,922,956 1,868 2,661,900 4,874 1.1% 37,584,856 0.6% 30 SRIZONY Bangladesh 8,857 142,109,755 1,406 2,003,550 10,263 2.4% 144,113,305 2.4% 31 Sun Home Energy Limited 486 935,550 486 0.1% 935,550 0.0% 32 Sunrim Energy Limited 265 510,125 265 0.1% 510,125 0.0% 33 Thengamara Mohila Sobuj Sangha (TMSS) 2,102 36,480,396 2,102 0.5% 36,480,396 0.6% 34 Upokulio Bidyuatayon O Mohila Unnayan Shamity (UBOMUS) 4,188 61,656,589 4,188 1.0% 61,656,589 1.0% TOTAL 349,199 5,733,442,480 81,315 155,915,724 430,514 100.0% 5,889,358,204 100.0% SHS = Solar Home Systems Source: IDCOL
Appendix 8 31
SAFEGUARD AND PROCUREMENT COMPLIANCE
A. Safeguards Compliance
1. Policies. In 2008, Infrastructure Development Company Limited (IDCOL) adopted Environmental and Social Safeguards Framework (ESSF) to accommodate safeguard requirements as per ADB’s Policy on Involuntary Resettlement (1995), Policy on Indigenous Peoples (1998), and Policy on Environment (2002). Following ADB’s issuance of Safeguard Policy Statement (2009), IDCOL updated and harmonized the ESSF with ADB, the central bank and other development partners requirements in 2011. IDCOL further harmonized its ESSF in 2014 and in 2017 to meet evolving requirement of its business and development partners.
2. Environmental and Social Safeguard Management Unit. IDCOL formally established Environmental and Social Safeguard Management Unit (ESSMU) in 2014 to institutionalize environmental and social safeguards management in its operation. The ESSMU team comprises of two professionals, one dedicated for infrastructure subprojects and one for renewables subprojects. The renewables safeguard professional holds a doctorate degree in chemical sciences and environmental engineering and reports to Head of Renewable Energy. The infrastructure safeguard professional earned master’s degree in urban and regional planning with specialization in environmental impact assessment and disaster management. and reports to Head of Investment and Advisory. IDCOL should consider making ESMMU independent of business units reporting to the Board.
3. Categorization of PPIDF. PPIDF was categorized FI for environment and A for Involuntary Resettlement (IR) and Indigenous People (IP).1 The Environmental and Social Safeguards Framework (ESSF) for the project, disclosed in May 2008, acknowledge the loan to be FI category as per Operations Manual.2 The project data sheet should have categorized PPIDF as FI in IR and IP. It may be noted that two follow-on projects Second Public-Private Infrastructure Development Project and Third Public-Private Infrastructure Development Project were categorized as FI in environment, IR and IP.
4. Categorization of subprojects. PPIDF had three components–component A used ADB’s $82 million OCR funds to finance large infrastructure subprojects (project costs higher than $30 million); component B provided $50 million equivalent ADF support to finance small and medium- sized infrastructure subprojects (project costs lower than $30 million); and component C provided $33 million equivalent ADF support for renewable energy systems, such as, solar home systems (SHS). The grants were allocated for SHS and other small renewable energy applications. The ESSF applied at the subproject-level for components A and B. For SHS, subprojects financed under component C, ESSF applied at the program-level. The categorization of subprojects, financed under loans and grants, is provided in the following table.
1 https://www.adb.org/projects/40517-013/main#project-pds (accessed 5 June 2018). 2 ADB. 2008. Environment and Social safeguard Framework–BAN: Public-Private Infrastructure Development Facility. Manila. (para 13).
32 Appendix 8
Table A8.1: Safeguard Categorization of Subprojects ADB Financing Categorization Subprojects Sector $ million ENV IR IP Energypac Confidence Power Venture Power 30.0 BCC Chittagong Ltd. (108 MW; HFO-based) Regent Energy and Power Ltd. (108 MW gas- Power 30.0 BBC based) Summit Meghnaghat Power Company Ltd. Power 22.0 BCC (335 MW HFO-based)
Banglalion Communications Ltd. Telecom 3.6 ………
Fibre@Home Ltd. Telecom 1.4 ………
Renewable Solar Mini-grid Project 0.4 BCC Energy Renewable Solar Irrigation Pumps 0.1 BCC Energy Renewable Bio-Digesters Project1 0.2 No Impact No Impact No Impact Energy Renewable Solar Home Systems1 79.7 No Impact No Impact No Impact Energy ENV = Environment, HFO = heavy fuel oil, MW = mega-matt, IP = Indigenous People, IR = Involuntary Resettlement 1 Categorization as per IDCOL’s Environmental and Social Management Framework 2011, as updated from time-to- time which harmonizes ADB and other development partners’ safeguard requirements. … = not available.
5. Environment due diligence. The three large power sector subprojects, under component A, were categorized B in environment. IDCOL submitted initial environmental examination, environmental and social impact assessment (for one subproject), categorization forms for environment, involuntary resettlement, and indigenous peoples, which were reviewed by ADB safeguard officers. IDCOL provided annual environmental and social compliance audit reports for these subprojects which were reviewed by ADB safeguard officers and disclosed on ADB website. Considering insignificant impact on environment, IDCOL did not conduct formal environmental assessment for two smaller subprojects in telecom sector, under component B. Under component C, IDCOL financed SHS which falls under category C for environment, IR and IP as per adopted ESSF and applicable for ADB and other development partners-assisted projects. The grants financed solar irrigation pumps and solar mini-grids which were categorized B for environment and C for IR and IP. The grants also financed bio-digesters at individual households which did not have environmental impact. IDCOL discloses annual compliance report of battery suppliers and recyclers of SHS program; compliance report on environmental and social safeguards of solar irrigation pumps and solar mini-grid subprojects on its website.3 All subprojects were reviewed and pre-approved by ADB safeguard officials.
6. Social due diligence. Among the three project components, resettlement impact was only for component A while Component B and C had no impacts due to the nature of investments. One subproject, Regent Energy and Power Limited (REPL) was categorized B for minimal impacts on IR and C for impacts on IP. The rest of the subprojects have been categorized C for
3 IDCOL Website. http://idcol.org/home/ens (accessed 2 May 2018).
Appendix 8 33 both IR and IP. A Resettlement Plan (RP) has been prepared and disclosed to the website for REPL subproject. This subproject has three sub-components: the plant, gas transmission lines and distribution towers. The project purchased five decimals of land for the power plant, where four acres were cultivated by seven sharecroppers. The farmers have been compensated as per RP and it is well documented in social monitoring report. Grievance and Property Valuation committees have been formed as per RP guidelines. The gas transmission line has been erected in existing road. Another 24 decimals land was purchased for the distribution towers. There are no unresolved grievances due to resettlement issues of the project. The project has been implemented in compliance with ADB SPS requirements. Social audits and monitoring reports have been submitted and disclosed in a regular basis.
7. Learning. For the two medium-sized telecom subprojects (only 3% of PPIDF facility), under component B, IDCOL did not provide documentations related to ESSF relevance or compliance. Even though there is no safeguard implications for certain type of subprojects (such as, telecoms), the categorization forms should have been submitted for ADB’s review and documented. The $30 million fund to REPL subproject was liquidated 3 years after disbursement because of higher noise level observed in the independent engineer’s report in 2015. ADB requested IDCOL to address the higher noise level surrounding the subproject site. IDCOL and REPL, as a testament of good commitment in environment, implemented remedial measures in the plant, which were visited and validated by ADB safeguard officers.4 This has been a good example of collaborative approach between ADB, IDCOL and REPL.
B. Procurement Compliance
8. Compliance Procedure. The three build-own-operate (BOO) large subprojects, under component A, were selected by the government using international competitive bidding. In line with the loan agreement, BOO subprojects applied own procedures for procuring equipment supplied from ADB member countries. For components B and C, the loan agreement encouraged the use of international competitive bidding only if the investment was unusually large. The two telecom subprojects, under component B, were both below $5 million and hence followed own procedures to procure equipment considering efficiency and reliability. IDCOL developed and followed common Operating Guidelines for its SHS program and other renewable energy subprojects applicable for ADB and other development partners. The eligibility criteria of partner institutions (POs) as stipulated by ADB was in full conformity with this guideline and executed by IDCOL’s PO Selection Committee. All subprojects were pre-approved by ADB.
9. Learning. The selected POs for its SHS program and other renewable energy subprojects are transparently maintained on IDCOL’s website, which is a good practice.
4 The noise level of the concerned subproject has been reduced to 57.43 decibels which is below the national compliance limit of 59.25 decibels as per Department of Environment.
34 Appendix 9
ORGANIZATION: INFRASTRUCTURE DEVELOPMENT COMPANY LIMITED
Board Committees
Audit Committee. The committee is responsible for: (i) monitoring the integrity of the company’s financial statements and announcements; (ii) reviewing internal financial control; (iii) reviewing internal audit functions; (iv) appointing external auditors; (v) developing and implementing policies on the use of auditors for non-audit functions.
Credit Committee. The committee is responsible for: (i) reviewing all project appraisal reports before submission to the Board; and (ii) recommending pricing of loans.
Organization Committee. The committee is responsible for overseeing the overall human resource strategy and policies to ensure resource quality, diversity, training and development to attract and retain qualified human resources.
Management Committees
Management Committee. The Board delegates responsibility of day-to-day management to the Management Committee. The Committee is responsible for ensuring that the business is operating effectively within the strategy and risk appetite agreed by the Board.
Asset Liability Management Committee. The committee is responsible for money market activities, manage liquidity and interest rate risk, provide inputs to the Treasurer regarding market views and update balance sheet movement, and deal with the dealer’s authorized limit.
Credit Risk Management Committee. This committee is responsible for the implementation of credit risk policy and strategy provided by the Board, and monitors credit risk and ensures compliance with limits approved by the Board. It also recommends to the Board, for its approval, clear policies on standards for presentation of credit proposals, financial covenants, rating standards and benchmarks.
Risk Management Forum. The forum prepares risk management policies and procedures, monitors the prescribed threshold limits of risk appetite set by the regulator. It also reviews market conditions, identifies external threats and provides recommendations for precautionary measures.
Risk Analysis Unit. The unit is responsible solely to identify and analyze all sorts of risks appropriately and timely, including collecting relevant data relevant to the risk indicators from different models and information system, assessing the quality, completeness, and correctness of those data, identifying and quantifying the risks and their exposures to material loos; preparing risk management paper every month; and conducting periodic stress testing.
Internal Control and Compliance Unit. The unit is responsible for establishing and maintaining adequate internal control systems to ensure compliance, developing internal control processes, procedures and policies to ensure that business activities and associated risks are well managed.
Internal Audit Department. The department is responsible for establishing and maintaining adequate internal control mechanism and ensuring compliance with the policies and procedure. The department’s responsibilities include working with board committees and management to ensure that a system is in place to identify and analyze all major risks on a regular basis.
Information Technology and Management Information Systems Department. The primary function of this department is to streamline the management information systems with the strategic direction of the company.
Figure A9.1: Organization Chart of Infrastructure Development Company Limited
Appendix 9 Appendix
35
36 Appendix 9
Table A9.1: Professional Staff Qualifications of Infrastructure Development Company Limited Position Education Professional Specialization and Experience Mr. Mahmood Malik MBA in Mr. Malik possess more than 25 years of domestic Chief Executive Officer International and international experience through working in Business and multinational banks and local financial institutions in Marketing areas of corporate banking, financial institutions. He worked as Regional Head of Transaction Sales for Financial Institutions for Middle East and South Asia in Standard Chartered Bank, Dubai. Prior to joining IDCOL in 2012. Mr. Malik was the Chief Executive Officer of Industrial and Infrastructure Development Finance Company Ltd. prior to joining IDCOL.
Mr. S.M. Monirul islam Masters in Mr. Islam joined IDCOL in 1998 and promoted to the Deputy Chief Executive and Management; position of Deputy Chief Executive Officer in 2016. Chief Financial Officer MBA Mr. Islam possess 22 years of experience in financial management, financial reporting, project financing, procurement and operational risk management. Prior to joining IDCOL, Mr. Islam worked at the National Board of Revenue since 1995.
Mr. Nazmul Haque Bachelor in Mr. Haque joined IDCOL in 2003 and was involved in Director (Investment) and Business the structuring and financing of many large Head of Advisory Administration infrastructure projects in power, telecom, toll roads, and telecoms, many of these projects were first of kind in Bangladesh. With an experience of 14 years, Mr. Haque is a leading expert in project appraisal, financial modeling and a key resource person in IDCOL’s external capacity building initiatives.
Mr. Md. Enamul Karim Pavel Marine Before joining IDCOL in 2004, Mr. Pavel served Head of Renewable Energy Engineering various positions in Bangladesh government for five years. With an experience of 19 years, he played the key role in the development and implementation of IDCOL’s flagship renewable energy programs. As an expert in renewable energy financing, he has trained officials from various African countries.
Mr. Mohammad Jabed Masters in Joined in 2017, Mr. Emran is the first Chief Risk Emran Economics; Officer at IDCOL. He has worked for 17 years in Chief Risk Officer MBA different banks in credit, structured finance, and syndications. He has the experience of managing over Tk10 billion portfolio in diversified infrastructure and industrial sectors.
Mr. Maftun Ahmed Masters in Before joining IDCOL in 2011, Mr. Ahmed served as Company Secretary Commerce; Company Secretary of Infrastructure Investment MBA Facilitation Company. He possesses 16 years of experience in statutory company affairs, human resource management, regulatory relationship, and internal and external compliance.
IDCOL = Infrastructure Development Company Limited. Source: IDCOL.
