PROJECT INFORMATION DOCUMENT (PID)



PROJECT INFORMATION DOCUMENT (PID)

APPRAISAL STAGE

Report No.: AB3577

|Project Name |Siddhirganj Peaking Power Project |

|Region |SOUTH ASIA |

|Sector |Power (100%) |

|Project ID |P095965 |

|Borrower(s) |GOVERNMENT OF BANGLADESH |

| |The Government of Bangladesh |

| |Bangladesh |

|Implementing Agency | |

| |Power Grid Company of Bangladesh (PGCB) |

| |Bangladesh |

| |Gas Transmission Company Ltd (GTCL) |

| |Bangladesh |

| |Electricity Generation Company of Bangladesh (EGCB) |

| |Bangladesh |

| |Ministry of Power, Energy, and Mineral Resources |

| |Bangladesh |

|Environment Category |[X] A [ ] B [ ] C [ ] FI [ ] TBD (to be determined) |

|Date PID Prepared |January 23, 2008 |

|Date of Appraisal Authorization |January 22, 2008 |

|Date of Board Approval |May 8, 2008 |

1. Country and Sector Background

Bangladesh has made steady social and economic progress in the last several years. Poverty was reduced by an average of nearly 2 percentage points annually; from 49 percent of the population living in poverty in 2000 to 40 percent in 2005. If the current rate of poverty reduction continues, Bangladesh will meet its Millennium Development Goal (MDG) of halving its poverty rate from 57 percent in 1990 to 29 percent by 2015. Rapid poverty reduction is attributable mainly to strong and stable economic growth—annual Gross Domestic Product (GDP) growth has accelerated by 1 percentage point every decade, and is now above 6 percent a year. Despite periodic natural disasters (particularly floods) and frequent political turmoil, Bangladesh is the only low-income country to have maintained stable, positive GDP growth since the 1990s.

Nonetheless, continued progress could be derailed unless infrastructure services improve; in particular, electricity services are a particular frustration for businesses and households alike. Bangladesh is in the midst of a serious power crisis. The sector is financially weak, access to capital is severely constrained, and prices have become increasingly detached from costs. Generation has failed to keep pace with demand; load shedding runs at a level of at least 300 MW during peak periods of most days, and in heavy demand seasons has hit as high as around 2,000 MW. The country’s reliable base of generation capacity is no more than 4,300 MW, with peak output on most days between 3,500 and 3,800 MW. Prior to 2007, Bangladesh had been making at least 500,000 new, mostly rural connections per year during the present decade. In 2007 the GOB slowed this program – in large part due to a mounting shortage in generation capacity – putting into doubt GOB’s ability to achieve its goal of “Power for All” by 2020 and undermining the important role reliable electrification has played in alleviating rural poverty.

There is currently sufficient generation to meet baseload demand (from customers connected to the grid), but a severe shortage at peak periods. Like many other developing countries with large populations and high household demand, Bangladesh has a “peaky” load curve, with dramatic upswings in demand during the late afternoon and evening period, followed by a rapid drop after 11:00 p.m. During these critical hours, households and commercial businesses are heavy users, but so are industries, especially in the garments sector, with factories running extended shifts into evening hours. Given the very poor quality of power supply during the peak period, however, all of these kinds of customers are forced to rely on expensive and polluting captive generators, or other sources of energy, during key parts of the day.

Bangladesh needs broad-based energy sector reform, and, in parallel, sustainable investments that address the serious supply gap that has developed. The proposed project would make a major contribution to meeting peak demand for power, while also bolstering the capacity and reliability of the gas and power transmission networks. It will help stabilize the supply situation, thus supporting electrification efforts. It would also promote effective asset management by strengthening three key service providers: Electricity Generation Company of Bangladesh (EGCB), Gas Transmission Company Limited (GTCL), and Power Grid Company of Bangladesh (PGCB). By helping to build strong companies that are committed to best practices in operations and asset development and management, an important contribution to sector governance will also be made by the project.

