fbpx 51311-001: Strengthening Bangladesh Infrastructure Finance Fund Limited Project | Asian Development Bank

Bangladesh: Strengthening Bangladesh Infrastructure Finance Fund Limited Project

Sovereign (Public) Project | 51311-001 Status: Active

The project will support the Government of Bangladesh's efforts in strengthening BIFFL's institutional capacity to develop public-private partnership (PPP) infrastructure projects. The support will help to restart infrastructure development, spur economic growth, and generate jobs during the recovery from the coronavirus disease 2019 (COVID-19). It will help ease Bangladesh's infrastructure financing constraint, a priority area in ADB's country partnership strategy, 2016-2020 for Bangladesh, and it is included in the country operations business plan, 2020-2022. The project will help to alleviate poverty by creating jobs during both the construction and operation phases of the infrastructure projects, especially for many low-skilled workers. The project is well aligned with ADB's Strategy 2030.

Project Details

Project Officer
Zhang, Dongdong South Asia Department Request for information
Country
  • Bangladesh
Sector
  • Public sector management
 
Project Name Strengthening Bangladesh Infrastructure Finance Fund Limited Project
Project Number 51311-001
Country Bangladesh
Project Status Active
Project Type / Modality of Assistance Loan
Technical Assistance
Source of Funding / Amount
Loan 3958-BAN: Strengthening Bangladesh Infrastructure Finance Fund Limited Project
Ordinary capital resources US$ 50.00 million
TA 6552-BAN: Capacity Development for Bangladesh Infrastructure Finance Fund Limited
Financial Sector Development Partnership Special Fund US$ 650,000.00
Strategic Agendas Environmentally sustainable growth
Inclusive economic growth
Drivers of Change Gender Equity and Mainstreaming
Governance and capacity development
Knowledge solutions
Partnerships
Private sector development
Sector / Subsector

Finance / Infrastructure finance and investment funds

Public sector management / Public administration - Social protection initiatives

Gender Equity and Mainstreaming Some gender elements
Description The project will support the Government of Bangladesh's efforts in strengthening BIFFL's institutional capacity to develop public-private partnership (PPP) infrastructure projects. The support will help to restart infrastructure development, spur economic growth, and generate jobs during the recovery from the coronavirus disease 2019 (COVID-19). It will help ease Bangladesh's infrastructure financing constraint, a priority area in ADB's country partnership strategy, 2016-2020 for Bangladesh, and it is included in the country operations business plan, 2020-2022. The project will help to alleviate poverty by creating jobs during both the construction and operation phases of the infrastructure projects, especially for many low-skilled workers. The project is well aligned with ADB's Strategy 2030. The project will help strengthen governance and the institutional capacity of BIFFL, tackle climate change by supporting the development of more efficient and environmentally sustainable infrastructure projects, and support gender equality by incorporating gender elements in project implementation and capacity-building activities. Moreover, in line with ADB's Strategy 2030, the project will help mobilize private sector financing and promote private sector development. Finally, to deliver integrated solutions, the project will promote cross-sector, cross-theme, and cross-department collaboration. The project was processed with support and consultation from Office of Public-Private Partnership (OPPP) of the Asian Development Bank (ADB) during the design stage; the subproject pipeline was developed based on existing and future OPPP transactions. By connecting the regional department's financing to OPPP's transaction advisory mandates, the project aims to deliver seamless support to the government's PPP strategy under the One ADB approach.
Project Rationale and Linkage to Country/Regional Strategy

Bangladesh's recent economic development has been strong. Gross domestic product (GDP) grew at an average rate of 7.0% per annum during 2012-2019. Bangladesh is on track to graduate from the United Nations' least-developed countries in 2024. Rapid economic growth has increased the demand for energy, transportation, and urban development. However, infrastructure development has yet to catch up, creating a bottleneck that prevents the economy from reaching its full potential. The World Economic Forum highlighted weaknesses in the enabling environment in the country, particularly with infrastructure. The country was ranked 114th out of 141 countries in terms of infrastructure in the 2019 Global Competitiveness Report. Significant weaknesses were noted in road infrastructure, train services, seaport services, and water utilities. Easing infrastructure constraints is critical to improving the competitiveness of domestic industries and the overall efficiency of the economy.

The government has increased infrastructure investments since FY2016. According to the government's 7th Five Year Plan (FY2016-FY2020), infrastructure finance needs to reach 4.2% of GDP per annum, or about $14 billion (FY2019), to maintain the growth momentum. Since FY2016, gross fixed capital investment consistently accounted for more than 30% of the government budget. Nevertheless, the country's mostly public-sector-driven infrastructure development is constrained by the resource availability as well as implementation capacities. The budget deficit was 5.5% of GDP in 2019, limiting further increases in infrastructure investments. Because of capacity constraints, many projects experienced implementation delays and cost overruns, resulting in reduced benefits from the projects.