Appendix 10 37
LOAN PORTFOLIO OF INFRASTRUCTURE DEVELOPMENT COMPANY LIMITED
Table A10.1: Sector-wise Distribution of Loan Portfolio (Tk million) 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015 2016 2017 Loan Portfolio 1,221 3,440 7,058 11,316 17,393 24,513 29,115 35,973 36,964 41,017 42,037 Power 339 800 1,640 2,630 4,040 2,904 3,850 9,612 9,282 12,320 13,767 Ports 82 40 82 132 203 82 101 96 95 844 733 Telecommunications 778 369 757 1,214 1,866 968 434 593 490 92 96 Information Technology 119 245 392 603 299 229 139 139 350 262 Renewable Energy 2,081 4,290 6,878 10,572 20,074 24,261 25,177 25,746 24,490 22,275 Others 22 31 43 70 110 186 239 355 1,211 2,921 4,904 IDCOL = Infrastructure Development Company Limited Source: IDCOL’s Annual Reports
Table A10.2: Mix of Short-Term and Long-Term Investment (Tk million) FY2008 FY2009 FY2010 FY2011 FY2012 FY2013 FY2014 FY2015 2015 2016 2017 Short-Term Investment 460 970 1,880 3,023 4,442 9,337 13,932 22,111 24,900 27,069 26,886 Long-Term Investment 1,221 3,440 7,058 11,316 17,393 24,513 29,115 35,973 36,964 41,017 42,037 Source: IDCOL’s Annual Reports
38 Appendix 11
PORTFOLIO QUALITY OF INFRASTRUCTURE DEVELOPMENT COMPANY LIMITED
Table A11.1: Trend of Classified Loans (Tk million) FY2009 FY2010 FY2011 FY2012 FY2013 FY2014 FY2015 2016 2017 Bad (24 months overdue) 0 0 86 124 128 199 165 1,241 1,575 Doubtful (18-24 months overdue) 0 49 31 1 69 33 3 238 1,852 Sub-standard (12-18 months overdue) 0 34 15 279 2 0 426 2,397 1,162 Total Classified Loans 0 82 132 404 199 232 594 3,876 4,588 Source: IDCOL
Appendix 12 39
FINANCIAL PERFORMANCE OF INFRASTRUCTURE DEVELOPMENT COMPANY LIMITED
Table A12.1 Comparative Balance Sheet (Tk million) FY2008 FY2009 FY2010 FY2011 FY2012 FY2013 FY2014 FY2015 2016 2017 PROPERTY AND ASSETS Restated Cash 24 108 20 0 71 84 1,039 48 187 835 Cash in Hand 0 0 0 0 0 0 0 0 0 0 Balance with Bangladesh Bank and agent bank 24 108 20 0 71 84 1,039 48 187 835 Balance with financial institutions 223 1,345 2,122 2,897 4,695 9,921 17,365 23,529 29,178 31,122 In Bangladesh 223 1,345 2,122 2,897 4,695 9,921 17,365 23,529 29,178 31,122 Outside Bangladesh 0 0 Money at call and short notice 0 0 0 0 200 0 100 0 0 Investments 0 1,000 800 800 400 0 0 0 0 Loans and advances 1,802 3,440 7,058 11,316 17,393 24,513 29,115 35,973 41,017 42,037 Loans, cash credit, overdraft etc. 3,440 7,058 11,316 17,393 24,513 29,115 35,973 41,017 42,037 Fixed assets including land, building etc. 17 22 20 28 34 42 51 67 71 93 Other assets 23 293 641 702 1,434 2,080 1,273 2,736 2,573 2,550 Non-banking assets Total assets 2,089 5,208 10,861 15,744 24,427 37,240 48,843 62,453 73,025 76,636 LIABILITIES & CAPITAL Liabilities: Borrowings from financial institutions 1,411 4,240 9,212 13,690 20,812 31,641 41,738 52,723 61,790 63,564 Deposit and other accounts 5 0 0 0 Other liabilities 124 248 691 728 1,763 2,806 2,999 4,490 5,266 6,774 Total liabilities 1,540 4,487 9,904 14,417 22,575 34,447 44,737 57,213 67,057 70,338 Capital/Shareholders' equity: Paid-up capital 400 500 660 870 1,200 1,720 2,600 3,850 5,000 5,500 Retained earnings 148 221 297 456 652 1,073 1,506 1,390 968 798 Total shareholders' equity 548 721 957 1,326 1,852 2,793 4,106 5,240 5,968 6,298 Total liabilities and shareholders' equity 2,089 5,208 10,861 15,744 24,427 37,240 48,843 62,453 73,025 76,636 FY = fiscal year Source: IDCOL Accounting year changed to calendar year from 2016 onwards to comply with the government’s directives.
40 Appendix 12
Table A12.2 Comparative Income Statement (Tk million) FY2008 FY2009 FY2010 FY2011 FY2012 FY2013 FY2014 FY2015 2016 2017 Operating income Restated Interest income 279 340 572 1,004 1,631 2,610 3,577 3,902 4,127 4,317 Less: Interest on deposits, borrowings etc 6 99 247 411 727 1,044 1,272 1,539 1,665 Net interest income 279 334 473 756 1,221 1,883 2,533 2,630 2,588 2,652 Investment income 0 34 137 110 82 48 Fees, Commission & brokerage 101 206 102 51 113 171 156 204 106 Other operating income 7 5 5 5 18 46 74 39 178 308 Total operating income (A) 286 439 718 1,001 1,399 2,124 2,826 2,825 2,970 3,066 Operating expenses Salaries and allowances 6 4 5 6 10 13 41 60 74 80 Rent, taxes, insurance, electricity etc. 0 0 1 1 1 2 3 6 6 Legal expenses 0 0 0 1 1 0 0 0 4 9 Postage, stamp, telecommunication etc. 0 0 0 0 1 1 1 1 1 1 Stationery, printing, advertisement etc. 0 1 1 1 2 5 4 6 13 9 Chief Executive's salary and fees 2 5 6 4 7 10 10 11 13 Directors' fees 0 1 0 1 0 0 1 1 1 1 Auditors' fees 0 0 0 0 0 0 0 0 0 0 Depreciation 3 4 4 6 7 8 11 15 14 16 Other operating expenses 10 10 28 44 44 120 66 73 85 99 Total operating expenses (B) 20 22 44 65 70 156 135 170 209 234 Profit/(Loss) before provision (C)=(A-B) 266 418 674 937 1,329 1,968 2,691 2,656 2,761 2,832 Provision for loans and advances 0 27 90 87 135 104 86 217 1,221 1,255 Total provision (D) 0 27 90 87 135 104 86 217 1,221 1,255 Net profit/(loss) before Tax (E)=( C-D) 266 391 584 849 1,194 1,864 2,605 2,439 1,540 1,577 Tax expenses 126 178 288 400 568 829 1,152 1,145 1,142 1,046 Net profit/(loss) after tax 140 213 296 449 626 1,036 1,453 1,294 398 531 FY = fiscal year Source: IDCOL Accounting year changed to calendar year from 2016 onwards to comply with the government’s directives.
Appendix 12 41
Table A12.3 Comparative Cash Flow Statement (Tk million) FY2008 FY2009 FY2010 FY2011 FY2012 FY2013 FY2014 FY2015 2016 2017 A. Cash flow from operating activities Interest received 266340606 1,141 1,737 2,610 3,577 3,902 4,127 4,317 Interest paid -6 -99-247-411-727 -1,044 -1,272 -1,539 -1,665 Investment income received 8248 Fee and commission income received 10120610251113171156204106 Payment of income tax -84-120-468 Paid to employees and suppliers -18-40-58-63-148-124-155-194-217 Received from other operating activities6766 20436829169298 Cash generated from operating activities before 188304679476 1,335 1,974 2,696 2,660 2,767 2,839 changes in operating assests and liabilities (Increase)/decrease in operating assets and liabilities Advances deposits and prepayments-29-59-25 -5-3 -22-36-23 22 -67 Advance income tax -215 67 -513-760 -1,109 -1,437 -1,144-901 Receivables -4 -81-112-126-227 166 -115-47-229-148 Loans and advances -253 -2,219 -3,617 -4,258 -6,068 -7,120 -4,342 -6,858 -4,164 -1,020 Interest suspense account 07 3837 -27 19849185 Deferred expenses 11 00 Payables and accrued expenses -4 1866 8 29248776 -194 172 -60 Unearned revenue monitoring fees 103 Deferred liabilities-gratuity 0010237 -5 1210 Net cash flow from operating activities (A)-102 -2,037 -3, 223 -3,831 -5,144 -5,663 -2,150 -5,705 -2,516 840 B. Cash flow from investing activities Acquisition of fixed assets 0 -5-1 -11 -9-7-8-9-1 -23 Investment -220-1,000 200400400 Proceeds from sales of assets 21 Net cash flow from investing activities (B)-220 -5 -1,001 189 -9 393392 -7-1 -22 C. Cash flow from financing activities Loan from Government (development partners funded) 510 2,829 4,973 4,477 7,122 10,829 10,097 10,985 5,879 1,773 Dividends paid -30-40-60-80-100-120-140-440 Net income from financing activities (C) 480 2,789 4,913 4,397 7,022 10,709 9,957 10,985 5,439 1,773 D. Net increase in cash and cash equivalents (A+B+C) 159747689756 1,869 5,438 8,199 5,273 2,921 2,592 E. Cash and cash equivalents at the beginning of year 88706 1,453 2,142 2,897 4,767 10,205 18,404 26,443 29,364 F. Cash and cash equivalents at the end of year 247 1,453 2,142 2,897 4,767 10,205 18,404 23,677 29,364 31,956
42 Appendix 12
Table A12.4 Ratio Analysis Ratios FY2008 FY2009 FY2010 FY2011 FY2012 FY2013 FY2014 FY2015 2016 2017 Debt-Equity Ratio (Times) 2.6 5.9 9.6 10.3 11.2 11.4 10.2 10.1 10.4 10.1 Debt Ratio (%) 68.0% 82.0% 85.0% 87.0% 85.0% 85.0% 85.5% 84.4% 84.6% 82.9% Current Ratio (Times) 8.6 8.9 6.0 9.8 5.1 11.5 11.9 9.5 14.0 13.4 Return on Assets (%) 6.7% 4.1% 2.7% 2.9% 2.6% 2.8% 3.0% 2.1% 0.5% 0.7% Return on Investment (%) 11.5% 6.2% 3.7% 3.7% 3.4% 4.2% 5.0% 3.6% 1.0% 1.3% Return on Stakeholders' Equity (%) 25.6% 29.5% 30.9% 33.9% 33.8% 37.4% 35.4% 24.7% 6.7% 8.4% Profit Margin (%) 49.0% 47.8% 36.2% 36.0% 36.1% 36.3% 37.5% 31.6% 8.8% 11.2% Opex as % of Operating Income 6.9% 4.9% 6.1% 6.5% 5.0% 7.3% 4.8% 6.0% 7.0% 7.6% Earnings per Share (Tk) 35.0 42.6 44.8 51.6 52.2 60.2 29.1 26.9 8.0 9.7 Classified Loans (%) 0.0% 0.0% 1.2% 1.2% 2.3% 0.8% 0.8% 1.6% 8.7% 9.8% Capital Adequacy Ratio (%) ……… 14.4% 12.9% 10.7% 13.4% 11.9% 12.4% 11.2% Gross Non-Nonperforming Loans (Tk million) …… 82 132 404 199 232 518 3,512 4,059 Net Interest Margin (%) ……… 5.9% 6.2% 6.0% 5.2% 4.5% 3.8% 3.9% … = not available.
