Report and Recommendation of the President to the Board of Directors
Project Number: 38164 February 2010
Proposed Loans People’s Republic of Bangladesh: Natural Gas Access Improvement Project
CURRENCY EQUIVALENTS (as of 15 January 2010)
Currency Unit – Taka (Tk) Tk1.00 = $0.0145 $1.00 = Tk68.03 In this report, a rate of $1 = Tk70.00 is used.
ABBREVIATIONS
ADB – Asian Development Bank ADF – Asian Development Fund BERC – Bangladesh Energy Regulatory Commission BGFCL – Bangladesh Gas Fields Company Limited BGSL – Bakhrabad Gas Systems Limited CNG – compressed natural gas DPP – development project pro forma DSR – debt service ratio EIRR – economic internal rate of return EMRD – Energy and Mineral Resources Division FIRR – financial internal rate of return FNPV – financial net present value GSRR – gas sector reform road map GTCL – Gas Transmission Company Limited GTDP – Gas Transmission and Development Project ICB – international competitive bidding IEE – initial environmental examination IMRS – interface metering and regulating station IOC – international oil company JICA – Japan International Cooperation Agency LIBOR – London interbank offered rate OCR – ordinary capital resources Petrobangla – Bangladesh Oil, Gas, and Mineral Corporation QCBS – quality- and cost-based selection ROR – rate of return SCADA – supervisory control and data acquisition SGC – state-owned gas company SGCL – Sundarban Gas Company Limited TA – technical assistance TGTDCL – Titas Gas Transmission and Distribution Company Limited USAID – United States Agency for International Development WACC – weighted average cost of capital
WEIGHTS AND MEASURES
BCF – billion cubic feet ha – hectare km – kilometer m3 – cubic meter MMCFD – million cubic feet per day MW – megawatt TCF – trillion cubic feet
NOTES
(i) The fiscal year (FY) of the government and the Bangladesh Oil, Gas, and Mineral Corporation group of companies ends on 30 June. FY before a calendar year denotes the year in which the fiscal year ends, e.g., FY2008 ends on 30 June 2008.
(ii) In this report, "$" refers to US dollars.
Vice-President X. Zhao, Operations 1 Director General S. H. Rahman South Asia Department (SARD) Director T. Kandiah, Energy Division, SARD
Team leader P. Wijayatunga, Energy Specialist, SARD Team members I. Caetani, Social Development Specialist, SARD L. George, Energy Specialist, SARD H. Gunatilake, Principal Energy Economist, SARD R. Murshed, Project Implementation Officer (Energy), SARD S. Sasaki, Energy Specialist, SARD J. Srinivasan, Senior Control Officer, SARD K. Takebayashi, Energy Specialist, SARD J. Versantvoort, Counsel, Office of the General Counsel
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 LOAN AND PROJECT SUMMARY i I. THE PROPOSAL 1 II. RATIONALE: SECTOR PERFORMANCE, PROBLEMS, AND OPPORTUNITIES 1 A. Performance Indicators and Analysis 1 B. Analysis of Key Problems and Opportunities 1 III. THE PROPOSED PROJECT 5 A. Impact and Outcome 5 B. Outputs 6 C. Special Features 6 D. Project Investment Plan 7 E. Financing Plan 8 F. Implementation Arrangements 8 IV. BENEFITS, IMPACTS, ASSUMPTIONS, AND RISKS 12 A. Project Financial and Economic Justification 12 B. Social Assessment and Resettlement 14 C. Environmental Analysis 16 D. Expected Benefits 16 E. Risks and Safeguards 17 V. ASSURANCES 18 A. Specific Assurances 18 B. Conditions 20 VI. RECOMMENDATION 20 APPENDIXES 1. Design and Monitoring Framework 21 2. Gas Sector Assessment and Reform Road Map 23 3. Development Coordination 30 4. Detailed Cost Estimates 32 5. Project Implementation Schedule 35 6. Procurement Plan 36 7. Financial Analysis 41 8. Economic Analysis 45 9. Summary Poverty Reduction and Social Strategy 49 10. Summary Resettlement Plan 52 SUPPLEMENTARY APPENDIXES (available on request) A. Organization Chart of Executing Agencies B. Past and Projected Financial Performance C. Financial Management Review D. Economic Analysis E. Summary Initial Environmental Examination F. Procurement Capacity Assessment G. Project Readiness Schedule H. Short Resettlement Plan for Component C I. Full Resettlement Plans for Components A and B J. Terms of Reference for Consultants K. Project Implementation Arrangements L. Models for Private Sector Participation in Gas Distribution
LOAN AND PROJECT SUMMARY
Borrower People’s Republic of Bangladesh
Classification Targeting classification: General intervention Sector (subsectors): Energy (pipelines, energy efficiency and conservation) Themes (subthemes): Economic growth (promoting economic efficiency and enabling business environment); environmental sustainability (natural resources conservation, urban environmental improvement) Location impact: National (high) Partnerships: Export–Import Bank of Korea (Korea Eximbank)
Environment The project is classified category B. Initial environmental examinations for Assessment the project have been completed and will be updated in line with the summary initial environmental examination in Supplementary Appendix E.
Project The project has four components: (i) the construction of 61 kilometers Description (km) of gas transmission pipeline for transporting 400 million cubic feet per day (MMCFD), including interface metering and regulating stations at selected locations and the installation of compressors at Ashuganj and Elenga; (ii) safety and supply efficiency improvement in Titas gas field to increase gas production by 120 MMCFD; (iii) the construction of a 845 km gas distribution network in the southwest to improve energy access; and (iv) support for supply and demand management.
Rationale Natural gas contributes 70% of primary energy supply in Bangladesh. It has dominated the power sector, fueling 85% of power generation. As the country is highly dependent on natural gas for its economic development, the sustainability of gas supplies is critical. Government policy in the gas sector since 1993 has been to attract private investments to upstream gas field development while improving the network coverage and operational efficiency of companies that produce and distribute natural gas. Bangladesh managed to attract significant investments from the private sector for gas exploration and increased gas production by over 100% since 1998. The share of gas production by international oil companies (IOCs) grew to almost 50% of the total supply in 2008. Exponentially increasing demand for gas has introduced a supply deficit. To address the demand–supply gap, national oil companies and IOCs have been investing in existing fields and new discoveries to increase production. By 2017, these interventions and the recently concluded 3rd round of bidding will increase the gas supply by 74% compared to supply in 2008. The government is currently examining several options to further improve supply: (i) additional investment in existing fields, (ii) initiating another round of bidding for exploration; and (iii) importing liquefied natural gas as a medium- to long-term measure. The transmission and distribution network is inadequate to meet the needs of industry, commerce, and households. The capacity of the state ii
gas companies is insufficiently developed to access international financing. Therefore gas transmission and distribution continue to need public financing. Operational performance in the gas sector has been affected by inadequate investment in all subsectors, compounded by uneconomic tariffs, inadequate investment resources, inefficient use of gas, and inadequate capacity in the state-owned gas companies and the government. The government's gas sector reform road map (GSRR) is designed to address many of these issues. The GSRR and Asian Development Bank (ADB) policy dialogue with the government includes time-bound actions to improve the policy and regulatory environment, sector planning, and corporate governance, as well as to implement structural and pricing reforms. Some of the key actions, such as approving the GSRR, operationalizing the Bangladesh Energy Regulatory Commission (BERC), licensing gas companies, and cabinet approval for the proposed gas act, are already accomplished. The government is committed to continuing the implementation of other measures identified in the GSRR. The proposed physical investments are the most urgent components of the gas sector’s priority investment program. The gas sector master plan provides the basis for investment planning by the Bangladesh Oil, Gas, and Mineral Corporation (Petrobangla) and its affiliates. The need to provide gas to Chittagong from fields in the northeast and the constraints on the national supply of gas have focused investment priorities on these areas. Removing bottlenecks in the transmission system has become critical to ensuring the efficient delivery of higher gas volumes. Safety and supply efficiency improvement at the Titas gas field is necessary to avoid a major accident and sustain the current level of production from the field in the long term. With the extension of the natural gas transmission pipeline to the Khulna Division under the Gas Transmission and Development Project (GTDP), improving the distribution network in the southwest is essential to making gas available to consumers in that region.
Impact and The impact of the project will be increased and more reliable access to Outcome natural gas for sustained economic growth, achieved by reinforcing and augmenting natural gas supply and addressing policy and institutional constraints.
The main outcome of the project will be expanded capacity and improved efficiency in natural gas production, transmission, and distribution systems.
Outputs Part A: Transmission capacity expansion (i) Part A-1: Ashuganj–Bakhrabad gas transmission loop-line. The subcomponent will construct a 30 inch, 61 km pipeline from Ashuganj to Bakhrabad and install interface metering and regulating stations at the selected locations of Monohordi, Dewanbag, Kutumbupur, Feni, and Barabkundu. iii
(ii) Part A-2: Installation of compressors at Ashuganj and Elenga. Under this subcomponent, a compressor will be installed at Ashuganj with a throughput of 1,500 MMCFD and another at Elenga with a throughput of 500 MMCFD. Part B: Safety and supply efficiency improvement in Titas gas field. This component will service problematic wells in Titas gas field to improve safety and supply efficiency and add four appraisal-cum-development wells and processing plants to increase production by 120 MMCFD. Part C: Access improvement in the southwestern region. The component will construct a 2-inch to 20-inch, 845 km distribution pipeline in the southwest, covering the districts of Kushtia, Jhenidah, Jessore, Khulna, and Bagerhat (including Mongla). Part D: Supply and demand management. This component will pilot a remote sensing metering system for industrial consumers and a prepaid metering system for domestic consumers within the gas distribution franchise area of Titas Gas Transmission and Distribution Company Limited (TGTDCL). This component will also develop an investment program for improving the efficiency of gas use.
Cost Estimates The project is estimated to cost $542 million equivalent, including taxes and duties of $101 million.
Financing Plan The ADB loan will be $261 million equivalent from ordinary capital resources (OCR) and $5 million equivalent from the Asian Development Fund (ADF). Korea Eximbank will provide $45 million equivalent for part A-1. The government will provide $231 million equivalent through loan and equity contributions.
Loan Amount and (i) A loan of $261 million from ADB’s ordinary capital resources (the OCR Terms loan) will finance parts A-2, B, and C and will have a term of 25 years including a grace period of 5 years, an interest rate determined in accordance with ADB’s London interbank offered rate (LIBOR)-based lending facility, and a commitment charge of 0.15% per annum. (ii) A second loan in various currencies equivalent to SDR 3,249,000 from ADB’s Special Funds resources (the ADF loan) will finance part D and will have a repayment period of 32 years including a grace period of 8 years, an interest charge of 1% during the grace period and 1.5% thereafter, and other terms and conditions set forth in the loan and project agreements.
Allocation and The government will make the loan proceeds available to the executing Relending Terms agencies and cause the proceeds to be applied to financing subproject expenditures through separate subsidiary loan agreements, the terms of which must be acceptable to ADB.
Period of Until 30 September 2015 Utilization
iv
Estimated Project 31 March 2015 Completion Date
Executing Gas Transmission Company Limited (GTCL) will be the executing agency Agencies for part A, Bangladesh Gas Fields Company Limited (BGFCL) for part B, Sundarban Gas Company Limited (SGCL) for part C, and TGTDCL for part D. Petrobangla will be the executing agency coordinating project implementation.
Implementation The direct supervision and monitoring of project implementation and Arrangements operational performance will be the responsibility of the executing agencies. Petrobangla will establish a project coordination unit.
Procurement The procurement of goods and services to be financed under the loans will be carried out in accordance with ADB’s Procurement Guidelines (2007, as amended from time to time), except those for part A-1, to be funded by Korea Eximbank. International competitive bidding procedures will be used for all procurement funded under the ADB loans. Ancillary facilities, including building and service areas under domestic financing, will follow government procedures.
ADB management has approved advance contracting for procuring equipment and civil works and recruiting consultants, subject to eligibility in accordance with ADB’s Procurement Guidelines and Guidelines on the Use of Consultants (2007, as amended from time to time). ADB management has also approved retroactive financing for consulting services for implementing part B prior to the signing of the loan agreement, with a ceiling of $500,000. The borrower and the executing agencies have been informed that approval of advance contracting or retroactive financing does not commit ADB to finance the project.
Consulting International consultants associated with national consultants will support Services the GTCL for part A, BGFCL for part B, SGCL for part C, and TGTDCL for part D in implementation activities, including design, engineering, procurement, construction, human resource development, and energy efficiency improvement. All consultants will be recruited in accordance with ADB’s Guidelines on the Use of Consultants using the quality- and cost-based selection method. Consultants will be engaged as a firm.
Project Benefits The government’s ongoing reform program based on the GSRR will and Beneficiaries strengthen the financial position of sector entities, enhance public–private partnership, and improve sector and corporate governance. The project will create efficient and viable gas infrastructure to address priority supply and network constraints. These interventions will ensure sustained growth in the gas sector, which is critical to the country's economic development. An estimated 200,000 households will gain access to gas through the new distribution network. The project will have a positive impact on the environment and health, particularly of women and the poor, who are the most vulnerable to indoor air pollution from the use of biomass and fuelwood, which will be replaced with natural gas. An additional 1,400 v
industrial and commercial establishments and 35 compressed natural gas filling stations will have access to gas in the southwest. Industries such as jute mills, textile weaving factories, small cottage industries, and textile mills, and commercial entities such as restaurants and bakeries, will benefit, generating significant employment in the region and thus reducing poverty. The project will directly create 3,000 person-months of job opportunities during implementation. The subcomponents are financially sound and economically viable, with financial internal rates of return ranging from 5.5% to 9.5%, greater than the weighted average cost of capital of 2.7%. The economic internal rate of return for the integrated project is 32%. Sensitivity analysis indicates that the project remains viable under adverse conditions.
Risks and Policy reforms. The main policy risk is failure or delay in introducing Assumptions required reforms and restructuring under the GSRR. Measures have been included in the project as assurances. ADB will maintain a regular policy dialogue with the government on these issues. Cofinancing. Korea Eximbank cofinancing is expected for part A-1 of the project under parallel financing. In the unlikely event that Korea Eximbank financing is not forthcoming, part A-1 will be excluded from the project scope. This would not affect the viability or implementation of the remaining components, as each is independent. Project readiness. Delays in implementing previous ADB-financed projects in the gas sector, frequently caused by the executing agencies’ inadequate project readiness, is an area of concern, including delays in government approvals for project component proposals, slow progress in land acquisition, and cumbersome procurement procedures. Taking into account these lessons and to mitigate this risk, the government and the executing agencies have undertaken various advance actions. These include the approval of the development project pro formas, preparation of environmental and resettlement requirements, and preparation of procurement documents. Measures have been incorporated in project design to reduce delays by allowing advance procurement, retroactive financing, and advisory support for implementation. Good governance. The project design includes various measures to promote good governance and mitigate the risk of corruption by enhancing transparency and accountability in doing business. These include disclosing project and procurement-related information on a project website and preparing bid specifications and packaging to ensure maximum competition under international competitive bidding. Any procurement issues can be immediately addressed through the recently strengthened procurement oversight and on-site advice available at the resident mission, minimizing delays and opportunities for corruption.
I. THE PROPOSAL
1. I submit for your approval the following report and recommendation on proposed loans to the People’s Republic of Bangladesh for the Natural Gas Access Improvement Project.1 The design and monitoring framework is in Appendix 1.
II. RATIONALE: SECTOR PERFORMANCE, PROBLEMS, AND OPPORTUNITIES
A. Performance Indicators and Analysis
2. Government policy in the gas sector since 1993 has been to attract private investments to upstream gas field development while improving the network coverage and operational efficiency of national gas companies. Bangladesh managed to attract significant investments from the private sector for gas exploration and increase gas production by over 100% since 1998. However, the rapid increase in demand for gas for power generation and residential, industrial, and commercial use has recently brought gas supply shortages.
3. The operational performance in the sector is affected by inadequate investment in all subsectors. Uneconomic tariffs, the lack of adequate investment resources, inefficient gas use, and inadequate capacity in state-owned gas companies (SGCs) and the government have acerbated this situation. The updated gas sector reforms road map (GSRR) is designed to address these issues. The GSRR and the Asian Development Bank (ADB) policy dialogue include time-bound actions to improve the policy and regulatory environment, sector planning, and corporate governance, as well as to implement structural and pricing reforms. Key actions, such as approving the GSRR, operationalizing the Bangladesh Energy Regulatory Commission (BERC), licensing gas companies, and cabinet approval for the proposed gas act, have been completed. The government continues to implement other measures in the GSRR. A sector assessment and the GSRR are in Appendix 2.
B. Analysis of Key Problems and Opportunities
1. Natural Gas Supply–Demand Balance
4. Bangladesh has 12.5 trillion cubic feet of discovered gas reserves remaining and 32 trillion cubic feet of potential reserves to be confirmed through exploration. Until the 1990s, gas production capacity exceeded demand. Since then, domestic demand for gas has increased exponentially, with higher demand from industry and power generators. International oil companies (IOCs) have significantly helped increase gas production to match rising demand. Their share of gas production grew to reach almost 50% of the total supply in 2008.
5. Current daily average gas demand of 1,890 million cubic feet per day (MMCFD) is expected to increase to 3,559 MMCFD by 2017. Recent investments by national oil companies and IOCs will increase gas production by 49%, to 3,055 MMCFD, by 2017. The government has finalized contracts following a 3rd round of bidding that will bring additional production, contributing to the overall increase in supply by 74% and bringing it to 3,555 MMCFD by 2017. The government is examining other options to further improve gas supply: (i) additional investment in existing fields, (ii) initiating another round of bidding for exploration, and (iii) importing liquefied natural gas. The GSRR has emphasized improving efficiency and mobilizing private resources to support production, and supply.
1 ADB. 2007. Technical Assistance to the People’s Republic of Bangladesh for Preparing the Gas Sector Development Program. Manila. 2
2. Gas Sector Regulation and Pricing
6. As the regulator of the upstream gas sector, the government sets the wellhead gas tariff for SGCs, which is substantially below world market prices and the prices of alternative fuels. These prices do not provide sufficient revenue to support further gas exploration by the state- owned companies. The price of gas from IOCs is linked to world market prices. Blended gas from SGCs and IOCs, with an average wellhead price of about one-tenth of the world market price, provides the basis for downstream gas prices.
7. The BERC recently started regulating the downstream gas sector, and most gas companies have obtained operating licenses from it. In its recent first tariff order, BERC could not address the issue of unsustainably low gas prices, as the wellhead price was not within its regulatory purview. Its tariff order for the integrated sector does not reflect the cost of network operations. The policy of making gas available to users at a minimal price has caused inefficient gas use and underinvestment in gas infrastructure. The GSRR and ADB policy dialogue with the government include actions to ensure efficient gas sector regulation, regarding pricing in particular. The government is expected to fully operationalize the BERC with a complete legal framework through the gas act and government pricing policy guidelines.
3. Government Policies and Plans
8. Priority elements of the government’s energy sector strategy include (i) ensuring good governance through the autonomy of sector entities, including private sector participation; (ii) designing and implementing a competitive and equitable pricing policy; (iii) strengthening and improving commercial operations; (iv) enacting laws to strengthen the legal framework to enable effective private sector participation and defining the sector restructuring program; (v) implementing an action program to improve the financial performance of gas sector entities; and (vi) strengthening institutional capability in policy making and monitoring. The gas sector master plan for 2005–2025 envisages investments of $2.5 billion in exploration, field development, transmission, and distribution. An investment of $363 million is envisaged in oil and gas exploration, $179 million in appraisal and field development, and $46 million in renovating wells to sustain production. Nearly 522 kilometers (km) of gas transmission pipeline will require about $1.8 billion, and 1,300 km of distribution pipeline will require $150 million.