The infrastructure sector comprises energy, power, transport, urban, education, and health sectors. More prominently, the Strategic Transport Plan 2015-2035 proposes five mass rapid transit systems, two bus rapid transit systems, three ring roads, eight radial roads, and six expressways, among others. The Power System Master Plan 2010 has targeted raising the country's generation capacity from 21 gigawatts to 36 gigawatts by 2030, requiring about $35.0 billion from 2020 to 2030, or an average of $3.5 billion per annum, for aggregated generation, transmission, and related costs. The government plans also call for increased investments in economic zones and the urban, health, and tertiary education sectors.

International experience has shown that PPP is an effective tool to leverage private sector resources to address the public investment gap in infrastructure. Aside from mitigating the government's fiscal constraints, with proper designs PPP can also serve to provide incentives for private sector participants to optimize long-term value for money of projects, bring greater efficiency in public service delivery, and introduce advanced technologies and business practices.

Recognizing the great potential of PPP, the government has mainstreamed PPP in the economic planning process. Under this process, public infrastructure projects are (i) developed by line ministries and/or local governments; (ii) screened by the Bangladesh PPP Authority and approved by the Cabinet Committee for Economic Affairs, chaired by the minister of finance; (iii) funded by the PPP Unit of the Ministry of Finance (MOF) (e.g., viability gap fund or other availability payment support); and (iv) supported by external transaction advisers, such OPPP. In addition, a PPP policy, PPP law, viability gap fund guidelines, and procurement guidelines have been developed and promulgated. PPP tool kits and templates of legal agreements are being developed. The government's commitment to PPP is also demonstrated through the establishment of a separate PPP budget for loans and equity, viability gap funding, and TA.

The government has envisioned that PPP will eventually support a substantial portion of infrastructure investments, especially in the transport and energy sectors. According to the seventh five-year plan, PPP investments in the transport sector alone shall reach 1% of GDP. Total investment needs in the energy sector are 2.5% of GDP per year, and one-third of that will also be from the private sector, primarily through PPPs. For the transport and energy sectors, the total demand for PPPs is up to $5 billion per year. The development of the eighth five-year plan (FY2021-FY2025) is yet to be completed, but the government has reaffirmed that the PPP initiative will be a crucial long-term strategy in developing the transport, energy, urban, water, and information and communication technology sectors. As of February 2020, the PPP Authority had a pipeline of 72 projects with an estimated investment value of $22.7 billion at different stages of development. Most of the PPP projects are in the transport, energy, and social infrastructure sectors, which includes health care, economic zones, and tourism. Despite the progress made, PPPs have yet to deliver on their full potential. During the seventh five-year plan period, 16 PPP contracts totaling $4.9 billion were signed, which is below the government target.

Government-established public sector financing companies. Amid various challenges in infrastructure development, the lack of long-term finance, especially long-term finance in domestic currency from the local capital markets and banking system, remains one of the most critical constraints. To address this constraint, the government established two complementary public sector infrastructure financial institutions: the Infrastructure Development Company Limited (IDCOL) in 1997 and BIFFL in 2011. IDCOL lends primarily to independent power producers and other infrastructure subprojects developed by private sector sponsors. BIFFL is mandated to provide long-term local currency debt financing to subprojects developed by public sector sponsoring agencies, such as the Ministry of Road Transport and Bridges; the Ministry of Shipping; and the Ministry of Power, Energy and Mineral Resources. As a nonbank financial institution fully owned by the MOF, BIFFL was established as an integral part of the PPP development institutions, together with the PPP Authority and the PPP Unit of the MOF.

Impact on the economy and jobs. The COVID-19 pandemic has had a significant impact on the economy of Bangladesh. The International Monetary Fund projects that the country's economic growth will weaken to 3.8% in FY2020, which would be the slowest growth rate since 2002. ADB estimated that 1.4 million-3.7 million workers may lose their jobs and 13.0 million people- many of them informal workers- may fall back into poverty. The implementation of infrastructure projects is severely affected by the disruption to imports of machinery and materials, as well as by work stoppages.