The proposed operation, together with on-going and planned activities (below), will intensify the Bank Group’s engagement in the energy sector, putting the Bank in position to assist GOB with the sector’s long-term development. The project builds on Bank Group investment support to two successful Independent Power Projects (IPPs) commissioned in 2001-02 - the Haripur 360 MW project (IDA Partial Risk Guarantee and IFC lending) and the Meghnaghat 450 MW project (US$80 IDA financing through the Private Sector Infrastructure Development Project) – and to a successful rural electrification and renewable energy development program (the Third Rural Electrification and Renewable Energy Development Project is under implementation). An IDA-funded Technical Assistance project (Power Sector Development TA Project) has assisted sector authorities to prepare the proposed project and to shape broader sector reforms. Other on-going efforts include assistance to new private power development where the IFC is providing advisory services, a proposed Power Sector Development Policy Loan (Power DPL) to support a multi-year reform program, and a proposed IDA credit to improve electricity distribution services in the southern part of the country (in and around Chittagong). The deepening Bank role will also complement the significant support the Asian Development Bank is providing to Bangladesh’s power and gas sectors.

The proposed project would add 300 MW of peaking power capacity at Siddhirganj, an existing power generation site to the southeast of Dhaka. This power plant, consisting of two 150 MW simple cycle gas turbines (SCGTs), would be implemented and operated by the Electricity Generation Company of Bangladesh (EGCB), a corporatized entity owned by the Bangladesh Power Development Board. EGCB will operate existing and new capacity at Siddhirganj and Haripur (the two sites are directly across the Sitalakha River from each other) including the units financed by ADB and JBIC. The project would also finance two related components: a 60 km gas transmission pipeline from Bakhrabad to Siddhirganj, and an 11 km power transmission line from Siddhirganj to Maniknagar, in Dhaka. These associated components will also provide additional gas and power transmission capacity for other users including additional generation capacity at Meghnaghat and Haripur.

When the project comes on-line in early 2011, it is unlikely that Bangladesh’s power sector will be in balance. A mix of short-term rentals and longer term, small power projects will make a contribution in 2008 and 2009. The 210 MW financed by ADB at Siddhirganj should also come on-line by late 2008. However, as the following table shows, even a modest 5% growth in peak demand will leave the system short of peak power until Siddhirganj comes on-line in 2011. This projection assumes that three IPPs come into the system in 2011-12, as well, and that other, publicly financed investments also come in.

|Medium-term projection – Bangladesh power sector capacity/peak demand balance 2007-2012 |

|Year |Maximum Capacity |Peak Demand |Reserve Margin |

|2007 |4200 |5000 |-16% |

|2008 |4500 |5250 |-14% |

|2009 |4800 |5513 |-13% |

|2010 |5100 |5788 |-12% |

|2011 |5850 |6078 |-4% |

|2012 |6750 |6381 |6% |

2. Objectives

The primary development objective is to increase the supply of reliable peak power (power supplied during periods of maximum demand) in Bangladesh. The project will seek to support the additional supply of 1-billion kWh of electricity annually; without the project it is likely that this entire amount of electricity would not otherwise be supplied and therefore would show up as load shedding, or unserved demand for energy. There are steep economic and quality of life losses associated with load shedding; various estimates of the impact on Bangladesh’s economy of electricity shortages range from 0.5% to 2% of GDP on an annual basis (GDP in 2007 is approximately $70-billion).

A secondary development objective is to build capacity in the implementing agencies: GTCL, PGCB, and EGCB. Through the project, the companies will implement best practice in procurement and implementation (supported by Owner’s Engineers, and, in EGCB’s case, an O&M contractor); environmental and social impact assessment and mitigation; and governance (through specific accountability reporting and, in the case of GTCL and EGCB, investment in corporate management information systems).

