Document of The World Bank Report No: ICR00004145 IMPLEMENTATION COMPLETION AND RESULTS REPORT (IDA-41690, IDA-46930) ON A PROJECT IN THE AMOUNT OF SDR 187.05 MILLION (US$307 MILLION EQUIVALENT) TO THE PEOPLE’S REPUBLIC OF BANGLADESH FOR THE INVESTMENT PROMOTION AND FINANCING FACILITY PROJECT June 27, 2017 Finance and Markets Global Practice South Asia Region CURRENCY EQUIVALENTS (Exchange Rate Effective June 22, 2017) Currency Unit = Bangladeshi Taka (BDT) BDT 80.71 = US$1 US$0.0000 = SDR 1 FISCAL YEAR July 1–June 30 ABBREVIATIONS AND ACRONYMS AF Additional Financing BB Bangladesh Bank BOI Board of Investment BIFFL Bangladesh Infrastructure Finance Fund Limited BPDB Bangladesh Power Development Board CPF Country Partnership Framework DOE Department of Environment E&S Environment and Safety EIA Environmental Impact Assessment EPZ Export Processing Zone ESIA Environmental and Social Impact Assessment FA Financing Agreement FI Financial Intermediary FIDP Financial Institutions Development Project GDP Gross Domestic Product GOB Government of Bangladesh ICR Implementation Completion and Results Report IDCOL Infrastructure Development Company Limited IFC International Finance Corporation IIFC Infrastructure Investment Facilitation Center IPFF Investment Promotion and Financing Facility ISR Implementation Status and Results Report M&E Monitoring and Evaluation MDGs Millennium Development Goal MOF Ministry of Finance MTR Midterm Review PAD Project Appraisal Document PDO Project Development Objective PFI Participating Financial Institution PICOM Private Infrastructure Committee PPP Public-Private Partnership PSIDP Private Sector Infrastructure Development Project PSIG Private Sector Infrastructure Guidelines QAG Quality Assurance Group QEA Quality at Entry TEU Twenty-Foot Equivalent Unit TTL Task Team Leader Country Director Qimiao Fan Senior Global Practice Director: Ceyla Pazarbasioglu Practice Manager: Niraj Verma Project Team Leader: A. K. M Abdullah ICR Team Leader: Nouma Dione BANGLADESH Investment Promotion and Financing Facility Project CONTENTS A. Basic Information ........................................................................................................................ i  B. Key Dates .................................................................................................................................... i  C. Ratings Summary ........................................................................................................................ i  D. Sector and Theme Codes............................................................................................................ ii  F. Results Framework Analysis ..................................................................................................... iii  G. Ratings of Project Performance in ISRs .................................................................................... v  H. Restructuring ............................................................................................................................. vi  I. Disbursement Profile .................................................................................................................. vi  1.  Project Context, Development Objectives and Design ........................................................... 1  2.  Key Factors Affecting Implementation and Outcomes ........................................................ 11  3.  Assessment of Outcomes ...................................................................................................... 15  4.   Assessment of Risk to Development Outcomes ................................................................... 22  5.   Assessment of Bank and Borrower Performance ................................................................. 23  6.   Lessons Learned.................................................................................................................... 26  7.   Comments on Issues Raised by Borrower/Implementing Agencies/Partners....................... 29  Annex 1: Project Costs and Financing .......................................................................................... 30  Annex 2: Outputs by Component ................................................................................................. 31  Annex 3: Economic and Financial Analysis ................................................................................. 38  Annex 4: Bank Lending and Implementation Support/Supervision Processes ............................ 39  Annex 5: Beneficiary Survey Results ........................................................................................... 40  Annex 6: Stakeholder Workshop Report and Results................................................................... 46  Annex 7: Borrower’s ICR ............................................................................................................. 47  Annex 8: Comments of Co-financiers and Other Partners/Stakeholders...................................... 67  Annex 9: List of Supporting Documents ...................................................................................... 68  Annex 10: Borrowers comments to the ICR ................................................................................. 69  Annex 11: Map ............................................................................................................................. 72  A. Basic Information Investment Promotion Country: Bangladesh Project Name: and Financing Facility Project ID: P089382 L/C/TF Number(s): IDA-41690,IDA-46930 ICR Date: 06/27/2017 ICR Type: Core ICR GOVERNMENT OF Lending Instrument: FIL Borrower: BANGLADESH Original Total XDR 34.90M Disbursed Amount: XDR 187.05M Commitment: Revised Amount: XDR 187.05M Environmental Category: Implementing Agencies: Bangladesh Bank Cofinanciers and Other External Partners: B. Key Dates Revised / Actual Process Date Process Original Date Date(s) Concept Review: 07/08/2004 Effectiveness: 08/24/2006 08/24/2006 04/20/2010 08/23/2012 Appraisal: 12/05/2005 Restructuring(s): 05/21/2013 02/10/2014 12/29/2016 Approval: 05/02/2006 Mid-term Review: 11/10/2013 12/09/2013 Closing: 12/31/2011 12/31/2016 C. Ratings Summary C.1 Performance Rating by ICR Outcomes: Satisfactory Risk to Development Outcome: Moderate Bank Performance: Moderately Satisfactory Borrower Performance: Satisfactory i C.2 Detailed Ratings of Bank and Borrower Performance (by ICR) Bank Ratings Borrower Ratings Quality at Entry: Moderately Satisfactory Government: Satisfactory Implementing Quality of Supervision: Satisfactory Satisfactory Agency/Agencies: Overall Bank Overall Borrower Moderately Satisfactory Satisfactory Performance: Performance: C.3 Quality at Entry and Implementation Performance Indicators Implementation QAG Assessments (if Indicators Rating Performance any) Potential Problem Project Quality at Entry No None at any time (Yes/No): (QEA): Problem Project at any Quality of Supervision Yes None time (Yes/No): (QSA): DO rating before Satisfactory Closing/Inactive status: D. Sector and Theme Codes Original Actual Major Sector/Sector Financial Sector Banking Institutions 55 55 Energy and Extractives Energy Transmission and Distribution 15 15 Transportation Rural and Inter-Urban Roads 15 15 Water, Sanitation and Waste Management Other Water Supply, Sanitation and Waste Management 8 8 Industry, Trade and Services Other Industry, Trade and Services 7 7 Major Theme/Theme/Sub Theme Environment and Natural Resource Management Environmental policies and institutions 17 17 Finance Financial Stability 17 17 ii Financial Sector oversight and policy/banking 17 17 regulation & restructuring Private Sector Development Business Enabling Environment 17 17 Investment and Business Climate 16 16 Regulation and Competition Policy 17 17 Jobs 11 11 Job Creation 11 11 Public Private Partnerships 10 10 Urban and Rural Development Rural Development 11 11 Rural Infrastructure and service delivery 11 11 Urban Development 11 11 Urban Infrastructure and Service Delivery 11 11 E. Bank Staff Positions At ICR At Approval Regional Vice President: Annette Dixon Praful C. Patel Country Director: Qimiao Fan Christine I. Wallich Practice Manager: Niraj Verma Simon C. Bell Task Team Leader(s): A.K.M. Abdullah Christopher Juan Costain ICR Team Leader: Nouma T. Dione ICR Primary Author: Nouma T. Dione Sati Achath F. Results Framework Analysis Project Development Objectives (from Project Appraisal Report) The PDOs were to (a) supplement the resources of the Recipient’s financial markets to provide term finance for infrastructure Investment Projects; and (b) promote the role of private sector entrepreneurs in the development of infrastructure. Revised Project Development Objectives: The original PDO was not revised; however, it is important to note that there was a discrepancy between the PDO in the Project Appraisal Document and in the Financing Agreement. iii Original Target Actual Value Values (from Formally Achieved at Indicator Baseline Value approval Revised Target Completion or documents Values Target Years Total investments in infrastructure increase (as measured by the total amount of Indicator 1: equity and debt financing from IPFF, GOB and the financial institutions) Value (quantitative or 0.00 50.00 490.00 828.57 qualitative) October 27, Date achieved April 3, 2006 April 3, 2006 December 31, 2016 2016 Comments Target exceeded by 69%. Total amount of equity and debt financing from IPFF, GOB, and local financial Indicator 2: institutions Value (quantitative or 0.00 335.40 352.00 554.05 qualitative) Date achieved October 27, April 3, 2016 March 31, 2016 December 31, 2016 2016 Comments Target exceeded by 57%. Total amount of equity from the private sector entrepreneurs on the transactions Indicator 3: supported by IPFF Value (quantitative or 0.00 162.24 138.00 234.58 qualitative) Date achieved October 27, April 3, 2016 March 31, 2016 December 31, 2016 2016 Comments Target exceeded by 70%. (b) Intermediate Outcome Indicator(s) Original Target Actual Value Values (from Formally Achieved at Indicator Baseline Value approval Revised Target Completion or documents) Values Target Years Long term debt financing for infrastructure increases (as measured by cumulative Indicator 1: debt financing from IPFF) Value (quantitative 62.00 261.25 294.00 320.14 or qualitative) October 27, Date achieved June 13, 2012 March 31, 2016 December 31, 2016 2016 Comments Target exceeded by 10%. Indicator 2: Number of financial institutions using the IPFF Value (quantitative 10.00 15.00 15.00 16.00 or qualitative) October 27, Date achieved April 3, 2006 March 31, 2016 December 31, 2016 2016 Comments Target exceeded by 6%. Indicator 3: Percentage of PFIs maintaining Bangladesh Bank eligibility criteria Value (quantitative 0.00 100 100.00 100.00 or qualitative) iv October 27, Date achieved April 3, 2006 March 31, 2016 December 31, 2016 2016 Comments Target met. Percentage of financed infrastructure projects using DOE