Appendix 13 43
STATUS OF COMPLIANCE WITH LOAN AND GRANT COVENANTS
Table A13.1: Status of Compliance with Loan Covenants–L2453-BAN(SF) Loan 2453-BAN(SF) Reference in Status of Compliance Covenants Loan Agreement Covenants in Loan Agreement (Article V) The borrower shall, and shall ensure that IDCOL shall, carry out the Project with due diligence and efficiency and in conformity with sound banking, Section 5.01 (a) Complied with. administrative, financial, economic, engineering, environmental, social safeguards, and business practices. In the carrying out of the Project and in the conduct of its business, the Borrower shall, and shall procure that IDCOL shall, perform all the obligations Section 5.01 (b) Complied with. set forth in this Loan Agreement (including all obligations set forth in Schedule 3 of this Loan Agreement) and the Project Agreement. The Borrower shall ensure that IDCOL shall not make a Subloan to any Qualified Enterprise or PO unless such Qualified Enterprise or PO has at its disposal or has made appropriate arrangements to obtain as and when required, all funding, including adequate working capital, and other resources which are required by such Qualified Enterprise for the carrying out of its Qualified Project in respect of which the Subloan is to be made. The Borrower Complied with. ADB Section 5.02 shall procure that IDCOL shall ensure that no Subloan shall be made to a approved all subprojects. Qualified Enterprise unless such Qualified Enterprise has at least a minimum equity capital of not less than 20% of the total Project costs of the Qualified Project. The maximum amount of Subloan to a Qualified Enterprise shall not exceed 40% of the total project costs of the Qualified Project or $10,000,000 equivalent, whichever is the lower. The Borrower shall ensure that IDCOL shall maintain records and accounts adequate to record the progress of each Qualified Project (including the cost thereof) and the activities of each PO and to reflect, in accordance with Section 5.03 Complied with. consistently maintained sound accounting principles, the operations and financial condition of IDCOL, as part of the records and accounts referred to in Section 6.04 of the Loan Regulations. The Borrower shall procure that IDCOL shall furnish to ADB all such reports and information as ADB shall reasonably request concerning the Qualified Section 5.04 (a) Complied with. Enterprises, the Qualified Projects and the Subloans as part of the reports and information referred to in Section 6.05 of the Loan Regulations. The Borrower shall procure that IDCOL shall include information on the execution of the Qualified Projects and their costs and POs and their activities Section 5.04 (b) Complied with. as part of the report referred to in Section 6.05 (c) of the Loan Regulations. The Borrower shall procure that IDCOL shall have its accounts and financial statements (balance sheet, statement of income and expenses, and related statements) audited annually, in accordance with appropriate auditing Complied with. IDCOL standards consistently applied, by independent auditors whose qualifications, submitted unqualified experience and terms of reference are acceptable to ADB; and shall, promptly annual project financial after their preparation but in any event not later than 6 months after the close statements and annual of the fiscal year to which they relate, furnish to ADB (i) certified copies of Section 5.05 (a) reports in a timely manner. such audited accounts and financial statements and (ii) the report of the The auditors certified the auditors relating thereto (including the auditor's opinion on the use of the Loan use of funds in accordance proceeds and compliance with the financial covenants of the Loan with loan covenants. Agreement), all in the English language. The Borrower shall and shall procure that IDCOL shall furnish to ADB such further information concerning such accounts and financial statements and the audit thereof as ADB shall from time to time reasonably request. The Borrower shall procure that IDCOL shall enable ADB, upon ADB’s request, to discuss IDCOL’s financial statements and its financial affairs from time to time with the auditors appointed by IDCOL pursuant to Section 5.05(a) hereabove, and shall authorize and require any representative of such Section 5.05 (b) Complied with. auditors to participate in any such discussions requested by ADB, provided that any such discussion shall be conducted only in the presence of an authorized officer of IDCOL. The Borrower shall ensure that IDCOL shall enable ADB’s representatives to review and examine any PO and its operations, any Qualified Enterprise, any Qualified Project, the Goods and Works financed out of the proceeds of the Section 5.06 Complied with. Loan, and any relevant records and documents maintained by IDCOL, the Qualified Enterprise or PO. The Borrower shall ensure that IDCOL shall: (a) promptly as required, take all action within its power to maintain its Section 5.07 Complied with. corporate existence, to carry on its operations and to acquire, maintain and
44 Appendix 13
Loan 2453-BAN(SF) Reference in Status of Compliance Covenants Loan Agreement renew all rights, properties, powers, privileges and franchises which are necessary in the carrying out of the Project or in the conduct of its business; (b) at all times conduct its business in accordance with sound administrative, financial, environmental and business practices, and under the supervision of competent and experienced management and personnel; (c) not sell, lease or otherwise dispose of any of its assets, except in the ordinary course of its business, and which in the opinion of ADB will or may adversely affect the carrying out of this Loan Agreement; (d) keep ADB informed, of establishment or acquisition by it, of any subsidiaries; (e) exercise its rights under the Subsidiary Loan Agreement in such a manner as to protect the interests of IDCOL and ADB and to accomplish the purposes of the Loan; and (f) ensure that no rights or obligations under the Subsidiary Loan Agreement shall be assigned, amended, abrogated or waives without the prior approval of ADB. Implementation Arrangements in Loan Agreement The Borrower shall ensure that IDCOL, as the Project Executing Agency, shall set up a PMU as soon as reasonably practicable but in any event no later than the Effective Date, to monitor the screening and selection of Qualified Projects in consultation with the consortium of lenders, and also the day-to-day implementation. The PMU shall also be responsible for ensuring that all Qualified Projects and the activities of POs are in compliance with the ESSF Not complied with. PMU and applicable national and state policies, laws and regulations relating to not formally established. Schedule (Sc) environment, resettlement, and indigenous people. The PMU shall contain an However, IDCOL 3, para. 1 environmental and social safeguards management unit to ensure and certify performed responsibilities project compliance with the ESSF. The PMU staff shall comprise specialists as stipulated. with expertise in risk management and project advisory work. A senior officer, reporting directly to the chairman and executive director of IDCOL, shall be appointed for ensuring compliance with the ESSF. The PMU shall also have a dedicated financial/ accounting officer to monitor Project accounts and process claims. The Borrower shall ensure that the board of directors of IDCOL shall provide Schedule (Sc) policy direction and strategic oversight for the Project and overall approval of Complied with. 3, para. 2 Qualified Projects. Selection Criteria Each Qualified Enterprise and Qualified Project shall satisfy at all times the sub-borrower and sub-project selection criteria as set out below, which include Schedule (Sc) Complied with. inter alia, appraisal thereof by the lead bank/designated lead syndicator for 3, para. 3 (a) technical, economic, and commercial viability. Without limitation to paragraph 3(a) above and except as otherwise agreed by ADB, each Qualified Enterprise shall: (i) be majority owned (i.e. at least 51% majority) by private sector parties and continue to be so held for the duration of the Subloan; (ii) have Sponsors that have proven track record of successfully developing, financing; and operating similar infrastructure projects in Bangladesh or in countries at similar level of development; (iii) have equity investment, or be able to procure from its Sponsors in respect of the Qualified Project, of at least 20% of the total Project costs; (iv) have, or its Sponsors shall be able to provide, adequate resources and financial capability to raise and maintain resources to complete and operate Complied with. ADB the relevant Qualified Project successfully; Schedule (Sc) provided approval for all (v) not be and nor shall its Sponsors be, in default of any prior loan from 3, para. 3 (b) subprojects. IDCOL or from any of the participating members of the consortium of lenders or from any bank or non-bank financial institutions in Bangladesh; (vi) be able to provide security as required by the consortium of lenders; (vii) maintain appropriate financial records of income and expenditure to the satisfaction of IDCOL and ADB; (viii) comply and cause its relevant Qualified Project, to comply with ADB’s policies, and national laws and regulations relating to environment, involuntary resettlement and indigenous peoples; and (ix) have entered into relevant concession and/or license agreements which provide for satisfactory cost adjustment and escalation or have signed memoranda of understanding in respect thereof. Without limitation to paragraph 3(a) above and except as otherwise agreed by Schedule (Sc) Substantially complied ADB, each Qualified Project shall: 3, para. 3 (c) with. IDCOL financed two
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Loan 2453-BAN(SF) Reference in Status of Compliance Covenants Loan Agreement (i) use technology which has a successful track record in countries with medium-sized subprojects similar infrastructure environment and capacity as Bangladesh; in telecom sector which did (ii) be reviewed and approved by IDCOL’s credit committee for its economic not submit ESSF reports. and commercial viability and by the OMU for adherence to the ESSF; (iii) obtain all necessary Borrower approvals and licenses and comply with ADB’s policies and national laws and regulations relating to environment, involuntary resettlement and indigenous peoples; (iv) have an economic rate of return of not less than 12%; and (v) require Bangladesh Taka financing. The Borrower shall ensure that IDCOL shall procure that Qualifying Projects Schedule (Sc) shall primarily be located in rural and semiurban areas and shall be in energy Complied with. 3, para. 3 (d) or other infrastructure sectors. The Borrower shall cause IDCOL to ensure that each PO selected for the provision of Subloans for the purposes of financing of RES activities, (i) Schedule (Sc) qualifies and remains qualified under the eligibility criteria for POs set out in Complied with. 3, para. 3 (e) Appendix 7 of the RRP; and (ii) does not provide more than 80% of the cost of any RES. Approval Procedure Without limitation to Section 3.05 of this Loan Agreement, the Borrower shall ensure that IDCOL shall ensure that the documentation for the first three Qualified Projects are submitted to ADB for prior review and approval. In order to prepare and process each Qualified Project, the Borrower shall procure that IDCOL shall: (i) review the preliminary designs and cost estimates as approved by the lending consortium; (ii) submit to ADB: (a) evidence of payment or requirement to make a payment to a Qualified Enterprise; (b) independent assessment or engineer’s certificate on physical and financial progress; (c) cashflow statement or utilization Substantially complied request verified by a chartered accountant; and (d) notice of drawdown by the Schedule (Sc) with. IDCOL financed two agent of the Qualified Enterprise confirming all conditions precedent to 3, para. 4 (a) medium-sized subprojects disbursement have been satisfied and no event of default has occurred or is in telecom sector which did continuing; not submit ESSF reports. (iii) comply with the ESSF for environmental assessment, involuntary resettlement, and indigenous peoples to ensure consistency with the applicable country legal frameworks of the Borrower; (iv) review and ascertain compliance with the ESSF. The review reports shall be submitted to ADB together with other relevant safeguard documents. If any non-compliance is found during review, ADB shall request a corrective action plan, which the Borrower shall ensure shall be prepared by IDOCL and submitted to ADB for approval; and (v) submit the safeguards compliance certificate to ADB. Following the approval of the first three Qualified Projects as referred to in paragraph 4(a) above, ADB shall assess IDCOL’s performance, capability, appraisal standards, portfolio quality, average loan size and Schedule (Sc) subproject pipeline and agree with IDCOL a suitable limit of amount of 3, para. 4 (b) Complied with. Subloan below which IDCOL shall not be required to obtain prior approval of ADB prior to making a Subloan to a Qualified Enterprise in respect of a Qualified Project. IDCOL’s right not to seek ADB’s prior approval in respect of certain Subloans as provided in paragraph 4(b) above is without prejudice and subject to strict Schedule (Sc) compliance with the requirements set out in subparagraphs (i) to (iv) of 3, para. 4 (c) Complied with. paragraph 4(a) above. Notwithstanding any other provision of this paragraph
4, ADB reserves the right at any time and from time to time, to inspect or review any project or activity financed from the proceeds of the Loan. In respect of Subloans to POs, the Borrower shall ensure that IDCOL shall submit to ADB a summary sheet detailing the following information: (i) Schedule (Sc) information of compliance with exposure limits for each PO, (ii) name and 3, para. 4 (d) Complied with. address of each sub-borrower, (iii) cost of equipment and other related costs, and (iv) breakdown of all financing in respect of such installation. Safeguards The Borrower shall ensure that IDCOL shall implement the ESSF in Substantially complied accordance with its terms and acceptable to ADB to ensure that each with. IDCOL financed two Qualified Project is implemented and undertaken in compliance with Schedule (Sc) medium-sized subprojects applicable environmental laws, rules, regulations, and policies of the Borrower, 3, para. 5 in telecom sector which did and ADB's Environment Policy (2002). The Borrower shall procure that IDCOL not submit ESSF reports. shall ensure that for each Qualified Project, the initial environmental
46 Appendix 13
Loan 2453-BAN(SF) Reference in Status of Compliance Covenants Loan Agreement examination, environmental impact assessment, and the environment management plan, as applicable, are submitted to ADB for approval, before it approves the Qualified Project. The Borrower shall cause IDCOL to ensure that each Qualified Enterprise Substantially complied undertakes a Qualified Project in compliance with applicable environmental with. IDCOL financed two Schedule (Sc) laws, rules, regulations, and policies of the Borrower, ADB's Environment medium-sized subprojects 3, para. 6 Policy (2002) and the terms of the ESSF. in telecom sector which did not submit ESSF reports. The Borrower shall cause IDCOL to ensure that each Qualified Enterprise to ensure that all necessary mitigation measures shall have been taken to Schedule (Sc) Complied with. mitigate any adverse environmental impacts associated with the Qualified 3, para. 7 Project. The Borrower shall procure that IDCOL shall ensure that for each Qualified Project, which involves land acquisition and has resettlement impacts, the resettlement plan shall have been submitted to ADB for approval before it Schedule (Sc) Complied with. approves the Qualified Project. The Borrower shall procure that IDCOL shall 3, para. 8 also ensure that adequate number of staff are trained and deployed to fully implement and comply with the ESSF. The Borrower shall ensure that IDCOL shall cause each Qualified Enterprise to ensure that each Qualified Project, which involves land acquisition and has resettlement impacts, (i) is undertaken in compliance with all applicable laws, rules, regulations, and policies of the Borrower, and ADB's Involuntary Resettlement Policy (1995), and the terms of the ESSF; (ii) all land and rights of way required for Qualified Project are obtained in a timely manner, (iii) the provisions of the resettlement plans are implemented in accordance with its terms, (iv) all compensation and resettlement assistance is given to the Schedule (Sc) affected persons prior to their dispossession and displacement and Complied with. 3, para. 9 commencement of works, (v) resettlement plans are updated upon completion of the detailed design and submitted to ADB for approval prior to commencement of works, (vi) adequate staff and resources are committed to supervising and monitoring implementation of the resettlement plans, and (vii) an independent agency acceptable to ADB and IDCOL is engaged by the Qualified Enterprise to monitor and evaluate results of implementation of resettlement plans, and the reports are forwarded to ADB and IDCOL as required under the ESSF. The Borrower shall ensure that IDCOL shall cause each Qualified Enterprise to ensure that Qualified Projects do not adversely affect vulnerable groups, such as indigenous peoples, and in the event of any impact, IDCOL shall Schedule (Sc) Complied with. cause each qualified enterprise to implement the social safeguards framework 3, para. 10 as set out in the ESSF in accordance with its terms so as to ensure compliance with ADB's Policy on Indigenous Peoples (1998). The Borrower shall and shall ensure that IDCOL shall ensure that provisions are stipulated in all works contracts to require contractors employed by Qualified Enterprises in respect of qualified projects to (i) incorporate workplace occupational health and safety norms in accordance with national legislation; (ii) comply with all applicable labor laws; (iii) not employ child labor, as defined in national legislation, in any aspect of their activities; (iv) provide Schedule (Sc) Complied with. appropriate facilities for women and children in construction campsites if such 3, para. 11 sites are established; (v) provide appropriate training, and information materials for workers on HIV/AIDS prevention; (vi) observe local protocols concerning acceptable behavior toward the local population; (vii) use local unskilled labor; and (viii) not differentiate wages between men and women for work of equal value. Financials The Borrower shall ensure that IDCOL shall: (i) comply at all times with the prudential norms, as made applicable to it by the Borrower, including capital adequacy, income recognition, classification, and provisioning of non-performing assets; Schedule (Sc) Complied with. (ii) maintain a debt service coverage ratio of at least 1:0, and ensure that it has 3, para. 12 no arrears in repayment of its current debt obligations; and (iii) relend to Qualified Enterprises at rates that are market-based, and adequate to cover all costs and risks associated with relending. The Borrower shall ensure that IDCOL shall, within six months of the Effective Date, appoint (and thereafter continue to maintain for the duration of the Loan) Schedule (Sc) a suitably qualified and experienced: Complied with. 3, para. 13
(i) internal auditor and risk management specialist; and
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Loan 2453-BAN(SF) Reference in Status of Compliance Covenants Loan Agreement (ii) environmental and social safeguard specialist.
