Bangladesh: Public-Private Infrastructure Development Facility (PPIDF)

Finance - Infrastructure finance and investment funds

The Public-Private Infrastructure Development Facility (PPIDF) includes and $82 million loan from ADB's ordinary capital resources (OCR), an $83 million equivalent loan from ADB's special funds resources and a technical assistance grant of $500,000 for capacity building and supporting project implementation.

Component A will use ADB's OCR funds of $82 million to provide financing to the Government of Bangladesh for relending to the Infrastructure Development Company Limited (IDCOL) to finance private sector-sponsored large infrastructure subprojects with a subproject size of more than $30 million.

Component B will provide ADF support of $50 million equivalent to the Government for relending in local currency to IDCOL to finance small and medium-sized infrastructure subprojects primarily located in rural and semiurban areas, especially in the energy sector.

Component C will provide ADB funding of $33 million equivalent for the purpose of promoting renewable energy systems in Bangladesh. IDCOL will finance the set-up of renewable energy systems such as solar home systems and/or biomass installations through a microfinance-based, direct sales program.

1. Improved lending terms of IDCOL for infrastructure subprojects

2. Improved ability of IDCOL to mobilize long-term capital

3. Enhanced governance at IDCOL

4. Enhanced capacity for application of environmental and social safeguards standards

5. Enhanced efficiency of IDCOL in developing and financing infrastructure subprojects

IDCOL has obtained AAA rating in 2015. The rating is sustained in 2016.

IDCOL will consider obtaining credit rating from an internationally accepted agency once it intends to raise additional fund from international market. At present, there is no plan for foreign currency loan on commercial terms.

IDCOL is yet to issue debt instruments as the company has adequate credit lines from development partners and underdeveloped capital market.

IDCOL has arranged syndicated term loan facilities for eight infrastructure subprojects, of which one was financed by ADB. Of the eight, four are in the power sector, two are towards central effluent treatment plants, and the remaining two are for ICT infrastructure and land port.

As per current lending policy of IDCOL, maximum tenor is 15 years including a maximum grace period of 3 years.

IDCOL managed to reduce its weighted average borrowing cost from 3.29% in FY2011 to 2.93% in FY2015 (a reduction of 10.9%). The indicator appears to be inappropriate. Interest rate efficiency should be compared with a benchmark market rate (such as, LIBOR) rather than on absolute basis.

IDCOL has obtained environmental and social clearances from ADB for five projects i.e. NTTN, WiMAX, and 108 MW power plant of ECPVCL, Regent Porwer Plant, and Summit Meghnaghat Power Plant.

IDCOL complied under ESSF for all its subprojects under PPIDF.

ESSF has been updated and posted on IDCOL's website since 2012.

The processing time, among other things, depends on the complexity of projects and scope of due diligence required. For the three large subprojects financed under the OCR loan of PPIDF, the average processing time (i.e. from the date IDCOL received the proposal until the time of IDCOL's Board approval) was approximately 12 months, on average. However, the processing time for smaller projects or projects funded from IDCOL's own resources are often shorter than 4 months. Larger projects having multiple foreign lenders and/or projects requiring multiple approvals from various regulators and from ADB require longer processing time. This indicator, alone, is not a good measure of efficiency, as complex infrastructure subjects may require 12 months or more.

For subprojects to be financed out of component A, IDCOL will required its sub-borrowers to adopt internationally competitive bidding procedures in accordance with ADB's Procurement Guidelines as amended from time to time, and the Government's guidelines, policies, and regulations.

For subprojects to be financed out of components B and C, ADB will encourage IDCOL to require its sub-borrowers to adopt international competitive bidding procedures in accordance with ADB Procurement Guidelines as amended from time to time when the amount of the investment is unusually large and economy and efficiency can be gained by such procedures.

For procurement of goods and services to be financed by subloans out of the loan proceeds, the sub-borrower will ensure, and certify to ADB if requested, that goods and services obtained are suitable for the subloans, that the price paid is least-cost, and that account is taken of factors such as time of delivery, efficiency, and the reliability of goods.

For build-operate-transfer subprojects and variants, if the subproject sponsor or engineering, procurement, and construction contractor is selected through competitive bidding amount international entities in accordance with procedures acceptable to ADB, such subproject sponsore or contractor may apply its own procedures for procurement provided that such procurement is for goods, services, and works supplied from, or produced in, ADB member countries. Moreover, such subproject sponsors or contractors must only be nationals of ADB member countries.