4. Lessons 9. The evaluation of energy sector assistance programs in Bangladesh outlined several key lessons typical to the gas sector.2 These lessons include the need to (i) minimize delays in project implementation; (ii) improve local capacity in project preparation, implementation, and operation, as well as the selection of appropriate technology; (iii) improve ownership of technical assistance projects; and (iv) improve project and financial management capacity in project implementing agencies. Gas Transmission and Development Project (GTDP) experienced delays from procurement difficulties, involving cost overruns and institutional weaknesses in introducing and implementing new technologies, which required careful drafting of technical specifications. Unsustainable gas pricing was highlighted as a main cause of the inefficient allocation and use of gas.3
2 ADB. 2003. Sector Assistance Program Evaluation of Asian Development Bank Assistance to Bangladesh Power Sector. Manila. 3 ADB. 2009. Sector Assistance Program Evaluation of Asian Development Bank Assistance to Bangladesh Energy Sector. Manila. 3
10. To mitigate these risks, executing agencies have undertaken various actions. These include advance approval of development project pro formas (DPPs) and the preparation of procurement documentation. Measures have been incorporated in the project to reduce delays through advance procurement and consultancy support for implementation. Substantial technical capacity building in executing agencies has been incorporated. Cost estimates have been carefully prepared, and an adequate contingency budget has been provided, taking into account past experience to avoid cost overruns. External expertise has been brought into drafting the technical specifications for the new technologies, and they have been revisited based on recent experience. An independent assessment of the specifications has been carried out. Several measures have been included in the project to address the gas pricing issue.
5. ADB Sector Strategy
11. ADB strategy for developing the gas sector covers support for (i) improved commercialization, including private sector participation, by deepening sector reforms and unbundling sector activities; (ii) increased access to natural gas at affordable prices across the country; and (iii) policy and institutional measures aimed at improving energy efficiency in distribution and promoting natural gas for transport. ADB’s continued support for the gas sector under public sector financing is considered crucial to (i) maintaining the policy dialogue on strengthening corporate governance, pricing reforms, and private sector participation; (ii) helping to expand the supply of natural gas to meet energy demand in less-developed areas while improving the efficiency and safety of gas production, transmission, and distribution companies that cannot access international financing; (iii) promoting good practices on environmental and social safeguards; and (iv) capacity building in the SGCs to improve their long-term planning and ensure timely project implementation.
6. Policy Dialogue
12. The policy dialogue during the preparation of the project led the government to adopt the GSRR, which sets out the plan for advancing the policy framework, regulatory instruments, sector planning, access to natural gas, corporate governance, gas sector restructuring, and private sector participation. The government has progressed on these reform actions. The GSRR and its implementation status are described in Appendix 2. The following paragraphs describe the key elements of the GSRR and the continuing policy dialogue.
13. National action plan for gas sector reform. Under the GSRR, a time-bound sector reform action plan, the government will (i) strengthen the policy formulation and monitoring system at the Energy and Mineral Resources Division (EMRD); (ii) adopt and implement the gas sector master plan for exploration, development, transmission, and distribution, including expanding the network to less-developed regions; (iii) create a framework for monitoring and updating; (iv) execute a capacity-development program focusing on corporate governance, financial management, and system management in gas sector entities; and (v) make the hydrocarbon unit a permanent part of the EMRD to provide technical advice.
14. Legal and regulatory framework. A number of issues needed to be addressed to ensure sustained gas sector growth. These include (i) the EMRD approving upstream gas pricing guidelines, (ii) determining gas prices pursuant to these guidelines, and (iii) legally enforcing BERC tariff regulations for downstream activities. The BERC has started regulating the gas sector by licensing SGCs and issuing tariff orders. The gas act, which would ensure better regulation of gas infrastructure, was approved by the cabinet and is awaiting parliamentary approval.
4
15. Loss reduction. The overall gas system loss ranged from 4.5% to 6.5% from fiscal year (FY) 2000 to FY2005. This situation has improved in recent years, with average losses falling to 1.3% and that of non-bulk supply to 2.8%. A comprehensive plan for improving efficiency and reducing system losses in the entire gas sector has been adopted for implementation under the GTDP. Further, the enactment of the proposed gas act under the GSRR will empower distribution companies to take legal action against fraud, theft, malpractice, and delinquent customers.
16. Market-oriented gas pricing. There is a need to set gas tariffs in consideration of the remaining gas reserves, cost of network services, and need for significant investment in the gas sector. The adoption of the new pricing framework incorporating these principles will improve sector entities’ ability to cover their operating expenses, debt-servicing liabilities, and future investment requirements. The EMRD will issue pricing policy guidelines to address these pricing issues. ADB is assisting the government in conducting a comprehensive gas pricing study to refine these policy guidelines.
17. Private sector participation. Future exploration and gas production will be undertaken predominantly by the private sector through production-sharing contracts. Private sector participation will be encouraged in the construction of distribution pipelines and associated facilities on a build–own–operate–transfer basis. IOCs will be encouraged to invest in gas transmission facilities. A public–private partnership model will be demonstrated in the installation and operation of Muchai gas compression station by an IOC to strengthen the gas transmission system. The government will approve a policy framework on private sector participation in existing gas distribution companies by December 2010. The newly formed distribution company, Sudarban Gas Company Limited (SGCL), will sign contracts with private entities for operation, maintenance, metering, and billing from the start of its operations. Possible models for private sector participation in distribution are in Supplementary Appendix L.
7. Development Coordination
18. Assistance from major development partners is coordinated by the Economic Relations Division of the Ministry of Finance, with the support of the EMRD. Coordination among the development partners is carried out through the local coordination group consisting of focused subcommittees for core areas of assistance. As the leading development partner in energy, ADB chairs the energy subcommittee and holds regular meetings with all development partners. These efforts have greatly advanced sector reforms, improving the regulatory environment in particular. Energy subcommittee meetings were held during fact-finding and appraisal missions to enlighten development partners on progress. The energy subcommittee expressed its support for the project. During bilateral meetings, the World Bank, Japan International Cooperation Agency (JICA), and the Export–Import Bank of Korea (Korea Eximbank) expressed their support.
19. The other main development partners in the energy sector are JICA, KfW, the United States Agency for International Development, and the World Bank. In the gas sector, ADB has provided public sector loans of $675 million and technical assistance grants of $5.4 million covering gas exploration, production, transmission, distribution, and energy efficiency. Further details are in Appendix 3.
8. Rationale for the Project
20. The government’s poverty reduction strategy emphasizes implementing policies to expand the natural gas network to cover less-developed areas. The strategy will accelerate balanced regional development that will help reduce widespread poverty. The project aims to expand 5
access to this main indigenous energy source in Bangladesh to meet increased demand for primary commercial energy.
21. Early in 2009, the government approved the GSRR, which is now under implementation. It includes strategies and actions to improve the policy, regulatory, and operational environment toward ensuring the sustainability of the gas sector. The effective implementation of the GSRR is critical to creating an environment conducive to better commercial orientation in the SGCs and to stronger private sector participation downstream in the gas sector. Further, as the capacity of the SGCs is not adequately developed to access international financing to meet their investment needs, they need public financing. Under these conditions, fully implementing the GSRR relies heavily on continued ADB support, particularly for increasing supply efficiency and removing transmission bottlenecks.
22. The reinforcement of the transmission system with the compressors at Muchai, Ashuganj, and Elenga is essential to ensuring reliability and efficiency in gas delivery. Financing these compressors was originally included in the scope of the ongoing GTDP. The cancellation of two bidding rounds delayed procurement. Finally, the delayed procurement could not be completed because funds under the GTDP were inadequate as costs escalated significantly above the cost estimates, owing to sharp increases in commodity prices. As the four components in the GTDP are independent, they are technically and economically viable as separate components. Therefore the absence of the compressor component does not affect the technical or economic viability of the remaining GTDP components.
23. Because of the urgency and critical requirement of the compressors in transmission operation, the government offered the installation of a compressor at Muchai to the private sector and requested ADB to fund compressors at Ashuganj and Elanga. Network, economic, and financial analyses confirmed the need for these compressors to strengthen transmission and their viability within the project. The cost estimates, technical specifications, and contract packaging of the compressors have been carefully reviewed in light of recent experience to ensure maximum competition and rectify technical and procurement issues that arose under the GTDP. Recent strengthening of procurement oversight at the ADB resident mission has improved the procurement environment through on-site advice on procurement issues and quarterly procurement workshops for executing agencies. The design and implementation of comprehensive executing agency training on wise procurement is planned.
24. The proposed physical investments are the most urgent components of the gas sector investment program. The subcomponents have been selected considering their financial and economic viability and their social, environmental, and poverty reduction impacts. They will contribute to poverty reduction by making clean energy available in less-developed areas.
III. THE PROPOSED PROJECT
A. Impact and Outcome
25. The impact of the project will be increased and more reliable access to natural gas, providing sustained economic growth by reinforcing and augmenting natural gas supply and addressing policy and institutional constraints.
26. The main outcome of the project will be expanded capacity and improved efficiency in natural gas production, transmission, and distribution systems.
6
B. Outputs
27. The outputs of the project will comprise three investment components—in gas transmission, safety and supply efficiency improvement, and access improvement—as well as a supply-and-demand management component. The specific activities of the project are as follows: (i) Part A: Transmission capacity expansion. Two subcomponents will assist in transmitting gas to consumption centers, including those in less-developed regions. (a) Part A-1: Ashuganj–Bakhrabad gas transmission loop-line. The subproject will construct a 30-inch gas loop pipeline running 61 km from Ashuganj to Bakhrabad, with a throughput of 400 MMCFD, and install major transmission–distribution interface metering and regulating stations at selected locations such as Manohardi, Dewanbhog, Kutumbpur, Feni, and Barabkund. (b) Part A-2: Gas compressors at Ashuganj and Elenga. This subproject will install a compressor at Ashuganj with a maximum throughput of 1,500 MMCFD and another at Elenga with a maximum throughput of 500 MMCFD. (ii) Part B: Safety and supply efficiency improvement in Titas gas field. The first subproject (part B-1) will undertake activities to improve safety at existing problematic wells in Titas field. The second subproject (part B-2) will improve supply efficiency through four additional appraisal-cum-development wells and install processing plants in Titas field to increase gas production by 120 MMCFD. (iii) Part C: Access improvement in southwestern region. This component will construct 2-inch to 20-inch gas distribution pipelines of 845 km to provide gas to the districts of Kushtia, Jhenidah, Jessore, Khulna, and Bagerhat (including Mongla). (iv) Part D: Supply and demand management. This component will establish gas metering at consumer connections of Titas Gas Transmission and Distribution Company Limited (TGTDCL). Its scope will include installing prepaid meters for domestic consumers4 and, for industrial consumers, replacing existing meters with remote sensing meters on a pilot basis. This component will assist in developing a portfolio of projects for improving energy efficiency.
28. All the project components include capacity building in the form of training and implementation support. Training components entail carrying out an assessment of training needs in each executing agency, developing curricula, and conducting training programs.
C. Special Features
29. Private sector participation in distribution. The SGCL will start its operations in the southwest by late 2012. The policy framework for private sector participation in distribution and the required enabling environment will be in place by that time. The SGCL will set up five geographic business units and enter into contracts with private entities for operation, maintenance, metering, and billing for supply to consumers from December 2012.
4 Providing clean energy access to the poor is a key parameter in household selection supported by ADB's Energy for All initiative. This pilot project is expected to be scaled up under a subsequent loan. 7
30. Interface metering and regulating stations. The installation of interface metering and regulating stations will allow monitor the efficiency the transmission systems, assisting in loss reduction. The GTCL has established gas manifold stations but the metering devices are not available or are inadequate to cope with the increased demand for gas supply at several manifold stations. The project will support the installation of additional meters to address these concerns.
31. Geographical focus and poverty reduction. The gas transmission component has three distinct parts: to remove supply bottlenecks in the entire network, to improve gas flow, and to add an extension pipeline to meet projected demand in major consumption centers. The gas distribution network will expand access to cleaner fuel in less-developed towns. These efforts will increase small- and medium-scale industries’ access to clean fuel, particularly in the less- developed southwest, increasing employment there.
32. Air quality improvement. The project will support the use of natural gas in power generation, industries, and transport. Also, it will promote the use of cleaner fuel in households. Wider use of natural gas will improve ambient air quality in urban centers and household indoor air quality. The benefits from reduced greenhouse gas emissions will be significant.
D. Project Investment Plan
33. The project is estimated to cost $542 million equivalent, comprising $311 million in foreign exchange and $231 million equivalent in local currency. The cost includes taxes and duties of $101 million. Physical and price contingencies amount to $55 million, and financing charges in accordance with ADB’s guidelines and procedures amount to $41 million. The cost estimate by component and subcomponent is summarized in Table 1, and detailed cost estimates are in Appendix 4.
Table 1: Project Investment Plan ($ million) Item Amounta A. Base Costb 1. Part A: Transmission capacity expansion (A-1) Ashuganj–Bakhrabad pipeline and interface metering and regulating stations 81 (A-2) Ashuganj and Elenga compressor stations 173 2. Part B: Safety and supply efficiency improvement (B-1) Safety improvement 9 (B-2) Supply efficiency improvement 103 3. Part C: Access improvement in southwestern region 73 4. Part D: Supply and demand management 8 Subtotal 447 B. Contingenciesc 54 C. Financing charges during implementationd 41 Total (A+B+C) 542 a Includes taxes and duties of $101 million. b Mid-2009 prices. c Physical contingency and price contingencies. d Interest during construction and commitment fee. Sources: Asian Development Bank and executing agency estimates.
8
E. Financing Plan
34. The government has requested ADB to provide a loan of $261 million from its ordinary capital resources (OCR) to finance parts A-2, B, and C. The loan will have a 25-year term including a grace period of 5 years, an interest rate determined in accordance with ADB’s London interbank offered rate (LIBOR)-based lending facility, a commitment charge of 0.15% per annum, and other terms and conditions set forth in the loan and project agreements. The proceeds of the OCR loan will be re-lent to the executing agencies under subsidiary loan agreements with terms and conditions acceptable to ADB. The government has provided ADB with the reasons for its decision to borrow under ADB’s LIBOR-based lending facility on the basis of these terms and conditions and confirmed the choices were its own decision and not made in reliance on any communication or advice from ADB.
35. Korea Eximbank is expected to provide a loan of up to $45 million equivalent on a parallel basis for part A-1 of the project.5 The terms and conditions of the Korea Eximbank loan will be covered under a separate agreement between Korea Eximbank and the government. Korea Eximbank will follow ADB safeguard policies and procedures when implementing this component.
36. The government has requested another loan in various currencies in special drawing rights equivalent to $5 million from ADB’s Special Funds resources (the ADF loan) to finance part D. It will have a repayment period of 32 years including a grace period of 8 years, an interest charge of 1% during the grace period and 1.5% thereafter, and other terms and conditions set forth in the loan and project agreements. The ADF loan will be re-lent to executing agencies under subsidiary loan agreements with terms and conditions acceptable to ADB. The financing plan is in Table 2.
Table 2: Financing Plan Amount Share of Source ($ million) Total (%) Asian Development Bank (ordinary capital resources) 261 48 Asian Development Bank (Asian Development Fund) 5 1 Export–Import Bank of Korea 45 8 Government of Bangladesh 231 43 Total 542 100 Source: Asian Development Bank.
37. The government has assured the timely availability of counterpart funds.
F. Implementation Arrangements
1. Project Management
38. The GTCL will be the executing agency of part A, Bangladesh Gas Fields Company Limited (BGFCL) of part B, the SGCL of part C, and the TGTDCL of part D. Project implementation will be undertaken and supervised by project management units set up in the executing agencies. The Bangladesh Oil, Gas, and Mineral Corporation (Petrobangla), the executing agency for overall coordination, will establish a project coordination unit. These arrangements are consistent with ADB's policy dialogue with the government, a key feature of
5 Korea Eximbank will undertake its loan appraisal mission in March 2010. 9
which is the independence of gas sector companies. The implementation of each of the four project components is independent. It is therefore important that primary responsibility for each of the project components remain with executing agencies, with Petrobangla in a coordinating role only. Project implementation arrangements are in Supplementary Appendix K.
2. Implementation Period
39. The project will be implemented over 5 years, including procurement and construction. It is envisaged that implementation will begin on 01 July 2010 and be completed by 31 March 2015. The implementation schedule is in Appendix 5.
3. Procurement
40. All procurement financed under the ADB loan will be carried out in accordance with ADB’s Procurement Guidelines (2007, as amended from time to time). International competitive bidding procedures will be used for all 11 procurement packages financed by ADB (5 turnkey and 6 supply contracts), of which 7 packages (4 turnkey and 3 supply contracts) will follow the single-stage, two-envelope procedure; 3 packages (3 supply contracts for gas seepage control and field appraisal) will follow the single-stage, one-envelope procedure; and the remaining turnkey contract for procurement of gas turbine compressor stations will follow the two-stage, two- envelope procedure. The procurement plan is indicated in Appendix 6.
41. The government, Petrobangla, and the executing agencies have requested ADB's approval for advance contracting for the procurement of works, goods, and services. Retroactive financing of up to $500,000 has been requested for consulting services to support the BGFCL in its identification and recommendation of remedial actions regarding gas seepage, drilling wells, and installing gas processing plants. ADB management has approved advance contracting for procurement and consulting services, as well as retroactive financing for consulting services for the BGFCL of up to $500,000, provided that expenditures are in accordance with the ADB's Procurement Guidelines and Guidelines on the Use of Consultants (2007, as amended from time to time) and safeguard policies and are incurred during the 12 months before the signing of the loan agreement. The government, Petrobangla, and the executing agencies have been informed that approval of advance contracting or retroactive financing does not in any way commit ADB to finance the project. They have also been informed that ADB will not finance expenditures paid by the borrower prior to loan effectiveness, even if advance contracting is approved, unless retroactive financing has been approved by ADB.
4. Consulting Services
42. Two consulting services for part A will be required to help the GTCL implement (i) the installation of interface metering and regulating stations and the supervisory control and data acquisition system and (ii) the construction of gas turbine compressor stations. Consulting services for parts B and D will be required to (i) support the BGFCL in identifying and recommending remedial actions regarding gas seepage, drilling wells, and installing gas processing plants and (ii) assist the TGTDCL in project implementation and developing a portfolio of projects to improve energy efficiency. Four consulting services for international training are envisaged for capacity development in the GTCL, BGFCL, SGCL, and TGTDCL. Consultants will be engaged as firms. Seven consulting firms will be engaged for parts A-2, B, C, and D, with part A-1 financed by Korea Eximbank.
10
43. All consultants except those in Part A-1 will be recruited in accordance with ADB’s Guidelines on the Use of Consultants. Consultants will be selected and engaged using ADB’s quality- and cost-based selection procedure, applying the standard quality–cost ratio of 80:20. Full technical proposals will be required from bidders for all consulting services for parts A and B, while the others will use biodata technical proposals (Appendix 6). Details of consulting services are in Supplementary Appendix J.
5. Anticorruption Policy and Governance Measures
44. The government aims to create a corruption-free environment and established the Anticorruption Commission in 2004. ADB has provided technical assistance to help the government build capacity and provide support for an integrated anticorruption strategy.6 ADB’s Anticorruption Policy (1998, as amended to date) was explained to and discussed with the government and executing agencies. Consistent with its commitment to good governance, accountability, and transparency, ADB reserves the right to investigate, directly or through its agents, any alleged corrupt, fraudulent, collusive, or coercive practices relating to the project. To support these efforts, relevant provisions of ADB’s Anticorruption Policy are included in the grant regulations and the bidding documents for the project. In particular, all contracts financed by ADB in connection with the project shall include provisions specifying the right of ADB to audit and examine the records and accounts of the executing agencies and all contractors, suppliers, consultants, and other service providers as they relate to the project. Table 3 summarizes major project-specific governance measures.
45. The government will ensure that the GTCL, BGFCL, SGCL, TGTDCL, Petrobangla, and other gas sector entities have operational autonomy and that no organizational changes that would affect their ability to perform their obligations under the project are carried out.