Governance and Anticorruption The Borrower and IDCOL shall ensure that accountability and transparency are maintained in its operations through stakeholder meetings and publication of progress reports throughout the duration of the Project, and internal procedures and controls are instituted, maintained, and complied with to prevent any corrupt, fraudulent, collusive, or coercive practices. The Borrower shall procure that IDCOL shall ensure that an appropriate corporate Schedule (Sc) Complied with. governance framework is formulated in accordance with its comprehensive 3, para. 14 business plan and international best practices, and reported in its annual report to its board of directors, and to ADB. Consistent with its commitment to good governance, accountability, and transparency, ADB reserves the right to examine and review any alleged corrupt, fraudulent, collusive, or coercive practices relating to the Qualified Projects. Performance Monitoring and Evaluation Within three months of effective date, the Borrower shall procure that IDCOL shall establish a project performance monitoring system acceptable to ADB Partly Complied with. No and within six months of Effective Date, IDCOL shall establish baseline data Schedule (Sc) baseline indicators for select indicators. Without limiting the generality of Section 7.04 of the Loan 3, para. 15 selected. No completion Regulations, IDCOL shall submit to ADB the quarterly progress reports and a report submitted. completion report within three months of the completion of the Project. The Borrower shall procure that IDCOL shall review the performance of the Partly Complied with. No project through the PMU on a monthly basis, and the review report shall be formal PMU established. completed by the 10th day of the month following the monthly review. ADB However, IDCOL provided shall undertake annual review missions and conduct the tripartite reviews Schedule (Sc) quarterly progress reports. chaired by the Borrower. In additional a midterm review shall by conducted by 3, para. 16 IDCOL provided quarterly ADB and the Borrower in the financial year 2009-10 for the purposes of reports, not monthly identifying problems or weaknesses in implementation and undertaking any reports. changes that may be necessary to the project's scope or implementation arrangements.
Table A13.2: Status of Compliance with Loan Covenants–L2454-BAN Loan 2454-BAN Reference in Status of Compliance Covenants Loan Agreement Covenants in Loan Agreement (Article V) The borrower shall, and shall ensure that IDCOL shall, carry out the Project with due diligence and efficiency and in conformity with sound banking, Section 5.01 (a) Complied with. administrative, financial, economic, engineering, environmental, social safeguards, and business practices. In the carrying out of the Project and in the conduct of its business, the Borrower shall, and shall procure that IDCOL shall, perform all the obligations Section 5.01 (b) Complied with. set forth in this Loan Agreement (including all obligations set forth in Schedule 3 of this Loan Agreement) and the Project Agreement. The Borrower shall ensure that IDCOL shall not make a Subloan to any Qualified Enterprise unless such Qualified Enterprise has at its disposal, or has made appropriate arrangements to obtain as and when required, all funding, including adequate working capital, and other resources which are required by such Qualified Enterprise for the carrying out of its Qualified Complied with. ADB Project in respect of which the Subloan is to be made. The Borrower shall Section 5.02 approved all subprojects. procure that IDCOL shall ensure that no Subloan shall be made to a Qualified Enterprise unless such Qualified Enterprise has at least a minimum equity capital of not less than 20% of the total Project costs of the Qualified Project. The maximum amount of Subloan to a Qualified Enterprise shall not exceed 40% of the total project costs of the Qualified Project. The Borrower shall ensure that IDCOL shall maintain records and accounts adequate to record the progress of each Qualified Project (including the cost thereof) and to reflect, in accordance with consistently maintained sound Section 5.03 Complied with. accounting principles, the operations and financial condition of IDCOL, as part of the records and accounts referred to in Section 7.03 of the Loan Regulations. The Borrower shall procure that IDCOL shall furnish to ADB all such reports and information as ADB shall reasonably request concerning the Qualified Section 5.04 (a) Complied with. Enterprises, the Qualified Projects and the Subloans as part of the reports and information referred to in Section 7.04 (a) of the Loan Regulations.
48 Appendix 13
Loan 2454-BAN Reference in Status of Compliance Covenants Loan Agreement The Borrower shall procure that IDCOL shall include information on the execution of the Qualified Projects and their costs as part of the report referred Section 5.04 (b) Complied with. to in Section 7.04(d) of the Loan Regulations. The Borrower shall procure that IDCOL shall have its accounts and financial statements (balance sheet, statement of income and expenses, and related statements) audited annually, in accordance with appropriate auditing standards consistently applied, by independent auditors whose qualifications, Complied with. IDCOL experience and terms of reference are acceptable to ADB; and shall, promptly submitted unqualified after their preparation but in any event not later than 6 months after the close annual project financial of the fiscal year to which they relate, furnish to ADB (i) certified copies of statements and annual Section 5.05 (a) such audited accounts and financial statements and (ii) the report of the reports in a timely manner. auditors relating thereto (including the auditor's opinion on the use of the Loan The auditors certified the proceeds and compliance with the financial covenants of the Loan use of funds in accordance Agreement), all in the English language. The Borrower shall procure that with loan covenants. IDCOL shall furnish to ADB such further information concerning such accounts and financial statements and the audit thereof as ADB shall from time to time reasonably request. The Borrower shall procure that IDCOL shall enable ADB, upon ADB’s request, to discuss IDCOL’s financial statements and its financial affairs from time to time with the auditors appointed by IDCOL pursuant to Section 5.05(a) hereabove, and shall authorize and require any representative of such Section 5.05 (b) Complied with. auditors to participate in any such discussions requested by ADB, provided that any such discussion shall be encountered only in the presence of an authorized officer of IDCOL. The Borrower shall ensure that IDCOL shall enable ADB’s representatives to review and examine any Qualified Enterprise, any Qualified Project, the Section 5.06 Complied with. Goods and Works financed out of the proceeds of the Loan, and any relevant records and documents maintained by IDCOL or the Qualified Enterprise. The Borrower shall ensure that IDCOL shall: (a) promptly as required, take all action within its power to maintain its corporate existence, to carry on its operations and to acquire, maintain and renew all rights, properties, powers, privileges and franchises which are necessary in the carrying out of the Project or in the conduct of its business; (b) at all times conduct its business in accordance with sound administrative, financial, environmental and business practices, and under the supervision of competent and experienced management and personnel; (c) not sell, lease or otherwise dispose of any of its assets, except in the ordinary course of its business, and which in the opinion of ADB will or may Section 5.07 Complied with. adversely affect the carrying out of this Loan Agreement; (d) keep ADB informed, of establishment or acquisition by it, of any subsidiaries; (e) exercise its rights under the Subsidiary Loan Agreement in such a manner as to protect the interests of IDCOL and ADB and to accomplish the purposes of the Loan; and (f) ensure that no rights or obligations under the Subsidiary Loan Agreement shall be assigned, amended, abrogated or waives without the prior approval of ADB. Implementation Arrangements in Loan Agreement The Borrower shall ensure that IDCOL, as the Project Executing Agency, shall set up a PMU as soon as reasonably practicable but in any event no later than the Effective Date, to monitor the screening and selection of Qualified Projects in consultation with the consortium of lenders, and also the day-to-day implementation. The PMU shall also be responsible for ensuring that all Qualified Projects and the activities of POs are in compliance with the ESSF Not complied with. PMU and applicable national and state policies, laws and regulations relating to not formally established. Schedule (Sc) environment, resettlement, and indigenous people. The PMU shall contain an However, IDCOL 3, para. 1 environmental and social safeguards management unit to ensure and certify performed responsibilities project compliance with the ESSF. The PMU staff shall comprise specialists as stipulated. with expertise in risk management and project advisory work. A senior officer, reporting directly to the chairman and executive director of IDCOL, shall be appointed for ensuring compliance with the ESSF. The PMU shall also have a dedicated financial/ accounting officer to monitor Project accounts and process claims. The Borrower shall ensure that the board of directors of IDCOL shall provide Schedule (Sc) policy direction and strategic oversight for the Project and overall approval of Complied with. 3, para. 2 Qualified Projects.
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Loan 2454-BAN Reference in Status of Compliance Covenants Loan Agreement Selection Criteria Each Qualified Enterprise and Qualified Project shall satisfy at all times the sub-borrower and sub-project selection criteria as set out below, which include Schedule (Sc) Complied with. inter alia, appraisal thereof by the leas bank/designated lead syndicator for 3, para. 3 (a) technical, economics, and commercial viability. Without limitation to paragraph 3(a) above and except as otherwise agreed by ADB, each Qualified Enterprise shall: (i) be majority owned (i.e. at least 51% majority) by private sector parties and continue to be so held for the duration of the Subloan; (ii) have Sponsors that have proven track record of successfully developing, financing; and operating similar infrastructure projects in Bangladesh or in countries at similar level of development; (iii) have equity investment, or be able to procure from its Sponsors in respect of the Qualified Project, of at least 20% of the total Project costs; (iv) have, or its Sponsors shall be able to provide, adequate resources and financial capability to raise and maintain resources to complete and operate Complied with. ADB the relevant Qualified Project successfully; Schedule (Sc) provided approval for all (v) not be and nor shall its Sponsors be, in default of any prior loan from 3, para. 3 (b) subprojects. IDCOL or from any of the participating members of the consortium of lenders or from any bank or non-bank financial institutions in Bangladesh; (vi) be able to provide security as required by the consortium of lenders; (vii) maintain appropriate financial records of income and expenditure to the satisfaction of IDCOL and ADB; (viii) comply and cause its relevant Qualified Project, to comply with ADB’s policies, and national laws and regulations relating to environment, involuntary resettlement and indigenous peoples; and (ix) have entered into relevant concession and/or license agreements which provide for satisfactory cost adjustment and escalation or have signed memoranda of understanding in respect thereof. Without limitation to paragraph 3(a) above and except as otherwise agreed by ADB, each Qualified Project shall: (i) be an integral part of the Borrower’s priority plan for the relevant sector or sub-sector; (ii) use technology which has a successful track record in countries with Substantially complied similar infrastructure environment and capacity as Bangladesh; with. IDCOL financed two Schedule (Sc) medium-sized subprojects (iii) be reviewed and approved by IDCOL’s credit committee for its economic 3, para. 3 (c) and commercial viability and by the OMU for adherence to the ESSF; in telecom sector which did (iv) obtain all necessary Borrower approvals and licenses and comply with not submit ESSF reports. ADB’s policies and national laws and regulations relating to environment, involuntary resettlement and indigenous peoples; (v) have an economic rate of return of not less than 12%; and (v) have total project costs exceeding $30,000,000. Approval Procedure Without limitation to Section 3.05 of this Loan Agreement, the Borrower shall ensure that IDCOL shall ensure that all Qualified Projects are submitted to ADB for prior review and approval. In order to prepare and process each Qualified Project, the Borrower shall procure that IDCOL shall: (i) review the preliminary designs and cost estimates as approved by the lending consortium; (ii) submit to ADB: (a) evidence of payment or requirement to make a payment to a Qualified Enterprise; (b) independent assessment or engineer’s certificate on physical and financial progress; (c) cashflow statement or utilization Substantially complied request verified by a chartered accountant; and (d) notice of drawdown by the with. IDCOL financed two agent of the Qualified Enterprise confirming all conditions precedent to Schedule (Sc) medium-sized subprojects disbursement have been satisfied and no event of default has occurred or is 3, para. 4 in telecom sector which did continuing; not submit ESSF reports. (iii) comply with the ESSF for environmental assessment, involuntary resettlement, and indigenous peoples to ensure consistency with the applicable country legal frameworks of the Borrower; (iv) review and ascertain compliance with the ESSF. The review reports shall be submitted to ADB together with other relevant safeguard documents. If any non-compliance is found during review, ADB shall request a corrective action plan, which the Borrower shall ensure shall be prepared by IDOCL and submitted to ADB for approval; and (v) submit the safeguards compliance certificate to ADB. Safeguards
50 Appendix 13
Loan 2454-BAN Reference in Status of Compliance Covenants Loan Agreement The Borrower shall ensure that IDCOL shall implement the ESSF in accordance with its terms and acceptable to ADB to ensure that each Qualified Project is implemented and undertaken in compliance with Substantially complied applicable environmental laws, rules, regulations, and policies of the Borrower, with. IDCOL financed two Schedule (Sc) and ADB's Environment Policy (2002). The Borrower shall procure that IDCOL medium-sized subprojects 3, para. 5 shall ensure that for each qualified project, the initial environmental in telecom sector which did examination, environmental impact assessment, and the environment not submit ESSF reports. management plan, as applicable, are submitted to ADB for approval, before it approves the qualified project. The Borrower shall cause IDCOL to ensure that each qualified enterprise undertakes a qualified project in compliance with applicable environmental Schedule (Sc) Substantially complied laws, rules, regulations, and policies of the Borrower, ADB's Environment 3, para. 6 with. Policy (2002) and the terms of the ESSF. The Borrower shall cause IDCOL to ensure that each qualified enterprise to ensure that all necessary mitigation measures shall have been taken to Schedule (Sc) Complied with. mitigate any adverse environmental impacts associated with the qualified 3, para. 7 project. The Borrower shall procure that IDCOL shall ensure that for each qualified project, which involves land acquisition and has resettlement impacts, the resettlement plan shall have been submitted to ADB for approval before it Schedule (Sc) Complied with. approves the qualified project. The Borrower shall procure that IDCOL shall 3, para. 8 also ensure that adequate number of staff are trained and deployed to fully implement and comply with the ESSF. The Borrower shall ensure that IDCOL shall cause each qualified enterprise to ensure that each qualified project, which involves land acquisition and has resettlement impacts, (i) is undertaken in compliance with all applicable laws, rules, regulations, and policies of the Borrower, and ADB's Involuntary Resettlement Policy (1995), and the terms of the ESSF; (ii) all land and rights of way required for qualified project are obtained in a timely manner, (iii) the provisions of the resettlement plans are implemented in accordance with its terms, (iv) all compensation and resettlement assistance is given to the Schedule (Sc) affected persons prior to their dispossession and displacement and Complied with. 3, para. 9 commencement of works, (v) resettlement plans are updated upon completion of the detailed design and submitted to ADB for approval prior to commencement of works, (vi) adequate staff and resources are committed to supervising and monitoring implementation of the resettlement plans, and (vii) an independent agency acceptable to ADB and IDCOL is engaged by the qualified enterprise to monitor and evaluate results of implementation of resettlement plans, and the reports are forwarded to ADB and IDCOL as required under the ESSF. The Borrower shall ensure that IDCOL shall cause each qualified enterprise to ensure that qualified projects do not adversely affect vulnerable groups, such as indigenous peoples, and in the event of any impact, IDCOL shall cause Schedule (Sc) Complied with. each qualified enterprise to implement the social safeguards framework as set 3, para. 10 out in the ESSF in accordance with its terms so as to ensure compliance with ADB's Policy on Indigenous Peoples (1998). The Borrower shall and shall ensure that IDCOL shall ensure that provisions are stipulated in all works contracts to require contractors employed by qualified enterprises in respect of qualified projects to (i) incorporate workplace occupational health and safety norms in accordance with national legislation; (ii) comply with all applicable labor laws; (iii) not employ child labor, as defined in national legislation, in any aspect of their activities; (iv) provide Schedule (Sc) Complied with. appropriate facilities for women and children in construction campsites if such 3, para. 11 sites are established; (v) provide appropriate training, and information materials for workers on HIV/AIDS prevention; (vi) observe local protocols concerning acceptable behavior toward the local population; (vii) use local unskilled labor; and (viii) not differentiate wages between men and women for work of equal value. Financials The Borrower shall ensure that IDCOL shall: (i) comply at all times with the prudential norms, as made applicable to it by the Borrower, including capital adequacy, income recognition, classification, and provisioning of non-performing assets; Schedule (Sc) Complied with. (ii) maintain a debt service coverage ratio of at least 1:0, and ensure that it has 3, para. 12 no arrears in repayment of its current debt obligations; and (iii) relend to qualified enterprises at rates that are market-based, and adequate to cover all costs and risks associated with relending.