3. Rationale for Bank Involvement

Investment requirements in Bangladesh, in the energy sector, are in the range of $1-billion to $1.5-billion per year, through 2025, in the power and natural gas sectors, based on the power and gas master planning work done in 2005-06. While GOB is attempting to attract private investment, especially in baseload power generation and in upstream gas exploration and production, external public financing will be required for other parts of the sector, including peak generation capacity, transmission, distribution, and rural electrification. Key donors including IDA, ADB, and JBIC can meet a portion of this need. The Siddhirganj project complements an existing rural electrification project (RERED) and the partial risk guarantee PRG) that underpins the Haripur Power Project. The Bank additionally brings expertise in integrated project design, project implementation, and environmental and social impact assessment and mitigation.

The Bank’s involvement in the Siddhirganj project is part of a broader energy sector strategy that is an important element of the current Country Assistance Strategy (CAS). The approach is to engage broadly across the sector, in generation, transmission, distribution, rural and renewable energy, and capacity building; and to support both publicly and privately financed projects. It is anticipated that, on the public investment side, Siddhirganj will be followed by an urban distribution project (South Zone), and a new rural electrification project. In parallel to Siddhirganj there are two other operations in development – a development policy loan supporting energy sector reform, and an IFC-led engagement on new privately financed generation that could potentially involve an IDA partial risk guarantee.

4. Description

Siddhirganj, just outside the metro Dhaka area, is an existing power generation site in an industrial area. The power generation component of the project involves construction of two 150 MW, simple cycle, gas-fired turbines (300 MW total), complementing another 210 MW of peaking capacity at the site which have been approved for funding by the ADB. These plants are designed to run at full capacity for about 9 hours of each day, covering the period of peak consumption from about 3 pm until midnight.

In order to ensure the availability of gas at the Siddhirganj site, the World Bank has agreed to consider financing of a new, 60 km, 30-inch pipeline to run from the Bakhrabad gas processing plant to the Siddhirganj site. The pipeline is also intended to service two other power generation sites (Meghnaghat and Haripur) as well as an export processing zone that is to be developed in the area. The new pipeline will be an extension of the 30-inch Ashuganj-Bakhrabad line that has already been built and that is an important component in ensuring that new gas supplies coming out of northeast Bangladesh can serve customers in Chittagong and the southern Dhaka environs.

The project will also finance an 11 km, 230 kV power transmission line from Siddhirganj to a grid substation in south Dhaka; the financing will cover the purchase and installation of gas-insulated switchgear as well.

Finally, the project will finance a handful of critical technical assistance items – specifically, the O&M contract for the power plant; and Owner’s Engineers for the gas and power transmission lines (an OE for the power plant is being financed by an existing IDA technical assistance credit); and MIS packages for GTCL and EGCB.

5. Financing

|Source: |($m.) |

|BORROWER/RECIPIENT |70 |

|International Development Association (IDA) |330 |

| Total |400 |

6. Implementation

Partnership arrangements (if applicable)

The Asian Development Bank is financing 210 MW of peaking capacity at Siddhirganj (their site is in a different part of the power generation complex, however). At the time that the Bank agreed to consider financing of additional peaking capacity, it was also agreed that the Bank would support the development of both the power purchase agreements (one for each plant), and the O&M contract (one contractor for both plants, ensuring coordinated operations). ADB is a joint CAS partner with the Bank, along with DFID and JBIC, and communication and coordination with ADB occurs on a continuous basis. JBIC intends to finance 360 MW of baseload capacity at Haripur, across the river from Siddhirganj, which will also be owned by EGCB. JBIC is assisting EGCB with establishment of an operational unit for the plant, heavily supported by consultants and by an LTSA. Under the Siddhirganj project, IDA is financing MIS hardware, software, and institutional support for EGCB to facilitate with the effective management and oversight of these various operations.

Institutional and implementation arrangements

The project will be implemented from 2008-2010 (construction and commissioning), with the single component supporting the O&M contractor remaining open until end-2015, approximately. This long tail-end to the project reflects the need for the Bank to provide implementation support during the crucial early years of plant operations, particularly in the areas of asset management, financial sustainability and overall corporate governance. Bank financing of the O&M contractor provides better assurance that the contractor will be retained through the period of first major maintenance, and a better chance that training and knowledge transfer will occur; it also extends the period of Bank support which will be useful in monitoring progress and recognizing problems in the operational phase at an early moment.