Table 3: Governance Measures Area Measure Procurement (i) Project management units headed by senior officers reporting directly to the managing directors of the executing agencies (ii) Bid specifications and packaging to be prepared to ensure maximum competition under international competitive bidding procedures (iii) Information on procurement to be disclosed on a project website (iv) Procurement capacity support at the resident mission for expedited action on procurement issues Financial (i) Measurable financial performance indicators for the executing agencies management (ii) Regular monitoring of expenditures, other financial transactions, and safe custody of and audit project-financed assets by the accounting and control systems of the executing agencies (iii) Scoped internal audit of the executing agencies ensured to include revenue audit and internal audit reports to the audit committee of the executing agency boards (iv) Financial statements to be audited by external auditors acceptable to ADB and regularly published and reported to the shareholders (v) Executing agencies to provide an accurate accounting of losses
6 ADB. 2003. Technical Assistance to the People’s Republic of Bangladesh for Supporting Good Governance. Manila. 11
Area Measure Institutional (i) Executing agencies to execute the project components as entities independent from and corporate Petrobangla with separate licenses issued by the BERC and Petrobangla to coordinate governance overall project implementation (ii) Executing agencies except Petrobangla to independently file tariff petitions with the BERC (iii) Restructuring plan for Petrobangla for greater transparency and accountability (iv) Sundarban Gas Company Limited to introduce private sector in operation, maintenance, metering, and billing Anticorruption (i) ADB to review and examine any alleged corrupt, fraudulent, collusive, or coercive practices relating to the project (ii) Information on the project to be made public through the publication of leaflets made available in the districts within which the project operates Grievance (i) A grievance redress mechanism to be established to address issues relating to project review implementation ADB = Asian Development Bank, BERC = Bangladesh Energy Regulatory Commission, Petrobangla = Bangladesh Oil, Gas, and Mineral Corporation, Sources: Asian Development Bank, Bangladesh Gas Field Company Limited, Gas Transmission Company Limited, Petrobangla, Sundarban Gas Company Limited, Titas Gas Transmission and Distribution Company Limited.
6. Disbursement Arrangements
46. The disbursement of loan funds under the project will be mainly for goods and consulting services. ADB’s commitment letter and direct payment procedures will be utilized. Disbursement procedures will be in accordance with ADB’s Loan Disbursement Handbook (2007, as amended from time to time). Statement of expenditure procedures may be used for reimbursement under all project components. The statement of expenditure ceiling will be $100,000 for individual payments applicable to reimbursement procedures.
7. Accounting, Auditing, and Reporting
47. The executing agencies receiving proceeds from the ADB loans will each maintain a separate account for the project and submit audited financial statements within at least 6 months after the end of the fiscal year. Annual project accounts and annual financial statements will be audited by independent auditors acceptable to ADB, providing the auditors’ observations with respect to the use of loan proceeds and compliance with loan covenants. They will prepare separate progress reports for their respective components. Petrobangla will consolidate the reports and submit to ADB quarterly within 1 month of the end of each quarter. Each report will describe the progress made, any changes to the implementation schedule, problems encountered and remedial actions taken, the performance of the consultants, and the work to be carried out in the upcoming period. A project completion report will be submitted to ADB within 3 months of the completion of the project. The use of statement of expenditure will be part of the annual audit, as will a separate opinion on the use of statement of expenditure.
8. Project Performance Monitoring and Evaluation
48. A project performance monitoring system will be established to assess the progress and implementation of the project and to measure impacts and outcomes. A set of indicators for evaluating project performance in relation to its goals, purposes, outputs, and conditions will be
12 developed. The indicators will include (i) economic development and poverty indicators in the project areas, (ii) energy indicators for the region and the project areas, (iii) gas tariffs, (iv) the financial sustainability of the SGCs, (v) access to social services in the project area, (vi) jobs created in the construction and maintenance of the project, and (vii) environmental and social indicators including compliance with the national labor laws and equal access for women to employment opportunities. At the beginning of project implementation, the SGCs will establish baseline and target values for the indicators. The indicators will be measured at project completion and 3 years later for comparison with the baseline. A report summarizing the key findings of monitoring at inception, completion, and 3 years later will be submitted to ADB.
9. Project Review
49. The project will be supervised by ADB through at least two review missions each year. ADB will monitor the implementation of the project through quarterly progress reports. In addition to the normal periodic reviews, ADB and the government will undertake a midterm review 2 years after project implementation begins. The midterm review will include a detailed evaluation of the project scope, implementation arrangements, resettlement, consultation with affected people, achievement of scheduled targets, progress on policy reforms, and capacity building.
IV. BENEFITS, IMPACTS, ASSUMPTIONS, AND RISKS
A. Project Financial and Economic Justification
1. Financial Management
50. The financial management assessment, conducted in accordance with ADB’s Financial Management and Analysis of Projects during project preparation, is in Supplementary Appendix C. Petrobangla is upgrading its human resource systems to improve procedures and training.7 Accounting and management information systems are satisfactory for the Petrobangla group of companies. Petrobangla will provide accounting and billing systems and training to the SGCL. With the assistance of the World Bank, the GTCL is upgrading its accounting and management information systems to improve management operations. Financial management assessment found the proposed project financial management arrangements to be satisfactory.
2. Past Financial Performance and Future Projections
51. Gas Transmission Company Limited. Mainly because of increases in transmission volume, revenues from gas transmission resulted in an increase in net profit from Tk424 million in FY2004 to Tk2,614 million in FY2008. The rate of return (ROR) on net fixed assets increased steadily over the period to reach 15.1% in FY2008, half again the covenanted ROR of 10.0%, and the debt service ratio (DSR) exceeded 1.2 times. Accounts receivable have exceeded 3 months of sales since FY2001. However, they do not translate into bad debts, as the GTCL is paid by Petrobangla once payment is received from distribution companies.
52. Forecasts of gas transferred by the GTCL are based on Petrobangla’s August 2008 demand–supply projections. The financial projections assume that the GTCL wheeling charge increases so that the ROR covenant of 10% is met. Accordingly the wheeling charge needs to increase to Tk0.64 per cubic meter by the beginning of FY2012. This also allows the DSR of 1.2 to be met over the forecast period to FY2020.
7 ADB. 2005. Financial Management and Analysis of Projects. Manila. 13
53. Bangladesh Gas Fields Company Limited. Revenues from gas production at the prescribed production margin have steadily increased, with net profit reaching Tk1,055 million in FY2004 and declining to Tk993 million in FY2005 and Tk865 million in FY2006, before recovering to Tk999 million in FY2007. It declined to Tk794 million in FY2008 because of higher maintenance costs. The ROR reached 26.7% in FY2005 but declined to 16.7% in FY2008. The DSR is well in excess of 1.2 times debt obligations.
54. Forecast gas and condensate volumes are based on Petrobangla’s August 2008 supply– demand projections. The BGFCL derives its revenue from the production of gas, for which it receives a wellhead margin of Tk0.225 per cubic meter, and the sale of gas condensate and refined products based on international petroleum prices. On this basis, the projections demonstrate that a DSR of 1.2 and the historic ROR in excess of 12% will be achieved through 2020.
55. Sundarban Gas Company Limited. SGCL is a new company formed to distribute gas in the Khulna area and towns adjacent to the new transmission pipeline to Khulna. SGCL gas sales projections for 2012–2020 (phase 1) are based on Petrobangla forecasts and in particular the supply of gas to an existing 360 megawatt (MW) power plant in Khulna and a proposed 360 MW plant at Bheramara. Operating costs for the distribution company are based on October 2008 estimates made in the DPP prepared by the Dakhshin Paschimanchal Gas Bitoran Prokalpa Bastabayan Unit of Petrobangla and the operating costs of the Pashchimanchal Gas Company Limited (another newly formed company), which operates in the western part of the country. The projections show that the SGCL would maintain a DSR exceeding 1.2 in all years through 2020.
56. Titas Gas Transmission and Distribution Company Limited. The TGTDCL is the oldest gas distribution and marketing company of the country, with a franchise area extending over the area east of the Jamuna–Padma river system, excluding Sylhet and Chittagong divisions but including Brahmanbari. Its revenues from gas sales have been increasing by approximately 20% per annum, and the net profit in FY2008 reached Tk4,218 million. That year, the ROR on net fixed assets reached 37.3%, and the DSR exceeded 1.2 times debt obligations. Forecast gas sales are based on the Petrobangla's supply–demand projections. The TGTDCL derives its revenue mainly from its gas sales and wheeling charges. On this basis the projections demonstrate that a DSR of 1.2 and the historic ROR in excess of 12% will be achieved through 2020.
57. The past and projected financial performance of the executing agencies is detailed in Supplementary Appendix B.
3. Financial Viability
58. The financial evaluation of the project was carried out in accordance with the Guidelines for the Financial Governance and Management of Investment Projects Financed by ADB.8 The analysis was carried out for (i) pipeline extensions, (ii) existing system reinforcement, and (iii) the overall system including expansions and extensions. For the field appraisal and development component, no financial internal rate of return (FIRR) was calculated, as the investment is meant to more clearly delineate gas structures to determine possible increases in reserves that have future economic benefit. Financial analysis was undertaken in real terms using 2009 prices. The without-project and with-project scenarios were compared. Without the project, gas shortages in
8 ADB. 2002. Guidelines for the Financial Governance and Management of Investment Projects Financed by ADB. Manila.
14
Bangladesh would continue. With the project, gas from northeast Bangladesh would be available to meet shortages in the existing gas supply area and supply new market areas in the southwest.
59. The transmission component has an FIRR of 9.6% after taxes, and the distribution component 5.5%. These compare favorably with the weighted average cost of capital of 2.7% for the transmission component and 1.8% for the distribution component. Sensitivity analysis was conducted for 10% increases in capital and operating and maintenance costs, a 10% reduction in project benefits, and a combination of these factors together with project delays. Sensitivity and risk analyses show that the FIRR is robust under adverse conditions and the project is financially viable. A summary of the project’s financial evaluation is in Appendix 7. Considering the nature of project activities, such as arresting natural gas seepage from problematic wells and energy efficiency improvements, there can be opportunities for financial benefits under the Clean Development Mechanism of the Kyoto Protocol. The government and the executing agencies will pursue such opportunities to further strengthen financial viability.
4. Economic Viability
60. Demand analysis. Future gas demand was analyzed for the area covered by the existing pipeline system. Forecast gas sales for the existing network area provided the basis for estimating increased volumes and benefits from network reinforcement. The analysis assumed that the present network would not be adequate to meet demand beyond 2013 level and that higher gas sales would be owing entirely to investment in the network.
61. Least-cost analysis. The network analysis has been validated for the entire system, and changing any one element may affect the entire system. However, between any two points, compressors or looping alternatives can be compared. The planned investment program is based on numerous simulations to identify the locations of bottlenecks as throughput increases and to remove those bottlenecks with compressors or looping. For all compressor locations identified as bottlenecks, costs of the pipeline looping alternative were estimated.
62. Economic rate of return. The economic internal rate of return (EIRR) was calculated for the project, considering capital costs and operation and maintenance costs. Conversion factors were used to convert financial values into economic values. Values are expressed in mid-2009 prices. The main economic benefits of the project is the value of future imported petroleum fuels and other energy sources displaced by gas and growth in demand from new and existing customers. The EIRR computed for the entire project is 32%, assuming annual average gas supply of 80% of the maximum daily demand (Appendix 8). Sensitivity and risk analyses on adverse scenarios showed the project EIRR to be stable and robust. More details are in Supplementary Appendix D.
B. Social Assessment and Resettlement
1. Poverty Assessment
63. The social, poverty, and development impacts of the project have been analyzed. The expansion of the gas transmission network to consumption centers and the construction of the distribution network in the southwest will bring significant benefits to people. The project’s impacts can be classified as production, income, employment, habitat, health and safety, quality of life, society and organization, poverty, gender, environment, and pricing. 15
64. The project employed participatory preparation, and stakeholder consultation will continue during implementation. As the initial poverty and social assessment did not identify any communities of indigenous people that would be affected, no indigenous peoples development plan is needed.
65. The project will reduce poverty in the project areas. The poverty analysis carried out during project preparation found income likely to increase with new opportunities that are expected to open up and increased employment arising from economic diversification. Income growth for the poor will come from (i) expanded off-farm economic activities; (ii) growth in agricultural income mainly from cheaper fertilizer and irrigation; (iii) expanded markets and institutions with wider availability of gas and electricity; (iv) time saved that can be devoted to other income-earning pursuits, particularly by women; and (v) the low cost of natural gas compared with other sources of energy. Non-income poverty can be reduced by (i) controlling the depletion of forest resources and reducing health risks, (ii) empowering women through new income opportunities, and (iii) establishing social infrastructure that will provide better services. The project will create 3,000 person-months of unskilled employment. A summary of the poverty and social strategy is in Appendix 9.
2. Resettlement
66. Under part A, implementation will require the acquisition and requisition of land on the right-of-way of the gas transmission pipeline. The central 8 meters will be permanently acquired, while the remaining 15 meters will be requisitioned for the duration of the civil works. In full consultation with affected people and communities, a full resettlement plan was prepared to mitigate impacts. The GTCL has undertaken efforts to minimize adverse impacts. The corridor was chosen to pass through agricultural land to avoid settlements and homesteads. The GTCL will ensure that civil works are completed during the dry season to avoid disrupting crops on the temporarily acquired land. The survey indicates that the construction and installation of the 61 km of gas pipeline will require the permanent acquisition of 50.65 hectares (ha) and the temporary acquisition of 105.76 ha. A total of 1,992 households will be affected by permanent acquisition, and 2,185 households will be affected by the temporary acquisition, for a total of 10,956 affected people.
67. Under part B, implementation will require the acquisition of 7.086 ha of mostly agricultural land, affecting 178 households. Of these, 113 households will permanently lose 6.26 ha of land, 3 households will lose residential property, and 4 households will lose 175 trees. The remaining 58 households are currently affected by gas seepage that costs them access to 1.51 ha. These affected people will benefit from the implementation of the project, as they will regain access to their land, but they have been added to the resettlement plan as they will be compensated for income lost to seepage. In full consultation with affected people and communities, a full resettlement plan was prepared to provide appropriate mitigation.
68. Under part C, the project sites were selected and the components were designed to minimize impacts by avoiding involuntary land acquisition and displacement and by confining the project to land already available to the government or the GTCL. Although no titled landholders will be affected, nine households (five in Khulna and four in Jessore) comprising 52 people (mainly squatters) will be temporarily affected for a maximum of 1 week and will therefore require compensation. A detailed survey of 100% of the affected people was conducted in June 2009. Nine informal commercial structures will be temporarily affected. In full consultation with affected people and communities, a short resettlement plan was prepared to assist the nine affected households.
16
69. The executing agencies continue to disclose resettlement plan information to affected people through various means including pamphlets, brochures, and newspapers in the local language. All resettlement plans were submitted to ADB in July 2009. The government assured the ADB mission that compensation to all affected people will be paid according to the ADB Involuntary Resettlement Policy (1995) and the Acquisition and Requisition of Immovable Property Ordinance of 1982 and subsequent amendments to it—and that full compensation will be awarded prior to the physical takeover of land acquired temporarily or permanently. In addition, temporarily acquired land will be restored to at least its pre-acquisition condition. Summary resettlement plans are in Appendix 10. The full resettlement plans are in Supplementary Appendixes H and I.
70. As 100% of the affected people were surveyed and no indigenous households will be affected by the project, the project was classified category C, and no indigenous peoples development plan is required.
C. Environmental Analysis
71. The executing agencies have prepared initial environmental examinations (IEEs) for all components following ADB’s Environment Policy (2002) and the government’s environmental impact assessment guidelines for industries, as well as national policies and legislation. They identify the potential impacts and their severity and duration. The IEEs provide mitigating measures for the impacts and a monitoring plan. The IEEs show that the proposed project infrastructure will traverse farmland, rural areas, peri-urban areas, and secondary cities. It will not pass through any socially, archeologically, or ecologically sensitive areas. In addition, most impacts will be temporary and have no lasting effect if mitigating measures outlined in the environmental management plan are followed. The summary IEE (SIEE) for the project in Supplementary Appendix E highlights the findings of the IEEs. and additional information and activities included during the ADB review process. The IEEs will be updated and approved to be in line with the SIEE. The project is environment category B, so a full environmental impact assessment is not required. Before the commencement of construction, the environmental management plans for each subprojects will be detailed in the project-specific context and included in construction contracts.
D. Expected Benefits
72. The project will expand access to gas in less-developed areas of the country to achieve balanced regional development and augment transmission capacity in southern industrial areas. This will save foreign exchange spent on fuel imports and positively affect the environment and health, particularly of women and the poor, who are most vulnerable to smoke from cooking fires. An estimated 200,000 additional households will have access to new gas connections in the southwest.
73. An additional 1,400 industrial and commercial establishments and 35 compressed natural gas filling stations will have access to gas because of part C of the project. The industries will include small fertilizer plants, jute mills, ceramic factories, dyeing and finishing factories, textile weaving factories, and small cottage industries. Commercial entities will include hotels, restaurants, and bakeries. These industrial and commercial installations will generate significant employment. A poverty analysis showed that incomes are likely to increase with new opportunities, including those resulting from economic diversification. Project implementation will directly create 3,000 person-months of unskilled employment. 17
74. All technical studies indicate that Bangladesh has adequate gas reserves to meet its requirements. Network analysis demonstrates constraints in the existing gas supply network. The least-cost analysis shows that overcoming those network constraints will require installing compressors at selected transmission points and looping transmission lines. To address these network constraints, the project will install compression facilities at Ashuganj and Muchai. 9 Together they will augment throughput by 1,500 MMCFD by 2015 with adequate supplies from gas fields. The compressor facility at Ashuganj under the project will also increase supplies to the central regions. An additional loop-line and compressor at Elenga will be installed to allow adequate supply to the western region. These improvements will enable the project design to serve for the natural gas system for over 25 years.
E. Risks and Safeguards
75. Policy reforms. The main potential policy risk is failure or delay in introducing the required reforms and restructuring. ADB will maintain policy dialogue with the government on these issues. This risk has been mitigated by introducing assurances to promote the acceleration of reforms, the quality of the reform content, and the sustainability of implementation. It addresses this risk by approaching difficult issues incrementally.
76. Cofinancing. Korea Eximbank cofinancing is expected for part A-1 of the project under parallel, tied financing. In the unlikely event that Korea Eximbank financing is not forthcoming, part A-1 will likely be excluded from the project scope. This would not affect the viability or implementation of the remaining components, as each is independent.
77. Implementation risks. The project is subject to risks common to projects of such size and complexity. The project has been designed to mitigate policy and institutional risks. The subprojects are not subject to any unusual technical and commercial risks. They involve financially sound SGCs and technically and commercially proven technologies. Cost overruns and delays in implementation are major potential risks. The economic impacts of the subprojects are less sensitive to cost overruns and more sensitive to delays in implementation, but the basic economic returns remain sound. The potential risks in project implementation include front-end delays. Measures have been incorporated in the project design to reduce these risks.
78. Good governance. The project’s design includes measures to promote good governance and mitigate the risk of corruption. These include disclosing project and procurement-related information on a project website and preparing bid specifications and packaging to ensure maximum competition under international competitive bidding. The executing agencies will benefit from the presence of a procurement specialist stationed at the resident mission to identify and proactively address procurement issues at an early stage. The procurement specialist will support capacity enhancement among executing agency staff through regular meetings and customized training sessions on ADB procurement processes.
79. Project readiness. Delays in project implementation in the gas sector have been a major concern, frequently caused by lack of project readiness. Considering this, the government and the executing agencies have taken mitigation measures. These include advanced preparation and approval of the DPPs, as well as environmental and social safeguard documents. The preparation of bidding documents for goods and services has been undertaken before loan approval.
9 Supply constraint will be partly addressed by the installation of gas compressors at Muchai by the private sector, to be operated in the public sector after cost recovery.
18
Measures have been incorporated in the project design to reduce delays by allowing advance procurement, retroactive financing, and advisory support for implementation.
V. ASSURANCES
A. Specific Assurances
80. In addition to the standard assurances, the government has given the following assurances, which are incorporated in the legal documents.
1. Policy and Regulatory Environment
81. The government will continue implementing the GSRR to ensure optimal development of the gas sector.
82. The government will formulate and approve the revised gas pricing policy by 31 December 2010. The EMRD will adopt a formula in the revised pricing policy for determining upstream gas prices for the state gas companies based on the cost of future supply taking into account the price of international gas supplies and possible alternative fuels.