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Loan 2454-BAN Reference in Status of Compliance Covenants Loan Agreement Governance and Anticorruption The Borrower and IDCOL shall ensure that accountability and transparency are maintained in its operations through stakeholder meetings and publication of progress reports throughout the duration of the Project, and internal procedures and controls are instituted, maintained, and complied with to prevent any corrupt, fraudulent, collusive, or coercive practices. The Borrower shall procure that IDCOL shall ensure that an appropriate corporate Schedule (Sc) Complied with. governance framework is formulated in accordance with its comprehensive 3, para. 13 business plan and international best practices, and reported in its annual report to its board of directors, and to ADB. Consistent with its commitment to good governance, accountability, and transparency, ADB reserves the right to examine and review any alleged corrupt, fraudulent, collusive, or coercive practices relating to the Qualified Projects. Performance Monitoring and Evaluation Within three months of effective date, the Borrower shall procure that IDCOL shall establish a project performance monitoring system acceptable to ADB Partly Complied with. No and within six months of effective date, IDCOL shall establish baseline data for Schedule (Sc) baseline indicators select indicators. Without limiting the generality of Section 7.04 of the Loan 3, para. 14 selected. No completion Regulations, IDCOL shall submit to ADB the quarterly progress reports and a report submitted. completion report within three months of the completion of the Project. The Borrower shall procure that IDCOL shall review the performance of the project through the PMU on a monthly basis, and the review report shall be completed by the 10th day of the month following the quarterly-yearly review. ADB shall undertake annual review missions and conduct the tripartite reviews Partly Complied with. No chaired by the Borrower. In additional a midterm review shall by conducted by Schedule (Sc) formal PMU established. ADB and the Borrower in the financial year 2009-10 for the purposes of 3, para. 15 However, IDCOL provided identifying problems or weaknesses in implementation and undertaking any quarterly progress reports. changes that may be necessary to the project's scope or implementation arrangements.
Table A13.2: Status of Compliance with Project Agreement Covenants in Project Agreement (Article II) IDCOL shall carry out the Project with due diligence and efficiency, and in conformity with sound administrative, financial, engineering, environmental, Section 2.01 (a) Complied with. social safeguard responsibility, and business practices including maintenance of adequate accounts and records. In carrying out of the Project and operation of the Project facilities, IDCOL shall perform all obligations set forth in each of the Loan Agreements to the Section 2.01 (b) Complied with. extent that they are applicable to IDCOL and all obligations set forth in the Schedule to this Project Agreement. IDCOL shall make available, promptly as needed, the funds, facilities, services, staff and other resources which are required, in addition to the Section 2.02 Complied with. proceeds of the Loans, for the carrying out of the Project. In carrying out of the Project, IDCOL shall employ and cause all Qualified Enterprises and POs to employ competent and qualified consultants and Section 2.03 (a) Complied with. contractors, acceptable to ADB, to an extent and upon terms and conditions satisfactory to ADB. Except as ADB may otherwise agree, all Goods, Works, consulting services to be financed out of the proceeds of the Loans shall be procured in accordance with the provisions of Schedule 2 to their respective Loan Agreements. ADB may refuse to finance a contract where Goods, Works or consulting services Section 2.03 (b) Complied with. have not been procured under procedures substantially in accordance with those agreed between the Borrower and ADB or where the terms and conditions of the contract are not satisfactory to ADB. IDCOL shall procure that Qualified Enterprises shall carry out the projects in accordance with plans, design standards, specifications, work schedules and construction methods in accordance with best international practice. IDCOL shall furnish, or cause to be furnished, to ADB, promptly after their Section 2.04 Complied with. preparation, such plans, design standards, specifications and work schedules, and any material modifications subsequently made therein, in such detail as ADB shall reasonably request. IDCOL shall procure that Qualified Enterprises shall take out and maintain Section 2.05 (a) Complied with. with responsible insurers, or make other arrangements satisfactory to ADB for,
52 Appendix 13
insurance of project facilities to such extent and against such risks and in such amounts as shall be consistent with sound practice. Without limiting the generality of the foregoing, IDCOL shall procure that Qualified Enterprises shall insure, or cause to be insured, the Goods to be imported for the Project and to be financed out of the proceeds of the Loans Section 2.05 (b) Complied with. against hazards incident to the acquisition, transportation and delivery thereof to the place of use or installation, and for such insurance any indemnity shall be payable in a currency freely usable to replace or repair such Goods. IDCOL shall procure that Qualified Enterprises shall maintain, or cause to be maintained, records and accounts adequate to identify the Goods, Works and Substantially complied consulting services and other items of expenditure financed out of the with. Delivery of financial proceeds of the Loans, to disclose the use thereof in the Project, to record the Section 2.06 accounts has been progress of the Project (including the cost thereof) and to reflect, in irregular for one medium- accordance with consistently maintained sound accounting principles, its sized subproject. operations and financial condition. ADB and IDCOL shall cooperate fully to ensure that the purposes of the Loans Section 2.07 (a) Complied with. will be accomplished. IDCOL shall promptly inform ADB of any condition which interferes with, or threatens to interfere with, the progress of the Project, the performance of its Section 2.07 (b) Complied with. obligations under this Project Agreement or the Subsidiary Loan Agreements, or the accomplishment of the purposes of the Loans. ADB and IDCOL shall from time to time, at the request of either party, exchange views through their representatives with regard to any matters Section 2.07 (c) Complied with. relating to the Project, IDCOL and the Loans. IDCOL shall furnish to ADB all such reports and information as ADB shall reasonably request concerning (i) the Loans and the expenditure of the proceeds thereof; (ii) the Goods, Works and consulting services and other Section 2.08 (a) Complied with. items of expenditure financed out of such proceeds; (iii) the administration, operations and financial condition of IDCOL; and (iv) any other matters relating to the purposes of the Loans. Without limiting the generality of the foregoing, IDCOL shall furnish to ADB quarterly reports on the execution of the Project and on the operation and management of the Project facilities. Such reports shall be submitted in such form and in such detail and within such a period as ADB shall reasonably Section 2.08 (b) Complied with. request, and shall indicate, among other things, progress made and problems encountered during the quarter under review, steps taken or proposed to be taken to remedy these problems, and proposed program of activities and expected progress during the following quarter. Promptly after the Loan Closing Dates, but in any event not later than three (3) months thereafter or such later date as ADB may agree for this purpose, IDCOL shall prepare and furnish to ADB a report, in such form and in such detail as ADB shall reasonably request, on the execution and initial operation Section 2.08 (c) Complied with. of the Project, including its cost, the performance by IDCOL of its obligations under this Project Agreement and the accomplishment of the purposes of the Loans. IDCOL shall (i) maintain separate accounts for the use of the proceeds of the Loans and for its overall operations; (ii) have such accounts and related financial statements (balance sheet, statement of income and expenses, and related statements) audited annually, in accordance with appropriate auditing standards consistently applied, by independent auditors whose qualifications, Complied with. IDCOL experience and terms of reference are acceptable to ADB; and (iii) furnish to submitted unqualified ADB, promptly after their preparation but in any event not later than 6 months annual project financial after the close of the fiscal year to which they relate, certified copies of such statements and annual Section 2.09 (a) audited accounts and financial statements and the report of the auditors reports in a timely manner. relating thereto (including the auditors’ opinion on the use of the proceeds of The auditors certified the the Loans and compliance with the financial covenants of the Loan use of funds in accordance Agreements as well as on the use of the procedures for imprest accounts and with loan covenants. statement of expenditures), all in the English language. IDCOL shall furnish to ADB such further information concerning such accounts and financial statements and the audit thereof as ADB shall from time to time reasonably request. In addition to annual audited financial statements referred to in paragraph (a) of this Section, IDCOL shall furnish to ADB: Partly Complied with. (i) within 45 days after the end of the first six months of each fiscal year, IDCOL provided annual unaudited semiannual financial statements on its operations for such six Section 2.09 (b) audited accounts. No month period; unaudited accounts and (ii) within 3 months after the end of each fiscal year, unaudited annual financial projections provided. statements on its operations for such fiscal year; and
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(iii) within 3 months after the end of each fiscal year, financial projections of its operations (including income statements, balance sheets and cash flow statements) for the ensuing 3 years. IDCOL shall enable ADB, upon ADB’s request, to discuss IDCOL’s financial statements and its financial affairs from time to time with the auditors appointed by IDCOL pursuant to Section 2.09(a) hereabove, and shall authorize and require any representative of such auditors to participate in any Section 2.09 (c) Complied with. such discussions requested by ADB. Provided that any such discussion shall be conducted only in the presence of an authorized officer of IDCOL unless IDCOL shall otherwise agree. IDCOL shall enable ADB’s representatives to inspect the projects, the Goods and Works financed out of the proceeds of the Loans, all other plants, sites, Section 2.10 Complied with. properties and equipment of IDCOL or its Qualified Enterprises, and any relevant records and documents. IDCOL shall, promptly as required, take all action within its powers to maintain its corporate existence, to carry on its operations, and to acquire, maintain and Section 2.11 (a) Complied with. renew all rights, properties, powers, privileges and franchises which are necessary in the carrying out of the Project or in the conduct of its business. IDCOL shall and shall procure that each Qualified Enterprise shall at all times Substantially complied conduct its business in accordance with sound administrative, financial, with. No safeguard reports environmental, social safeguard, and business practices including the Section 2.11 (b) provided for two small maintenance of adequate records and accounts, and under the supervision of infrastructure subprojects. competent and experienced management and personnel. IDCOL shall ensure that each Qualified Enterprise shall at all times operate Substantially complied and maintain its plants, equipment and other property, and from time to time, with. No safeguard reports promptly as needed, make all necessary repairs and renewals thereof, all in Section 2.11 (c) provided for two small accordance with sound administrative, financial, engineering, environmental, infrastructure subprojects. social safeguard, and maintenance and operational practices. Except as ADB may otherwise agree, IDCOL shall and shall procure that each Qualified Enterprise shall not sell, lease or otherwise dispose of any of its assets which shall be required for the efficient carrying on of its operations or Section 2.12 Complied with. the disposal of which may prejudice its ability to perform satisfactorily any of its obligations. Except as ADB may otherwise agree, IDCOL shall apply the proceeds of the Loans to the financing of expenditures on the Project in accordance with the provisions of the Loan Agreements and this Project Agreement, and shall Section 2.13 Complied with. ensure that all Goods, Works and consulting services financed out of such proceeds are used exclusively in the carrying out of the Project. Except as ADB may otherwise agree, IDCOL shall duly perform all its obligations under the Subsidiary Loan Agreements, and shall not take, or concur in, any action which would have the effect of assigning, amending, Section 2.14 Complied with. abrogating or waiving any rights or obligations of the parties under the Subsidiary Loan Agreements. IDCOL shall promptly notify ADB of any proposal to amend, suspend or repeal any provision of its Memorandum and Articles or other constitutional document Section 2.15 Complied with. and shall afford ADB an adequate opportunity to comment on such proposal prior to taking any action thereon.
Table A13.3: Status of Compliance with Grants Covenants Reference in Covenants Status of Compliance Grant Agreement Particular Covenants in Grant Agreements (Article V) The Recipient shall, and shall ensure that IDCOL shall, carry out the Project with due diligence and efficiency and in conformity with sound banking, Section 5.01 Complied with. administrative, financial, economic, engineering, environmental, social G0253, G0254 safeguards, and business practices. In the carrying out of the Project and operation of the Project facilities, the Section 5.02 Recipient shall perform, and shall cause IDCOL to perform, all obligations set Complied with. G0253, G0254 forth in the SF Agreement and Schedule 4 to this Grant Agreement. The Recipient shall ensure that IDCOL shall maintain records and accounts adequate to record the progress of each PO and to reflect, in accordance with Section 5.03 consistently maintained sound accounting principles, the operations and Complied with. G0253, G0254 financial condition of IDCOL, as part of the records and accounts referred to in Section 6.04 of the Grant Regulations.