environmental Indicator 4: assessments Value (quantitative 0 100 100 100 or qualitative) October 27, Date achieved April 3, 2006 March 31, 2016 December 31, 2016 2016 Comments Target met. Indicator 5: Percentage of projects reviewed for project eligibility on behalf of Bangladesh Bank Value (quantitative 0 100 100 100 or qualitative) October 27, Date achieved April 3, 2006 March 31, 2016 December 31, 2016 2016 Comments Target met. Indicator 6: Number of PFI staff trained to undertake financial analysis of infrastructure projects Value (quantitative 0 80 180 274 or qualitative) October 27, Date achieved April 3, 2006 March 31, 2016 December 31, 2016 2016 Comments Target exceeded by 52%. Indicator 7: The project results in 100 MW of additional electricity added to national capacity Value (quantitative 0 100 240 589 or qualitative) October 27, Date achieved April 3, 2006 March 31, 2016 December 31, 2016 2016 Comments Target exceeded by 145%. G. Ratings of Project Performance in ISRs Date ISR Development Implementation Actual Disbursements No. Archived Objective Progress (US$, millions) 1 08/18/2006 Satisfactory Satisfactory 0.00 2 05/25/2007 Moderately Satisfactory Moderately Satisfactory 5.00 3 06/13/2007 Moderately Satisfactory Moderately Satisfactory 5.00 4 12/14/2007 Moderately Satisfactory Moderately Satisfactory 5.01 5 02/22/2008 Satisfactory Satisfactory 5.01 6 09/12/2008 Satisfactory Satisfactory 19.94 7 05/13/2009 Satisfactory Satisfactory 32.64 8 11/23/2009 Satisfactory Satisfactory 40.65 9 06/18/2010 Satisfactory Satisfactory 53.29 10 03/01/2011 Satisfactory Moderately Satisfactory 53.82 11 12/25/2011 Moderately Satisfactory Moderately Unsatisfactory 63.82 12 08/11/2012 Moderately Satisfactory Moderately Unsatisfactory 62.86 13 06/26/2013 Moderately Satisfactory Moderately Unsatisfactory 82.92 14 01/23/2014 Moderately Unsatisfactory Moderately Unsatisfactory 108.59 v 15 08/29/2014 Moderately Satisfactory Moderately Satisfactory 128.78 16 03/19/2015 Moderately Satisfactory Moderately Satisfactory 156.69 17 10/07/2015 Satisfactory Satisfactory 237.66 18 04/07/2016 Satisfactory Satisfactory 262.47 19 11/04/2016 Satisfactory Moderately Satisfactory 294.81 H. Restructuring ISR Ratings at Amount Board Restructuring Disbursed at Restructuring Reason for Restructuring & Approved Restructuring Date(s) Key Changes Made PDO Change DO IP in USD millions Additional Financing, 04/20/2010 N S S 49.08 Results Framework revised project extension, single sector exposure cap, 08/23/2012 MS MU 62.86 revisions to Results Framework â ¢ Introduction of alternative market reference 05/21/2013 MS MU 70.33 interest indexes Removal of single sector exposure cap, revisions to 02/10/2014 MU MU 108.59 Results Framework, clarification of PDP Cancellation of US$20 million balance before 12/29/2016 S MS 274.81 Project closure I. Disbursement Profile vi vii 1. Project Context, Development Objectives and Design 1.1 Context at Appraisal 1. Country background. Bangladesh’s reform efforts since the early 1990s had resulted in significant economic and social improvements, with steady gross domestic product (GDP) growth and manageable inflation. Real GDP growth accelerated to an average of about 5 percent, from 4 percent in the 1980s. This performance was underpinned by rising agricultural and nonfarm rural output and a rapid expansion in exports of ready-made garments. Robust GDP growth, together with improved access to education and health care, has allowed Bangladesh to make good progress toward meeting some of the Millennium Development Goals (MDGs). 2. Despite these achievements, Bangladesh remained among the poorest countries in the region, requiring much faster economic growth if the MDGs were to be met. The 2003 Investment Climate Assessment conducted in Bangladesh by the World Bank, identified lack of access to finance, cost of finance, and poor infrastructure as three of the primary obstacles to private sector development in the country. The project sought to address these hurdles by providing financial support from IDA, the private sector, the Government of Bangladesh (GOB), the International Finance Corporation (IFC), development partners, and other lenders. The project also sought to provide technical assistance (TA) to support the governmental process in developing public-private partnerships (PPPs). The development goals of the project reflected key priorities identified by the World Bank’s Bangladesh Country Assistance Strategy for the period of FY2000–03,1 namely to (a) accelerate private sector-led growth, (b) support an integrated approach to rural development, (c) strengthen the Government, and (d) build institutions. Sector Issues 3. Weak financial sector. The 2003 Financial Sector Assessment of Bangladesh highlighted a weak financial sector as a major constraint to growth represented by Bangladesh’s financial markets. Lending was primarily short term and constrained by short-term deposit mobilization. Only about 20 percent of deposits had maturities of one year or longer. Given their reliance on short-term deposits, banks were constrained in their ability to become involved in long-term finance. 4. Infrastructure deficiencies. Bangladesh had ranked among countries most requiring improvement in infrastructure services. Erratic public sector services imposed significant costs hindering the growth of the country’s economy. Power shortages reduced industrial output by an estimated US$1 billion per year and GDP growth by 0.5 percent per year. Congestion in the nation’s ports cost the country in forgone exports, impeding the ability of entrepreneurs to access imported inputs rapidly. 5. Private provision of infrastructure services. Bangladesh had mostly relied on subsidized financing from multilateral and bilateral donors for the development of its national infrastructure. However, development partner initiatives did not always produce sustainable reforms. The private sector, nevertheless, made important contributions in some sectors, such as telecommunications, power, and water and sanitation. 1 Report No. 21326-BD, dated February 8, 2001. 1 Rationale for Bank Involvement 6. The key rationale for World Bank support was based on the following needs: (a) Limited availability of foreign exchange reserves. As of October 2005, Bangladesh foreign exchange reserves stood at only approximately US$2.8 billion, representing about 2.5 months of imports. Considering the current account deficit of around 1 percent of GDP, these funds were inadequate in the face of Bangladesh’s foreign currency investment needs. (b) Underdeveloped financial sector. The financial sector in Bangladesh remained underdeveloped, even for projects requiring financing in Bangladeshi takas. The long-term financing needs of infrastructure projects were not being met by commercial banks in Bangladesh and the ability of the Nationalized Commercial Bank to provide credit was constrained under the terms of their Memorandum of Understanding with the Bangladesh Bank (BB), which limited credit growth to 5 percent per year. (c) Lack of long-term finance. The ability of banks to extend term credit (beyond five years) was extremely limited because of their dependence on short-term deposits. The ability of a World Bank-supported entity to offer financing for terms of up to 20 years was considered extremely important to the private and financial sector. (d) Need for government intervention in finance. Because of the pressing social and economic requirement for infrastructure investment in Bangladesh, and the limited capacity of the financial markets, there was a strong case for Government intervention on a temporary basis with commensurate capacity building to address market deficiencies. (e) Promotion of PPPs. Line ministries needed support in identifying and promoting initial PPPs. International experience had shown that the primary responsibility for initial development of PPPs continued to rest with the Government. As such, the Government and the line ministries needed TA in proactively assessing PPP- eligible projects to form part of the Private Infrastructure Project List, for which the custodian was the Private Infrastructure Committee (PICOM), a high power Inter-Ministerial Committee established in 2004 with the objective to facilitate and promote PPP. 1.2 Original Project Development Objectives (PDO) and Key Indicators 7. The PDOs were to (a) supplement the resources of the Recipient’s financial markets to provide term finance for infrastructure Investment Projects; and (b) promote the role of private sector entrepreneurs in the development of infrastructure.2 Original PDO Level Key Indicators 8. The original PDO level key indicator was the increase in private sector participation, in infrastructure as measured by the increase in number of PPPs. 2 As per the Financing Agreement, Schedule 1, Page 5, Cr. No.: 4169-BD, dated June 1, 2006. 2 1.3 Revised PDO and Key Indicators, and Reasons/Justifications: 9. Clarification of PDO. While no changes in the PDO were introduced during implementation, the December 2013 Midterm Review (MTR) Assessment noted a discrepancy between the PDO in the Financing Agreement (FA) and in the Project Appraisal Document (PAD). The correct formulation of the PDO was therefore clarified in the Restructuring Paper, dated February 10, 2014, as the one that was contained in the FA. 1.4 Revision of Outcome Level Indicators: 10. Originally, the outcome indicator ‘number of PPP transactions’ was the only outcome indicator to measure the PDO in the Results Framework. However, considering the importance of the ‘crowding-in’ of private sector resources as the main indicator of achievement of the Development Objective, the outcome indicator/results matrix was modified during the first, second, and fourth3 restructurings of the five project restructuring exercises (see Table 1). The revised outcome indicators captured the total investments in infrastructure as a result of investments by the Investment Promotion and Financing Facility (IPFF), instead of the number of PPPs under the IPFF. In addition, some of the targets of the intermediate results indicators were also revised to adapt to the changing circumstances during project implementation. For the purpose of the evaluation, the Implementation Completion and Results Report (ICR) uses the revised indicators in the assessment. 11. The revised PDO-level results indicators were as follows: (a) Total investments in infrastructure increase (as measured by the total amount of equity and debt financing from IPFF, GOB, and the financial institutions) (b) Total amount of equity and debt financing from IPFF, GOB, and the local financial Institutions (c) Total amount of equity from the private sector entrepreneurs on the transactions supported by IPFF 12. Main beneficiaries. A broad range of stakeholders were the beneficiaries of the project. The private investors, being the direct users of the project funds, were the first-order beneficiaries. The private investors benefited from smaller annual debt service cost resulting from longer tenure and investment-supportive market-based pricing offered by the project. By extension, the people at large, as end users of infrastructure services, benefited from the more reliable and efficient costing of the infrastructure services delivered. The participating financial institutions (PFIs) also were the beneficiaries of longer-tenure and market-based efficient interest rate structure of the project. 