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ADB Loan Helps Bangladesh Corporatize Power Sector

Over 100,000 new customers will benefit from an increased power supply to the Bangladesh capital of Dhaka as a result of a loan equivalent to US$134.4 million approved today by the Asian Development Bank.

Just as importantly, the Ninth Power Project is another big step for the state-run power sector toward being re-organized along more commercial lines.

The project will provide the transmission system for the country's first private sector-built power project at Meghnaghat outside Dhaka. It will also create two new semi- autonomous entities, one to handle transmission, the other distribution, to replace a state agency. The aim is to organize these functions along commercial lines.

The transmission and distribution project will proceed alongside the Meghnaghat power project for which five private firms have been short-listed for construction. Both projects are due for completion around mid-2000. The power project, to be built on a build- operate-transfer basis, will have a 300 to 450 MW (megawatt) capacity. In addition, the transmission project includes a line from Comilla which will make available another 200 MW for Dhaka. Thus, the projects will supply an extra 500 to 650 MW to the capital.

The project will also start the "unbundling" of Bangladesh Power Development Board into separate generation, transmission, and distribution entities. This is designed to increase the accountability of each function. To handle transmission, the project will create the Power Grid Company of Bangladesh to construct 230kV transmission lines and substations and also to build a national load dispatch center and communication network. For distribution, the Dhaka Electric Supply Company will be established to operate distribution systems in metropolitan Dhaka.

The new entities, operating with more autonomy and new procedures, are designed to inject dynamism into the sector and, being more bankable, to attract urgently-needed investments from the commercial sector.

The loan is from the ADB's soft loan window which means it is interest-free, repayable over 40 years, including a 10-year grace period, and carries a service charge of one percent per annum.

The total project cost is US$313.7 million. The World Bank is providing cofinancing of US$63.3 million and the remaining finance will come from the Government.

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