Learning Curves

IED

November2009

EnergySectorAssistancein Bangladesh:InstitutionalReforms inaChallengingEnvironment

Thissectorassistanceprogramevaluation1aimstoprovideasectorlevelindependent assessmentofADBsassistancetotheenergysectorinBangladesh.Thefindingsareintended tofeedintothecountryassistanceprogramevaluationandtoprovideinputstoADBsfuture operationsinthecountrysenergysector. Bangladeshhasundertakenfarreachinginstitutionalreformsinpowerandgassectorsto improvertheoperationalperformanceofsectorentitiesandservicecoverage.ADBhasbeen anactiveandinfluentialpartnerofthegovernmentinimplementingthesereforms.However, Bangladeshhasexperiencedpersistentshortagesinpowergenerationcapacityandnatural gassupplytomeettheincreasingenergydemandduetoinadequateinvestmentinupstream energyproduction.
itsoperationsundersevenbroadthematicareas:(i) promotingcommercialorientationofpowersector Bangladeshhasachievedsignificantprogressin entities,(ii)promotinginvestmentsinpowergeneration, reformingthepowerdistributionandtransmission (iii)removingtransmissionconstraints,(iv)improving sectorsince1994.Thereformshaveimprovedthe accesstoelectricity,(v)increasinggasproduction commercialperformanceofthesectorbysignificantly capacityandmobilizinginvestmentstogasproduction, reducingpowerdistributionlosses,andstabilizingbill (vi)improvingthegastransmissionanddistribution collectionandthetransmissionsystem.The network,and(vii)improvingthegovernanceand electrificationratioincreasedfromabout10%in1994to regulatoryframeworkoftheenergysector. over37%in2008andelectricityconsumptioninthe During19932008,ADBapprovedloanstotaling countryincreasedbyover100%during19982008. $1,755.9million($1,211.9millionofordinarycapital However,powershortagesincreasedduring20022008 resources[OCR],$539.0millionfromtheAsian duetoinsufficientinvestmentsinpowergeneration DevelopmentFund[ADF],and$5.0millioningrants)to andfailuretoattractnewinvestmentsfromtheprivate theenergysectoramountingto29.6%oftotalADB sector.AlthoughBangladeshmanagedtoattract lendingtoBangladesh.ADBlendingoperations significantinvestmentsfromtheprivatesectorforgas consistedof14publicsectorprojectloans(8ADFloans explorationandincreasedgasproductionbyover100% and6OCRloans)tofinance9projects,2publicsector during19982008,thecountryisagainfacedwithgas OCRprogramloans,and1nonsovereignloan.The shortagesduetotherapidincreaseindemandforgas powersubsectorhadsixpublicsectorprojectsvaluedat forpowergeneration,forresidentialareas,andfor $1,291.3million,andonenonsovereignloanof$50.0 industry. million.Thegassubsectorhadthreeprojectsvaluedat Astheleaddevelopmentpartnerintheenergy $414.6million.ADBalsoprovided19advisorytechnical sector,theAsianDevelopmentBank(ADB)hasadopted assistancegrantsvaluedat$10.4millionduringthis aprogrammaticapproachforitsassistance,grouping
Independent Evaluation Department Asian Development Bank 6 ADB Avenue, Mandaluyong City, 1550 Metro Manila, Philippines Tel +63 2 632 4444; Fax +63 2 636 2444; evaluation@adb.org; www.adb.org/evaluation/