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Reference in Covenants Status of Compliance Grant Agreement The Recipient shall procure that IDCOL shall furnish to ADB all such reports Section 5.04 and information as ADB shall reasonably request concerning RE grant as part Complied with. G0253, G0254 of the report referred to in Section 6.04 of the Grant Regulations. The Recipient shall ensure that IDCOL shall enable ADB’s representatives to review and examine any PO and its operations, including to inspect the Section 5.05 Complied with. Project and any relevant records and documents including those maintained G0254 by PO. The Recipient shall procure that IDCOL shall (i) maintain, separate accounts for the Project; (ii) have such accounts and related financial statements audited annually, in accordance with appropriate auditing standards consistently applied, by independent auditors whose qualifications, experience Complied with. IDCOL and terms of reference are acceptable to ADB, (iii) furnish to ADB, as soon as submitted unqualified annual Section 5.05 (a) available but in any event not later than 6 months after the end of each related project financial statements G0253 fiscal year, certified copies of such audited account and financial statements and annual reports in a timely
manner. The auditors certified and the report of the auditors relating thereto (including the auditors’ opinion Section 5.06 (a) on the use of the Grant proceeds and compliance with the financial covenants the use of funds in accordance G0254 of this Grant Agreement as well as on the use of the procedures for imprest with loan covenants. account and statement of expenditures), all in the English language, and (iv) furnish to ADB such other information concerning such accounts and financial statements and the audit thereof as ADB shall from time to time reasonably request. The Recipient shall cause IDCOL to enable ADB, upon ADB’s request, to discuss IDCOL’s financial statements and its financial affairs from time to time Section 5.05 (b) with the auditors appointed by IDCOL pursuant to subparagraph (a) G0253 hereabove, and shall authorize and require any representative of such Complied with. auditors to participate in any such discussions request by ADB, provided that Section 5.06 (b) any such discussion shall be conducted only in the presence of an authorized G0254 officer of IDCOL unless otherwise agreed. The Recipent shall ensure that IDCOL shall: (a) promptly as required, take all action within its power to maintain its corporate existence, to carry on its operations and to acquire, maintain and renew all rights, properties, powers, privileges and franchises which are necessary in the carrying out of the Project or in the conduct of its business; (b) at all times conduct its business in accordance with sound administrative, financial, environmental and business practices, and under the supervision of competent and experienced management and personnel; Section 5.06 (c) not sell, lease or otherwise dispose of any of its assets, except in the G0253 ordinary course of its business, and which in the opinion of ADB will or may Complied with. adversely affect the carrying out of this Grant Agreement; Section 5.07 (d) keep ADB informed, of establishment or acquisition by it, of any G0254 subsidiaries; (e) exercise its rights under the Subsidiary Grant Agreement in such a manner as to protect the interests of IDCOL and ADB and to accomplish the purposes of the Grant; and (f) ensure that no rights or obligations under the Subsidiary Loan Agreement shall be assigned, amended, abrogated or waives without the prior approval of ADB. Implementation Arrangements in Grant Agreements The Recipient and IDCOL shall ensure that the Project is implemented in accordance with the detailed arrangements set forth in the PAM. Any subsequent change to the PAM shall become effective only after approval of such change by the Recipient and ADB. In the event of any discrepancy Schedule (Sc) between the PAM and this Grant Agreement, the provisions of this Grant 4, para. 1 Complied with. Agreement shall prevail. The PMU established under the SF Agreement shall G0253, G0254 be retained and it will continue to be responsible to ensure that the activities of the POs are in compliance with the ESSF and applicable national and state policies, laws and regulations relating to environment, resettlement and indigenous people. The Recipient shall cause IDCOL to ensure that each PO selected for the Schedule (Sc) provision of channeling Buy-down Grants for the purposes of financing of RES 4, para. 2 Complied with. activities complies with the criteria set out in para 3 of Schedule 3 of the SF G0254 Agreement. The Recipient shall ensure that IDCOL shall submit to ADB a summary sheet Schedule (Sc) detailing the following information in respect of Buy-down Grants to be 4, para. 3 Complied with. channeled through the POs: (i) information of compliance with exposure limits G0254 for each PO, (ii) name and address of each final recipient, (iii) cost of
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Reference in Covenants Status of Compliance Grant Agreement equipment and other related costs, (iv) information about technical aspects and (v) breakdown of all financing in respect of such Buy-down Grants. The Recipient shall ensure that IDCOL shall submit to ADB a summary sheet detailing the following information in respect of providing grants for other RE applications: (i) basic information of each RE application such as name and Schedule (Sc) address of each RE application, etc; (ii) subsidy amount disbursed; (iii) cost of 4, para. 2 Complied with. equipment and other related costs, (iv) information about technical aspects of G0253 each RE application, and (v) breakdown of all financing in respect of such RE application. Governance and Anticorruption The Recipient and IDCOL shall ensure that accountability and transparency are maintained in its operations through stakeholder meetings and publication of progress reports throughout the duration of the Project, and internal Schedule (Sc) procedures and controls are instituted, maintained, and complied with to 4, para. 3 prevent any corrupt, fraudulent, collusive, or coercive practices. The Recipient G0253 shall procure that IDCOL shall ensure that an appropriate corporate Complied with. governance framework is formulated in accordance with its comprehensive Schedule (Sc) business plan and international best practices, and reported in its annual 4, para. 4 report to its board of directors, and to ADB. IDCOL shall comply with the G0254 Anticorruption Policy and cooperate fully with any investigation by ADB and extend all necessary assistance, including providing access to all relevant books and records for the satisfactory completion of such investigation. Schedule (Sc) IDCOL shall ensure that the anticorruption provisions acceptable to ADB are 4, para. 4 included in all bidding documents and contracts, including provisions G0253 specifying the right of ADB to audit and examine the records and accounts of Complied with. Schedule (Sc) the executing agencies and all contractors, suppliers, consultants, and other 4, para. 5 service providers as they relate to the Project. G0254 Safeguards Schedule (Sc) 4, para. 5 The Recipient and IDCOL shall ensure that the Project is implemented in G0253 Complied with. accordance with (a) the Recipient’s environmental regulations and policy, and Schedule (Sc)
(b) ADB’s Safeguard Policy Statement (2009) and the updated ESSF. 4, para. 6 G0254 Performance Monitoring and Evaluation Within three months of Effective Date, the Recipient shall procure that IDCOL Schedule (Sc) shall establish a project performance monitoring system acceptable to ADB 4, para. 6 Partly Complied with. Initially and within six months of Effective Date, IDCOL shall establish baseline data G0253 IDCOL was not regular in for select indicators. Without limiting the generality of Section 6.03 of the EF Schedule (Sc) submitting quarterly reports to Grant Regulations, IDCOL shall submit to ADB the quarterly progress reports 4, para. 7 ADB. and a completion report within 3 months of the completion of the Project. G0254 Project Review The Recipient shall procure that IDCOL shall review the performance of the Schedule (Sc) Project through PMU on a quarterly basis, and the review report shall be 4, para. 7 completed by the 10th day of the month following the quarterly review. The G0253 Partly complied with. Review board of directors of IDCOL shall review the performance of each quarter year Schedule (Sc) was not performed by the Board. and shall forward quarter-yearly review. ADB shall undertake annual review 4, para. 8 missions and conduct the tripartite reviews chaired by the Recipient. G0254 Particular covenants in Project Agreement (Article II) IDCOL shall carry out the Project with due diligence and efficiency, and in conformity with sound administrative, financial, engineering, environmental, Section 2.01 (a) Complied with. social safeguard responsibility, and business practices including maintenance G0253, G0254 of adequate accounts and records. In carrying out of the Project and operation of the Project facilities, IDCOL shall perform all obligations set forth in the Supplementary Grant Agreement Section 2.01 (b) Complied with. and Externally Funded Grant Agreement to the extent that they are applicable G0253, G0254 to IDCOL. IDCOL shall make available, promptly as needed, the funds, facilities, Section 2.02 services, staff and other resources which are required, in addition to the Complied with. G0253, G0254 proceeds of the Grant, for the carrying out of the Project. In carrying out of the Project, IDCOL shall employ and require the POs to Section 2.03 (a) employ competent and qualified consultants and contractors, acceptable to Complied with. G0253, G0254 ADB, to an extent and upon terms and conditions satisfactory to ADB.
56 Appendix 13
Reference in Covenants Status of Compliance Grant Agreement Except as ADB may otherwise agree, all Goods, Works, consulting services to be financed out of the proceeds of the Grant shall be procured in accordance with the provisions of Schedule 2 to the Supplementary Grant Agreement and Externally Funded Grant Agreement, as applicable. ADB may refuse to Section 2.03 (b) Complied with. finance a contract where Goods, Works or Consulting Services have not been G0253, G0254 procured under procedures substantially in accordance with those agreed between the Recipient and ADB or where the terms and conditions of the contract are not satisfactory to ADB. IDCOL shall carry out the Project in accordance with plans, design standards, specifications, work schedules and construction methods acceptable to ADB. IDCOL shall furnish, or cause to be furnished, to ADB, promptly after their Section 2.04 Complied with. preparation, such plans, design standards, specifications and work schedules, G0253, G0254 and any material modifications subsequently made therein, in such detail as ADB shall reasonably request. IDCOL shall ensure that Project facilities maintain with responsible insurers, or make other arrangements satisfactory to ADB, for insurance of the Project Section 2.05 (a) Complied with. facilities to such extent and against such risks and in such amounts as shall G0253, G0254 be consistent with sound practice. Without limiting the generality of the foregoing, IDCOL shall cause to be insured the Goods to be imported for the project and to be financed out of the proceeds of the Grants against hazards incident to the acquisition, Section 2.05 (b) Complied with. transportation and delivery thereof to the place of use or installation, and for G0253, G0254 such insurance any indemnity shall be payable in a currency freely usable to replace or repair such Goods. IDCOL shall maintain, or cause to be maintained, records and accounts adequate to identify the Goods, Works and Consulting Services and other items of expenditure financed out of the proceeds of the Grant, to disclose the Section 2.06 Complied with. use thereof in the Project, to record the progress of the Project (including the G0253, G0254 cost thereof) and to reflect, in accordance with consistently maintained sound accounting principles, its operations and financial condition. ADB and IDCOL shall cooperate fully to ensure that the purposes of the Grant Section 2.07 (a) Complied with. will be accomplished. G0253, G0254 IDCOL shall promptly inform ADB of any condition which interferes with, or threatens to interfere with, the progress of the Project, the performance of its Section 2.07 (b) obligations under this Project Agreement or the Supplementary Grant Complied with. G0253, G0254 Agreement and Externally Funded Grant Agreement, or the accomplishment of the purposes of the Grant. ADB and IDCOL shall from time to time, at the request of either party, Section 2.07 (c) exchange views through their representatives with regard to any matters Complied with. G0253, G0254 relating to the Project, IDCOL and the Grant. IDCOL shall furnish to ADB all such reports and information as ADB shall reasonably request concerning (i) the Grant and the expenditure of the proceeds thereof; (ii) the Goods, Works and consulting services and other Section 2.08 (a) Complied with. items of expenditure financed out of such proceeds; (iii) the Project; (iv) the G0253, G0254 administration, operations and financial condition of IDCOL; and (v) any other matters relating to the purposes of the Loan. Without limiting the generality of the foregoing, IDCOL shall furnish to ADB quarterly reports on the execution of the Project and on the operation and management of the Project facilities. Such reports shall be submitted in such form and in such detail and within such a period as ADB shall reasonably Section 2.08 (b) Complied with. request, and shall indicate, among other things, progress made and problems G0253, G0254 encountered during the quarter under review, steps taken or proposed to be taken to remedy these problems, and proposed program of activities and expected progress during the following quarter. Promptly after the Grant Closing Dates, but in any event not later than three months thereafter or such later date as ADB may agree for this purpose, IDCOL shall prepare and furnish to ADB a report, in such form and in such Section 2.08 (c) detail as ADB shall reasonably request, on the execution and initial operation Complied with. G0253, G0254 of the Project, including its cost, the performance by IDCOL of its obligations under this Project Agreement and the accomplishment of the purposes of the Grant. IDCOL shall (i) maintain 2 separate accounts, one for each source of funds, Complied with. IDCOL for the Project and for its overall operations; (ii) have such accounts and submitted unqualified annual related financial statements (balance sheet, statement of income and Section 2.09 (a) project financial statements expenses, and related statements) audited annually, in accordance with G0253, G0254 and annual reports in a timely appropriate auditing standards consistently applied, by independent auditors manner. The auditors certified whose qualifications, experience and terms of reference are acceptable to
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Reference in Covenants Status of Compliance Grant Agreement ADB; and (iii) furnish to ADB, promptly after their preparation but in any event the use of funds in accordance not later than 6 months after the close of the fiscal year to which they relate, with loan covenants. certified copies of such audited accounts and financial statements and the report of the auditors relating thereto (including the auditors’ opinion on the use of the Grant proceeds and compliance with the financial covenants of the Supplementary Grant Agreement and Externally Funded Grant Agreement as well as on the use of the procedures for imprest accounts and statement of expenditures), all in the English language. IDCOL shall furnish to ADB such further information concerning such accounts and financial statements and the audit thereof as ADB shall from time to time reasonably request. In addition to annual audited financial statements referred to in paragraph (a) of this Section, IDCOL shall furnish to ADB: (i) within 45 days after the end of the first six months of each fiscal year, unaudited semiannual financial statements on its operations for such six Partly Complied with. IDCOL month period; Section 2.09 (b) has not provided unaudited (ii) within 3 months after the end of each fiscal year, unaudited annual financial G0253, G0254 semiannual financial statements on its operations for such fiscal year; and statements to ADB. (iii) within 3 months after the end of each fiscal year, financial projections of its operations (including income statements, balance sheets and cash flow statements) for the ensuing 3 years. IDCOL shall enable ADB, upon ADB’s request, to discuss IDCOL’s financial statements for the Project and its financial affairs from time to time with the auditors, appointed by IDCOL pursuant to Section 2.09(a) hereabove, and Section 2.09 (c) shall authorize and require any representative of such auditors to participate in Complied with. G0253, G0254 any such discussions requested by ADB, provided that any such discussion shall be conducted only in the presence of an authorized officer of IDCOL unless IDCOL shall otherwise agree. IDCOL shall enable ADB’s representatives to inspect the Project, the Goods, Works and Consulting Services financed out of the proceeds of the Grant, all Section 2.10 Complied with. other sites, properties and equipment of IDCOL, and any relevant records and G0253, G0254 documents. IDCOL shall, promptly as required, take all action within its powers to maintain its corporate existence, to carry on its operations, and to acquire, maintain and Section 2.11 (a) Complied with. renew all rights, properties, powers, privileges and franchises which are G0253, G0254 necessary in the carrying out of the Project or in the conduct of its business. IDCOL shall at all times conduct its business in accordance with sound administrative, financial, environmental, social safeguard, and business Section 2.11 (b) practices including the maintenance of adequate records and accounts, and Complied with. G0253, G0254 under the supervision of competent and experienced management and personnel. IDCOL shall at all times operate and maintain its sites, equipment and other property, and from time to time, promptly as needed, make all necessary Section 2.11 (c) repairs and renewals thereof, all in accordance with sound administrative, Complied with. G0253, G0254 financial, engineering, environmental, social safeguard, and maintenance and operational practices. Except as ADB may otherwise agree, IDCOL shall not sell, lease or otherwise dispose of any of its assets which shall be required for the efficient carrying on Section 2.12 Complied with. of its operations or the disposal of which may prejudice its ability to perform G0253, G0254 satisfactorily any of its obligations under this Project Agreement. Except as ADB may otherwise agree, IDCOL shall apply the proceeds of the Grant to the financing of expenditures on the Project in accordance with the provisions of the Supplementary Grant Agreement and Externally Funded Section 2.13 Complied with. Grant Agreement and this Project Agreement, and shall ensure that all Goods, G0253, G0254 Works and Consulting Services financed out of such proceeds are used exclusively in the carrying out of the Project. Except as ADB may otherwise agree, IDCOL shall duly perform all its obligations under the Subsidiary Grant Agreement, and shall not take, or Section 2.14 concur in, any action which would have the effect of assigning, amending, Complied with. G0253, G0254 abrogating or waiving any rights or obligations of the parties under the Subsidiary Grant Agreement. IDCOL shall promptly notify ADB of any proposal to amend, suspend or repeal any provision of its Memorandum and Articles or other constitutional document Section 2.15 Complied with. and shall afford ADB an adequate opportunity to comment on such proposal G0253, G0254 prior to taking any action thereon.