1.5 Original Components 13. The project consisted of two components (a) a lending and (b) a TA component, as detailed in the following paragraphs: 3 April 1, 2010 (AF); August 23, 2012; and February 10, 2014. 3 Component 1: Infrastructure Development Lending (Original Amount: US$47.5 million)4 14. This component aimed to develop a funding mechanism with added transparent levels of control and market-based incentives to the existing methodology for allocating public funds to priority infrastructure projects identified by the Government and developed on the basis of PPPs. Funds were allocated to local financial institutions for on-lending to private sector infrastructure projects, selected by the Government. While financing came from the Government, the BB administered it. The private sector infrastructure promoters operated under incentive-based contractual arrangements designed to align their interests with those of the GOB. The funds were allocated to the PFIs for on lending to private sector infrastructure subprojects competitively selected by the Government or proposed by project sponsors following the GOB and World Bank guidelines and the World Bank’s no-objection. The projects were selected on market terms, on a first-come, first-served basis, requiring at least a 30 percent equity component from the private infrastructure promoter and a further minimum of 14 percent of third-party funding. The required portion of the equity component and non- IPFF loan was revised to 25 percent and 15 percent, respectively, of the total project cost of the subprojects. The PFIs were required to co-invest as well as assume all credit risk to reinforce alignment of their interests and those of the Government. The PFIs were responsible for credit administration and recovery. As part of the Quality Enhancement Review, extensive guidance was provided concerning the conformity with the World Bank’s OP 8.305 covering financial intermediation loans. Component 2: Capacity Building (Original Amount: US$2.5 million) 15. This component included the following activities to support the development of a PPP framework or an ‘ecosystem’ in Bangladesh: (a) TA for the BB and market participants. TA would be provided to the BB for capacity building for the development of infrastructure finance capacity among the local market participants and within the BB for the oversight of this sector (and the project). Because reviewing loan proposals was not a core activity of the BB, TA would also be provided to the BB through a consultancy (Infrastructure Investment Facilitation Center, [IIFC]) to assess infrastructure projects and to review the financing proposals. (b) IIFC support to PICOM for policy and regulatory reform. Financial support would be provided for the IIFC to continue its operations to promote private financing of infrastructure within the government framework (thereby providing the link between the financial sector and the line ministries). The project would support PPPs by continuing the operations of the IIFC or another suitably qualified body to provide the critical public policy support functions of policy development, information sharing, and capacity building. The project would also seek to 4 Not reflecting the GOB and private sector contributions. 5 OP 8.30 provides eligibility criteria for financial institutions, which include adequate profitability, capital, and portfolio quality, adequate managerial autonomy and commercially oriented governance, and appropriate capacity (including staffing) for carrying out subproject appraisal (including environmental assessment) and for supervising subproject implementation. OP 8.30 has since become the basis of OP 10.00 on financial intermediary (FI) financing. 4 strengthen the policy and regulatory frameworks for enhanced private sector participation. (c) Support for environmental assessments: To improve the standard of project preparation in Bangladesh, funds under the TA component would be used to supervise and manage the preparation of Environmental Impact Assessments (EIAs) to ensure the quality required by the GOB, and for eligibility for World Bank funding. 16. Revised components. The components were not revised during implementation; however, in light of good project performance,6 and the large infrastructure gap in the country, the IPFF was scaled up in May 2010 through an Additional Financing (AF). This was also an opportunity to expand the set of eligible PPP sectors beyond small and captive power plants to other infrastructure sectors such as transport, water treatment, waste management, services for economic zones, and others. 17. Other significant changes. The project involved significant changes as detailed in the following paragraphs. Project Restructuring 18. During implementation, the project underwent five level 2 restructurings at the request of the GOB, maintaining the PDO, disbursement, financial management, procurement arrangements, and safeguards provisions unchanged. These restructurings were driven by the ‘learning by implementing’ approach that the Government and the World Bank adopted to ensure that the project remained market driven. Starting as a pilot with US$50 million, the project grew to reach US$307 million and the restructurings were successfully completed to implement the necessary measures to deal with various external and internal challenges. These challenges mainly related to: (a) the quality and/or the speed of development of the subprojects pipeline; (b) the limited capacity for PPP within the Government and in the private sector; (c) the changes in the market context; and finally (d) the areas of inefficiencies in the project design that were identified as the project progressed (for example, slow pace for no-objection approval, Results Framework revisions, and so on). See table 1 for a summary of the project restructurings. 6 The credit line was fully used by the third year of operation. 5 Table 1. Summary of the IPPF Restructuring Third Project Fourth Project Fifth Project First Project Restructuring Second Project Restructuring Restructuring Restructuring Restructuring Restructuring (April 2010) (August 2012) (May 2013) (February 2014) (December 2016) Rationale  Along with the AF, the  Extend the project end date  The Government Implementation of actions  A project project was restructured given the initial slow raised the issue of the identified during the restructuring was to reflect its increased implementation pace. reference interest rate second MTR to requested to cancel scale.  Revise the Results used for refinancing  Improve pipeline the SDR equivalent  With the AF, the project Framework to better facility loans under development process of the remaining was extended to capture the crowding-in of the IPFF project that and PPP framework; balance of US$20 December 31, 2014. private sector resources was discouraging the  Address the million before given its importance as the use of the facility by discrepancy between December 31, 2016. main indicator of both project sponsors the PDO in the FA achievement of the and the PFIs. and in the PAD and Development Objective and introduced revisions address the lack of sector to the Results diversification. Framework to  There was a high enhance it; and concentration of on-lending  Introduce projects in the power sector clarification of (7 out of 8 approved eligible operating projects) such that the GOB costs and of wanted to include measures recipients of TA to encourage a multisector services. demonstration effect of crowding in private investment. Changes  Revisions of the project’s  Revision of the project’s  Introduction of  Lifting of the single  Cancellation of introduced target level indicators to outcome indicator/results alternative market sector exposure cap US$20 million capture increased scale. matrix, in the context of the reference interest  Clarification of the balance before changed country/market indexes that satisfy PDO project closure conditions. World Bank policy  Revision of outcome  Extension of sector requirements for a level indicators with eligibility to include PPPs competitive rate. the introduction of in social sectors.  Specific indexes two new ones to  Iinfrastructure (health and selected for taka- better measure the education) and information denominated and crowding-in effect technology infrastructure to other currency 6 Third Project Fourth Project Fifth Project First Project Restructuring Second Project Restructuring Restructuring Restructuring Restructuring Restructuring (April 2010) (August 2012) (May 2013) (February 2014) (December 2016) reflect the GOB’s priorities denominated loans  Clarification on and market demand. would be stipulated eligible operating  Capping of single sector in the Operations costs exposure to 50 percent of Manual.  Clarification of the on-lending component. recipients of TA  Reallocation of US$3 services million from the on lending to the TA component to increase support for early stage PPP project development.  Extension of the project closing date. 7 19. First project restructuring (April 2010). Following the success of the pilot project, and given the large infrastructure gap in the country, the World Bank extended an AF for US$257 million 7 bringing the total project cost to US$307 million. The scaled up amount (US$257 million) was divided into US$7 million for capacity building (TA) and US$250 million for the lending pipeline. The project’s outcome indicators did not change and remained similar to those of the parent project; however, the target values were set at levels that recognized the scaled-up version of the AF. The changes introduced in the Results Framework were as follows: (a) A total of US$250 million worth of private sector infrastructure investments are realized using the IPFF; including contribution from the PFIs, Government, and project investors. (b) At least 10 domestic financial institutions use the IPFF. (c) The project results in 100 MW of additional electricity added to the national capacity. 