83. Gas sector companies will directly lodge separate tariff applications annually with the BERC from 31 December 2010.
84. The EMRD will approve the policy framework for private sector participation in the operation, maintenance, marketing, and billing processes of gas distribution companies, by 30 June 2011.
2. Efficiency Improvement
85. Gas distribution companies will start accounting for energy losses based on actual metered consumption instead of losses based on billed consumption by 30 June 2011, and the companies will continue to maintain system losses below 2%.
3. Financial Performance and Governance 86. From the commencement of its operations, the SGCL shall install consumer meters for all household connections and introduce metering for all industrial consumers within its franchise area and bill its consumers exclusively on the basis of metered consumption.
87. Petrobangla shall develop a human resources strategy for the entire Petrobangla group that encourages recruitment through transparent and competitive procedures and that links promotions and salary increases to market benchmarks and individual performance. Petrobangla shall ensure that the implementation of the revised strategy commences from 1 January 2011.
88. With immediate effect, the SCGL shall recruit permanent staff to assist in the implementation of part C and later to operate the project facilities thus established upon their completion.
89. The GTCL and the TGTDCL shall continue to recruit their management including at least managing director, director (finance), and director (operations) on a competitive and a transparent basis through open advertisements in the press, and fill any vacancies within six months after they occur. Further, the existing vacancies shall be filled expeditiously. 19
90. In consultation with ADB, EMRD will prepare a time-bound action plan by 30 June 2011 to redefine Petrobangla's role and restructure Petrobangla to promote sustainable development of the gas sector.
91. The government will cause to be ensured that (i) the GTCL and the BGFCL will continue to have a debt service coverage ratio of 1.2 and (ii) the SGCL will have ratio of 1.2 from 2012.
4. Private Sector Participation
92. The SGCL will have entered into contractual arrangements with private entities for operation, maintenance, marketing, and billing for gas distribution upon commencement of its operations.
93. The EMRD will closely monitor progress in the installation of gas compressor station at Muchai and its successful operation by the private sector to ensure augmenting gas supply to the transmission network. The EMRD will keep ADB regularly informed of developments in this regard.
5. Land Acquisition, Resettlement, and Social Issues
94. The government and the executing agencies will ensure that the resettlement plans, including compensation and entitlements for affected households and persons, are implemented in conformity with all applicable laws and regulations of the government,and the entitlement benefits as listed in the applicable laws and ADB’s Involuntary Resettlement Policy (1995).
95. Prior to land acquisition and any resettlement for the project, the resettlement plans, including any updates based on consensus of the affected persons, must be disclosed with all necessary information made available to persons affected by the project and confirm that it be uploaded onto the ADB website.
96. Within 6 months of the effective date, the borrower and the executing agencies shall develop and agree upon an HIV/AIDS and human trafficking prevention and sensitization program acceptable to ADB. The executing agencies shall cause contractors to implement the program among the contractors' employees for the duration of the contract. The borrower, through the project management units, shall monitor the HIV/AIDS and human trafficking prevention and sensitization program.
97. The bidding documents for the civil works contracts must include specific provisions to ensure that the contractors (a) comply with applicable core labor standards, labor laws and incorporate applicable workplace occupational safety norms; (b) do not differentiate payment between men and women or between people from different castes for work of equal value (c) do not employ child labor; (d) eliminate forced or compulsory labor; (e) eliminate discrimination in respect of employment; and (f) to the extent possible, maximize employment of local poor and disadvantaged persons for construction purposes, provided that the requirements for efficiency are adequately met.
6. Environmental Issues
98. The government, through the executing agencies, will ensure that the design, construction, and operation of all project facilities comply with the environmental laws and regulations of
20
Bangladesh and ADB’s environmental policies and regulations, specifically ADB’s Environment Policy (2002) and environmental mitigating measures and the environmental management plans described in the IEEs and in the summary IEE conducted for the project.
B. Conditions
99. In addition to the standard loan effectiveness conditions, for the loan to be effective, (i) the BERC gas transmission and gas distribution tariff regulations shall have entered into force;,and (ii) the subsidiary loan agreements between the government and the executing agencies, in form and substance satisfactory to ADB, shall have become effective and binding on the government and the executing agencies in accordance with their terms.
100. The government shall ensure that the EAs will not award any works contracts financed under the loans until they have updated the IEEs in line with the SIEE and the resulting amendments have been approved by the government, the EAs and ADB
VI. RECOMMENDATION
101. I am satisfied that the proposed loans would comply with the Articles of Agreement of the Asian Development Bank (ADB) and recommend that the Board approve
(i) the loan of $261,000,000 to the People’s Republic of Bangladesh for the Natural Gas Access Improvement Project from ADB’s ordinary capital resources, with interest to be determined in accordance with ADB’s London interbank offered rate (LIBOR)-based lending facility; a term of 25 years, including a grace period of 5 years; and such other terms and conditions as are substantially in accordance with those set forth in the draft loan and project agreements presented to the Board; and
(ii) the loan in various currencies equivalent to SDR 3,249,000 to the People’s Republic of Bangladesh for the Natural Gas Access Improvement Project from ADB’s Special Funds resources with an interest charge at the rate of 1.0% per annum during the grace period and 1.5% per annum thereafter; a term of 32 years, including a grace period of 8 years; and such other terms and conditions as are substantially in accordance with those set forth in the draft loan and project agreements presented to the Board.
Haruhiko Kuroda President
26 February 2010 Appendix 1 21
DESIGN AND MONITORING FRAMEWORK Data Performance Sources/Reporting Design Summary Targets/Indicators Mechanisms Assumptions and Risks Impact Assumptions Increased and more Gas consumption in the industrial Government economic Political and socioeconomic reliable access to natural sector to grow from 800 MMCFD statistics and reports conditions remain stable gas for sustained to 1,400 MMCFD economic growth National statistics on gas Stable economic growth in the supply and utilization region Population using natural gas as Project completion primary energy source to reports increase from 5% in 2008 to 10% by 2015 Outcome Assumptions Expanded capacity and Gas sector losses in non-bulk Annual reports of Continued government focus on improved efficiency in consumption reduced from 2.8% Petrobangla and SGCs reforming the gas sector and natural gas production, in 2009 to 2.0% by 2011 developing gas infrastructure transmission, and National statistics on gas distribution systems Natural gas transmission and supply and utilization Availability of sufficient delivery capacity expanded from recoverable gas reserves 2,000 MMCFD in 2008 to 3,500 Gas supply and MMCFD by 2015 utilization data from the Adequate production from the hydrocarbon unit of the gas fields 20% increase in average cost Ministry of Power, recovery per unit of gas used in Energy, and Mineral Continued expansion of natural households supplied under the Resources gas use project compared with the Risk national average by 2015 Continued underpricing of gas
Outputs Assumptions 1. Ashuganj–Bakhrabad Expansion of transmission National statistics on gas Counterpart funds made gas transmission loop- capacity by 400 MMCFD by 2014 supply and utilization available in time for construction, line of about 61 km operation, and maintenance
2. Gas compressors at Throughput at Ashuganj to Annual reports of Timely implementation of projects Petrobangla and SGCs Ashuganj and Elenga increase to 1,500 MMCFD and at Appointment of competent Elenga to 500 MMCFD by 2014 Quarterly progress contractors for implementation reports
Review mission reports 3. Controlled gas seepage Identification of the causes of in the Titas gas field gas seepages in Titas gas field Project completion and four wells by mid-2010 report developed Completion of remedial works in existing problematic wells by 2012 Increased gas production in Titas gas field by 120 MMCFD
4. 845 km of pipelines in 200,000 household gas supply the southwestern gas connections in the southwest by distribution network 2015 22 Appendix 1
Data Performance Sources/Reporting Design Summary Targets/Indicators Mechanisms Assumptions and Risks 5. Introduction of prepaid 7,500 prepaid meters installed in meters for domestic households and 600 remote consumers and remote meters installed in large meters for industrial consumers consumers
6. Feasibility studies for A feasibility study on energy energy efficiency efficiency improvement in the improvements large industrial and commercial consumers developed by the end of 2011
7. Capacity building in A minimum of 100 gas sector BGFCL, GTCL, SGCL personnel trained by 2015 and TGDCL
Activities with Milestones Inputs 1. Physical Investments Financing 1.1 Completion of bidding documents for physical investments by December 2010 1.2 Contract award for physical investments of part A-2 by June 2010 ADB (OCR): $261 million 1.3 Contract award for physical investments of other parts by December 2010 1.4 Completion of construction of physical investments of all components by December ADB (ADF): $5 million 2014 Korea Eximbank: $45 million 2. Consulting Support 2.1 Engagement of implementation consultants for all parts by June 2010 Government: $231 million 2.2 Completion of consulting service to develop a feasibility study on energy efficiency in part D by December 2011 Implementation consulting 2.3Completion of implementation consulting services by December 2014 services
Part A: 40 person-months Part B: 55 person-months Part C: None Part D: 26 person-months
ADB = Asian Development Bank, ADF = Asian Development Fund, BGFCL = Bangladesh Gas Fields Company Limited, GTCL = Gas Transmission Company Limited, km = kilometer, OCR = ordinary capital resources, SGC = state gas company, SGCL = Sundarban Gas Company Limited, TGDCL = Titas Gas Transmission and Distribution Company Limited.
Appendix 2 23
GAS SECTOR ASSESSMENT AND REFORM ROAD MAP
1. The Bangladesh Oil, Gas, and Mineral Corporation (Petrobangla) coordinates the gas sector in Bangladesh, while the Energy and Mineral Resources Division (EMRD) of the Ministry of Power, Energy, and Mineral Resources provides policy direction. Petrobangla carries out its gas business through nine operating companies: Bangladesh Petroleum Exploration and Production Company Limited, engaged in exploration and production; Bangladesh Gas Fields Company Limited (BGFCL) and Sylhet Gas Fields Limited, both involved in gas field development and production; Gas Transmission Company Limited (GTCL), involved in transmission; Titas Gas Transmission and Distribution Company Limited (TGTDCL), Bakhrabad Gas Systems Limited (BGSL), Jalalabad Gas Transmission and Distribution System Limited, and Pashchimanchal Gas Company Limited, all involved in transmission and/or distribution; and Rupantarita Prakritik Gas Company Limited, involved in liquefied petroleum gas production and compressed natural gas marketing. The TGTDCL, the oldest and largest, operates in the franchise area of Dhaka Division (excluding greater Faridpur District) and Brahmanbaria District. The BGSL serves the market in Chittagong Division excluding Brahmanbaria District. Jalalabad Gas Transmission and Distribution System Limited serves the market in Sylhet Division, while Pashchimanchal Gas Company Limited operates in the franchise area in Rajshahi Division. A new company, Sundarban Gas Company Limited (SGCL), is being established to distribute gas in the southwest. These state gas companies (SGCs) have been incorporated as public limited companies under the Companies Act, 1913 (amended in 1994). The organization chart of Petrobangla is in Supplementary Appendix A. The upstream gas sector is regulated by the government. The Bangladesh Energy Regulatory Commission (BERC), established in 2004, is the regulator for downstream activities in the gas sector, including gas tariff determination. 2. Natural gas can provide most of the current and future energy requirements in Bangladesh, and the gas market needs to be expanded to optimize the use of natural gas resources and support economic development. Although Bangladesh has produced natural gas for over 3 decades, all of its major fields are underdeveloped and have not been properly delineated. There are widely varying assessments of the country’s natural gas reserves. The discovered reserves are those that have been confirmed by drilling and reliable geological mapping. Undiscovered reserves are yet to be confirmed by drilling and therefore have uncertainty and risk attached to them, depending on the assumed recovery factor that reflects the probability of the resources becoming at least equal to the estimated level.1 3. The opening up of natural gas exploration and production to international oil companies (IOCs) in the 1990s through production-sharing contracts has contributed to improved gas supply in recent years. Total proven recoverable gas reserves in Bangladesh from 23 fields (19 in the public sector and 4 in the private sector) are estimated at 20.60 trillion cubic feet (TCF), of which 7.68 TCF has so far been consumed. The current net recoverable reserve stands at 12.95 TCF. Out of 23 gas fields, 17 have so far been brought under production and 14 are currently under production. 2 Production from the remaining three fields was suspended for technical reasons. However, these three fields (Chhatak, Kamta, and Feni) appear to have the potential to produce further with added efforts, and IOCs are participating in redeveloping two of them. The total of proved and probably recoverable reserves not now in production amounts to more than 4.00 TCF, of which 3.00 TCF was discovered in post production-sharing contract areas. The largest field is Bibiyana, with estimated recoverable reserves of more than 2.40 TCF.
1 When using probabilistic methods in resource estimation, the terms proven, probable, and possible are used. Proved (1P) means 90% probability; proved and probable (2P) means 50% probability; and proved, probable, and possible (3P) means 10% probability. 2 Bangladesh Petroleum Exploration and Production Company Limited recently discovered a gas field at Srikail, which is under investigation. 24 Appendix 2
A study by the hydrocarbon unit estimates that there is a 90% probability that undiscovered resources will be at least 19.00 TCF (1P) and could go up to 42.00 TCF at 50% probability (2P). Taking the discovered and undiscovered reserves together, there is a 90% probability that Bangladesh’s gas reserves exceed 30.00 TCF. 4. Though IOC production has already reached 50% of the national total, Petrobangla predicts that over the next 12 years, IOC production will comprise 30%–45% of supply, with the balance from SGCs. SGCs will drill 43 wells in the next 12 years at a cost of $266 million and require an additional $84 million for gas treatment plants. The IOCs will be required to invest $275 million. Definitive contractual gas supply and investment commitments have been made, and international financial resources are sufficient to fulfill these commitments. 5. Petrobangla recently revised its forecast of gas demand and supply through 2020. Gas consumption rose from 365 billion cubic feet (BCF) in fiscal year (FY) 2001 to 690 BCF in FY2009, for a compound average annual growth rate of 7.3%. The highest consumption growth rate was in the non-bulk category, with an average growth rate over the period of 23%. The non- bulk category comprises industry, commerce, households, tea, brick field (seasonal), and compressed natural gas (CNG). In FY2006, industrial consumers accounted for 49% of the non- bulk category and households 40%. Between FY1999 and FY2007, average annual growth rates in consumption were 12.4% for industry and 16.3% for households. The high rate of growth in domestic consumption can be attributed to rapid construction growth and rural–urban migration and scarcity of alternative cheaper fuel for domestic use. CNG recorded phenomenal growth during FY2003–FY2008 going from 0.003 BCF in FY2003 to 24.2 BCF in FY2008. Government initiatives to arrest air pollution by encouraging the use of indigenous natural gas, increasing the prices of alternative fuels for automobiles, increasing the number of CNG- powered vehicles, and expanding multiple uses of indigenous natural gas have been major contributors to the rapid increase in CNG consumption. Growth in gas consumption to produce electricity was 1.5% over the period, and for fertilizer –6.5%.
6. The gas demand forecast revised by Petrobangla reflects supply constraints. The overall growth rate assumed in the forecast is 7.3%, the same as the historic growth rate for 2002– 2008. Even at the current level of consumption, remaining recoverable reserves will be exhausted in 20 years; with a 6% growth rate, the remaining recoverable reserves will last about 13 years. Given the current reserve status and anticipated shortfall in meeting growing demand, great care must be taken in committing new gas usage in less-productive sectors.
7. To meet growing demand and overcome production and transmission deficiencies, large-scale investments in exploration, field development, and transmission and distribution have to be made. Petrobangla estimates that average gas demand will rise to 4,115 million cubic feet per day (MMCFD) in FY2020. Probable gas production from existing gas fields is expected to peak at 2,655 MMCFD in FY2017 and then gradually decline to 2,468 MMCFD in FY2020. Petrobangla projects production by IOCs to peak at 1,550 MMCFD in FY2017 with new discoveries both onshore and offshore. Overall peak production by SGCs and IOCs is estimated to reach 3,555 MMCFD in FY2017.
8. To augment gas production, Petrobangla has drawn up a program for further exploration, renovating wells in producing gas fields, and drilling new wells in producing and non-producing gas fields with self and government financing. Petrobangla estimates production enhancement rising to 400 MMCFD by FY2012, which appears to be optimistic. Production augmentation is likely to be around 250–300 MMCFD.
Appendix 2 25
9. The recently concluded ADB sector assistance program evaluation for the Bangladesh energy sector highlights the main findings related to the gas sector: (i) overdependency on natural gas as a primary energy source, which threatens the energy security of the country; (ii) underpricing of gas resources, encouraging suboptimal allocation and inefficient use; and (iii) the need to diversify energy sources and place greater emphasis on regional cooperation. These are the main lessons from ADB operations relevant to the gas sector: (i) Programmed lending for investments linked to an agreed medium-term road map for sector reforms can achieve development impacts even in difficult environments. (ii) Improved corporate governance, managerial autonomy, and performance-based incentives can significantly change institutional performance even if there is no change in ownership and personnel. (iii) And the domestic private sector is capable of investing in relatively capital-intensive energy industries if appropriate incentives and policy regimes are established. Many of these findings are addressed in the recently approved gas sector reform road map given in Table A2.