58 Appendix 14
OUTSTANDING OBSERVATIONS OF FOREIGN AIDED PROJECT AUDIT DIRECTORATE
Grant 0253-0254 Sl. FY FAPAD Observations Response from IDCOL 1. FY2013- Solar Home System was As per implementation model of SHS program, IDCOL provides 2014 installed under REB reimbursement facilities and grants against disbursement claims Gridline by violating grant of POs based on a pre-inspection report prepared by the POs. agreement. As most of the SHS are established in remote rural areas, it is not operationally feasible to complete 100% inspection of systems by IDCOL before financing. IDCOL’s Quality and Inspection Team conducts inspection throughout the year and if any discrepancy is found, grant and reimbursement facilities provided to the discrepant SHS are deducted from subsequent disbursement claims of that particular PO. FAPAD auditors mentioned finding three SHS installed in grid areas. Following FAPAD’s observations, IDCOL immediately sent its quality inspection team to verify and found that two of three SHS were eligible for receiving grants while one was not eligible. Notably, IDCOL has a large Quality and Inspection Team who regularly visits the SHS installed in the remote areas. If any discrepancy is found during the inspection, they inform the respective POs and advise them to address the problem within a certain period of time. Regional supervisors follow up to ensure that the responsible POs address these problems. Future disbursements against those systems are withheld by IDCOL until the problems are resolved. 2. FY2013- The grant facility for The buy-down grant is an output-based incentive paid to the 2014 individual householder of POs to support installation of SHS in eligible households in off- Tk. 140,368,999 was not grid rural areas. The disbursement of buy-down grants to the visible by documents. eligible POs is guided by an agreed procedure approved by the government and development partners. The implementation arrangement of the project has been described in Schedule 4 of the grant agreement which requires IDCOL to implement the project in accordance with the detailed arrangement set forth in the PAM. IDCOL confirms that all payments were made in accordance with the provisions set forth in the grant agreement and other relevant documents including PAM. There is no requirement of making the grant element stipulated in the lease agreement signed between PO and SHS user (end borrower), however, for the sake of transparency the grants and concessionary refinancing against each SHS are documented in a disclosure of the lease agreement executed between the PO and customer. IDCOL confirms that all payments were made in accordance with the provisions set forth in the grant agreement and other relevant documents under the project. IDCOL would explore a mechanism to disclose adjustment of the buy-down grants in the books of accounts of the POs. 3. FY2013- Undue grant paid to IDCOL follows the Operating Guidelines for Solar Home 2014 different POs amounting to Systems and Other Renewable Energy Projects, as amended Tk. 82,858,450 violating from time to time. As per sections 3.04 and 3.05 of the Third operating guideline. Amendment and Restatement Agreement to the Participation Agreements, IDCOL would provide grants for both regular and small-sized SHS up to 31 December 2012 and after the noted time-period, POs will be eligible to get grant supports only for small sized SHS i.e. SHS below 30 Wp. Notably, under IDCOL SHS Program, monthly disbursement requests generally contain SHS installed in preceding one or two months. Disbursement requests submitted on Jan-Feb’13 contained the solar home systems which were installed in Nov-Dec’12. Therefore, as per the participation agreement, both regular and
Appendix 14 59
Sl. FY FAPAD Observations Response from IDCOL small-sized SHSs were eligible to receive grant fund under the program. 4. FY2014- Genuineness of expenditure This relaters to the mini-grid subproject (Hydron). IDCOL stated 2015 amounting to Tk. that as per agreement, the borrower is required to maintain 32,527,600 not verified. proper records of accounts and allow access to IDCOL, the government and funding entity for inspecting accounting books, records and data related to the project. As per communication by Hydron to IDCOL, Hydron were undergoing renovation and therefore, all the relevant documents were shifted to the local mini-grid office at Bagha. All required documents are available with this solar mini-grid subproject. 5. FY2014- VAT and IT amounting to IDCOL disbursed the approved loan and grant amount under 2015 Tk. 2,488,828 not deducted the following verification of fund expenditure for approved from the suppliers’ bills. purposes and completion of agreed on milestones by the sponsor time to time. Disbursement to the sponsors was not expenditure reimbursement in nature. IDCOL did not deduct VAT and taxes from the disbursement of loan and grant as no VAT and taxes are applicable on loan or grants. It is responsibility of the POs to deduct VAT and taxes and depositing the same into the government treasury for the purchase of equipment and services. Notably, the sponsors’ compliance with the relevant laws and regulations are reviewed by IDCOL periodically and as per its regular monitoring plan. 6. FY2014- Unauthorized procurement Fiberglass bio-digesters were procured for piloting of fiberglass 2015 made Tk. 8,016,862 by the bio-digester plant in Bangladesh after getting the acceptance of project authority. ADB. 7. FY2014- Loss of project money IDCOL shared the procurement plan with ADB and ADB 2015 amounting to Tk. 268,025 recommended to give the lowest bidder a large share of the due to non-acceptance of total procurement and to distribute the rest amount to the other lowest bidder only. two companies. Procurement was made as per approval of ADB. 8. FY2014- Loss of Tk. 280,781 due to Payment was made to the Padma Gorie for C&F services. And 2015 payment made to Padma response was furnished in exit meeting with FAPAD. Gorie Ltd. beyond contract condition. ADB = Asian Development Bank, FAPAD= Foreign Aided Project Audit Directorate, FY = financial year, IDCOL = Infrastructure Development Company Limited, IT= income tax, PAM = project administration manual, PO= participating organization, SHS = solar home systems, VAT= value added tax.
60 Appendix 15
ECONOMIC EVALUATION
A. Background
1. The economic evaluation of the Public–Private Infrastructure Development Facility (PPIDF) investments was carried out in accordance with Asian Development Bank’s (ADB) guidelines on economic analysis for projects.57 PPIDF provided $167.6 million under three components for nine subprojects. Among the subprojects, economic analysis has been carried out for four largest representative subprojects, which cover 96.6% of ADB’s total investment under PPIDF. Of these four representative subprojects, economic analysis for solar home systems (SHS) has been presented in this document, as it is the largest subproject representing 47.7% of total investment under PPIDF. Detailed calculations SHS and three other subprojects are available on request. The following table lists all subprojects financed under PPIDF.
Table: Subprojects Financed under Public–Private Infrastructure Development Facility ADB Financing % of Total Name of Subprojects Sector Capacity ($ million) Financing Energypac Confidence Power Venture Chittagong Ltd. Power 108 MW 30.0 17.9% Regent Energy and Power Ltd. Power 108 MW 30.0 17.9% Summit Meghnaghat Power Company Ltd. Power 335 MW 22.0 13.1% Banglalion Communications Ltd. Telecom - 3.6 2.2% Fiber@Home Ltd. Telecom - 1.4 0.8% Solar Home Systems Renewable Energy 36.1 MW 80.0 47.7% Bio-digesters Renewable Energy 100 nos 0.1 0.0% Solar Mini-grid Project Renewable Energy 141 kWp 0.4 0.3% Solar Irrigation Pumps Renewable Energy 78.71 kWp 0.1 0.1% Total 167.6 100.0%
B. Project Costs
2. Economic analysis for SHS is presented in this document which is the largest subproject under PPIDF ($80 million). Subproject project costs were expressed in terms of economic prices. Investment and operation and maintenance cost in financial terms were adjusted to reflect the economic resource cost of inputs in terms of domestic price numeraire. Costs were categorized into traded goods, non-traded goods, foreign skilled labor, local unskilled labor, fuel and transfer payments, wherever applicable, and were adjusted with appropriate conversion factors. The shadow exchange rate factor (SERF) was used to convert traded costs while the shadow wage rate factor (SWRF) was used for unskilled labor. There has been no transfer payments and price contingencies.
3. The SERF was calculated as the inverse of the standard conversion factor (SCF). SERF values for 2009–2016 were estimated, and their 8–year average value of 1.04 was used in the analysis. Owing to high underemployment in Bangladesh, a SWRF of 0.80 was used to estimate the economic value of unskilled labor. An economic discount rate of 12% were used in the calculations. A period of 25 years was used for economic assessment.
57 ADB.2017. Guidelines for the Economic Analysis of Projects. Manila.
Appendix 15 61
C. Project Benefits
4. Project outputs were classified into incremental and non-incremental outputs. SHS provided electricity to rural population who did not have any access to electricity (only 36.6% of rural population had access to grid electricity in 2007). The SHS subproject provided incremental benefits who had no access to electricity and replaced fossil fuel used for household lighting purposes (savings in liquid fuel cost and CO2 emissions). The SHS financed under PPIDF provided electricity to 430,514 households. Considering five-person family, it provided electricity to an estimated 2.1 million people living in rural off-grid areas. Prior to using SHS, each household was using indigenous lighting equipment (such as, Kupi and Harikan) and were using an estimated 91.25 liter of kerosene a year. A major benefit of the SHS program is savings in CO2 emissions. As per ADB’s Guidelines for Economic Benefits of Projects, a unit value of $36.3 per ton of CO2 in 2016 has been taken with annual escalation of 2%.
D. Economic Evaluation of Solar Home Systems
5. The economic analysis demonstrates the SHS program is economically viable, with an economic internal rate of return (EIRR) of 36.2%. The summary cost-benefit analysis (Table 1) is considered conservative as it does not consider the consumer surplus due to improved lighting services.
Table 1: Summary of Cost-Benefit Analysis Year Economic Cost Economic Benefits Net Economic Benefits Capital Cost Recurrent Cost Total Cost Kerosene CO2 Avoided Total Saved Savings Repalcement Benefits Tk million Tk million Tk million Tk million Tk million Tk million Tk million Tk million 2009 785 785 114 92 5 211 -574 2010 1,607 53 1,660 347 286 15 648 -1,012 2011 529 162 692 424 357 18 798 106 2012 4,043 198 4,241 1,010 867 43 1,920 -2,321 2013 884 473 1,357 1,682 997 49 2,728 1,372 2014 533 533 1,674 1,013 48 2,735 2,202 2015 531 531 1,674 1,033 48 2,756 2,225 2016 531 531 1,600 1,054 48 2,703 2,172 2017 531 531 1,600 1,076 48 2,724 2,193 2018 531 531 1,600 1,097 48 2,745 2,215 2019 531 531 1,600 1,119 48 2,767 2,237 2020 531 531 1,600 1,141 48 2,790 2,259 2021 531 531 1,600 1,164 48 2,813 2,282 2022 531 531 1,600 1,187 48 2,836 2,305 2023 531 531 1,600 1,211 48 2,860 2,329 2024 531 531 1,600 1,235 48 2,884 2,353 2025 531 531 1,600 1,260 48 2,909 2,378 2026 531 531 1,600 1,285 48 2,934 2,403 2027 531 531 1,600 1,311 48 2,959 2,429 2028 531 531 1,600 1,337 48 2,986 2,455 2029 531 531 1,600 1,364 48 3,012 2,482 2030 531 531 1,600 1,391 48 3,040 2,509 2031 531 531 1,600 1,419 48 3,068 2,537 EIRR 36.2% EIRR = economic internal rate of return, ENPV = economic net present value. Source: Asian Development Bank estimates.
62 Appendix 15
E. Sensitivity Analysis
6. The major variables for implementing subprojects are cost and time overrun. The subprojects under PPIDF were implemented within budget and substantially within stipulated timeframe. A sensitivity analysis has been conducted for the SHS program and it can withstand the adverse changes in major variables.
Table 2: Sensitivity Analysis of Solar Home System Program Sensitivity Parameters Variable EIRR Base Scenario 36.2% Kerosene price -20.0% 35.3% Carbon-di-oxide emission benefit -20.0% 31.8% Non-operational SHS (default 0.5%) 20.0% 32.3% EIRR = economic internal rate of return. Source: Asian Development Bank estimates.
F. Economic Analysis of Public–Private Infrastructure Development Facility
7. Economic Internal Rate of Return of Individual subprojects. The EIRR of PPIDF has been calculated by considering all major subprojects financed by PPIDF. The detailed EIRR calculation for four representative subprojects–SHS program, Energypac Confidence Power Venture Ltd. (ECPV), Regent Energy and Power Ltd. (REPL), and Summit Meghnaghat Power Company Ltd. (SPCL)–are available on request. The EIRRs of individual subprojects are in Table 3.