20. Second project restructuring (August 2012). To promote a more diversified pipeline, the project was restructured to introduce measures that could promote sector diversification beyond small and captive power plants to other infrastructure sectors such as transport, water treatment, waste management, services for economic zones, and others and accelerate the implementation of the TA component specifically with regard to the setup of a PPP framework in Bangladesh. The Results Framework was modified to better capture the PDO, considering the importance of the crowding-in of private sector resources as the main indicator of achievement of the Development Objective. The revised outcome indicator aimed to capture the total investments in infrastructure (debt and equity), as a result of investments by the IPFF, instead of the number of PPPs under the IPFF. Finally, some of the targets of the intermediate results indicators were revised to adapt to the changing circumstances of project implementation. Specific changes were introduced. (a) Results/indicators. The changes included revising the (i) Outcome indicator, by replacing the number of PPP transactions indicator with the amount of investment financing crowded-in; (ii) Main output indicator under Component 1, now measuring the cumulative disbursements of the credit line; (iii) Output indicator measuring the results of the TA to the PPP office or the GOB under Component 2, by replacing the indicator on the number of projects following PPP guidelines with the number of PPP projects supported under the IPFF, to account for the new focus on project development; and (iv) Targets for training staff of the PFIs, now measuring the cumulative number of staff trained. (b) Sector Eligibility: 7 Credit No. 4169-BD. 8 (i) Cap of single sector exposure to 50 percent of the on-lending component. Initially, around 97 percent of project investment funds allocated were directed to the power sector. To support a diversified portfolio beyond the power sector, a 50 percent exposure limit of facility loans in the power sector was introduced (that is, up to US$148.75 million). This maximum exposure was in line with the exposures expected in the project’s initial pipeline when the AF was approved in 2010. (ii) Expansion to social sectors and IT infrastructure. While continuing to focus on infrastructure finance, expansion to social sectors and IT infrastructure was introduced, bringing the scope of eligible sectors in line with pathfinding projects that were identified by the new PPP office. (c) Component Reallocation: (i) A reallocation of US$3 million was introduced from the on-lending component to support feasibility studies and transaction advisory services of selected path-finding PPP projects. The revised allocations were as follows:  Component 1: Credit line component from US$297.5 to US$294.5 million  Component 2: TA component from US$9.5 to US$12.5 million (d) Closing Date: (i) Since the closing date of the IPFF AF (December 31, 2014) was exactly three years later than the closing date of the initial IPFF project (December 31, 2011) and required an exception to OP/BP 13.20,8 the project was extended by 12 months, from December 31, 2014 to December 31, 2015. 15. Third project restructuring (May 2013): The GOB had expressed concern that the reference interest rate used for refinancing facility loans under the IPFF project was discouraging the use of the facility by both, project investors and the PFIs. The benchmark rate was defined in the FA as the prevailing Government Treasury rate for the refinancing period as well as a spread of 20–30 basis points. The most common rate used, the Treasury bill rate, was volatile, and had risen quite dramatically since 2010. Sponsoring banks typically added a margin of at least 3–4 percent to the refinancing rate, which resulted in high interest costs to projects, dampening demand for the project facility. Furthermore, most existing projects were financed on a floating rate basis, so projects already financed under the facility were experiencing higher than anticipated interest charges, which negatively affected their profitability. Based on the above, while no changes were introduced in the Results Framework, the following changes were introduced in the project design: (a) Alternative market reference interest indexes would be used that satisfy World Bank policy requirements for a competitive rate. 8 Under OP 13.20, AF loans are expected to be completed within three years after the current closing date for the project. However, in exceptional cases, the World Bank may consider extending the closing date of an additional loan. “Processing Additional Financing: Guidance to Staff” (11/18/2009, Revised 4/16/2012), paragraph 15 (n). 9 (b) Specific indexes selected for taka-denominated and other currency-denominated loans will be stipulated in the Operations Manual. 16. Fourth project restructuring (February 2014). Following the December 2013 MTR, the Government and World Bank task teams identified actions that could accelerate the pipeline development process and strengthen the PPP framework (that is, operationalization of the PPP Authority). A level 2 restructuring took place to implement these actions. It was also an opportunity to clarify the discrepancy between the PDO in the PAD and that in the FA to enhance the Results Framework by aligning the PDO statement and PDO indicators; specifically, the proposed increase in emphasis on pre-feasibility and design support for selected PPPs was not fully reflected in the Results Framework. Therefore, to improve the relevance of the Results Framework, revised outcome indicators were introduced and the project was extended by one year because of the slow implementation pace. The following changes were introduced: (a) Lifting of the single sector exposure cap. To promote diversification of IPFF investments, it was stipulated during the second restructuring that the maximum cap for single sector exposure should be 50 percent of the allocation for the on- lending component. The ceiling had particularly affected the energy projects and had slowed down the pipeline development process. Diversification of sub-loans beyond the energy sector had increased eligibility issues, as not many sectors had the technical and managerial capacity to generate private sector-led subprojects. This cap was an impediment to meeting the large demand from the power sector; consequently, the single sector exposure cap was lifted. (b) Clarification of the PDO. The December 2013 MTR assessment noted a discrepancy between the PDO in the FA and in the PAD. During restructuring, the project team availed of the opportunity to clarify that the correct formulation of the PDO was that contained in the FA, that is: “The objectives of the Project are to: (a) supplement the resources of the Recipient’s financial markets to provide term finance for infrastructure Investment Projects; and (b) promote the role of private sector entrepreneurs in the development of infrastructure.” (c) Revision of outcome level indicators. The outcome indicator was revised for better alignment with the PDO, as the prevailing PDO level outcome indicator only measured the total investment levels leveraged by the IPFF credit line. To better measure achievement of the PDO, two outcome indicators were introduced: (i) Total amount of equity and debt financing from the IPFF, Government, and the financial institutions. This outcome indicator measured the financial intermediation leveraged. (ii) Total amount of equity from the private sector entrepreneurs on the transactions supported by the IPFF. This indicator was used to measure, and monitor, the role of private sector entrepreneurs in the development of infrastructure. (d) Clarification of eligible operating costs. While the rent of the PPP office was supported by the project since its launch in January 2012, the operating costs, as defined in Section IV(A)(3) under Schedule 2 of the FA, did not explicitly refer to 10 rents. To remove this ambiguity, the definition of operating costs was revised in the FA to explicitly include cost of operation of the PPP Office, including rents. (e) Clarification of recipients of TA services. The project description in Schedule 1 of the FA referred to PICOM and PPP Cell as recipients of the TA services under the project. However, since PICOM no longer existed, a central PPP office and a PPP cell under the Ministry of Finance (MOF) were created. The names of TA recipients were accordingly amended in the FA, to the PPP office and PPP cell under the MOF. 17. Fifth project restructuring (December 2016). In late 2016, the client decided to initiate a restructuring to cancel the undisbursed balance of US$20 million as of December 2016 because of unexpected delays in the implementation of two infrastructure finance projects. It was noted that the two subprojects could become eligible for financing under IPFF II for the remaining amounts needed. The level 2 project restructuring took place on December 29, 2016, to cancel this amount before December 31, 2016.9 Additional Financing 18. Following the success of the initial project, and given the large infrastructure gap in the country, the IPFF was scaled up in 2010 through an AF, bringing the total project costs to US$307 million. 2. Key Factors Affecting Implementation and Outcomes 2.1 Project Preparation, Design and Quality at Entry 19. Project preparation. The technical merits of the project were examined over the course of reviews throughout the preparation process and supplemented by specialized ‘Technical Reviews’ reflecting the innovative nature of the project. These reviews allowed the project design to benefit from the contributions from experts in the infrastructure field in South Asia and other regions, as well as private and financial sector development. 20. Project design. The project had a firm empirical basis in that its overall design was drawn from the findings of the World Bank’s Investment Climate Assessment and the joint World Bank/Fund Financial Sector Assessment, both carried out in 2003. The project also drew from the technical experience of team members involved in both the Financial Institutions Development Project (FIDP) and the Private Sector Infrastructure Development Project (PSIDP). In addition, as part of project preparation, the sector background was studied, sector issues were analyzed, and government strategies and alternative design features were considered closely (that is, to incentivize the PFIs to sell off their infrastructure loans when mature or establishment of a social subsidy scheme for the private sector). A Quality at Entry Assessment (QEA8) was also carried out in October 2007 by a Quality Assurance Group (QAG) panel of reviewers for the project. The report rated the project as Moderately Unsatisfactory overall. 21. Lessons learned from previous World Bank-assisted projects. The project design considered a number of lessons drawn from the experience of the FIDP and PSIDP: 99 Report No.: RES26583. 11  Key lessons learned from the FIDP: A key factor of success for the FIDP had been the strong support it had enjoyed from the BB, which had shown itself to be a consistent agent for reform unconstrained by vested interest. The process, which had allowed the downstream procurement undertaken by the participating non- bank financial institutions to be conducted on the basis of economically efficient commercial practice, was also seen as being key to success in the context of a private sector environment.  