ADB Supporting Private Infrastructure Projects

DHAKA, BANGLADESH - The Asian Development Bank (ADB) and the Government of Bangladesh today signed an agreement for $110 million in loans to support private sector infrastructure projects in Bangladesh, including in renewable energy.

The assistance will support the Second Public–Private Infrastructure Development Facility established under the state-owned Infrastructure Development Company Ltd. (IDCOL). The World Bank and the Japan International Cooperation Agency will cofinance the project with $99.5 million and $96 million respectively. Private sector investors will also contribute $50 million as equity financing, and debt funding.

Mohammad Mejbahuddin, Secretary, Economic Relations Division (ERD) and Oleg Tonkonojenkov, Deputy Country Director and Officer-in-Charge of ADB’s Bangladesh Resident Mission, signed the agreement, on behalf of Bangladesh and ADB respectively, at a ceremony at ERD, Sher-e-Bangla Nagar, Dhaka today.

“Low investment in infrastructure is holding back development and economic growth in Bangladesh,” said Mr. Tonkonojenkov. “Getting more power stations, roads, and water networks built would accelerate development, and could draw in more foreign direct investments.”

The assistance will help IDCOL to invest more in projects in power generation, water and sanitation, transportation, and information technology. IDCOL currently has a pipeline of eight energy projects with a total investment amount of around $235 million. This will also support IDCOL to expand its successful program to finance off-grid solar home systems for households and small businesses in remote rural areas. IDCOL hit its target of 2 million installations in 2013, and is now seeking to finance 2 million more by 2015.

The government has been the main source of infrastructure spending in Bangladesh, but cannot alone provide the finance needed. Private investors, meanwhile, struggle to get the long-term financing they need from underdeveloped capital markets or from banks that are hesitant to provide funds with long tenors because of potential asset-liability mismatches. As a result, the country suffers from a chronic infrastructure shortfall. Electricity shortages cause an annual estimated loss of 2% of gross domestic product (GDP). Poor transport and communications networks also hold back the economy, while poor sanitation and water systems undermine public health.

The $110 million in financing builds on previous ADB financing to IDCOL of $165 million approved in October 2008, which has been fully committed. The support is in line with Bangladesh’s sixth five-year plan (2011-2015), which stresses the need to triple investment in infrastructure development from 2% to 6% of GDP with substantial private sector participation through public-private partnerships.

Bangladesh has been a member of ADB since 1973. Since then, ADB has provided Bangladesh with around $15.4 billion in loans and grants, including $872 million in 2013 alone. ADB’s priority areas for support in Bangladesh include energy, transport, urban infrastructure and water supply and sanitation, education, agriculture and natural resources, and finance sectors. As of 31 December 2013, ADB’s portfolio for Bangladesh included 58 loans with $5.19 billion in total value.