Table A2: Updated Gas Sector Reform Road Map Expected Reform Time Benefits or Monitoring Status Area/Objective Agenda Frame Impacts Instrument (December 2009) A. Policy Framework Rationalization of Announce an updated 2009 Improvement of Revised road Revised road map the gas sector road map on gas the technical map approved in sector reforms and financial January 2009 covering 3 years, and performance of outline the the gas sector government’s vision that would on gas sector enhance restructuring, institutional ownership, private capability to sector participation, provide energy regulation, and related resources matters Energy policy to Finalize and submit to 2009 Promote energy Revised Revised draft provide broad cabinet for approval sector energy policy under stakeholder framework for the revised energy development statement consultation energy sector policy development Policy formulation Finalize and submit 2009 Effective natural Approved gas Cabinet approved capabilities the proposed gas act gas resource act the draft gas act in for approval management October 2009 and and promotion submitted it to of Parliament competitiveness . Strengthening of 2011 Better quality Specific Institutional policy-making and capacity development capability in EMRD management of building component of policy decisions programs for GTDP is currently for sustainable EMRD assisting capacity development building Streamlining The Notification making technical hydrocarbon the hydrocarbon capabilities of unit functions unit a permanent EMRD as permanent unit of EMRD part of EMRD issued in June 2008 Prepare long-term gas Ongoing Implementation Gas demand– Most recent demand–supply process of an optimal supply projections projections investment projections prepared in
26 Appendix 2
Expected Reform Time Benefits or Monitoring Status Area/Objective Agenda Frame Impacts Instrument (December 2009) program developed on October 2009 a regular basis B. Regulatory Instruments Access to gas Develop rules and 2011 Government EMRD has agreed infrastructure regulations for private approval of to develop and sector participation the policy approve the policy framework framework by December 2010. Establish contracts Ongoing Competition and Formal Formal contracts among production, process efficiency contracts have been drawn transmission, and enhancement up for most distribution companies companies for gas purchase, sale, and transmission. C. Sector Planning Ensuring Update the master Ongoing Optimal gas Updated Master plan of unconstrained plan and disseminate process sector master plans 1996 will be supply of natural investment options for development updated by 2011. gas and optimal private sector through private development of sector infrastructure participation Obtain inputs for the Ongoing Wider Consultative BERC has been energy sector through process acceptability of meetings consulting interaction among the the plans stakeholders stakeholders developed through its public hearing process. SGCs will follow a similar consultative process for planning. D. Increased Access to Natural Gas Natural gas Develop strategy for Ongoing Increased Exploration Exploration by resources exploration and process availability of strategy SGCs and IOCs is discovered and utilization of natural gas ongoing delivered undiscovered reserves resources E. Corporate Governance Improving Independence of gas 2011 Attraction and New salary SGCs have agreed commercial sector companies in retention of best structures to revise their operation determining expertise salary structures compensation by December 2010 structures Reduce accounts Ongoing Improved Financial Accounts receivable from public process financial statements receivable have and private consumers management come down to 2–3 to no more than 3 months equivalent, months. from 3–5 months equivalent in 2005 Establish cost centers 2015 for different activities of Bangladesh Petroleum Exploration and Production Company Limited Reducing system Implement a Ongoing Enhanced Annual System losses losses comprehensive action process revenue reports of have been brought plan to minimize generation SGCs down to 1.31% system losses in from 8.39% in Appendix 2 27
Expected Reform Time Benefits or Monitoring Status Area/Objective Agenda Frame Impacts Instrument (December 2009) distribution and 2005 transmission companies F. Gas Sector Restructuring Redefining the Establish TGTDCL as 2011 Improved Restructured Notification forming franchise areas of three separate management companies Karnaphuli Gas TGTDCL for companies and BGSL performance Distribution unbundling into into two separate Company Limited three companies companies issued in and of BGSL for November 2008 by unbundling into two redefining companies franchise area of BGSL
G. Private Sector Participation Promote private Allow private financing 2012– Reduced Level of 25% share of sector involvement in gas distribution 2013 dependence on private sector TGTDCL owned by in gas sector system network government involvement the private sector development funds and in SGCs A decision for SGCL to divest up to 49% of its shares is contained in the DPP
SGCL will have private sector operation, maintenance, metering, and billing by December 2012 Ongoing Policy Dialogue
Structural Reforms Reforming gas Restructuring of Defining a clear Government The government sector through Petrobangla role for decision to has indicated the institutional and Petrobangla in restructure requirement of financial the reformed Petrobangla ADB assistance to restructuring gas sector develop a restructuring model. Regulatory Environment Developing a Fully operationalize Create an Staffing level of BERC has transparent BERC by approving its environment BERC and tariff recruited majority regulatory organogram and conducive to determinations of its staff and framework service rules that would private in the gas issued first tariff enable it to recruit staff investment and sector order in the gas and function effectively promote a sector in July 2009 competitive market BERC to operate as Commercial Operational BERC has the regulating authority operation of gas licenses approved licenses by issuing operational sector entities issued by for all but four licensing and setting BERC to gas SGCs tariffs for transmission companies and distribution
28 Appendix 2
Expected Reform Time Benefits or Monitoring Status Area/Objective Agenda Frame Impacts Instrument (December 2009) licensing Access to Gas Supply Increased access to Facilitate the appraisal Maximum Investment BGFCL has natural gas and development of utilization of proposals initiated action on existing gas wells indigenous gas appraisal and resources and development of relieving supply Titas gas field by constraints drilling further wells Facilitate exploration Production- The government and utilization of sharing has made the undiscovered reserves contracts award and is under 3rd currently round of negotiating bidding production-sharing contracts. Expand natural gas Regional New GTDP and the network to cover less- economic investments in proposed project developed regions development transmission include critical and investments in distribution transmission networks pipelines and distribution expansion in southwest Pricing Reforms Introduce flexible Review the pricing Proper pricing Pricing In December 2009 and transparent framework to reflect of gas leads to guidelines the government pricing mechanism. cost of supply and efficient use of initiated operations gas and optimal BERC price consultation based development of determination on draft pricing infrastructure. based on guidelines. guidelines ADB = Asian Development Bank, BGFCL = Bangladesh Gas Fields Company Limited, BGSL = Bakhrabad Gas Systems Limited, DPP = development project pro forma, EMRD = Energy and Mineral Resources Division, BERC = Bangladesh Energy Regulatory Commission, GTDP = Gas Transmission and Development Project; IOC = international oil company, Petrobangla = Bangladesh Oil, Gas, and Mineral Corporation, SGC = state gas company, TGTDCL = Titas Gas and Transmission and Distribution Company Limited. Sources: Ministry of Power, Energy, and Mineral Resources, Energy and Mineral Resources Division.
Appendix 2 29
Figure A2: Problem Tree Analysis
Growth is non inclusive (limited to certain geographic areas) Growth rate is impacted due to shortages Overall Impact Environmental, health impact on account of more polluting fuel sources
Effect 65% of primary energy Inadequate fuel available in Inadequate gas available consumption still met from West, South for industrial for power generation biomass development and growth Problem
Non optimal utilization of indigenous gas resources to meet Bangladesh's development needs Causes
Inadequate access to gas Bottlenecks in the Insufficient investment in existingSlow progress on exploration Inefficient use of gas where Sub-Causes A B C D E resources in Western and existing transmission gas fields to enhance gas of undiscovered resources available (losses, excessive South Western regions systems supplies substitution) Achievements GSRR 2005 Old Loan
Lack of financial resourcesCorporate governance andInadequte long term policy Limited private sector Inadequate capacity toUneconomical and non cost for investment transparency issues making and planning interest in gas sector develop, implement and reflective gas pricing operate projects Transmission Access - All gas distribution Policy Dialogue under CNG - Domestic private BERC has issued licenses Create access to Western Capacity Building companies corporatized GSRR initiated. sector involvement has been to gas sector companies to and Southern areas under undertaken on governance, successful operate under previous ADB loan financial managment, Listing of 25% of 1 gas HCU setup in EMRD technical matters. distribution company on Tariff Regulations for cost stock exchange completedGovt. encouraging efficient plus reasonable return Recruitment of personnel use of gas through requiring based tariff setting - Draft undertaken to bolster changes in power sector released delivery capabilities in gas technology, limiting small sector companies. scale private generation
ADB = Asian Development Bank, BERC = Bangladesh Energy Regulatory Commission, CNG = compressed natural gas, EMRD = Energy and Mineral Resources Division, GSRR = Gas Sector Reform road Map, HCU = Hydrocarbon Unit. Sources: Asian Development Bank Appendix 3 30
DEVELOPMENT COORDINATION
A. Major Development Partners
1. In addition to the Asian Development Bank (ADB), the main development partners in the gas sector are the Japan International Cooperation Agency (JICA), KfW, the United States Agency for International Development, and the World Bank. In the gas sector, ADB has provided public sector loans amounting to $675 million and technical assistance grants of $5.4 million covering gas exploration, production, transmission, distribution, and energy efficiency.
2. Table A3.1 summarizes ongoing assistance to the gas sector in Bangladesh.
Table A3.1: Assistance to the Gas Sector Sector and Development Amount Theme Partner Technical Assistance/Project Name Duration ($ million) Energy, ADB Dhaka Clean Fuel Project Ongoing 72.6 economic growth Energy, ADB Gas Transmission and Development 2005–2010 230.0 economic growth Project Energy, Norway Dhaka Clean Fuel Project (cofinancing Ongoing 9.3 economic growth with ADB) Energy, Norway Gas Transmission and Development 2005–2010 5.0 economic growth Project (cofinanced by ADB) USAID TA on Improved Capacity for Energy 2008–2011 7.7 Access (focus on BERC and Rural Electrification) World Bank TA on Power Sector Development 2004–2011 15.5 (focus on BERC, Petrobangla, and Power Division of MPEMR) Energy, World Bank Siddhirganj Peaking Power Plant 2008–2016 350.0 economic growth Project (focus on EGCB, PGCB, and GTCL [Bakhrabad–Siddhirganj Pipeline]) World Bank TA on Design of Project Management 2008–2010 0.8 System Framework (focus on power and gas companies) ADB = Asian Development Bank, BERC = Bangladesh Energy Regulatory Commission, EGCB = Electricity Generation Company of Bangladesh, GTCL = Gas Transmission Company Limited, MPEMR = Ministry of Power, Energy and Mineral Resources, Petrobangla = Bangladesh Oil, Gas, and Mineral Corporation, PGCB = Power Grid Corporation of Bangladesh, TA = technical assistance, USAID = United States Agency for International Development. Source: Asian Development Bank
B. Institutional Arrangements and Process of Development Coordination
3. Assistance from major development partners is coordinated by the Economic Relations Division of the Ministry of Finance. Gas sector coordination is assisted by the Energy and Mineral Resources Division (EMRD). Coordination among the development partners and exchange of information are carried out through a local coordination group, which consists of focused subcommittees for each of the core areas of assistance. As the leading development partner in the energy sector, ADB chairs the focused subcommittee on energy. The energy subcommittee holds regular meetings to discuss the latest issues and experiences in the energy sector, with all development partners represented. In addition, there are bilateral meetings with leading energy sector development partners like the World Bank and JICA. Appendix 3 31
C. Achievements
4. Efforts in development coordination in the energy sector have greatly advanced the sector reform agenda and helped improve the regulatory environment in particular. ADB continues its dialogue with development partners in the gas sector through the energy subcommittee, which is kept informed of project progress during ADB missions. Energy subcommittee meetings were held during the fact-finding mission in May 2010 and the appraisal mission in December 2010 to enlighten development partners on progress in processing the project, for which the energy subcommittee has expressed its support. During bilateral meetings, the Export–Import Bank of Korea (Korea Eximbank), JICA, and World Bank separately expressed their support for the project.
5. ADB had a successful joint appraisal mission with Korea Eximbank. Korea Eximbank confirmed its commitment to funding part A-1 of the project, subject to final approval by its management and the Government of the Republic of Korea.
C. Summary and Recommendations
6. The coordination arrangement in the energy sector among development partners through the local coordination group has been successful in ensuring a coordinated approach to sector reforms and in avoiding any overlapping interventions. Further, the coordination of assistance in the gas sector by the government through EMRD has been effective. It is recommended to continue these arrangements with more regular interaction.
32 Appendix 4
DETAILED COST ESTIMATES Table A4.1: Cost Estimates by Project Component $ Million Item Foreign Local Total Part A: Transmission Capacity Expansion A-1. Ashuganj - Bakhrabad Gas Transmission Pipelines and Interface RMS 1. Civil works 3.86 7.78 11.64 2. Equipment 36.76 24.54 61.30 3. Consultants (Project Implementation Support) 0.44 0.06 0.50 4. Training 0.96 0.08 1.04 6. Land 0.00 4.29 4.29 7. Environmental and social mitigation 0.00 1.01 1.01 8. Overhead (Project management and construction supervision) 0.00 0.88 0.88 Subtotal for A-1 42.02 38.62 80.65 A-2. Gas Compressor Stations at Ashuganj and Elenga 1. Civil works 10.90 17.78 28.69 2. Equipment 89.43 49.90 139.33 3. Consultants (Project Implementation Support) 3.32 0.27 3.59 4. Training 0.50 0.05 0.55 6. Land 0.00 0.57 0.57 7. Environmental and social mitigation 0.00 0.02 0.02 8. Overhead (Project management and construction supervision) 0.00 1.21 1.21 Subtotal or A-2 104.15 69.80 173.95 Subtotal for Part A 146.18 108.42 254.60 Part B: Safety and Supply Efficiency Improvement B-1. Gas Seepage Control 1. Civil works 0.00 0.00 0.00 2. Equipment 5.00 0.89 5.89 3. Consultants (Seepage Investigation) 2.26 0.02 2.28 4. Training 0.00 0.00 0.00 6. Land 0.00 0.00 0.00 7. Environmental and social mitigation 0.00 0.14 0.14 8. Overhead (Project management and construction supervision) 0.00 0.51 0.51 Subtotal for B-1 7.26 1.57 8.83 B-2. Field Appraisal & Development 1. Civil works 26.57 3.00 29.57 2. Equipment 52.63 8.35 60.97 3. Consultants (Project Implementation Support) 3.04 0.03 3.07 4. Training 0.97 0.03 1.00 6. Land 0.00 2.00 2.00 7. Environmental and social mitigation 0.00 0.19 0.19 8. Overhead (Project management and construction supervision) 0.00 6.27 6.27 Subtotal for B-2 83.21 19.86 103.07 Subtotal for Part B 90.47 21.43 111.90 Part C: Access Improvement in South Western Region 1. Civil works (**) 0.71 7.44 8.15 2. Equipment 33.14 24.40 57.54 3. Consultants (No Consulting Services) 0.00 0.00 0.00 4. Training 0.19 0.02 0.21 6. Land 0.00 0.29 0.29 7. Environmental and social mitigation 0.00 4.24 4.24 8. Overhead (Project management and construction supervision) 0.00 2.23 2.23 Subtotal for Part C 34.04 38.62 72.67 Part D: Supply and Demand Management 1. Civil works 0.00 0.00 0.00 2. Equipment 4.25 2.62 6.87 3. Consultants (Project Implementation Support & Development of 'Portfolio Projects') 0.45 0.07 0.51 4. Training 0.26 0.08 0.34 6. Land 0.00 0.00 0.00 7. Environmental and social mitigation 0.00 0.00 0.00 8. Overhead (Project management and construction supervision) 0.00 0.04 0.04 Subtotal for Part D 4.96 2.81 7.77 Total Base Cost 275.65 171.27 446.93 Contingencies 16 38 54 Financing Charges 19 22 41 Total Cost 311 231 542 Sources: Bangladesh Gas Fields Company Limited, Gas Transmission Company Limited, Sundarban Gas Company Limited, Titas Gas and Transmission and Distribution Company Limited.
Table A4.2: Cost Estimates by Financier (excluding Part A-1 funded by Korea Eximbank)
$ Million Item Foreign Local Total ADB (OCR) % ADB (ADF) % Govt % A. Investment Costs 1. Civil works 38.19 28.22 66.41 38.19 57.5 0.00 0.0 28.22 42.5 2. Equipment 184.45 86.16 270.60 180.20 66.6 4.25 1.6 86.16 31.8 3. Consultants (a) Implementation Support 9.07 0.39 9.45 8.62 91.2 0.45 4.7 0.39 4.1 (b) Capacity building 1.93 0.18 2.11 1.66 79.0 0.26 12.5 0.18 8.4 Subtotal (A) 233.63 114.94 348.57 228.67 65.6 4.96 1.4 114.94 33.0
B. Other investment costs 1. Land 0.00 2.85 2.85 0.00 0.0 0.00 0.0 2.85 100.0 2. Environmental and social mitigation 0.00 4.59 4.59 0.00 0.0 0.00 0.0 4.59 100.0 3. Project management 0.00 10.27 10.27 0.00 0.0 0.00 0.0 10.27 100.0 Subtotal (B) 0.00 17.71 17.71 0.00 0.0 0.00 0.0 17.71 100.0
Total Base Cost (A+B) 233.63 132.65 366.28 228.67 62.4 4.96 1.4 132.65 36.2
C. Contingencies 13.00 30.00 43.00 13.00 30.2 0 0.0 30.00 69.8
D. Financing Charges 19.00 15.00 34.00 19.00 55.9 0 0.0 15.00 44.1
Total (A + B + C + D) 265.63 177.65 443.28 260.67 58.8 4.96 1.1 177.65 40.1 ADB = Asian Development Bank, ADF = Asian Development Fund, Korea Eximbank = Export–Import Bank of Korea, OCR = ordinary capital resources. Notes: Appendix 4 Appendix 1. All costs are in mid-2009 prices; base costs include taxes and duties. 2. Physical contingency is provided at 5% of base cost estimate for all expenditure categories. 3. Physical contingencies are computed at 5% of the base cost. Price contingencies on foreign exchange costs are computed at 1.9% for 2009, 1.0% for 2010, 0.0% for 2011, 0.3% for 2012, and 0.5% for 2013. The corresponding rates on local currency costs are 7.0% for 2009, 6.5% for 2010, and 6.0% thereafter. Provision for potential exchange rate fluctuation under the assumption of a purchasing power parity exchange rate is included. 33 4. Interest during implementation has been based on 5-year US dollar London interbank offered rate. 5. Commitment charge is based on 0.15% of the undisbursed funds. Sources: Asian Development Bank, Bangladesh Gas Fields Company Limited, Gas Transmission Company Limited, Sundarban Gas Company Limited, and Titas Gas Transmission and Distribution Company Limited.
34 Table A4.3: Cost Estimates of Part A-1 by Financier
Appendix 4 Appendix $ Million Korea Item Foreign Local Eximbank % Govt % Total A. Investment Costs 1. Civil works 3.86 7.78 3.86 33.1 7.78 66.9 11.64 2. Equipment 36.76 24.54 36.76 60.0 24.54 40.0 61.30 3. Consultants (a) Implementation Support 0.44 0.06 0.44 88.6 0.06 11.4 0.50 (b) Capacity building 0.96 0.08 0.96 92.7 0.08 7.3 1.04 Subtotal (A) 42.02 32.45 42.02 56.4 32.45 43.6 74.48
B. Other investment costs 1. Land 0.00 4.29 0.00 0.0 4.29 100.0 4.29 2. Environmental and social mitigation 0.00 1.01 0.00 0.0 1.01 100.0 1.01 3. Project management 0.00 0.88 0.00 0.0 0.88 100.0 0.88 Subtotal (B) 0.00 6.17 0.00 0.0 6.17 100.0 6.17
Total Base Costs (A+B) 42.02 38.62 42.02 52.1 38.62 47.9 80.65
C. Contingencies 3.00 8.00 3.00 27.3 8.00 72.7 11.00
D. Financing Charges 0.11 6.84 0.00 0.0 6.95 100.0 6.95
Total (A+B+C+D) 45.13 53.46 45.02 45.7 53.57 54.3 98.60 Korea Eximbank = Export–Import Bank of Korea Notes: 1. All costs are in mid-2009 prices; base costs include taxes and duties. 2. Physical contingency is provided at 5% of base cost estimate for all expenditure categories. 3. Physical contingencies are computed at 5% of the base cost. Price contingencies on foreign exchange costs are computed at 1.9% for 2009, 1.0% for 2010, 0.0% for 2011, 0.3% for 2012, and 0.5% for 2013. The corresponding rates on local currency costs are 7.0% for 2009, 6.5% for 2010, and 6.0% thereafter. Provision for potential exchange rate fluctuation under the assumption of a purchasing power parity exchange rate is included. Sources: Asian Development Bank, Korea Eximbank, Gas Transmission Company Limited.
PROJECT IMPLEMENTATION SCHEDULE
Item SONDJFMA MJJASONDJFMAMJ JASONDJFMAMJ JASONDJFMAMJ JASONDJFMAMJ JASOND
A. Transmission Ca pacity Expansion TF1 C1 C2 Construction of Ashu ganj - Bakhrabad Gas Transmissionpelines Pi 2009 2010 20112012 2013 2014 TF CA CWi Defect CommisionLiability Period Construction of Gaspressor Com Station atg anAshuj and Elenga Consultin g Services for Part A TP CA1 CW2 EOI CA2 C - Project Implementation Support for Interface RMS and SCADA TP C CM C - Pro RFP CA M ject Implementationpp Suort for Gas pComressor Stations CA M Consultin RFP g Services for Internationalg Trainin EOI RFP CA2 CW B. Safety and Efficiency Improvement TC C Gas See TP CW page Control TP TF1 CA1 TF2 2 C1 C Field A ppraisal & Development EOI RFP CA M C Consultin g Support for Part B EOI RFP CA M Consultin g Services for Internationalg Trainin TP CW
C. Accessp rovementIm in South Westerngion Re EOI RFP TCA C Construction of Gas Distribution Network in South West Re gion CA M TP CW Consultin g Services for Internationalg Trainin Consulting Services for Part D EOI RFP
- Project Implementation Support and Developmet of 'Portfolio of EOI RFP D. Supply and Demand gManaement TF CA C C = Completion/Commissioning;Su CA = Contract Award; CW = Commencement of Work; EOI = Expression of Interest; RFP = Request For Proposals; M = Mobilization; TF = Tender Float; TP: Tender Preparation pply Efficiency Improvement Pilotject Pro CM C 5 Appendix
CA M Consultin g Services for Internationalg Trainin 35
Sources: Bangldesh Gas Fields Limited, Gas Transmission Company Limited, Sundarban Gas Company Limited, Titas Gas Transmission and Distribution Company Limited.
36 Appendix 6
PROCUREMENT PLAN
Basic Data
Project Name Natural Gas Access Improvement Project Country People's Republic of Bangladesh Executing Agency Part A: Gas Transmission Company Limited (GTCL) Part B: Bangladesh Gas Fields Company Limited (BGFCL) Part C: Proposed Sundarban Gas Company Limited (SGCL) Part D: Titas Gas Transmission and Distribution Company Limited (TGTDCL)
Loan Amount Ordinary capital resources: $261 million; Asian Development Fund: $5 million Loan (Grant) Number To be determined Date of First Procurement Plan 17 November 2009 Date of This Procurement Plan 11 February 2010
A. Process Thresholds, Review, and 18-Month Procurement Plan
1. Project Procurement Thresholds
1. Except as the Asian Development Bank (ADB) may otherwise agree, the following process thresholds shall apply to procurement of good, works, and consulting services.