Table 3: Economic Internal Rate of Return of Subprojects ADB Financing % of Total Subproject Name of Subprojects ($ million) Financing EIRR Energypac Confidence Power Venture Chittagong Ltd. 30.0 17.9% 8.1% Regent Energy and Power Ltd. 30.0 17.9% 22.2% Summit Meghnaghat Power Company Ltd. 22.0 13.1% 9.3% Banglalion Communications Ltd. 3.6 2.2% … Fiber@Home Ltd. 1.4 0.8% … Solar Home Systems 80.0 47.7% 36.2% Bio-digesters 0.1 0.0% … Solar Mini-grid Project 0.4 0.3% … Solar Irrigation Pumps 0.1 0.1% … … = not available. ADB = Asian Development Bank, EIRR = economic internal rate of return. Source: Asian Development Bank estimates.
8. Economic Internal Rate of Return of Public–Private Infrastructure Development Facility. The economic cost and economic benefits of four representative subprojects have been aggregated to calculate the EIRR of PPIDF. The four representative subprojects constitute 96.6% of PPIDF facility and EIRR is calculated at 17.4%. The calculation is in Table 4.
Appendix 15 63
Table 3: Economic Internal Rate of Return of Public–Private Infrastructure Development Facility Capital Cost Other Economic Costs Economic Benefits Net Economic Benefits Year Tk million Tk million Tk million Tk million 2009 785 0 211 -574 2010 1,607 53 648 -1,012 2011 529 162 798 106 2012 4,043 211 1,920 -2,333 2013 11,845 496 2,691 -9,650 2014 25,007 15,997 21,557 -19,448 2015 1,728 18,924 24,449 3,797 2016 172 34,497 47,287 12,619 2017 440 16,323 24,367 7,603 2018 193 20,038 26,478 6,248 2019 406 20,045 26,505 6,053 2020 150 20,049 26,531 6,333 2021 150 20,058 26,559 6,351 2022 179 20,065 26,586 6,342 2023 534 20,072 26,615 6,009 2024 150 20,080 26,644 6,415 2025 150 20,064 26,673 6,460 2026 200 19,992 26,704 6,511 2027 619 19,998 26,734 6,117 2028 150 20,022 26,766 6,594 2029 149 14,679 20,351 5,523 2030 149 9,310 14,137 4,678 2031 149 9,313 14,162 4,700 2032 149 8,785 11,091 2,157 2033 149 8,788 11,088 2,151 2034 149 8,787 11,085 2,149 2035 149 8,789 11,082 2,143 EIRR of PPIDF 17.4% EIRR = economic internal rate of return, PPIDF = Public-Private Infrastructure Development Facility
G. Conclusion
29. PPIDF substantially provided least-cost solution to address chronic power shortages meeting incremental demand in Bangladesh. The EIRRs of SHS program, ECPL, REPL and SPCL are evaluated at 36.2%, 8.1%, 22.2% and 9.3%. The EIRR of the SHS program is the highest because of significant savings in CO2 emissions. The EIRRs of ECPV and SPCL fall below 12% benchmark as these two peaking power subprojects run on liquid-fuel at low plant factors. However, the aggregate EIRR of PPIDF is robust at 17.4% which is higher than 12% benchmark. As no economic analysis of identified SHS program or representative subprojects was calculated at appraisal, the post-implementation PPIDF EIRR could not be compared with pre- implementation EIRR. From economic standpoint, PPIDF proved to be beneficial to the economy.
64 Appendix 16
FINANCIAL EVALUATION
1. The financial internal rate of return (FIRR) was calculated for four subprojects, which constitutes 96.6% of ADB’s total investment under Public-Private Infrastructure Development Facility (PPIDF). These included Energypac Confidence Power Venture Ltd., Regent Energy and Power Limited (REPL), Summit Meghnaghat Power Company Ltd. and solar home systems (SHS) program. Of these four representative subprojects, financial analysis for (REPL) is presented in this document while detailed calculations for the other subprojects are available upon request. The FIRR for REPL was calculated by projecting future revenue and cost streams at 2017 constant prices for the period 2018–2029.
2. Project cost. The project cost stream includes capital expenditure and operational expenditure. Direct cost and operating and administrative expenses are based on actual costs incurred during 2015–2017. Fuel consumption is based on the average usage during 2015–2017 and fuel cost at 2017 constant prices. Minor and major overhauling costs are estimated based on the Maintenance and Service Agreement. Liquidated damage from the power off-taker is included. The company enjoys a 15-year tax exemption on income from the date of its commercial operation up to 15 July 2029.
3. Project revenue. REPL generates revenue as per provisions of the Power Purchase Agreement signed with the power off-taker. Revenue is primarily dependent on plant factor and dependable capacity. The plant factor is assumed at 59.7% (monthly average during July 2016– June 2018) with no increase in the subsequent years starting from 2018. Dependable capacity is assumed at 4-year average of 104.48MW.
4. Weighted Average Cost of Capital. The after-tax Weighted Average Cost of Capital (WACC), in real terms, was calculated based on the actual capital cost from various financing sources as of 30 June 2017. REPL availed loans from diversified sources, Infrastructure Development Company Limited in foreign currency, Bangladesh Infrastructure Finance Fund Limited in local currency, and various commercial banks in local currency. REPL also raised preference shares from local financial institutions in local currency. The interest rate on loans and dividend rate on preference shares have been considered. The cost of equity has been calculated by capital asset pricing model based on certain assumptions. The WACC has been calculated at 5.3% (Table A16.1).
Table A16.1: Calculation of Weighted-Average Cost of Capital for Regent Energy and Power Limited IDCOL BIFFL Inter-Company Preference Item Loan Loan Bank Loan Loan Share Equitya Total Outstanding (Tk million) 3,426 255 275 137 298 1,949 6,340 Weight 54.0% 4.0% 4.3% 2.2% 4.7% 30.7% 100.0% Nominal Cost 6.8% 10.5% 9.0% 10.3% 12.1% 19.4% Tax Rate 35.0% 35.0% 35.0% 35.0% 35.0% Tax Adjusted Nominal Cost 4.4% 6.8% 5.9% 6.7% 7.9% 19.4% Inflation Rateb 2.2% 5.8% 5.8% 5.8% 5.8% 5.8% Real Cost 2.2% 0.9% 0.0% 0.8% 1.9% 12.9% Weighted Component 1.2% 0.0% 0.0% 0.0% 0.1% 4.0% WACC 5.3% BIFFL = Bangladesh Infrastructure Finance Fund Limited, IDCOL = Infrastructure Development Company Limited, WACC = weighted- average cost of capital. a Estimated Equity Cost = Risk-free Rate + Equity Risk Premium * Beta, where Risk-free rate is taken as the proxy of 10-year
Appendix 16 65
government bond rate (7.53%).58 Equity Risk Premium is taken as 9.23%.59 Power-sector Beta is assumed at 1.29.60 b 12-Month average at May 2018 (Bangladesh Bank).
5. Financial Internal Rate of Return for Regent Energy and Power Limited. The FIRR has been calculated at 6.2% (Table A16.2). This difference was mainly due to (i) higher capital investment (Tk6,903 million versus Tk6,445 million at appraisal); (ii) lower dependable capacity (106.7 MW versus 108.0 MW); and (iii) lower plant load factor (59.7% versus 80.0%) which resulted in reduced total revenues over the 15-year evaluation period.
Table A16.2: Calculation of Financial Internal Rate of Return for Regent Energy and Power Limited Capital Overhauling Project O&M Investment Cost Revenue Fuel Cost Expenses Net Cash Flow Year Tk million Tk million Tk million Tk million Tk million Tk million 2013 -6,587.9 0.0 0.0 0.0 0.0 -6,587.9 2014 -68.8 0.0 741.5 -229.7 -80.3 362.7 2015 -60.9 0.0 1,317.0 -432.7 -107.4 716.1 2016 -185.2 0.0 804.8 -328.4 -67.0 224.1 2017 0.0 -290.8 1,498.6 -558.2 -204.7 444.9 2018 0.0 -59.3 1,470.5 -515.8 -168.7 726.7 2019 0.0 0.0 1,484.4 -515.8 -170.3 798.2 2020 0.0 0.0 1,498.9 -515.8 -172.0 811.2 2021 0.0 0.0 1,514.4 -515.8 -173.8 824.8 2022 0.0 -51.4 1,530.7 -515.8 -175.6 787.9 2023 0.0 0.0 1,547.9 -515.8 -177.6 854.5 2024 0.0 0.0 1,566.1 -515.8 -179.7 870.6 2025 0.0 0.0 1,585.9 -515.8 -182.0 888.2 2026 0.0 -109.9 1,606.2 -515.8 -184.3 796.3 2027 0.0 0.0 1,627.3 -515.8 -186.7 924.8 2028 0.0 0.0 1,627.3 -515.8 -186.7 924.8 FIRR 6.2% FIRR = Financial Internal Rate of Return, REPL = Regent Energy and Power Limited, O&M = operation and maintenance.
6. Sensitivity analysis. A sensitivity analysis was conducted to test the impact of variations in major revenue and cost variables. FIRR is relatively more sensitive to dependable capacity as the capacity payment is dependent on this variable (Table A16.3).
Table A16.3: Sensitivity Analysis ` Change in Variables FIRR Base Case 6.2% Decrease in dependable capacity by 10% 5.1% Increase in operating expenses by 10% 6.0% Increase in fuel cost by 10% 5.5% FIRR= Financial Internal Rate of Return.
7. Weighted-Average Cost of Capital and Financial Internal Rate of Return of Public– Private Infrastructure Development Facility. The WACC and FIRR have been calculated for the four representative subprojects (para. 1). The individual WACC and FIRR of four subprojects
58 Bangladesh Bank website. https://www.bb.org.bd/pub/quaterly/bbquarterly/oct-dec2017/tables.pdf (accessed 22 June 2018). 59 A. Damodaran. 2018. http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/ctryprem.html (accessed 22 June 2018). 60 Apex Capital Market Research. http://www.ail-bd.com/ECensus/UIPages/Admin/Beta.aspx (accessed 3 August 2018).
66 Appendix 16
are averaged based on PPIDF’s financing amount in these subprojects. The aggregate WACC and FIRR of PPIDF are calculated at 6.6% and 9.0%, respectively (Tables A16.4 and A16.5).
Table A16.4: Weighted-Average Cost of Capital of Public–Private Infrastructure Development Facility ADB Financing % of Total Subproejct PPIDF Name of Subprojects ($ million) Financing WACC WACC Energypac Confidence Power Venture Chittagong Ltd. 30.0 17.9% 3.4% 0.6% Regent Energy and Power Ltd. 30.0 17.9% 5.3% 1.0% Summit Meghnaghat Power Company Ltd. 22.0 13.1% 6.5% 0.9% Banglalion Communications Ltd. 3.6 2.2% …… Fiber@Home Ltd. 1.4 0.8% …… Solar Home Systems 80.0 47.7% 8.7% 4.1% Bio-digesters 0.1 0.0% …… Solar Mini-grid Project 0.4 0.3% …… Solar Irrigation Pumps 0.1 0.1% …… WACC for PPIDF 167.6 100.0% 6.6% … = not available, PPIDF = Public-Private Infrastructure Development Facility, WACC = weighted-average cost of capital. Source: Asian Development Bank estimates.
Table A16.5: Financial Internal Rate of Return of Public–Private Infrastructure Development Facility ADB Financing % of Total Subproject Weighted Average Name of Subprojects ($ million) Financing FIRR FIRR Energypac Confidence Power Venture Chittagong Ltd. 30.0 17.9% 0.9% 0.2% Regent Energy and Power Ltd. 30.0 17.9% 6.2% 1.1% Summit Meghnaghat Power Company Ltd. 22.0 13.1% 10.7% 1.4% Banglalion Communications Ltd. 3.6 2.2% …… Fiber@Home Ltd. 1.4 0.8% …… Solar Home Systems 80.0 47.7% 13.3% 6.3% Bio-digesters 0.1 0.0% …… Solar Mini-grid Project 0.4 0.3% …… Solar Irrigation Pumps 0.1 0.1% …… FIRR of PPIDF 167.6 100.0% 9.0% … = not available, PPIDF = Public-Private Infrastructure Development Facility, FIRR = financial internal rate of return. Source: Asian Development Bank estimates.
8. Conclusion. The financial analysis indicates that, except for one, the FIRRs of all representative subprojects are higher than their respective WACCs. The FIRR of one power subproject, Energypac Confidence Power Venture Chittagong Ltd., is calculated to be lower than its WACC because of lower than projected fuel efficiency, lower dependable capacity, high capital investment and liquidated damages for delay in commercial operation. The aggregate FIRR of PPIDF is 9.0%, which is higher than 6.6% aggregate WACC. From financial standpoint, PPIDF proved to be financially feasible. There was no financial analysis undertaken at appraisal for PPIDF subprojects, hence, comparison could not be done for pre- and post-implementation aggregate FIRRs.
Appendix 17 67
CALCULATION OF CARBON-DI-OXIDE EMISSION FOR SOLAR HOME SYSTEM
1 tera-joules A = 1,000 giga-joules 1 giga-gram B = 1,000,000 kilogram Specific Gravity of Kerosene C = 0.82 1 ton D = 1000 kilogram
Net Calorific Value of Kerosene E = 43.8 tera-joules/giga-gram F=A*E = 43,800 giga-joules/giga-gram G=F/B = 0.04 giga-joules/kilogram H=1/G = 22.83 kilogram/giga-joule I=C*G = 0.04 giga-joule/liter
Effective Carbon-Di-Oxide Emission Factor of Kerosene (IPCC) J = 71.9 kilogram/giga-joules K=J*I = 2.58 kilogram CO2/liter
Kerosene Savings for Each Solar Home System L = 7.5 liter/month/houshold M=L*12 = 90 liter/year
Carbon-Di-Oxide Emission Savings per SHS N=K*M = 232 kilogram/year O=N/D 0.23 tons/year Number of SHS Installed under PPIDF P = 430,514
Carbon-Di-Oxide savings for PPIDF Q=N*P = 100,056,807 kilogram per year Carbon-Di-Oxide savings for PPIDF R=Q/D = 100,057 ton per year
Number of years S = 5 years
Carbon-Di-Oxide Saved for PPIDF for 5 Years T=R*S = 500,284 tons CO2 = Carbon-Di-Oxide, IPCC = Intergovernmental Panel on Climate Change, PPIDF = Public-Private Infrastructure Development Facility, SHS = Solar Home Systems.