Infrastructure development will play an important role in the economic recovery. The economy after the pandemic will continue to face many challenges, with most economists expecting a U-shaped recovery. The traditional economic growth drivers, such as domestic consumption and exports, are expected to remain weak for an extended period. Therefore, in addition to its long-term economic benefits, infrastructure development will become a key driver in boosting aggregate demand and accelerating the revival of economic activity. Infrastructure development is also important for job creation, as construction tends to have a large employment multiplier effect and provides jobs for the poor. Further, the pandemic highlighted significant deficiencies in the country's health care system which will lead to increased investment needs in medical infrastructure, such as hospitals and testing facilities.

Increased importance of PPPs in the context of COVID-19. Because of the pandemic, the government has come under increasing fiscal pressures. In FY2020, the budget deficit is expected to increase to 5.5% of GDP because of sharp revenue reduction and escalating expenditures for health care, social protection, and economic stimulus. The tight fiscal conditions are expected to continue into FY2021. Budgetary priorities will focus on public health, food security, and social protection. Per World Bank estimate, fixed capital investment by the government is expected to decline from $8.4 billion in FY2019 to $5.7 billion in FY2020 and $4.5 billion in FY2021. In this context, PPP will take on added significance in complementing public financing to support infrastructure development. Further, considering the impact of the pandemic, the spending on health care is expected to increase, and a major portion of that spending is expected to be funded by the private sector through PPPs.

ADB's past assistance. ADB has provided extensive support to the government for PPP development. First, during 2010-2014, ADB TA helped Bangladesh establish PPP institutions, policies, and funding mechanisms, including the PPP Authority, the PPP Unit of the MOF, and BIFFL. Second, ADB-s OPPP has been working closely with the PPP Authority, with the assistance of ADB's Asia-Pacific Project Preparation Facility, to provide support in relation to sector reforms; subproject due diligence (e.g., financial, economic, technical, legal, and safeguards); and roadshows, data rooms, and other bid preparation activities. With the expanding OPPP transaction advisory mandates to help the PPP Authority tender PPP subprojects, especially in roads and health care, a list of bankable PPP subprojects is being prepared. Third, ADB has implemented three capital market development programs to Bangladesh- in 1997, 2012, and 2015, to address the lack of a long-term commercial debt market in the country. Fourth, ADB has successfully supported IDCOL through three assistance programs, approved in 2008, 2013, and 2017, to extend long-term infrastructure project loans.

The need for support. Given BIFFL's clear mandate to finance PPP infrastructure projects, supporting BIFFL will be an important and integral component of ADB's holistic assistance to the government's PPP strategy. BIFFL is still a relatively new financial institution with limited operational history and experience working with development partners. On the technical side, there is a need to strengthen BIFFL's institutional capacity to appraise PPP infrastructure projects and assume credit risk, while facilitating the participation of local financial institutions. On the funding side, constrained by the lack of access to long-term financing, BIFFL's investments are mainly equity funded, and the very low leverage on its balance sheet limits its ability to support more long-term infrastructure projects. Access to long-term financing is critical for BIFFL to expand its operations. Going forward, BIFFL plans to mobilize $500 million of long-term debt from development assistance, and attempt bond issuances to raise local currency funds. BIFFL has made modest progress on this front, recently securing funding from the Japan International Cooperation Agency (JICA) for energy efficiency projects. But BIFFL is still in need of long-tenor funds earmarked for PPP infrastructure projects, and capacity-building support. In this context, the government has requested a sovereign loan from ADB.

Market demand. The government envisioned that PPP would support up to $5 billion of infrastructure investment annually. The size of BIFFL's loan portfolio was only $201 million at the end of 2018. Together with IDCOL's loan portfolio of $498 million and leveraged commercial financing, the total financing amounted to only $2.8 billion. BIFFL is building a promising PPP subproject pipeline, supported by the PPP Authority, ADB's project team, and ADB's OPPP. With this backdrop, the demand for funds from emerging PPP subprojects may potentially increase, exceeding the $50 million loan to BIFFL. Should such funding requirements materialize, and provided that the current project is on track for successful implementation, ADB will consider providing additional financing to support these subprojects.

Impact Investment in infrastructure development increased.
Project Outcome
Description of Outcome PPP infrastructure projects increased.
Progress Toward Outcome
Implementation Progress
Description of Project Outputs

Long-term debt to infrastructure subprojects provided.

BIFFL's institutional capacity to finance PPP infrastructure projects improved.