Key lessons learned from the PSDIP and infrastructure funds. Assessments of infrastructure funds sponsored by the World Bank in South Asia10 indicated that these funds were hampered by governance and control issues that emanated from attempts to establish a body that was independent of government and transparent in its actions but, at the same time, ultimately responsible for public funds. Second, the assessments showed that it had proven to be a material challenge to follow the World Bank’s procurement requirements. 22. Risks and risk mitigation measures. The PAD identified seven main risks and mitigation measures as deemed appropriate during the preparation stage. While only two risks were considered substantial, all risks were managed appropriately. Table 2: Risks and Mitigation Measures Risk Risk Mitigation Measures Rating 1. Lack of government The BB had indicated its willingness to act as a government M ownership sponsor. Empowerment of private sector entrepreneurs and creation of an 2. Vested interests are incentive, through their investment, to counter the obstacles that S insurmountable. might be encountered A strong pipeline of potential infrastructure projects had been 3. Investment projects do not identified. The size of the facility had been initially kept small to M materialize. avoid underutilization. 4. The project crowds out Emphasis would be on acting as a catalyst for commercial N local financial markets. funding. A number of leading financial institutions were represented in 5. There is insufficient Bangladesh. Bangladeshis with substantive experience in leading technical expertise in N international markets had returned to assume key positions in Bangladesh. local financial institutions. 6. Private sector financial Various financial institutions and infrastructure promoters had institutions and M already expressed a strong interest in the project. entrepreneurs do not invest. 7. Erosion of standards in The World Bank would not provide finance for investment S the financial sector projects that do not meet appropriate governance standards. Note: Risk ratings: H = High; S = Substantial; M = Modest; N = Negligible or Low. 23. Adequacy of Government commitment. The Government demonstrated strong commitment to the IPFF project. This was demonstrated by the Government’s pledge to contribute11 from its own budget to act as cofinancing for the project. Additional funds were also made available to meet residual financing requirements. Financing from the Government was made available on the basis of cofinancing with resources to be lent under the IDA Credit for local expenditures. 10 Also in Pakistan and Sri Lanka. 11 An amount equivalent to 20 percent of the amount disbursed by IDA. 12 24. Adequacy of participatory processes. Participation of local private financial and entrepreneurial institutions was sought from the outset to ensure that the project design suited the needs and capacity of the Bangladesh economy. Multiple participants were allowed to encourage competition for funds which in turn generated market-based pricing. Contractual arrangements with local financial institutions allowed flexible engagement to respond easily to the changing circumstances. 2.2 Implementation 25. MTR. Two MTRs were carried out for this project. 26. First MTR (October 27 to November 4, 2008). During the MTR, which took place as planned, the project team noted significant implementation progress and highlighted that after two years of operation, the project had delivered its first fully operational power plant, which had started supplying to the grid on October 28, 2008. The MTR suggested the following steps to ensure a more effective utilization of the loan and the TA component: (a) focus be increased on helping PICOM to become fully operational, with support for at least one permanent staff as well as an office space, and obtaining donor support for furniture; (b) the BB, Board of Investment (BOI), IDA, and IIFC to take actions to enlarge the project pipeline, in cooperation with the Bangladesh Export Processing Zones Authority, Planning Commission, and other relevant government agencies; and (c) arrangement of PPP and negotiation skills training for government officials, to be implemented in 2009. 27. Second MTR (November 10 to December 9, 2013). During a second MTR, which took place after the project’s extension, the project team noted that the PDO continued to be relevant and the results indicators were on track and expected to meet their targets. However, the project team recommended level 2 restructuring to remove the 50 percent maximum sector exposure limit (or cap), as this ceiling had constrained demand for long-term financing in the power sector. The team also highlighted the need to align the PDO statement and PDO indicators, by adding a PDO outcome indicator measuring the role of private sector entrepreneurs in infrastructure development. 2.3 Post-completion Operation/Next Phase: 28. Transition arrangements. The follow-on project, IPFF II (P159429),12 will ensure the project’s future operation. Adaptations in the design of IPFF II were based on the experience gained during implementation of the first project and included the following: (a) Technical. Infrastructure subprojects will continue to be designed, appraised, and implemented based on Bangladeshi standards, in line with the relevant technical guidelines issued by the line ministries/agencies and in compliance with the project’s implementation arrangements. (b) Institutional and implementation arrangements. Because the implementation arrangement for the project, with the BB as the implementing agency, worked well, the IPFF Cell of the BB will continue as the PIU for IPFF II. As in the project, leveraging the BB’s regulatory role will continue in controlling adverse selection and moral hazards on the part of the PFIs. The Project Steering Committee, headed 12 Board approved on April 5, 2017 (Report No: 2056). 13 by the Senior Secretary/Secretary of Finance, in the MOF will continue its role on strategic oversight and policy direction. (c) Financial. The BB’s financial management capacity is satisfactory. All project- related transactions from all sources (the World Bank and the GOB) will be accounted for separately in the BB following double-entry bookkeeping principles, on a cash basis. The IPFF Cell of the BB will be responsible for consolidating financial information, maintaining supporting papers, and preparing financial statements on a monthly basis. (d) Budgeting and staffing. The PIU will continue to be adequately staffed with sufficient resources allocated to ensure the provision of monitoring data. A monitoring and evaluation (M&E) specialist will be retained by the PIU to help plan and manage this work. 29. Follow-on project. Based on the GOB’s request, the World Bank has agreed to continue its support by way of a follow-on project to continue the back-to-back on-lending facility along the lines of the IPFF and to support infrastructure investment capacity building. IPFF II has integrated the best practice of global standards into the project design in which the investments as well as TA resources will add sustainable capacity for the PFIs. IPFF II was approved by the Board on April 5, 2017, and it is expected to become effective in early FY2018. 2.4 Monitoring and Evaluation (M&E) Design, Implementation, and Utilization 30. M&E design. The project’s Results Framework was prepared according to the World Bank’s guidelines. However, the M&E design did not fully capture the catalytic effect of the project in promoting PPP in infrastructure; only one PDO indicator was initially introduced to measure the Development Objective. Additional changes in the Results Framework were later introduced through the project restructurings to enhance the results monitoring; however, the crowding-in effect in infrastructure finance was a clear project objective for which more suitable indicators could have been identified at entry. 31. M&E implementation. As the implementing agency, the BB coordinated monitoring against an agreed set of activities that was reviewed periodically for their effectiveness against performance standards and implementation schedules. Progress reports were prepared and submitted to the World Bank on a regular basis, containing (a) reports with key data on utilization and status of the IPFF and (b) assessment of the progress of the TA subcomponent. The BB ensured that the PFIs verified the status of investment projects by on-site inspection at least semiannually and prepared investment loan portfolio management and progress reports covering outstanding loans under the Credit. The MOF collected data, according to the output indicators developed during project preparation, which was closely monitored by the World Bank and the MOF. The indicators developed in the Results Framework were monitored biannually. 32. M&E utilization. Appropriate data collected by the BB was evaluated and used for decision making on certain activities. For example, the World Bank proactively changed the M&E framework multiple times to align PDOs with actual delivery and outcomes and to capture them with appropriate indicators based on the change in market dynamics. Further, when the project was not disbursing well and the indicators were not showing good progress, the World Bank changed the interest rate to attract investors. 14 2.5 Safeguard and Fiduciary Compliance 33. Fiduciary compliance. The project complied with fiduciary covenants during implementation. Internal control arrangements were in place, and adequate financial management systems, procurement, and disbursements were maintained. For example, the BB had established an Internal Audit Department that reported directly to the Governor. There was no overdue audit report or interim unaudited financial report; audits were carried out by an internationally affiliated firm in full compliance with international standards. There was low fiduciary risk affecting the project because a large portion of the Credit proceeds were used to directly support infrastructure financing facility that met predetermined criteria at various stages of the investment project cycle. It was also noted that the auditors expressed an ‘unqualified audit opinion’ on the recent financial statements, which indicated that these statements gave a true and fair view on the financial state of the project. Fiduciary compliance was rated Satisfactory.  