ADB $100 Million Loan to Help Spur South Asia Energy Trade

MANILA, PHILIPPINES - The Asian Development Bank (ADB) is extending a $100 million equivalent loan for a cross-border electricity initiative between India and Bangladesh that will provide impetus for increased power trading in South Asia.

ADB’s Board of Directors today approved the loan for the Bangladesh-India Electrical Grid Interconnection Project. The funds will be used to build a 40-kilometer 400-kilovolt transmission line, along with a high voltage direct current substation and connecting loop, linking the western electrical grid of Bangladesh with India’s eastern grid. Around 500 megawatts of power are expected to flow into Bangladesh by 2012 as a result of the project, with the possibility of more in the future.

Bangladesh’s fast growing economy has seen power demand sharply outstripping supply, resulting in frequent power cuts, voltage fluctuations and losses in economic output estimated at nearly $1 billion a year. While the economy has grown by an average of 6% a year since 2005, less than half the population of 156 million has access to power. Unreliable power supply has hurt industry and will hamper efforts to provide better economic opportunities and social services for the poor.

The project will signal a new era in energy cooperation in South Asia and is likely to herald further power trading agreements, resulting in the more effective use of existing energy resources in the region, said Sultan Hafeez Rahman, Director General of ADB’s South Asia Department.

“Connecting the two grids will demonstrate the substantial economic benefits that come from enhanced regional cooperation and help to address energy gaps across the region,” Mr. Rahman said.

It will also allow Bangladesh to reduce its current reliance on stop-gap power measures such as rental generation facilities, and help to generate jobs and new business opportunities by providing a more reliable supply of power to industries.

Staff from the Power Grid Company of Bangladesh will be trained to manage the new facilities, while officials of the state-owned Bangladesh Power Development Board will learn cross border power trading skills.

ADB’s assistance from its concessional Asian Development Fund makes up 63% of the total investment cost of $156.8 million. The loan has a 32-year term including a grace period of 8 years, with interest charged at 1.0% per annum during the grace period and 1.5% per year for the rest of the term. The balance of the investment of $58.6 million will be funded by the Government of Bangladesh, while interconnection facilities on the Indian side will be financed, developed and operated by India.

The Power Grid Company of Bangladesh is the executing agency for the project, which is due for completion in December 2012.