Status of Implementation Progress (Outputs, Activities, and Issues)
Geographical Location Nation-wide
Safeguard Categories
Environment FI
Involuntary Resettlement FI
Indigenous Peoples FI
Summary of Environmental and Social Aspects
Environmental Aspects The proposed project is classified as category FI for environment under ADB's Safeguard Policy Statement. The types of large public infrastructure PPP projects could potentially include roads and highways, power generation, urban mass transit systems, urban water and waste treatments, and economic zone developments. The subproject categorizations for environment will be assessed during the subproject review process, and determined accordingly. However, it is expected that some of these subprojects could potentially be categorized A for environment.
Involuntary Resettlement The proposed project is classified as category FI for involuntary resettlement under ADB's Safeguard Policy Statement. The types of large public infrastructure PPP projects could potentially include roads and highways, power generation, urban mass transit systems, urban water and waste treatments, and economic zone developments. The subproject categorizations for involuntary resettlement will be assessed during the subproject review process, and determined accordingly. However, it is expected that some of these subprojects could potentially be categorized A for involuntary resettlement.
Indigenous Peoples The proposed project is classified as category FI for indigenous peoples under ADB's Safeguard Policy Statement. It is currently not expected that any subproject would potentially be categorized A for indigenous peoples.
Stakeholder Communication, Participation, and Consultation
During Project Design The proposed ADB project is a sovereign financial intermediation loan that will relend the ADB funds from the Government of Bangladesh to BIFFL for financing large infrastructure PPP subprojects. During the project preparation, the ADB consultants have conducted due diligence including site visits on potential subprojects, and have conducted the necessary consultations with the subproject sponsors and local communities on issues pertaining to subproject environmental impact and resettlement.
During Project Implementation During the proposed project implementation, the same participatory approach is expected to continue, in compliance with the project administration manual and relevant legal agreements. For road and highway subprojects, ADB will require that BIFFL carry out regular site visits to ensure proper consultations (e.g., with subproject sponsors, local communities, and civil societies), directly or indirectly with affected people and members of grievance redress committee, in compliances with the national and/or ADB requirements on emission, grievance redressal mechanism, resettlement compensation, labor standards, and/or gender equality, among others.
Business Opportunities
Consulting Services Consulting services funded by the TA will follow ADB's Guidelines on the Use of Consultants (2013, as amended from time to time).
Procurement Procurement (including consulting services) to be financed by the proposed project will follow ADB Procurement Policy (2017, as amended from time to time) and Procurement Regulations for ADB Borrowers (2017, as amended from time to time). The recommended project procurement classification is B.
Responsible ADB Officer Zhang, Dongdong
Responsible ADB Department South Asia Department
Responsible ADB Division Public Management, Financial Sector and Trade Division, SARD
Executing Agencies
Finance Division, MOF (EA)
[email protected]
Bangladesh Secretariat, Dhaka-1000
Bangladesh
Timetable
Concept Clearance 13 Aug 2019
Fact Finding 18 Aug 2019 to 22 Aug 2019
MRM 09 Jun 2020
Approval 18 Aug 2020
Last Review Mission -
Last PDS Update 18 Aug 2020

Loan 3958-BAN

Milestones
Approval Signing Date Effectivity Date Closing
Original Revised Actual
18 Aug 2020 10 Sep 2020 - 28 Feb 2025 - -
Financing Plan Loan Utilization
Total (Amount in US$ million) Date ADB Others Net Percentage
Project Cost 50.00 Cumulative Contract Awards
ADB 50.00 18 Aug 2020 0.00 0.00 0%
Counterpart 0.00 Cumulative Disbursements
Cofinancing 0.00 18 Aug 2020 0.00 0.00 0%

TA 6552-BAN

Milestones
Approval Signing Date Effectivity Date Closing
Original Revised Actual
18 Aug 2020 11 Oct 2020 11 Oct 2020 31 Aug 2023 - -
Financing Plan/TA Utilization Cumulative Disbursements
ADB Cofinancing Counterpart Total Date Amount
Gov Beneficiaries Project Sponsor Others
650,000.00 0.00 0.00 0.00 0.00 0.00 650,000.00 18 Aug 2020 0.00

Project Data Sheets (PDS) contain summary information on the project or program. Because the PDS is a work in progress, some information may not be included in its initial version but will be added as it becomes available. Information about proposed projects is tentative and indicative.

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Safeguard Documents See also: Safeguards

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Evaluation Documents See also: Independent Evaluation

None currently available.

Related Publications

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The Access to Information Policy (AIP) establishes the disclosure requirements for documents and information ADB produces or requires to be produced in its operations to facilitate stakeholder participation in ADB's decision-making. For more information, refer to the Safeguard Policy Statement, Operations Manual F1, and Operations Manual L3.

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Contracts Awarded

No contracts awarded for this project were found

Procurement Plan

None currently available.