Procurement of Goods, Works, and Consulting Services Procurement Method Threshold Procurement of Goods and Works International competitive bidding (ICB)(works) Above $1,000,000 ICB (goods) Above $500,000 National competitive bidding (NCB) (works) Less than $1,000,000 NCB (goods) Less than $500,000 Shopping (works) Less than $100,000 Shopping (goods) Less than $100,000 Recruitment of Consulting Firms Quality- and cost-based selection Above $200,000 Consultants’ qualifications selection Less than $200,000 Least-cost selection Less than $100,000
2. ADB Prior or Post Review
2. Except as ADB may otherwise agree, the following prior- or post-review requirements apply to the various procurement and consultant recruitment methods used for the project.
Procurement Method Prior or Post Comments Procurement of Goods and Works ICB (works) Prior ICB (goods) Prior NCB (works) Prior for the first use, then post NCB (goods) Prior for the first use, then post Shopping (works) Post Shopping (goods) Post Appendix 6 37
Procurement Method Prior or Post Comments Recruitment of Consultants Quality- and cost-based selection Prior Consultants qualifications selection Prior Least-cost selection Prior Individual consultants Prior
3. Goods and Works Contracts Estimated to Cost More Than $1 Million
3. The following table lists goods and works contracts for which procurement is either ongoing or expected to commence within the next 18 months.
Contract Advertisement Value Procurement Prequalification Date General Description ($ million) Method of Bidders] (Quarter/Year) Comments Supply contract for procurement of 28.1 Korea TBD TBD Financed gas transmission pipelines and its Eximbank by Korea accessories (2 packages) guidelines Eximbank Turnkey contract for procurement of 4.3 Korea TBD TBD Financed river crossing for gas transmission Eximbank by Korea network guidelines Eximbank Turnkey contract for procurement of 11.1 Korea TBD TBD Financed IMRS and SCADA system (2 Eximbank by Korea packages) guidelines Eximbank Turnkey contract for procurement of 127.2 ICB No Q2 2010 Financed gas compressor stations by ADB Supply contract for procurement of 30.2 ICB No Q4 2010 Financed casing, tubing, wellhead control by ADB panel, and wireline logging, etc., for gas field appraisal (3 packages) Supply contract for procurement of 30.7 ICB No Q4 2011 Financed drilling, mud logging, and drill bits, by ADB etc., for gas seepage control and field appraisal Turnkey contract for procurement of 24.3 ICB No Q4 2011 Financed process plants for gas field by ADB appraisal Supply contract for procurement of 33.1 ICB No Q1 2010 Financed gas distribution pipelines and by ADB accessories (2 packages) Turnkey contract for procurement of 1.1 ICB No Q2 2010 Financed river crossing for gas distribution by ADB network Turnkey contract for procurement of 5.2 ICB No Q1 2011 Financed prepaid gas metering system and by ADB remote metering system (ADF) (2 packages) ADB = Asian Development Bank, ADF = Asian Development Fund, ICB = international competitive bidding, IMRS = interface metering and regulating stations, Q = quarter, SCADA = supervisory control and data acquisition. TBD = to be decided Sources: Asian Development Bank, , Bangladesh Gas Fields Company Limited, Gas Transmission Company Limited, Sundarban Gas Company Limited, and Titas Gas Transmission and Distribution Company Limited.
38 Appendix 6
4. Consulting Services Contracts Estimated to Cost More Than $100,000
4. The following table lists consulting services contracts for which procurement is either ongoing or expected to commence within the next 18 months.
Contract Advertisement International/ Value Recruitment Date National General Description ($ million) Methoda (Quarter Year) Assignment Comments Consulting services for project Korea Financed International implementation support for IMRS 0.50 Eximbank TBD by Korea and national and SCADA guidelines Eximbank Consulting services for project RFP issuance to QCBS Financed implementation support for gas 2.70 be scheduled in International by ADB turbine compressors (FTP) Q1 2010
Consulting services for international QCBS Financed training for GTCL 1.59 Q3 2010 International (FTP) by ADB
Consulting services for drilling and QCBS Financed seepage investigation 5.30 Q2 2010 International (FTP) by ADB
Consulting services for international QCBS Financed training for BGFCL 1.00 Q4 2010 International (FTP) by ADB
Consulting services for international QCBS Financed training for SGCL 0.21 Q3 2010 International (BTP) by ADB Consulting services for project implementation support and Financed QCBS International development of portfolio of energy 0.50 Q1 2010 by ADB and national efficiency improvement project for (BTP) (ADF) TGTDCL
Consulting services for international QCBS Financed training for TGTDCL 0.30 Q3 2010 International by ADB (BTP) (ADF) ADB = Asian Development Bank, ADF = Asian Development Fund, BTP = biodata technical proposal, FTB = full technical proposal, BGFCL = Bangladesh Gas Fields Company Limited, GTCL = Gas Transmission Company Limited, IMRS = interface metering and regulating stations, QCBS = quality and cost-based selection, RFP = request for proposals, SCADA = supervisory control and data acquisition, SGCL = Sundarban Gas Company Limited, TGTDCL = Titas Gas Transmission and Distribution Company Limited. a The quality–cost ratio for QCBS contract packages is 80:20. Sources: Asian Development Bank, Bangladesh Gas Fields Company Limited, Gas Transmission Company Limited, Sundarban Gas Company Limited, Titas Gas Transmission and Distribution Company Limited
B. Indicative List of Packages Required Under the Project
5. The following table provides an indicative list of all procurement (goods, works, and consulting services) over the life of the project.
Contract Estimated Value Domestic Procurement No. Item (Tk million) ($ million) Preference (Y/N) Mode Procurement Part A Transmission Capacity Expansion 11,951.3 170.7 A-1 Supply of three layer Polyethylene 1,814.1 25.9 TBD Korea coated line pipes, other pipes, and Eximbank induction bends guidelines Appendix 6 39
Contract Estimated Value Domestic Procurement No. Item (Tk million) ($ million) Preference (Y/N) Mode A-2 Supply of pipeline ball valves, plug 154.5 2.2 TBD Korea valves, pig traps, fittings, and Eximbank coating and wrapping and cathodic guidelines protection materials A-3 Construction of river crossing with 300.0 4.3 TBD Korea horizontal directional drilling Eximbank guidelines A-4 Installation of interface metering and 696.9 10.0 TBD Korea regulating stations Eximbank guidelines (turnkey) A-5 Installation of fiber-optic-based 81.6 1.2 TBD Korea SCADA system Eximbank guidelines (turnkey) A-6 Construction of gas compressor 8,904.2 127.2 No ICB (turnkey) stations at Ashuganj and Elenga Part B Safety and Efficiency 5,962.7 85.2 Improvement B-1 Supply of casing and tubing 623.0 8.9 Yes ICB (supply) B-2 Supply of casing, tubing and 180.9 2.6 Yes ICB (supply) cementing accessories, wellhead control panel, wellhead and X-mass tree and downhole completion equipment B-3 Supply and related works of 1,310.8 18.7 Yes ICB (supply) cementation, wireline logging, wireline operation, drill stem testing and core and pressure-volume - temperature analysis B-4 Supply and related works of drilling, 2,148.1 30.7 Yes ICB (supply) mud logging, drill bits and nozzles, and mud and completion chemicals B-5 Construction of process plants and 1,700.0 24.3 Yes ICB (turnkey) related gas gathering pipelines Part C Access Improvement in 2,399.6 34.3 Southwestern Region C-1 Supply of line pipes, coating and 1,741.1 24.9 Yes ICB (supply) wrapping and cathodic protection materials C-2 Supply of valves and fittings, butt 578.5 8.3 Yes ICB (supply) welded fittings, regulating and metering, and customer metering station materials C-3 Construction of Rupsha River 80.0 1.1 Yes ICB (turnkey) crossing Part D Supply and Demand Management 364.5 5.2 D-1 Installation of prepaid gas metering 82.9 1.2 Yes ICB (turnkey) system D-2 Installation of remote metering 281.6 4.0 Yes ICB (turnkey)
40 Appendix 6
Contract Estimated Value Domestic Procurement No. Item (Tk million) ($ million) Preference (Y/N) Mode system and turbine meters Subtotal: Procurement (16 packages) 20,678.2 295.4 Consulting Services a-A-i Project implementation support for 35.0 0.5 NA QCBS IMRS and SCADA for part A
a-A-ii Project implementation support for 188.9 3.6 NA QCBS gas turbine compressors for part A b-A International training for GTCL 111.3 1.59 NA QCBS a-B Drilling and seepage investigation 371.0 5.3 NA QCBS for part B b-B International training for BGFCL 1.0 NA QCBS a-C International training for SGCL 194.8 0.21 NA QCBS Project implementation support and 33.7 0.5 NA QCBS development of portfolio of energy a-D efficiency improvement projects for TGTDCL for part D b-D International training for TGTDCL 21.2 0.3 NA QCBS Subtotal: Consulting Services (8 packages) 13.0 Total Cost 21,522.7 307.5 BGFCL = Bangladesh Gas Fields Company Limited, GTCL = Gas Transmission Company Limited, ICB = international competitive bidding, IMRS = interface metering and regulating stations, NA = not applicable QSBS = Quality- and cost-based selection, SCADA = supervisory control and data acquisition, SGCL = Sundarban Gas Company Limited, TGTDCL = Titas Gas Transmission and Distribution Company Limited. Appendix 7 41
FINANCIAL ANALYSIS
A. General Methodology and Assumptions
1. The financial analysis of the proposed subprojects has been carried out in accordance with the Asian Development Bank (ADB) Financial Management and Analysis of Projects.1 All financial costs and benefits are expressed in constant 2009 prices. Cost streams (i.e., capital investment and operation and maintenance) reflect the costs of delivering the estimated benefits. Financial analysis was undertaken for the transmission and distribution components of the project. In the case of the safety and supply efficiency improvement component, no financial internal rate of return (FIRR) is calculated.
2. The weighted average cost of capital (WACC) for both Gas Transmission Company Limited (GTCL) and Sundarban Gas Company Limited (SGCL) was calculated and compared with the project FIRRs to ascertain financial viability. The project is evaluated over a 20-year period. It is assumed that the subprojects will have a 30-year economic life and a residual value of 33% of the original investment at the end of 20 years. The financial evaluation considered only the incremental revenues and costs directly associated with the project. All costs and revenues are expressed in mid-2009 prices. Capital costs included physical contingencies but excluded price contingencies and interest during construction. An exchange rate of Tk70 = $1 was assumed. Repair and maintenance costs of project assets were based on estimates adopted in the economic evaluation. An allowance was made of 1.0% of capital costs for pipeline maintenance and 2.5% of capital costs for compressor maintenance, plus a fuel cost based on 1.5% of gas throughput at an average wellhead gas cost of Tk1.17 per cubic meter (m3). After 10 years, rehabilitating compressors is assumed at 50% of project costs.
B. GTCL Gas Transmission Subprojects
3. For the GTCL the compressor and transmission subprojects are primarily designed to relieve downstream supply constraints and improve the efficiency of system operations. The subprojects funded under the project are included in the context of a least-cost development plan for the network in the case of the compressors at Muchai and Elenga.2 Likewise, depletion of the Sangu gas field has meant that additional gas needs to be transmitted to Chittagong from Ashuganj, which has resulted in a new transmission constraint on the existing Ashuganj– Chittagong pipeline. The 61-kilometer (km) Ashuganj–Bakhrabad loop-line is the first step in relieving this constraint. However, the 160 km Ashuganj–Barabkunda loop-line is evaluated, as this is necessary to realize the benefits in terms of increased gas supply at Chittagong.3
4. The GTCL derives its revenue from wheeling charges on gas volumes and condensate volumes transported. For analysis purposes a rate of Tk0.64 per m3 is used, with gas volumes based on those adopted in the economic analysis.4 The incremental gas volume that can be
1 ADB. 2005. Financial Management and Analysis of Projects. Manila. 2 This analysis includes the Muchai compressor financed by the private sector and the Muchai–Ashuganj and Dhanua–Elenga loop-lines to be financed in the future. Analysis of all system enhancements was undertaken to overcome the difficulties inherent in attributing the benefits to an upgrade of only part of the transmission system. 3 Analysis of the entire loop-line enhancement was undertaken to overcome the difficulties inherent in attempting to ascribe benefits to an upgrade to only part of the system upgrades where downstream pipeline restrictions means this section would yield only a fraction of the total benefit of increasing gas supplies to Chittagong. 4 The current rate is Tk0.32 per m3. However, GTCL covenants require a rate of return on net fixed assets of 10%, and the wheeling charge will have to double by fiscal year (FY) 2012 to achieve this objective and meet the GTCL's debt service, which will increase from Tk1,245 million in FY2010 to Tk4,680 by FY2015.
42 Appendix 7 moved as a result of the proposed investments is 798 million cubic feet per day (MMCFD) by fiscal year (FY) 2015.
C. Calculation Weighted Average Cost of Capital for the GTCL
5. The WACC post tax is estimated at 2.7% and made up of government equity estimated at 11.72%5 nominal and relending of foreign funded components at 5.0%6 and domestic funds at an interest rate of 4.0% (Table A7.1).
Table A7.1: Weighted Average Cost of Capital (%) Loans Government Item ADB Domestic Equity Total Amount ($ million) 160.0 19.0 119.0 299.0 Weighting 53.6 6.4 40.0 100.0 Nominal cost 5.0 4.0 11.7 Tax rate 37.5 37.5 0.0 Tax adjusted nominal cost 3.1 2.5 11.7 Inflation rate 0.8 7.0 7.0 Real cost 2.3 (4.2) 4.4 Weighted average cost of capital 1.2 (0.3) 1.8 2.7 ( ) = negative, ADB = Asian Development Bank. Source: Asian Development Bank estimates.
D. Calculation of FIRR, Risk Assessment, and Sensitivity Analyses
6. External risks. Regulatory or tariff revision risk for the subprojects is substantial, with tariff increases of 100% assumed in the financial analysis. However, financial covenants are in place to ensure that the Bangladesh Energy Regulatory Commission (BERC) approves this increase in the GTCL's margin by 2012. Without such increases, the GTCL’s long-term sustainability is in jeopardy. Gas demand risk is minimal, as the country already experiences gas shortages, with the Bangladesh Oil, Gas, and Mineral Corporation (Petrobangla) able to supply only 80% of managed demand from present sources. Geopolitical and political risks are present for all projects in Bangladesh. However, the nature of the investments and the shortage of gas in Bangladesh serve to diversify this risk. Therefore, the risk to the financial sustainability of the GTCL is deemed to be minimal, with the project seen as a necessary step toward improving supply, especially by improving the efficiency of the transmission system.
7. Project-specific risks. Financial risks include (i) increases in the prices of civil works pipelines and equipment, (ii) delays in project implementation, and (iii) failure of counterpart funds to materialize. These risks are low since (i) cost estimates were based on recent tenders received, and advanced procurement will lessen the time between loan effectiveness and disbursement; (ii) the GTCL’s implementation capacity is low but adequate, and implementation consulting support will be provided; and (iii) the projections prepared for the GTCL demonstrate that, with increases in wheeling charges, cash flows will improve and the GTCL will be able to repay debt associated with the investments.
5 10-year Treasury bond rate. 6 The government determines the onlending rate of foreign loans, irrespective of the London interbank offered rate, with foreign loans attracting a 5% interest rate. However, the loans are in foreign currency and attract foreign exchange losses or gains annually, with the GTCL bearing the foreign exchange risk. Appendix 7 43
8. Sensitivity analyses. Separate analyses were carried out to examine the sensitivity of projected financial returns to adverse changes in key variables. The variables considered for the sensitivity analyses were a 10% increase in capital costs, 10% increase in operating and maintenance costs, 10% decrease in revenues, and a 2-year implementation delay with a 20% increase in costs and no allowance for residual values. In addition, the impact of no increase in wheeling charges and a 50% increase by 2012 to Tk0.48 per m3 were examined.
9. Summary of results. Table A7.2 sets out the results for the compressor and loop-line system reinforcement and demonstrates that the results are robust with FIRR values in sensitivity analysis exceeding the WACC. Components are most sensitive to lower wheeling charges. Nevertheless, the FIRR is still in excess of the WACC at the current wheeling charge of Tk0.32 per m3 (50% lower than that expected in FY2012) with an FIRR of 5.3%, compared with a WACC of 2.7%.
Table A7.2: FIRR and Sensitivity Analyses of Compressor Option FNPV FIRR Sensitivity Analyses (Tk million) (%) Base Case: Wheeling Tk0.64/m3 31,134 11.3 Tk0.48/m3 –25% 19,411 8.4 Tk0.32/m3 –50% 8,053 5.3 Capital +10% 28,924 10.1 Operating +10% 28,747 10.7 Benefits –10% 23,423 9.4 All the above 18,826 7.7 2-year delay plus 20% capital cost 35,799 8.6 No residual value 25,911 10.8 WACC 2.7 ( ) = negative, FIRR = financial internal rate of return, FNPV = financial net present value, m3 = cubic meter, WACC = weighted average cost of capital. Source: Asian Development Bank estimates.
Table A7.3: FIRR and Sensitivity Analyses of Chittagong Supply Reinforcement Option FNPV FIRR Sensitivity Analyses (Tk million) (%) Base Case – Wheeling Tk0.64/m3 7,089 6.5 Tk0.48/m3 –25% 3,387 4.6 Tk0.32/m3 –50% (767) 2.2 Capital +10% 6,042 5.7 Operating +10% 6,476 6.2 Benefits –10% 4,719 5.3 All the above 3,059 4.3 2-year delay plus 20% capital cost 7,986 4.4 No residual value 4,793 5.7 WACC 2.7 ( ) = negative, FIRR = financial internal rate of return, FNPV = financial net present value, m3 = cubic meter, WACC = weighted average cost of capital. Source: Asian Development Bank estimates.
10. Table A7.3 set out the results for Chiitagong supply reinforcement (Ashuganj– Bakhrabad), which is necessary as a first step toward providing additional gas to Chittagong. It demonstrates that the results are robust, with sensitivities exceeding the WACC. Components are most sensitive to lower wheeling charges, so that where there was no increase from the present Tk0.32 per m3 the subproject could not be supported.
44 Appendix 7
11. Table A7.4 sets out the results for the combined GTCL subprojects and demonstrates that the results are robust with FIRRs exceeding the WACC. Components are most sensitive to wheeling charges. But the FIRR is still in excess of the WACC at the current wheeling charge of Tk0.32/m3 with an FIRR of 4.2% above the WACC of 2.7%. Table A7.4: FIRR and Sensitivity Analyses of All GTCL Reinforcement Projects FNPV FIRR Sensitivity Analyses (Tk million) (%) Base Case - Wheeling Tk0.64/m3 38,223 9.6 Tk0.48/m3 –25% 22,797 7.1 Tk0.32/m3 –50% 7,285 4.2 Capital +10% 34,965 8.6 Operating +10% 35,222 9.1 Benefits –10% 28,143 8.0 All the above 21,885 6.5 2-year delay plus 20% capital cost 43,784 7.2 No residual value 30,705 9.0 WACC 2.7 ( ) = negative, FIRR = financial internal rate of return, FNPV = financial net present value, m3 = cubic meter, WACC = weighted average cost of capital. Source: Asian Development Bank estimates.
E. Sundarban Gas Distribution Company Distribution Subproject
12. The SGCL will develop a gas distribution network in the southwest, along a backbone from Bheramara in the north to Khulna in the south. It will supply existing and proposed power stations in Khulna and Bheramara and other gas consumers in Khulna, Mongla, Jessore, Jhenaidah, Kushtia, and Bheramara. Operating costs are based on the development project pro forma (DPP) and the operating costs of the Pashchimanchal Gas Company Limited, which operates in the western part of the country. Revenues are derived from retail margins for various gas customers and the SGCL where the bulk of sales are to power stations. The average margin adopted in the analysis is Tk0.276 per m3.