Background

period. SummaryofFindings Overall,thestrategic(topdown)assessmentof ADBsenergysectorassistancetoBangladeshhasbeen ratedsuccessfulintermsofitshighdegreeofrelevance tocountryprioritiesandADBenergysectorstrategies, selectivityandownership,sequencingandcontinuity, andsubstantialcontributiontoachievingdevelopment outcomes;inimprovedsectorgovernanceand operationalperformanceofsectorentities;andthe highlycommendableperformanceofADBinensuring projectqualityatentry,effectiveportfoliomanagement, anditsleadershiproleincoordinatingdevelopment assistancetothesector.Thebottomupassessmentof ADBslendingandnonlendingassistancetotheseven thematicareashasbeenratedsuccessfulexceptforthe assistanceprovidedtopromotinginvestmentsinpower generation,whichisratedpartlysuccessful.Theoverall assessmentofADBenergysectorassistanceto Bangladeshisratedsuccessful. ADBsphasedandgradualistapproachtoreform implementationhasbeensuccessful.Thefullbenefitsof corporatizationarerealizedovermanyyears.There wereinitialsetbacks.Overtime,however,thereforms haveprovedtheirworthanddemonstratedincreasesin efficiencyandqualityofservice.Thishighlightedthe importanceoflongtermengagementevenifearly resultsarenotpromising. Powershortagehaspersistedthroughoutthe evaluationperiodandthecurrentsituationinthe powersectorreflectsacriticalshortageofbaseload capacity.ThemajorADBandWorldBankfunded investmentscurrentlyinprogresswillnothelpsolve thisproblem.Thepolicyofexpectingtheprivatesector todevelopindependentpowerproducers(IPPs)for baseloadcapacitywhileprovidingdevelopment partnersupportforpeakingplantshasnotproved successful.Thefailureofsuccessiveroundsofbidding forIPPswasnotanticipatedandgreateraccountshould havebeentakenoftheserisksindecidingprojectsfor developmentpartnersupport. Bangladeshisheavilydependentonnaturalgasto meetitsprimarycommercialenergydemandinpower generation,industrial,andresidentialsectors.The countryscurrentlevelandprojectedincreaseingas productionprovesgasreservesareinadequatetomeet theanticipateddemandfornaturalgas.Thepresent policyofmakingthecountrysgasresourcesavailable tousersataminimalpriceisunsustainable.Costswill riseasincreasingquantitiesofavailablegascomefrom internationaloilcompanies.Furthermore,thepresent
Learning Curves available @ www.adb.org/evaluation/

priceofgasdoesnotprovidesufficientcashflowto supportfurthergasexploration. Recommendations ProactivelyencouragetheGovernmenttoaddress pricesubsidiesintheenergysector.ADBcould supporttheGovernmentinundertakinga comprehensiveenergypricingstudythroughthe newlycreatedenergyregulatortounderstandthe linkagesbetweennaturalgaspricingandelectricity pricing,industrialcompetitiveness,fiscalimpactsof priceadjustment,impactsonconsumerwelfare,and energyefficiencyimprovements. Energyefficiencyinpowerplantsoperatedby BangladeshPowerDevelopmentBoard(BPDB)is low,buttherehavebeennoconcertedeffortsby developmentpartnerstoengageBPDBinthisregard. Hence,ADBcouldalsoexploreopportunitiesto financeprojectstoimproveenduserenergy efficiency. Thereisaneedfordevelopmentpartnersincluding ADBtoprovidesupportforpublicsectorpower generationcapacityadditionstocomplimentthe ongoingeffortstoattractprivateinvestmentssubject togovernmentagreeingtocommercializethepublic sectorpowergenerationassets. Regionaltradinginelectricitywillenable Bangladeshtobenefitfromthehydropower resourcesinneighboringcountries.ADBisideally positionedtoassumetheroleofhonestbrokerin facilitatingpowertransmissionconnectivity Bangladeshandneighboringcountries. Feedback ADBManagementsresponsenotedthatthereport wascomprehensiveandwellanalyzed,andagreed withtherecommendationsofthereport. WhentheseLearningCurveswereprepared,the ChairsSummaryoftheDevelopmentEffectiveness CommitteeDiscussionswasnotavailablefor disclosuretothepublic.Thestudywascompletedin October2009.
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ADB.2009.Bangladesh:EnergySector.SectorAssistance ProgramEvaluation.Manila.Available: www.adb.org/Documents/Reports/SAPE/BAN/SAPBAN 200936/SAPBAN200936.pdf

Team Leader: Pradeep Perera; Tel +63 2 632 4645; pperera@adb.org