34. Environmental safeguards compliance issues. The project had a large number of subprojects, including three Category A subprojects. The project included a provision to assist contracting Environmental and Social Impact Assessment (ESIA) preparation services on behalf of project promoters because the level of safeguards required under the project was of higher standard than the local industry practice. As a result, drafting of environmental and social management documents by private sponsors required close support from the World Bank and due to the insufficient quality of the ESIA documents, several rounds of reviews, by the safeguard team, were required to ensure that they meet the World Bank’s compliance requirements. Some of the subprojects came to the World Bank for financing at quite a late stage of construction or for refinancing. In such cases, legacy issues for the work already completed had to be reviewed in the form of environmental audits. The project needed much more input from the safeguards team against what is generally required under a lending project, where one or only a few ESMF/ESIA documents were involved. The sectoral expertise required was diverse, and at times, entrepreneurs had to provide technical advice as well. It must be noted that, in industrial projects, technology and environmental issues are intricately involved at times; thus, these projects require a more integrated review process from experienced technical persons whose skills are not easily found in Bangladesh. Despite these capacity constraints and delays for safeguards clearance, the World Bank compliance requirements were met and the safeguards arrangements remained satisfactory. It is important to note that the stakeholders view this as a contribution of the project to infrastructure capacity development. 3. Assessment of Outcomes 3.1 Relevance of Objectives, Design and Implementation Dimension Rating Relevance of Objectives High Relevance of Design Substantial Relevance of Implementation Substantial Overall Relevance Rating High Relevance of Objectives. Rating: High 35. The project’s objective remains highly relevant to Bangladesh’s current development priorities, as demonstrated by the need in the power sector alone, where the GOB plans to reach 15 20,000 MW of power generation by 2020 13 (from the current level of 12,500 MW). This suggests the need for very large investments in the generation capacity alone. A high level of rural‐urban migration is another trend that substantially adds to the demand-side pressures and calls for urban infrastructure to grow at a much faster rate. Similarly, the project’s objectives are also highly relevant to the Bangladesh’s Country Partnership Framework (CPF) for FY16– 20, which is aligned to the priorities set in the GOB’s Seventh Five-Year Plan, highlighting the critical role of private sector investment, growth, social inclusion, and climate and environmental management. The CPF focuses on the World Bank’s strategic direction on removing core impediments to job creation and growth, which is presently at a low level of investment in the private sector‐led infrastructure. The Board approved a follow-on project (IPFF II), with the same PDO, in April 2017. Relevance of Design Rating: Substantial 36. The design of the project remains highly relevant. The core project design, as a credit line from the Government to the PFIs and then on lending to the private project investors, has proved to be viable and appropriate for financing long‐term infrastructure projects. The flexible design and market-driven approach of the project were essential in ensuring its relevance throughout implementation. Assessing the demand for long-term debt financing for infrastructure in the near term was an important design feature of the project. Further, having a TA component, which aimed at building an ‘ecosystem’ for PPP through extensive awareness raising and technical training activities, was essential for the successful operation of the Project. In addition, the pricing for the IPFF facility was judiciously set at interest rates that helped accelerate private sector-led infrastructure project development and to pool in long-term financing for these projects and provide an incentive for the PFIs and investors to adopt the World Bank safeguards and procurement rules, which have financial and nonfinancial costs. Ultimately, the pricing objective was met as it managed to spur the growth of a new market. Relevance of Implementation Rating: Substantial 37. The implementation process of the project also turned out to be effective and efficient for achieving the project objective. In particular, the implementation arrangements worked well and remain highly relevant. Throughout project implementation, the BB, the IIFC, and the World Bank remained committed to meeting project objectives and despite many challenges, all objectives were met within budget and on time. The World Bank team and the implementation agency were able to communicate effectively and define solutions when presented with challenges such as the challenging political economy, the absence of formalized PPP institutional framework, the unfamiliarity with the World Bank’s safeguard requirements and procurement rules, and the low capacity in environmental social risk management. 38. For example, during the period of May 2007–September 2009, the implementation progress rating in the Implementation Status and Results Reports (ISRs) was Moderately Satisfactory to Satisfactory despite a flat disbursement rate. The team documented that disbursement was delayed but mentioned in several Aide Memoires that the implementation challenges were being addressed through better interagency coordination, support from the IIFC for technical review of the subprojects, and through a more active promotion of the facility by the BB. The team noted, when downgrading the project to Moderately Satisfactory that the 13 Bangladesh Power Sector Road Map of 2011. 16 delays in implementation had not been detrimental to the implementation of the investment component of the project and the momentum for disbursement was building up. As a result, the pipeline of eligible subprojects strengthened and led to the rapid disbursement for the on- lending component under the pilot. Interestingly, the implementation progress rating was downgraded to Moderately Unsatisfactory during the period of December 2011 to August 2014 because project activities under the US$250 million on-lending component were yet to achieve the expected momentum and certain conditions had changed, thus impeding project financing of the appraised pipeline of projects. 39. The project was successfully restructured to introduce measures that would facilitate the pipeline development process and the delivery of the TA component. The improvement in the implementation progress rating of the last five ISRs support the relevance of the implementation arrangements which allowed the project to remain responsive to market needs through restructuring and AF. 3.2 Achievement of Project Development Objectives Efficacy Rating: Substantial 40. Satisfactory. The project was successful in achieving its objective. The investment generated by the project is very important in the context of infrastructure PPPs in Bangladesh and it exceeded all PDO targets. The project’s contribution is broadly recognized and well appreciated by the GOB and significant advances in PDO outcomes were achieved despite challenges. 41. The project had a catalytic effect on private sector-led infrastructure project development and successfully pooled in long-term financing required for implementing the infrastructure projects (see Results Framework under section F). 42. The project effectively leveraged and crowded in more private sector and public sector resources for infrastructure finance exceeding its targets. The project disbursed 99 percent of the allocated US$320.28 million (including GOB funding) and enabled the PFIs and investors to access long-term debt financing that was otherwise unavailable in the market. In addition to the needed liquidity it provided, the project lengthened the tenure of banks’ lending for infrastructure finance to approximately 8 years14 as compared to 5 years. It also enabled banks to lend at lower rate (approximately 9 percent as compared to 13 percent). 15 The combination of longer loan tenures and lower interest rates than those available in the market was very convenient for both the PFIs and project investors and it offset the additional transaction costs implied by environmental and social safeguards and bank processing. It also allowed for loan repayment ahead of schedule in a few cases. As a result, the increase in total investments in infrastructure exceeded its target of US$490 million to reach US$828.57 million at project completion. It is important to note that the project also worked hand in hand with the US$21 million IFC investment in a 108 MW power plant at Narshingdi, for a total investment of US$80 million. 43. The project’s demand-driven approach enabled funding to flow to infrastructure projects in sectors where it was the most needed. The project channeled 50 percent of the 14 Source: ICR mission interviews with PFIs and investors. 15 Source: ICR mission interviews with PFIs and investors. 17 total Government-sponsored investment in the power sector, 93 percent of the investment of port infrastructure, 62 percent of water treatment investment, and 23 percent of telecommunication investment. See box 1 for more details on the contribution of the IPFF to these sectors. A list of all IPFF-funded projects is given in annex 2. Box 1. IPFF Contribution by Sector  Power Generation. The IPFF supported subprojects that added 589 MW electricity generation capacity to the national grid, which represents 4.4 percent of the current installed capacity of Bangladesh Power Development Board (BPDB) Power Plants.16 Supported power generation plants comply with higher environmental standards than average power plants in Bangladesh. For example, only 3 out of 30 fuel- run power plants in Bangladesh have desulfurization plants, all corresponding to IPFF-funded plants. In addition, all IPFF-supported plants were subject to external environmental monitoring by BETS Consulting Services Ltd. (BETS). BETS’ monitoring translated into action plans for improved environmental management of the power plants. This was particularly important to solve environmental issues that arose in some cases, within a context in which external monitoring is not enforced by government agencies.  Information technology. The IPFF supported the nationwide expansion of a fiber optic cable network (corresponding to the company Fiber@Home Limited) that now is reaching the 6,832 km optical fiber long haul backbone. Fiber@Home is one of the two private sector licensees for deployment of optical fiber. The other one is Summit Communications, which currently has a similar subproject to Fiber@Home in the IPFF’s pipeline.17  Industrial water treatment. The IPFF supported water treatment plants at three of the eight Export Processing Zones (EPZs) in Bangladesh. The three water treatment plants serve 15 export companies in Adamjee, 4 companies in Comilla, and 68 export-oriented companies in Chittagong. Because of having common treatment plants (as opposed to individual sourcing and treatment), export companies became more efficient (their machinery works better while reducing water-related costs) and more environmentally friendly (now water is sourced from streams deeper than those used for human consumption).  