13. The WACC of 1.8% is calculated based on assumptions similar to those regarding the GTCL. Table A7.5 sets out the results and demonstrates that the results are robust, with sensitivities exceeding the WACC. The subproject is most sensitive to delays and capital cost increases, but the FIRR with a 2-year delay and 20% increase at 2.8% exceeds the WACC.
Table A7.5: FIRR and Sensitivity Analyses of Distribution Subproject FNPV FIRR Sensitivity Analyses (Tk million) (%) Base Case 2,589 5.5 Capital +10% 1,983 4.5 Operating +10% 2,377 5.3 Benefits –10% 1,512 4.1 All the above 695 2.8 2-year delay with 20% capital increase 920 2.8 WACC 1.8 ( ) = negative, FIRR = financial internal rate of return, FNPV = financial net present value, WACC = weighted average cost of capital. Source: Asian Development Bank estimates. Appendix 8 45
ECONOMIC ANALYSIS
A. Economic Rationale
1. Poor infrastructural continues to impede Bangladesh’s development. The project is designed to address some constraints faced by the gas sector in terms of production and transmission, distribution, energy efficiency, and safety. The government’s poverty reduction strategy emphasizes policies to expand the natural gas grid to improve access to gas, promote extensive industrialization, and accelerate balanced regional development, which would help reduce widespread poverty. Thus the project is expected to improve equity in access to gas and improve the environment and health, particularly of women and the poor, who are the most vulnerable to smoke from cooking fires.
2. The depletion of the Sangu gas field has meant that additional gas needs to be transmitted to Chittagong from Ashuganj, which has resulted in a new transmission constraint on the existing Ashuganj–Chittagong pipeline. The 61-kilometer (km) Ashuganj–Bakhrabad loop-line is the first step toward relieving this constraint. The compressors at Ashuganj and Elenga, together with the compressors at Muchai constructed under an international oil company (IOC) initiative, can potentially increase gas flow by 244 million cubic feet per day (MMCFD). The safety component will control seepage of gas from abandoned wells. This will reduce hazards and improve the environment in the gas fields. The success of future investments in transmission and distribution depends on gas supply expansion because there is a growing gap between demand and supply. In this context, component B focuses on augmenting gas supply from the Titas gas field.
3. The public sector investment in this project is justified as transmission and distribution facilities are a natural monopoly. In addition, the project intervention corrects some other market failures by reducing indoor air pollution through improved access to natural gas, improving safety and the environment in abandoned gas fields, and improving supply and end-user efficiency, which would not be undertaken by the private sector. The expected global environmental benefits associated with reduced greenhouse gas emissions will be significant. The project does not crowd out any potential private sector investments. However the project has certain characteristics of private–public partnership. For example, some of the facilities developed by the project facilitate gas production by IOCs, and some investments in compressors come from the private sector.
4. In addition to correcting market failures, the project includes a number of measures to correct some of the non-market failures to ensure project outcomes. These measures include enhancing sector-level governance; focusing on broader sector reforms; realistic tariff determination; setting up a regulatory institute and defining its functions; and enhancing the sustainability of energy sector operations by streamlining the approval process and implementing the energy policy, proposed gas act, and updated gas sector reform road map. Under the road map, several gas sector enterprises are required to undergo restructuring and implement strategic business plans. Gas sector entities will also implement the plan to reduce gas system losses.
B. Demand Analysis
5. In July 2008, the Bangladesh Oil, Gas, and Mineral Corporation (Petrobangla) revised its forecast of gas demand through 2020. This forecast supersedes that prepared by Wood Mackenzie in 2006 as part of the gas sector master plan and is now its official forecast. Gas 46 Appendix 8 consumption rose from 365 billion cubic feet (BCF) in fiscal year (FY) 2001 to 557 BCF in FY2008, for a compound average annual growth rate of 7.3%. The highest consumption growth rate was in the non-bulk category, with an average growth rate over the period of 23%. The non- bulk category comprises industry, commerce, households, tea, brick field (seasonal), and compressed natural gas (CNG). In FY2006, industry accounted for 49% of the non-bulk category and households 40%. Between FY1999 and FY2007, industry’s average annual consumption growth was 12.4% and households’ 16.3%. The high rate of growth in domestic consumption can be attributed to rapid construction growth and rural–urban migration and the scarcity of alternative cheaper fuel for domestic use. CNG recorded phenomenal growth from FY2003 to FY2008 rising from 0.003 BCF in FY2003 to 24.2 BCF in FY2008. Government initiatives to arrest air pollution by encouraging the use of indigenous natural gas, increasing the prices of alternative fuels for automobiles, increasing the number of CNG-powered vehicles, and expanding multiple uses of indigenous natural gas have been major contributors to the high increase in the consumption of CNG. Growth in gas consumption for electricity was 1.5% and for fertilizer –6.5% over the period. The gas demand forecast revised by Petrobangla reflects supply constraints. The overall growth rate assumed in the forecast is 7.3%, the same as the historic growth rate for 2002–2008.
6. To meet growing demand and overcome production and transmission deficiencies, large-scale investments in exploration, field development, transmission, and distribution have to be made. Petrobangla estimates that maximum gas demand will rise to 5,144 MMCFD in FY2020. Probable gas production from existing gas fields is expected to peak at 2,475 MMCFD in FY2017 and then gradually decline to 2,288 MMCFD in FY2020. Petrobangla projects production peaking at 1,080 MMCFD in FY2017, following new discoveries by IOCs both onshore and offshore. Overall peak production by state gas companies (SGCs) and IOCs is estimated to reach 3,555 MMCFD in FY2017. Despite the increase, gas supply is inadequate to meet the demand because demand is growing more quickly.
C. Least-Cost Analysis
7. The Gas Transmission Company Limited (GTCL) has undertaken a least-cost analysis of system improvements. Analyses were conducted considering additional gas production only from new sources in the vicinity of the Kailashtilla and Muchai hubs. The analysis included 13 options that were compared regarding financial costs and technical feasibility. Analysis took into consideration discounted operation and maintenance costs for compressors and pipeline over 20 years along with capital cost for comparison.
8. Ongoing improvements in the gas transmission and distribution system were taken into account. The planned loop-lines were assumed to be completed before the commissioning of the compressors stations (see Supplementary Appendix D for the different options and associated costs). The entire simulation assumes that the system meets maximum day demand. Option H (Muchai–Ashuganj 30-inch new loop-line) appears to be the least-cost option. Sound system operation depends largely on line pack availability for use during peak hours and repacking the lines off peak. As such, an option that will ensure faster packing and maximum withdrawal during peak hours would be the best option for selection, irrespective of cost. An additional compressor, compared with option H, means faster packing of lines off peak for utilization during peak hours. Considering these technical requirements, option N was selected as optimum given its cost and technical characteristics. Option N comprises constructing Muchai–Ashuganj and Dhanua–Elenga 30-inch loop-lines and installing compressors at Muchai, Ashuganj, and Elenga. The cost difference between selected and least- cost options is small. Appendix 8 47
D. Economic Analysis Methodology and Assumptions
9. Economic analysis of the project was undertaken in accordance with Asian Development Bank (ADB) Guidelines for the Economic Analysis of Projects.1 Separate economic analyses for components of the project have not been carried out because the components will work together to remove some of the constraints on the gas transmission and distribution system. All the improvements to transmission, distribution, supply augmentation, and compressors will bring an incremental increase in gas flow in the GTCL system. Economic analysis was undertaken based on the benefits of this incremental gas supply from system improvements.
10. As all policy reforms, institutional capacity building, and training are treated as necessary to deliver the final output of the project, no additional benefits were estimated for these activities. Demand management may result in some energy savings by current consumers, allowing new consumers to consume gas. Since access to gas is currently limited to some end users, this may not result in net savings. Therefore, no additional benefits were considered in the analysis. Environmental benefits from reduced indoor air pollution, greenhouse gas emissions, and seepage in gas fields were not quantified because of data problems.
11. The shadow exchange rate factor has been estimated by Bangladesh Planning Commission at 1.03, which has been adopted for the analysis. It is assumed that there are no significant distortions in wage rates for skilled labor. In the case of unskilled labor, a shadow wage rate factor of 0.75 was adopted, based on parameters used by the Bangladesh Planning Commission.
12. All costs and benefits are expressed at constant 2009 prices. The world price numeraire was used in the analyses. Financial costs were allocated across the categories shown in Table A8.1. Investments will be required in upstream gas exploration and production to meet forecast sales. The life-cycle gas cost on an average incremental cost basis of $1.32 per thousand cubic feet, as shown in Supplementary Appendix D, has been taken as a measure of the long-run marginal cost of gas production. . Table A8.1: Cost Categories and Conversion Factors Cost Component Conversion Factor Traded goods and service 1.00 Non-traded goods and services 0.97 Foreign skilled labor 1.00 Local skilled labor 0.97 Local unskilled labor 0.73 Fuel 0.97 Taxes and financing charges 0.00 Source: Asian Development Bank estimates.
13. A 12% economic discount rate was used, and a period of 20 years has been used for economic evaluation. Investment is assumed to take place in 2010–2015, and benefits are assumed to be realized from 2016, when Muchai compressor is expected to be operational. No residual values are assumed in year 20.
14. It is assumed that the incremental flow of gas will displace sources of energy currently used by the beneficiaries. The incremental gas flow attributed to this project is derived from the
1 ADB. 1997. Guidelines for the Economic Analysis of Projects. Manila.
48 Appendix 8 network analysis. The resource cost saving arising from energy displacement is the main economic benefit quantified in the analysis. Access to gas may bring incremental consumption, which was not considered in the analysis because of lack of information on incremental consumption and willingness to pay. However, since the project provides a high economic internal rate of return (EIRR), this omission does not affect the economic feasibility of the project. The details of the values of displaced fuel are in Supplementary Appendix D.
15. As exploiting natural gas depletes reserves, it entails an additional opportunity cost. This additional cost—the depletion premium—is incorporated in the economic appraisal of nonrenewable resource projects, based on ADB’s Guidelines for the Economic Analysis of Projects. The substitute fuel price was based on a price of $60 for crude oil. The long-run marginal cost of wellhead gas of $1.32 per million cubic feet was used as the extraction cost. The value of benefits against the economic cost of fuels displaced by gas in the existing network and western zone distribution project is $11.4 per million cubic feet.
E. Results
16. The EIRR for the project is summarized in Table A8.2. Note that the combined costs include capital costs, operation and maintenance costs, gas extraction costs, and the depletion premium. The base case assumes only 80% of the incremental gas flow attributed to the project will be delivered to end users. The results show that the project EIRR is 32%. The net present value is large because of very low gas extraction cost and the higher economic costs of displaced energy sources.
17. Table A8.2 presents the results of the sensitivity analysis. The rate of return of the project is less sensitive to capital cost increase. Even if the predicted incremental gas flow is reduced by half, the project provides acceptable returns. The most sensitive factor for the project is resource cost savings. A 20% reduction in the prices of energy sources displaced by gas will lower the EIRR to 19%. This is not a real risk to the project, as it is unlikely that oil prices will drop below $60 per barrel, the price used in the economic analysis. Delay in commissioning the project will have some impact, but project analysis assumes that no benefits occur in the first 6 years. The results of sensitivity analyses show that project returns are robust against all risks.
Table A8.2: Results of Sensitivity Analyses Item Variation EIRR (%) Base Case 32 Project capital costs +50% 31 Incremental gas flow –50% 22 Resource cost savings –20% 19 Gas extraction cost +50% 24 Commissioning delayed one year +1 year 23 Commissioning delayed + capital and maintenance cost increase +1 year + 50% 15 100% system efficiency 37 EIRR = economic internal rate of return. Source: Asian Development Bank estimates.
Appendix 9 49
SUMMARY POVERTY REDUCTION AND SOCIAL STRATEGY
Country/Project Title: Bangladesh: Natural Gas Access Improvement Project
Lending/Financing Department/ South Asia Department Project Loan Modality: Division: Energy Division
I. POVERTY ANALYSIS AND STRATEGY A. Linkages to the National Poverty Reduction Strategy and Country Partnership Strategy
1. Based on the country poverty assessment, the country partnership strategy, and the sector analysis, describe how the project would directly or indirectly contribute to poverty reduction and how it is linked to the poverty reduction strategy of the partner country.
The Government of Bangladesh has as its overarching goal and development vision, as articulated in the Poverty Reduction Strategy adopted in November 2005, to substantially reduce poverty and invigorate social development in the shortest possible time. The strategy also commits the government to halve the proportion of the population living below the poverty line by 2015. The strategy stresses the links among investment, growth and job creation, and poverty reduction, and it identifies key areas where reforms are needed, public investments are required, and public policies can be improved.
Infrastructure, particularly for energy, will play a very significant role in achieving the envisaged economic growth and poverty reduction. Reliable access to energy is essential for economic development and poverty reduction. However, the energy sector has recently been afflicted by shortages of gas and electricity, which stifles economic growth and social welfare improvement. The government is implementing comprehensive energy sector reforms through a carefully sequenced approach to ensure reduced physical distribution costs and improve service delivery to the poor and poorer geographic areas.
Natural gas is the dominant energy resource of the country, accounting for 75% of the total commercial energy consumption. It can significantly contribute to reducing poverty, particularly in the project areas, where 54% of the households are estimated to live below the poverty line.a Natural gas contributes to poverty reduction by expanding access to clean energy and employment opportunities during project construction and, after completion, increasing economic activity in the project area.
B. Poverty Analysis Targeting Classification: GI
1. Key Issues The project will make clean energy available to the less-developed southwestern region of Bangladesh, and its population of 10 million (7% of the country’s total). The analysis conducted during project preparation indicates that 30% of beneficiaries (3 million) are poor and will directly or indirectly benefit from the project. The channels through which the income of the poor would potentially increase are (i) expansion in off-farm activities; (ii) growth in agricultural income; (iii) expansion of markets and institutions with more available gas and electricity; (iv) time savings that can be devoted to other income-earning pursuits, particularly by women; and (v) lower costs of cooking. The contributions to reducing non-income poverty are through (i) controlling the depletion of forest resources, (ii) empowering women by creating off-farm income opportunities, (iii) establishing social infrastructure that can provide better services (e.g., health centers and educational institutions), and (iv) building social relations and status.
The proportion benefits accruing to the poor has been estimated for all benefits allocated by the distribution analysis. Benefits to domestic consumers have been allocated according to the proportion of consumers that are poor. Domestic consumers will mainly be residents of the project area, and benefits are allocated using the poverty incidence in the project area. The poverty impact ratio is estimated to be 30%, which indicates that the project reduces poverty.
2. Design Features. The project will create 3,000 person-months of unskilled job opportunities equally for men and women.
II. SOCIAL ANALYSIS AND STRATEGY A. Findings of Social Analysis
Key Issues. Social studies carried out in 2009 show that the project will necessitate the acquisition of private land, with significant impact on affected households.
To mitigate these impacts, the three gas companies have adopted full and short resettlement plans with detailed resettlement 50 Appendix 9 and rehabilitation provisions to address the loss of land, structures, livelihood, and common property resources. The gas companies have also addressed community concerns about compensation packages for land and replacement of common property resources. In addition, a grievance redress mechanism has been put in place to address, for example, apprehension about environmental pollution and compensation. The social analysis shows that an immediate benefit of the project is envisaged in terms of livelihood and employment opportunities during plant construction and operation. B. Consultation and Participation 1. Provide a summary of the consultation and participation process during the project preparation.
To ensure proper community participation, various stakeholders—representatives of vulnerable groups, local leaders, and mayors—were consulted during the project preparation. The gas companies undertook consultations with local officials and village leaders in the project area. These consultations played a vital role in raising awareness, gaining local support, and enabling affected people to voice their opinions and suggestions on project design and implementation. The poor and women have been carefully considered in conducting participatory activities. As part of the social assessment, stakeholders’ consultations were carried out in the project areas with the broad objective of ensuring the extensive participation of all stakeholders. The participatory approach will be continued during implementation.
2. What level of consultation and participation (C&P) is envisaged during the project implementation and monitoring? Information sharing Consultation Collaborative decision making Empowerment
3. Was a C&P plan prepared? Yes No
If a C&P plan was prepared, describe key features and resources provided to implement the plan (including budget, consultant input, etc.). If no, explain why.
While a separate C&P plan has not been prepared, adequate provisions of community consultation and participation during project implementation have been made and incorporated in the resettlement plan, entailing several additional rounds of consultations with affected people during project implementation.
C. Gender and Development 1. Key Issues.
Attempts were made during project preparation to consult women regarding their perceptions of the project and its adverse and positive impacts through gender analysis. Expanded gas production and transmission will bring several positive changes in the daily life of womenfolk. Access to gas will cut cooking costs and reduce the time women spend cooking food and collecting fuel.
Some women landowners and households headed by women will be affected by land acquisition. The resettlement plan provides for additional assistance to households headed by women and some other vulnerable groups.
2. Key Actions. Measures included in the design to promote gender equality and women’s empowerment—access to and use of relevant services, resources, assets, or opportunities and participation in decision-making process: Gender plan Other actions/measures No action/measure
Summarize key design features of the gender plan or other gender-related actions/measures, including performance targets, monitorable indicators, resource allocation, and implementation arrangements.
Compensation will be paid at replacement value. Consultation processes will ensure the representation of women villagers. While the rights of women landowners as legal titleholders are recognized under the law, the resettlement plan will provide additional assistance to households headed by women and other vulnerable groups.
III. SOCIAL SAFEGUARD ISSUES AND OTHER SOCIAL RISKS
Issue Significant/ Strategy to Address Issue Plan or Other Measures Limited/ Included in Design No Impact Involuntary Significant Full and short resettlement plans have been Full Plan Resettlement prepared for subprojects under the loan, Short Plan compensating land at Resettlement Framework replacement value and restoring common No Action Appendix 9 51
property resources and livelihoods.
Indigenous Peoples No Impact The initial poverty and social assessment and Plan the resettlement census did not identify Other Action indigenous people or ethnic minorities in the Indigenous Peoples Framework project area. Therefore, the project does not No Action need an indigenous people’s development plan or framework. Labor Not significant The project is anticipated to create job Employment opportunities both temporarily and long term. Plan opportunities Temporary employment opportunities will be Other Action Labor No Action created during project construction. retrenchment Core labor standards Contractors shall consult with township labor officials and village leaders while selecting unskilled labor in project area. The contractor shall ensure that national labor standards are applied. Affordability Not significant The project is anticipated to increase access Action to cheap fuel in the project area. No Action Other Risks and/or Not significant Lack of capacity in implementing agencies Plan Vulnerabilities and other stakeholders to implement social Other Action HIV/AIDS safeguards and policy, particularly regarding No Action Human trafficking land acquisition, could be a risk. Project Others(conflict, political instability, design will have a component to build the etc), please specify capacity of staff in the three executing agencies on social safeguards. Measures to prevent HIV/AIDS and human trafficking will be taken according to assurances provided in the main text.
IV. MONITORING AND EVALUATION
Are social indicators included in the design and monitoring framework to facilitate monitoring of social development activities and/or social impacts during project implementation? Yes No a The poverty line in Bangladesh is 2,122 kilocalories per person per day. Sources: Asian Development Bank, Bangladesh Gas Fields Company Limited, Gas Transmission Company Limited, Sundarban Gas Company Limited, Titas Gas Transmission and Distribution Company Limited.
52 Appendix 10
SUMMARY RESETTLEMENT PLAN
A. Summary Short Resettlement Plan for Part C
1. The project is located in the five districts of Khulna Division, covering Bheramara, Kushtia, Jhenaidah, Jessore, Kaliganj, Basundia, Noapara, Fultala, Gilatola Cantonment, Daulatpur, Khalishpur, Zoragate, Boyra, Khulna shipyard, Khulna, Bagerhat, and Mongla. The short resettlement plan for part C is in Supplementary Appendix H.1
2. The distribution pipeline with two feeders will follow the right-of-way of existing roads belonging to the municipalities and city corporation. Project sites were selected to minimize impacts by avoiding involuntary land acquisition and displacement and by confining the project to government or Gas Transmission Company Limited (GTCL) land. Although no titled landholders will be affected, nine households comprising 52 persons (mainly squatters) will be temporarily affected for a maximum of 1 week and will therefore require compensation. A detailed survey of 100% of the affected people was conducted in June 2009. Nine informal commercial structures will be temporarily affected. All nine affected households will be affected temporarily by losing their livelihoods. No common property or resources will be affected.
