ADB Loan to Help Bangladesh Cut Energy Shortage, Reduce Poverty

MANILA, PHILIPPINES – The Asian Development Bank (ADB) is extending a $300 million energy infrastructure loan to help Bangladesh address critical power shortages which are undermining the economy and slowing poverty reduction efforts.

The ADB Board of Directors today approved the loan for the Power System Efficiency Improvement Project, which will help meet Bangladesh’s urgent need for more energy-efficient generating plants and greater use of renewable power sources.

Aging thermal plants, inadequate natural gas supplies and lack of diverse power sources have left the country with a large gap between electricity supply and demand, estimated at over 1,200 megawatts (MW) for 2011. Only 49% of people have access to electricity, and frequent shortages and unreliable supplies have perpetuated underdevelopment with nearly half the population living below the extreme poverty line of $1.25 a day.

“Energy shortage is the most critical infrastructure constraint on Bangladesh’s economic growth,” said Priyantha Wijayatunga, a Senior Energy Specialist at ADB’s South Asia Department. “Greater access to clean, reliable power will bring multiple benefits such as increased economic activity and new opportunities in agriculture, garment manufacturing and other businesses which will benefit the poor, including women,” he said.

The project will fund the replacement of five aging generation units at Ashuganj power station with a new energy-efficient combined cycle power plant using natural gas as the fuel source. It will also finance a 5MW solar photovoltaic generating system that will connect to the national grid, along with a hybrid wind, solar and diesel system on the island of Hatiya. Streetlights will be installed or retrofitted with solar and light emitting diode technology in the cities of Barisal, Chittagong, Dhaka, Khulna, Rajshahi and Sylhet.

These initiatives will help Bangladesh cut carbon dioxide emissions by hundreds of thousands of tons a year, making the project eligible for carbon financing under the Clean Development Mechanism. It also incorporates a gender action plan, funded by an ADB technical assistance grant of $350,000, that will ensure women are able to benefit equally from energy-related employment and livelihood opportunities.

The loan, sourced from ADB’s ordinary capital resources, has a 25-year term with a grace period of 5 years and interest determined in accordance with ADB’s LIBOR-based lending facility. The Islamic Development Bank is providing co-financing of $200 million, with the Government of Bangladesh extending over $81 million for a total project cost of almost $581.2 million.

The executing agencies include the Ashuganj Power Station Company, the Bangladesh Power Development Board and the Power Division of the Ministry of Power, Energy and Mineral Resources. The project is due for completion by end June 2017.