Inland container terminals. The IPFF supported the expansion of two inland container terminals in the Chittagong area. KDS Logistics has built a two-storied container freight station of about 108,000 sq.ft., allowing expanded capacity to support exports. The expansion meant a 44 percent increase in KDS’ cover shed capacity, while it also represents a 10 percent increase of capacity in the Chittagong area, where 16 companies operate. Consequently, KDS is expanding its export container stuffing from about 40,000 twenty-foot equivalent units (TEUs) to 68,000 TEUs per year (a 70 percent increase). Source: BB IPFF project completion report, October 2016. 44. The project was able to develop the proper ‘ecosystem’ for private sector-led infrastructure development and the regulatory framework including the institutional capacity for PPP by the following activities: (a) Actively promoting the IPFF to the PFIs and investors; specifically, the IIFC delivered several workshops on the Bangladesh Private Sector Infrastructure Guidelines, the IPFF procedures and terms, the World Bank Procurement Rules, and on PPP, and as technical adviser, the IIFC worked with investors to increase the technical quality of their proposals. (b) Building the capacity for environment and safety (E&S) risk management in the private sector. Among the key issues noted, the capacity of the investors and their consultants in preparing ESIA reports that met the World Bank and national 16 Based on data from the BPDB. http://www.bpdb.gov.bd/bpdb/index.php?option=com_content&view=article&id=150&Itemid=16. Last consulted 09/23/2016. 17 It must be noted that Summit Communications was in the IPFF’s pipeline and was subsequently financed under the IPFF. 18 standards was inadequate. While no safeguard consultant was hired under the IPFF, a firm named BETS Consultants Limited was hired for monitoring environmental and social issues according to the ESIA/ESMP of subprojects financed under the IPFF. In light of the benefits experienced from the implementation of the E&S risk management practices, investors with IPFF- funded projects started incorporating E&S risk management practices in all their projects (including non-IPFF-funded projects). (c) Providing direct support for the establishment of the Bangladesh PPP Authority. The PPP Authority was established as a separate, autonomous office under the Prime Minister’s Office to support sector line ministries to facilitate identification, development, and tendering of PPP projects to international standards. The IPFF TA support accelerated the agency operationalization by providing resources to cover the operating expenses of the PPP office and the cost of two PPP experts working in the PPP office. (d) Establishing a community of PPP practitioners in Bangladesh. The TA component successfully delivered 33 local training and workshops with more than 900 participants. It also organized three series of PPP technical training overseas for 95 officials of different ministries and governmental agencies. In addition, with the project’s support, the PPP Authority conducted targeted trainings and workshops to further develop the PPP capacity within line ministries and in the private sector. By 2015, it had organized 36 events and trained a total of 450 government officials. As a result, there is now a community of PPP practitioners in Bangladesh; every relevant line ministry and agency has a PPP focal point, who can effectively engage with the private sector. Furthermore, a PPP Unit under the MOF was established to foster an environment of fiscal responsibility and sustainability in PPP projects. One important indirect outcome of the project is the inclusion of PPP targets in all key sectors in the 7th Five-Year Bangladesh Economic Plan. It is worth mentioning that IPFF II has a TA component that will continue the TA provided under the IPFF and further build and strengthen the ‘ecosystem’ of long-term infrastructure financing in Bangladesh. Specifically, Subcomponent 2b will focus on developing and strengthening this PPP community of practice recognizing that the stakeholder capacity-building needs in this area are just as important as the financing needs. 45. The creation of the Bangladesh Infrastructure Finance Fund Limited (BIFFL), a Government-owned non-banking financial institution operating since 2011, is an indirect result of the IPFF. It was established by a resolution of the Cabinet of the GOB and owned by the MOF. The BIFFL is the largest non-bank financial institution operating in the country in terms of capital base with BDT 19.40 billion paid up. The BIFFL has a strong mandate to invest in the large infrastructure projects of Bangladesh, including power and energy, ports, connectivity, tourism, and economic zones. Similarly, the Asian Development Bank’s support to the Infrastructure Development Company Limited (IDCOL) follows the World Bank’s success with the IPFF. 19 3.3 Efficiency Rating: Substantial 44. The project achieved a high level of cost-effectiveness despite the initial delays. By December 2016, the project had disbursed 99.8 percent (or US$320.14 million) 18 of the allocated funding for Component 1 and 99.25 percent (or US$7.46 million) of the allocated funding for Component 2. For every dollar of long-term debt financing for infrastructure disbursed by the IPFF, approximately US$2.5 dollar in investment in infrastructure was generated.19 In addition, the individual subprojects were cost-effective, all of them showing positive economic indicators:20 (a) net profit margins vary between 14 percent and 59 percent, (b) the return on assets ratio ranged between 6 percent and 156 percent, (c) the return on equity ratio varied between 6 percent and 115 percent, and (d) internal rates of return ranged from 7 percent to 29 percent. All subprojects but one (whose implementation was catching up) were implemented on schedule. 3.4 Justification of Overall Outcome Rating Rating: Satisfactory Dimension Rating Relevance High Achievement of Objectives (Efficacy) Substantial Efficiency Substantial Overall Outcome Rating Satisfactory 45. The overall outcome rating for the project is Satisfactory. This is based on its High rating for relevance, Substantial rating for achievement of objectives (or efficacy), and Substantial rating for efficiency. The project’s objective continues to be highly relevant for the GOB’s and the World Bank’s development priorities and the project objectives were substantially met. The project’s flexible design and market-driven approach is reflected in the AF and numerous restructurings of the project to ensure it responded to clients’ needs. A follow-on project, approved in April 2017, will further build on the successes of the project using the same implementation arrangements under IPFF I. 3.5 Overarching Themes, Other Outcomes and Impacts (a) Poverty Impacts/Gender Aspects 46. While the project did not have any direct impact on poverty and gender, indirect impact was nevertheless observed. IPFF-funded power plants supplied several EPZs where thousands of jobs have been created or sustained because of the increase in electricity supply. Further, the expansion of two inland container terminals in the Chittagong area is attracting more business for ship repairs and maintenance and thereby generating substantial employment opportunities. Likewise, the project was instrumental in creating many new jobs, particularly for women, in the garment industry and related sectors. 47. The three IPFF-funded water treatment plants are serving 15 export companies in Adamjee, four companies in Comilla, and 68 export-oriented companies in Chittagong. These 18 Based on the December 2016 Restructuring Paper which reduced the allocated lending envelope. 19 Author calculations based on project data. Total investments in infrastructure increase (as measured by the total amount of equity and debt financing from the IPFF, GOB, and the local financial institutions). 20 Source: Bangladesh Bank IPFF Completion Report, October 2016. 20 common treatment plants have increased the export companies’ efficiency while providing environmentally friendly systems (now water is sourced from streams deeper than those used for human consumption). (b) Social Development 48. The project had an indirect impact on social development. For example, the hospital in Chittagong, financed under the project, is addressing a major health care infrastructure gap in the country. It is expected that the number of beneficiaries after the completion of both the first and second phases will reach approximately 3.4 million21 patients in four years. It will provide new specialized health services in the region, including heart surgery and cancer treatment. Ten percent of the beds will be reserved for indigent patients free of charge. The hospital will support the creation of approximately 1,200 new jobs by project completion. Likewise, the nationwide expansion of fiber optic cable network, financed by the IPFF, has crossed over 6,800 km, thereby improving access to digital world and telecom connectivity in villages. (c) Institutional Change/Strengthening 49. The project’s TA component contributed to institution building, within the government agencies (BB, PPP Authority, and so on) and in the private sector. The government agencies were supported in developing PPPs in which the line ministries were able to identify and proactively assess PPP-eligible projects to form part of the Private Infrastructure Project List. This resulted in the PPP Authority successfully developing a pipeline of private sector-led infrastructure proposals in the country. The project also expanded the knowledge of long-term financing among local financial institutions, not only through on-lending operations but also by way of workshops and training programs. It also strengthened the capacity of the project investors in environmental and social risk management standards and practices; many of these investors have fully embraced them and are now using them in all their projects. Finally, one of the most important spillover effects of the IPFF is the Government’s incorporation of PPP targets in its latest five-year economic plan. (d) Other Unintended Outcomes and Impacts (positive or negative) 50. The creation of the PPP Authority in 2012 with the TA of the project was an unintended outcome. The project financed the PPP Authority’s operational expenses and TA needed for its establishment. It also funded the hiring of consultants and legal advisers needed to set up the PPP Authority and build the PPP legal framework. Because of the support it received, the agency has now one of the largest portfolios of PPPs in emerging markets, with 39 active projects valued at US$2.9 billion.22 3.6 Summary of Findings of Beneficiary Survey and/or Stakeholder Workshops 51. A beneficiary survey was conducted as part of the final impact evaluation commissioned by the BB. The survey included 16 PFIs that participated in the IPFF. The following summarizes the main findings of the survey:  Sixty-one percent of respondents qualify the demand for new PPP projects as high or very high. 21 Source: IPFF Final Impact Evaluation. 