7. Sustainability

Operational sustainability is underpinned by the institutional approach of the project, in which commercialized entities construct, operate, and maintain facilities according to best international practice (supported by Owner’s Engineers, O&M contractors, effective MIS, etc., as the case may be). Environmental and social sustainability is assured by the nature of the technical design, the care in implementation, the commitment to livelihood restoration for affected peoples, and the strengthening of corporate capabilities generally to ensure financially, environmentally, and socially sustainable infrastructure. Financial stability stems from the robustness of the contractual chain from the gas fields, to the customer’s electricity service drop. Here the project, narrowly, can only do so much. Broader policy and regulatory reform is essential for ensuring that, when assets are commissioned as early as 2010, the energy sector as a whole is on a sustainable financial footing; and that, over the useful economic life of the assets, that financial integrity is maintained. The importance of GOB’s policy program cannot be overstated; the strategy of the Bank is to work closely with GOB to support its medium-term reform program, and link progress on that program to an energy sector-specific development policy lending operation.

8. Lessons Learned from Past Operations in the Country/Sector

The key lessons learned are to keep investment operations as focused as possible, and not unnecessarily burdened by sector-wide conditionality, as long as there is an active dialogue on sector reform progressing in parallel; and to build in governance concerns at the point of project design. On this latter point, the project is designed to have as few contracts as possible; to ensure that TA components are integrated with both the procurement and implementation challenges, and with the governance framework for the project; and to create, in the implementing agencies, the demand for better performance in governance, policy, and regulation.

9. Safeguard Policies (including public consultation)

|Safeguard Policies Triggered by the Project |Yes |No |

|Environmental Assessment (OP/BP 4.01) |[X] |[ ] |

|Natural Habitats (OP/BP 4.04) |[ ] |[X] |

|Pest Management (OP 4.09) |[ ] |[X] |

|Physical Cultural Resources (OP/BP 4.11) |[ ] |[X] |

|Involuntary Resettlement (OP/BP 4.12) |[X] |[ ] |

|Indigenous Peoples (OP/BP 4.10) |[ ] |[X] |

|Forests (OP/BP 4.36) |[ ] |[X] |

|Safety of Dams (OP/BP 4.37) |[ ] |[X] |

|Projects in Disputed Areas (OP/BP 7.60)* |[ ] |[X] |

|Projects on International Waterways (OP/BP 7.50) |[ ] |[X] |

10. List of Factual Technical Documents

• Petrobangla – Bangladesh Gas Sector Strategy (Contract No. GSMP/PB/2005, under IDA Grant No. H092 BD) Final Report - Preparation and Development of Gas Sector Master Plan and Strategy for Bangladesh, Date: January 2006. Prepared by: Wood Mackenzie Limited

• Petrobangla – Bangladesh Gas Sector Master Plan (Contract No. GSMP/PB/2005, under IDA Grant No. H092 BD) Final Report - Preparation and Development of Gas Sector Master Plan and Strategy for Bangladesh. Date: January 2006. Prepared by: Wood Mackenzie Limited

• Project Information Document – Concept Stage – Report No. AB1919, Date: August 22, 2007

• EGCB Business Plan 2007 to 2010 - Third Draft 17th May 2007; Prepared by: PwC for EGCB to present for Board Approval; Date: June 2007

• Construction of Siddhirganj 2x150 MW Gas Turbine Peaking Power Plant, Development Project Proforma (DPP), Ministry of Power, Energy & Mineral Resources (Power Division), Prepared by: Electricity Generation Company of Bangladesh (EGCB) Limited (An Enterprise of Bangladesh Power Development Board), Date: August 2006