Table A10.1: Summary of Impacts Affected Structure Affected Households Affected People Pottery shop 1 7 Butchery 4 25 Tea stall 4 20 Total 9 52 Source: Sundarban Gas Company Limited
3. This short resettlement plan is based upon the Acquisition and Requisition of Immovable Property Ordinance of 1982 (Ordinance II of 1982) and subsequent amendments and the Asian Development Bank (ADB) Involuntary Resettlement Policy (1995). Cut-off dates were set to be between 4 and 6 June 2009, depending on the consultation and survey dates. The resettlement officer will be in charge of monitoring the implementation of the short resettlement plan. He or she will ensure that the resettlement budget is available in a timely manner.
4. A grievance redress committee will be established by the commencement of civil works to mediate in disputes concerning resettlement assistance and project-related grievances. The committee will comprise city mayors, local nongovernment organizations, representatives of the project, and concerned agencies and departments.
Table A10.2: Detailed Budget Cost Cost Item Area/Unit (Tk million) ($ '000) A. Structures (squatters) Commercial shops, temporary shacks 9 0.041 0.60 B. Compensation for road cuttinga 901 kilometers 486.52 7,150.00 C. Administrative cost of resettlement unit 0.50 7.35 D. Contingencies 0.50 7.35 Total 487.56 7,170.00 a Compensation to Road Authority. Source: Sundarban Gas Company Limited
1 If there are any changes in the project design during implementation, a revised and updated resettlement plan will be submitted to the Asian Development Bank for review prior to the award of civil works contracts. Appendix 10 53
B. Summary Resettlement Plan for Part B
5. The project constitutes four components: (i) drilling four appraisal-cum-development wells in Titas gas field, (ii) installing two process plants, (iii) gathering a 2.93-kilometer (km) line from wells to processing plants, and (iv) identifying gas seepage and needs for repair and servicing of existing wells at Titas gas field (Supplementary Appendix I).2
6. Implementing the project will require the acquisition of 17.51 acres of mostly agricultural land, affecting households. Of these, 113 will permanently lose 15.47 acres of land, three will lose residential assets (two will lose boundary walls and one will lose a temporary residential structure and a boundary wall), and four will lose 175 trees. The remaining 58 are now impacted by the gas seepage, which costs them access to 3.73 acres. The latter affected households will be compensated for the loss of access to their land from seepage. The project will not further affect them except to allow them to use their land again.
Table A10.3: Summary of Impacts Impact Affected Households Affected Area/Item Agricultural land 113 15.47 acres Residential asset 3 3 structures Trees 4 175 trees Affected by gas seepage 58 3.73 acres Total 178
7. Out of the 171 households incurring impact on land, 37% (65 households) will incur an impact on more than 10% of their land. Among these 171 households, 17% will suffer the loss of less than 1% of their total landholding, with limited impact on their income, and 35% (59 households) will suffer losses ranging from 1% to 5% of their landholding. The remaining 31 households will lose from 5% to 10% of their land.
8. Land acquisition will be necessary for drilling wells and installing processing plants, as no public land is available in the project area. However, the BGCL has devoted particular attention during the planning process to ensuring minimal impacts. Locations were chosen to meet both economic and social requirements, with minimum disturbance and no homestead resettlement. Public consultations with local communities were particularly effective in achieving this goal.
9. This resettlement plan is based upon the Acquisition and Requisition of Immovable Property Ordinance of 1982 (Ordinance II of 1982) and subsequent amendments and ADB's Involuntary Resettlement Policy (1995). The entitlement matrix is in Table A10.7
10. Affected households that are vulnerable or will lose more than 10% of their productive assets will receive additional support for livelihood restoration. A nongovernment organization (NGO) for resettlement consulting will be recruited specifically to assess their needs. The resettlement officer will be in charge of monitoring the implementation of the resettlement plan. He or she will also ensure that the resettlement budget is available in a timely manner.
11. A grievance redress committee will be established at the project level by the commencement of civil works with the primary objective of providing a mechanism to mediate
2 In case of any changes in the project design during the implementation, the revised and updated resettlement plan will be submitted to ADB for review prior to award of civil works contracts.
54 Appendix 10 disputes concerning resettlement assistance and project-related grievances. The committee will comprise the BGCL, the NGO engaged to assist the implementation of the resettlement plan, local elected representatives, and representatives of affected people. Grievances will be redressed within 1 month from the date of the complaint.
Table A10.4: Budget Item Cost (Tk) Loss of trees 53,500 Loss of income of sharecroppers 35,000 Training cost for sharecroppers 9,800 Training for income restoration 49,000 Additional compensation for vulnerable groups 20,000 Compensation for structures 1,752,205 Common resource property 3,000,000 Land acquisition at Kawtali with premium 86,523,342 Land acquisition at Bhadugarth with premium 248,187,300 Compensation for seepage-affected land 1,512,000 Crop compensation for 1 year 249,203 Compensation for loss of more than 10% of agricultural land 485,000 Nongovernment organization fees 1,000,000 External monitoring fees 1,000,000 Total 343,876,350 Note: The detailed budget is in Chapter 7 of Supplementary Appendix I. Source: Bangladesh Gas Fields Company Limited.
C. Summary Resettlement Plan for Part A
12. The project will finance the construction of 61 km of gas transmission pipeline from Ashuganj to Bakhrabad, which will go across 21 unions of four upazilas in the two districts of Brahmanbaria and Comilla (Supplementary Appendix I).3
13. Implementing the project will require the acquisition and requisition of land on the right- of-way of gas transmission pipeline. Three segments: 8 meters in the middle and 6 meters and 9 meters on the two sides will constitute the width of the land acquisition. The central 8 meters will be permanently acquired, while the remaining 15 meters will be requisitioned, or temporarily acquired, for the duration of the civil works.
14. The GTCL has undertaken efforts to minimize adverse impacts. In this regard, the corridor was chosen to pass through agricultural land and avoid settlements and disruption of homestead. The GTCL will ensure that civil works are completed during the dry season to avoid disrupting crops on land that will be temporarily acquired.
15. The survey indicates that the construction and installation of the 61 km of gas pipeline will require the permanent acquisition of 50.65 hectares (ha) and the temporary acquisition of 105.76 ha. A total of 1,992 households will be affected by the permanent acquisition , and 2,185 households will be affected by temporary acquisition, for a total of 10,956 affected people. Supplementary Appendix I (Tables 2.0–2.9) contains a detailed breakdown of impacts.
3 In case of any changes in the project design during the project implementation, the revised and updated resettlement plan will be submitted to ADB for review prior to award of civil works contracts. Appendix 10 55
Table A10.5: Summary of Impacts Permanent Temporary Affected Affected Impact households Area (ha) households Area (ha) Agricultural land 1,892 48.79 2,070 101.33 Fallow land 12 0.21 12 0.38 Mud-house 15 0.27 16 0.55 Tin shed 16 0.17 22 0.33 Semi-packa/packa house 11 0.21 12 0.42 Garden (fruit/wood) 8 0.12 6 0.13 Pond 26 0.52 28 0.93 Other (ditch, yard, etc.) 12 0.36 19 1.67 Total 1,992 50.65 2,185 105.76 Source: Gas Transmission Company Limited
16. This resettlement plan is based upon the Acquisition and Requisition of Immovable Property Ordinance of 1982 (Ordinance II of 1982) and subsequent amendments and ADB's Involuntary Resettlement Policy (1995). The entitlement matrix is provided in Table 10.7.
17. Vulnerable affected households will be given additional support for livelihood restoration. In particular, they will be given an additional grant of Tk5,000, training on income generation, and Tk10,000 as seed money. A livelihood-restoration strategy and a job-creation plan were designed, and eligible affected people will be provided with alternative options to better address their needs. The resettlement officer will be in charge of monitoring the implementation of the resettlement plan. He or she will also ensure that the resettlement budget is available in a timely manner.
18. A grievance redress committee will be established at the project level by the commencement of civil works with the primary objective of providing a mechanism to mediate disputes concerning the resettlement assistance and project-related grievances. The committee will comprise the BGCL, the NGO engaged to assist during the implementation of the resettlement plan, local elected representatives, and representatives of affected people. Grievances will be redressed within 1 month from the date of the complaint.
Table A10.6: Budget Impact Quantity Rate (Tk) Total (Tk) Acquisition agricultural land (ha) 50.65 various 322,934,780 Rent of land (temporary acquisition) (ha) 105.77 711,360 75,240,547 Crops (ha) 156.42 various 66,717,368 Structures (42 permanent, 50 temporary) 92 various 80,400,000 Stamp duty 48,440,217 Trees 4,501 various 4,919,985 Other assets 27 various 1,410,000 Reconstruction 18,964,000 Eviction grant 10,468,000 Vulnerable people 81 5,000 405,000 Commercial 1 1,000,000 Training (number of persons) 1,992 2,000 3,984,000 Income restoration support (number of persons) 1,992 8,000 15,936,000 Grant for alternative housing (number of households) 42 5,000 210,000 Compensation administration cost 98,049,280 Contingencies 75,171,114 Total 747,669,177 Note: The detailed budget is available in Chapter 8 of Supplementary Appendix I.
56 Appendix 10
Table A10.7: Entitlement Matrix
Entitled People Entitlement (Compensation Organization Type of Loss (Beneficiaries) Package) Implementation Issues/Guidelines Responsible 1. Loss of Legal owner(s) CCL, which includes 50% as (a) Assessment of quantity and (a) DC, JVT agricultural of land as premium quality of land by JVS land recorded in the (b) DC title deed Cash grant to cover the (b) Assessment of CCL difference between the CCL (c) PVAT (c) Assessment of market value by and cost of equivalent (d) DC replacement land as MARV land market survey to be determined by PVAT (d) Updating of title of the affected (e) DC, LAO Stamp duty and registration persons (f) DC and cost incurred for replacement (e) Payment of CCL INGO land purchase at the (g) Executing replacement value (f) Affected persons to be fully informed of the entitlements agencies or and procedures regarding INGO payments (h) Executing (g) Additional cash grant to be paid agencies or to cover the current market INGO price of land, with compensation based on average annual value collected from sub-register office. (h) Stamp duty and registration fees will be due to an EP in cases of land purchased within 1 year from the date of receiving full compensation for land. 2. Loss of Legal owner(s) CCL, which includes 50% as (a) Assessment of quantity and (a) DC, JVT commercial of the land as premium quality of land by JVS land recorded in title (b) DC deed Cash grant to cover the (b) Assessment of CCL difference between the CCL (c) PVAT (c) Assessment of market value by and cost of equivalent (d) DC replacement land as MARV land market survey to be determined by PVAT (d) Updating of title of the affected (e) DC, LAO Stamp duty and registration persons (f) DC and cost incurred for replacement (e) Payment of CCL INGO land purchase at the (g) Executing replacement value (f) Affected people to be fully informed of the entitlements agencies or and procedures regarding INGO payments (h) Executing (g) Additional cash grant to be paid agencies or to cover the current market INGO price of land, with compensation based on average annual value collected from sub-register office (h) Stamp duty and registration fees will be due to an EP in cases of land purchased within 1 year from the date of receiving full compensation for Appendix 10 57
Entitled People Entitlement (Compensation Organization Type of Loss (Beneficiaries) Package) Implementation Issues/Guidelines Responsible land 3. Loss of Legal owner(s) CCL, which includes 50% as (a) Assessment of quantity and (a) DC, JVT homestead of homestead premium quality of land by JVS land land as (b) DC recorded in title Cash grant to cover the (b) Assessment of CCL difference between the CCL (c) PVAT deed (c) Assessment of market value by and cost of equivalent (d) DC replacement land as MARV land market survey to be determined by PVAT (d) Updating of title of the affected (e) DC, LAO Stamp duty and registration persons (f) DC and cost incurred for replacement (e) Payment of CCL INGO land purchase at the (g) Executing replacement value (f) Affected people to be fully informed of the entitlements agencies or and procedures regarding INGO payments (h) Executing (g) Additional cash grant to be paid agencies or to cover the current market INGO price of land, with compensation based on average annual value collected from sub-register office (h) Stamp duty and registration fees will be due to an EP in cases of land purchased within 1 year from the date of receiving full compensation for land 4. Temporary Titled and non- CCL (a) Assessment of quantity and (a) DC, JVT loss of land titled affected quality of land by JVS regardless of people Cash grant to cover the (b) DC use difference between the CCL (b) Assessment of CCL and PVAT assessed rental (c) PVAT value (c) Assessment of market value by land market survey (d) DC Cash grant to reflect expense (e) DC, LAO of vacating the land, (d) Updating of title of the affected reoccupying the land, and people (f) DC and damages (e) Payment of CCL INGO (f) Affected people to be fully (g) Executing informed of the entitlements agencies or and procedures regarding INGO payments (g) Maximum amount of cash grant will be the difference between the total CCL and the rent of land determined by PVAT 5. Loss of pond Legal owner of CCL, which includes 50% as (a) Assessment of quantity and (a) DC,JVT and fish the pond to get premium quality of land by JVS stocks the (b) DC Cash grant to cover the (b) Assessment of CCL compensation (c) PVAT for land area difference between the CCL and cost of equivalent (c) Assessment of market value by while usufruct land market survey (d) DC,LAO right holder, replacement land as MARV to be determined by PVAT (d) Updating of title of the affected (e) DC and legal or socially INGO recognized, to
58 Appendix 10
Entitled People Entitlement (Compensation Organization Type of Loss (Beneficiaries) Package) Implementation Issues/Guidelines Responsible get Stamp duty and registration persons (f) Executing compensation cost incurred for replacement agencies for fish stock land purchase at the (e) Payment of CCL and INGO replacement value (f) Affected persons to be fully Compensation for fish stocks informed of the entitlements assessed by the results of and procedures regarding census and SES payments Owners will be allowed to catch and take away the fish free of cost without delaying the project works. 6. Loss of Legal owner(s) CCL, which includes 50% as (a) Payment of CCL for the losses (a) DC occupied of structures premium residences (b) Verification of JVS and other (b) Executing Cash grant to cover the records agencies difference between the CCL and INGO and cost of equivalent (c) Affected people to be fully replacement land as MARV informed about their (c) INGO to be determined by PVAT entitlements and assisted to obtain it (d) Grievance Transfer grant of Tk5,000 as redress replacement value of (d) Costs so determined to be used committee in the case of disputes and structure assessed by the findings of census and SES grievances regarding and will be determined compensation rates for further by PVAT structures Reconstruction as replacement value of structure assessed by the findings of census and SES and will be determined further by PVAT Owners to take away all salvagable materials free of cost 7. Loss of Legal owner as CCL, which includes 50% as (a) Assessment of loss and market (a) DC, JVT timber and determined by premium value of affected trees and PVAT fruit-bearing DC, Non-titled trees user of land Cash grant to cover the (b) Payment of CCL for trees (b) DC difference between the CCL and cost of equivalent (c) Adequate compensation to be (c) Executing replacement land as MARV paid and the owner to be agencies to be determined by PVAT allowed to fell and take the tree and INGO free of cost Notes: (d) DC and (d) Cost of saplings and value of GTCL and (a) Timber trees: Estimated yearly production of fruits will INGO current market value be determined by PVAT (e) Executing (b) For fruit-bearing trees (e) Fruit compensation at 30% of agencies without timber: if the tree timber value times 1 year for and INGO is at or near fruit-bearing normal fruit-bearing trees and stage estimated current 30% of timber value times 3 market value of the fruits years for perennials as determined by PVAT (c) For fruit-bearing trees with timber: if the tree is Appendix 10 59
Entitled People Entitlement (Compensation Organization Type of Loss (Beneficiaries) Package) Implementation Issues/Guidelines Responsible at or near fruit bearing stage estimated current market value of the timber and fruits as determined by PVAT (d) Five saplings will be distributed to each affected household (e) Owners will be allowed to fell and take away their trees and perennials free of cost without delaying the project works 8. Loss of Cultivator CCL for standing crops (a) All the individuals identified by (a) DC, JVT standing (person who the JVS as tenants or and PVAT crops planted the Cash grant to cover the sharecroppers of land crops), difference between the CCL (b) DC whether owner, and current market value to (b) Grant to be paid after taking be determined by PVAT possession of land and the (c) Executing tenants or agencies sharecropper legal or socially recognized Cash grant as transition owner is paid CCL and INGO or socially allowance equivalent to recognized 1 year income from land for (c) Additional cash grant to cover (d) Executing owner or titled or non-titled lease current market value of crop agencies lessee or holders or users as compensation as prescribed by and INGO unauthorized determined by PVAT PVAT in case of private owner (e) Executing occupant of himself cultivating crop agencies land, etc. Owner or grower to take away the crop (d) Crop compensation and the and INGO crop will be shared between owner and sharecropper as per terms of sharecropping in case of privately owned land or socially recognized owner (e) In case of dispute over verbal agreement on sharecropping, certification from the elected representative will be considered as legal document 9. Loss of Persons with CCL (1/4 of yearly income), (a) Legal agreement: legal owner (a) DC or usufruct right legal which includes 50% premium and mortgage or leaseholder executing on agreement will be paid CCL by DC agencies or mortgaged Cash grant to cover the INGO in or leased Persons with difference between CCL and (b) Verbal agreement: Legal owner in and verbal the actual income loss for 3 will pay outstanding liabilities (b) DC or rented land agreement months as determined during upon receipt of CCL executing JVS agencies or (c) If the CCL is smaller than INGO replacement value, legal owner will get the top up as grant if all (c) INGO liabilities are already paid up; if not the legal owner will get (d) Grievance residual after all liabilities are redress paid up. If the liabilities exceed committee the amount of grant, the land owner will pay it
60 Appendix 10
Entitled People Entitlement (Compensation Organization Type of Loss (Beneficiaries) Package) Implementation Issues/Guidelines Responsible (d) In case of any dispute the grievance redress committee will verify and decide
10. Poor and Households Additional cash grant of (a) Identification of vulnerable (a) INGO vulnerable headed by Tk5,000 for affected households as per guideline households women without households headed by (b) INGO (b) Income restoration schemes as grown son women and other vulnerable (c) Executing households outlined separately for Indigenous vulnerable households agencies or people Training on income INGO generation program and (c) Arrange training on income Households Tk10,000 per eligible affected generating programs with income of person as seed money less than Tk5,000 per month as identified by JVT 11. Temporary Community or Contractor to bear the cost of (a) Community people to be (a) Contractor impact Individual any impact on structure or consulted before starting of during land due to movement of construction regarding air (b) Contractor construction machinery and in connection pollution, noise pollution, and (c) Contractor with collection and other environmental impacts transportation of materials (b) Laborers in the camp to be All temporary use of lands trained about safety measures outside proposed right-of- during construction, awareness way to be through written of health, sexually transmitted approval of the landowner diseases, safe sex, etc. and contractor (c) Contractors to ensure first aid Temporarily requisitioned box and other safety measures land to be returned to owner like condoms at construction and rehabilitated to original site (preferably better) standard; land to be leveled for reuse 12. Adverse Host Provision for tube well for (a) Conduct a needs survey in the (a) INGO impact community or drinking water, sanitary host community regarding mitigation on host people latrine, school building availability of such community (b) Executing the host where facility agencies community displaced Borrow pit, rain or surface due to people can be water pond for all-purpose (b) Project should keep provision to relocation of relocated water use construct common resource affected properties in the host villages, if people required 13. Unforeseen Any affected Determined as per policy on impact people unique findings at detailed design stage CCL = cash compensation under law, DC = deputy commissioner, EP = entitled person, INGO = implementing nongovernmental organization, JVS = joint verification survey, JVT = joint verification team, LAO = land acquisition officer, MARV = maximum allowable replacement value, PVAT = property valuation advisory team.