• Power Sector Financial Restructuring and Recovery Plan (Final Report – Summary), Power Cell - Power Division Ministry of Power, Energy and Mineral Resources, Government of People’s Republic of Bangladesh, Prepared by: FICHTNER, in association with HB Consultants & Pathmark Ltd., August 2006

• Power Sector Financial Restructuring and Recovery Plan (Final Report), Power Cell - Power Division Ministry of Power, Energy and Mineral Resources, Government of People’s Republic of Bangladesh, Prepared by: FICHTNER, in association with HB Consultants & Pathmark Ltd., Date: August 2006

• Power Sector Financial Restructuring and Recovery Plan Model, Prepared by: FICHTNER, in association with HB Consultants & Pathmark Ltd., Date: June 30, 2006

• Bakhrabad - Siddhirganj Gas Transmission Pipeline Project, Development Project Proforma/Proposal (DPP), Prepared by: Gas Transmission Company Limited (A Company of Petrobangla). Date: May 2006

• GTCL – Preliminary IT Review and Needs Assessment. Prepared by: Ian Driscall (consultant, World Bank), Date: August 22, 2007

• Least-Cost Verification for Prospective Peaking Power Investments in Bangladesh – Final Report, Nexant, February 2006

• Operation and Maintenance Agreement between Electricity Generation Company of Bangladesh Limited and Omco Limited (draft for discussion), PWC. Date: April 2007

• Before the Bangladesh Energy Regulatory Commission In the Matter of the Application of Case No. BERC/ELEC/TARIFF/2006/001, The Power Division, Ministry of Power, Energy and Mineral Resources For Balancing the Retail Tariff For Power Between the Urban And Rural Electricity Customers and Harmonization Of the Tariff for Bulk Power Supply with Reference to Supply Cost. Prepared by: Bangladesh Energy Regulatory Commission. Date: October 2006

• Power Purchase Agreement between Bangladesh Power Development Board and Electricity Generation Company of Bangladesh Limited (Revised Draft for Discussion), PWC. April 2007

• Prequalification Document for Procurement of an O&M Contractor for Siddhirganj Peaking Power Plant Projects, Electricity Generation Company of Bangladesh Limited and PWC, April 2007

• Power System Master Plan Update, Power Cell, Power Division, Ministry of Power, Energy & Mineral Resources, Prepared by: Nexant in collaboration with: Bangladesh Power Development Board Power Grid Company of Bangladesh Limited and in association with: Bangladesh Engineering & Technological Services, June 2006

• 3 Year Road Map for Power Sector Reform (Year 2007-2009), Prepared by: Power Division, Ministry of Power, Energy & Mineral Resources, Government of the People’s Republic of Bangladesh, September 2006 and updated April 2007

• Schedules to Operation and Maintenance Agreement between Electricity Generation Company of Bangladesh Limited and Omco Limited (draft for discussion), PWC, April 2007

• Master Plan at Siddhirganj Power Station, Prepared by: Committee constituted vide memo No-444-Pdb (sec)/dev-29/88, October 5, 2006

• Siddhirganj O&M Transaction Advisory, Presentation on Peaking Power Pricing Approach, Prepared by: PricewaterhouseCoopers, March 28, 2007

• Siddhirganj O&M Transaction Advisory, Presentation on Tariff Mechanism for Peaking Plant, Prepared by: PricewaterhouseCoopers, April 15, 2007

11. Contact point:

Contact: Alan F. Townsend

Title: Sr. Energy Specialist

Tel: (202) 473-8654

Fax: (202) 522-2427

Email: atownsend1@

12. For more information contact:

The InfoShop

The World Bank

1818 H Street, NW

Washington, D.C. 20433

Telephone: (202) 458-4500

Fax: (202) 522-1500

Email: pic@

Web:

BPK

M:\!old-Energy-Industry\Bangladesh\Siddhirganj Power-P095965\Safeguards\PID Appraisal Stage 1-23-2008 at.doc

1/23/2008 3:15:00 PM

* By supporting the proposed project, the Bank does not intend to prejudice the final determination of the parties' claims on the disputed areas

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