22 Source: PPP Authority. 21  Eighty-nine percent of respondents think that the demand for PPP projects has increased over the last 10 years, or over the period they were involved with the IPFF. This is in an indication of the success of the IPFF project in bringing in awareness for the development of infrastructure projects through PPP.  The lack of expertise to handle PPP projects and the difficulty of cash projections in long-term projects were pointed out by 66 percent and 55 percent of the respondents (respectively), denoting once again the need for intervention in investment in human capital.  Most respondents (55 percent) think that there is no information gap/coordination gap between the PFIs and the implementing agency (BB).  Most of the respondents regard the contribution of the IPFF project to bring awareness on PPPs in infrastructure as high or very high, having a very satisfactory (or satisfactory) vision on the performance both of project investors (100 percent) and of the BB (100 percent), while 88 percent of beneficiaries rated the performance of the World Bank high or very high.  There is still a very high demand for initiating projects in the electricity sector (100 percent of the respondents chose this sector as having the highest demand); followed by roads/bridges (with 72 percent), and port development (with 50 percent of the respondents choosing this option). Water and communications seemed to have a minor demand, with only 5 percent and 2 percent, respectively.  Some of the respondents also pointed out the following sectors as important: airport development, shipyard, liquefied natural gas, and economic zones, social infrastructure such as hospitals (both general and specialized), and education. See annex 6 for more details. 4. Assessment of Risk to Development Outcomes Rating: Moderate 52. The PFIs have gained substantial experience in lending for infrastructure projects; in fact, they are now forming syndication to finance such projects. All future infrastructure investment however continues to depend on long-term financing. Because the development of the capital market is still in its early stages in Bangladesh, this type of long-term financing will depend on additional support, which makes it necessary to maintain the World Bank’s engagement. In this regard, the follow-on project (IPFF II) will lower the risk to development outcomes. 53. On the other hand,  Continuation of Power Purchase Agreements in the long-term capital market and bond market has to be further developed;  The Government will need to use more private sector for infrastructure development and more private sector financing; and  In case there will be a change in administration after the 2019 elections, the new government may not be as committed. 22 5. Assessment of Bank and Borrower Performance 5.1 Bank Performance (a) Bank Performance in Ensuring Quality at Entry Rating: Moderately Satisfactory 54. The World Bank’s performance in the identification, preparation, and appraisal of the project was Moderately Satisfactory. The identification process focused on critical gaps and opportunities for interventions in Bangladesh’s financial sector. During preparation and appraisal, the World Bank considered the adequacy of project design and all major relevant aspects, such as technical, financial, economic, and institutional, including procurement and financial management. The project’s technical and financial aspects were characterized by an innovative strategy to target private sector, which carried a likelier possibility for developing term financing markets than the ailing Bangladesh nationalized commercial banking sector. The project came at an opportune time when access to finance had become a barrier for maintaining and raising private sector growth rates in Bangladesh. Major risk factors and lessons learned from other earlier projects in the financial sector were considered and incorporated into the project design. At every stage, the team conducted extensive consultations and workshops with all key stakeholders23 to raise awareness on the project and collect their inputs. However, issues with the discrepancy between the PDO in the PAD and the FA as well as revisions to the outcome indicators point to minor qualitative issues that could have been anticipated at project preparation. 55. A QEA8 was carried out in October 2007 by a QAG panel of reviewers for the project, which rated the project Moderately Unsatisfactory overall. For arriving at this judgment, the panel gave too much weight to the dimensions of policy and institutional aspects, poverty, gender, and social development and environmental aspects, which were each rated Moderately Unsatisfactory, and risk assessment and implementation arrangements, which were rated Moderately Satisfactory. Strategic relevance and approach, technical, financial and economic aspects, and fiduciary aspects were rated Satisfactory. Finally, World Bank inputs and processes were rated Moderately Unsatisfactory. 56. On the positive aspects, the QAG panel noted that  The project was well grounded in the realities of Bangladesh and the problems in the financial sector and was well focused on trying to address specific gaps in the provision of long-term finance for infrastructure development;  An experienced and committed team was formed to handle the project, which was critically important given the challenging and difficult environment for doing bank business in Bangladesh; and  The project clearly considered problems in the design of previous World Bank operations that were intended to address the problem of infrastructure finance. 57. On the areas needing improvements, the QAG panel highlighted the following: 23 From interviews with the project’s first (TTL). There is no report of these extensive consultations and workshops in the project’s files. 23  The project relied extensively on the BB as an executing agent, which poses a clear conflict of interest between its institutional mandate for promoting financial stability and its ‘directed credit’ function under the project.  Regarding long-term sustainability, the Central Bank is not the ideal locus to build a center of excellence in infrastructure finance because of ambiguities in the role and capacity of the Central Bank working in conjunction with the IIFC in overseeing the project.  The project would have benefited from stronger links with IFC. More direct IFC involvement would be important for the effectiveness of project implementation and any scaling up of infrastructure finance in the future to support the sustainability of long-term finance.  Given the well-known problems of governance in Bangladesh, more attention could have been focused on the potential risks for the project of past corruption in infrastructure development. 58. The team concurred with most of the findings of the QAG and implemented its recommendations by strengthening the E&S safeguards reviews and by reaching out to IFC, which ended up successfully financing one of the IPFF-sponsored projects (Narshingdi Power Plant). The QAG report’s main issue with the BB serving as the executing agent and the possible conflict of interest is a pertinent one; however, these implementation arrangements have been tested in other countries and in the case of Bangladesh, the BB was the only credible organization to fulfill this role. In fact, the extensive involvement of the BB is one of the contributing success factors of the project. Finally, it is important to note that the report recommended that the team closely supervises the project’s activities to draw lessons for implementation and make corrections as necessary, which reinforced the project’s ‘learning by implementing’ approach. (b) Quality of Supervision Rating: Satisfactory 59. While there were some issues related to response time on procurement processing, and initial uncertainty about the World Bank’s ‘no-objection’ process, overall, the project’s supervision is considered Satisfactory. The supervision team was proactive in identifying issues and worked closely with the BB to find solutions when necessary. The World Bank’s technical, safeguard, and fiduciary teams provided regular support, especially in alerting on issues raised during ESIA analysis. Supervision focused on maximizing the project’s development impact and resulted in continual adjustments, including project restructuring on five separate occasions and AF. With the scaled-up project, and the inclusion of new sectors, the project team used adequate resources, including dedicated technical support from safeguards, FM, and procurement experts, as well as technical experts with sectoral expertise. 60. The supervision team produced clear and detailed Aide Memoires and followed up with the government when required. The TTL was field based and worked closely with the PIU and the project beneficiaries, project locations, and sites were visited on an ongoing basis to conduct physical inspection with the participation of appropriate sectoral and technical experts. Regular ISRs were produced that were candid, detailed, and well targeted to outline important events and contained information relevant to the project, this allowed the formulation of clear and complete picture to advance project activities. Specifically, the quality of the project 24 supervision enabled the team to maintain the project’s ‘learning by implementing’ approach and market-driven focus with the successful series of restructurings. The third restructuring provide a good example of the World Bank’s proactive action in analyzing the issue with the IPFF facility reference interest rate, which was discouraging the PFIs and investors, and in recommending an alternative market reference interest index.24 (c) Justification of Rating for Overall Bank Performance Rating: Moderately Satisfactory 61. With a Moderately Satisfactory rating for quality at entry and a Satisfactory rating for quality of supervision, overall World Bank performance is rated Moderately Satisfactory. 5.2 Borrower Performance (a) Government Performance Rating: Satisfactory 62. The Government’s performance is rated Satisfactory because of early ownership of the project by the GOB. The Government consistently maintained its commitment throughout the implementation period and worked closely with the World Bank team. The Government’s positive performance was evidenced by its proactive measures of project restructuring and AF. Appropriate levels of review and approval were usually in place, financial accountability and follow-up was observed, expenditures were duly authorized before they were incurred, and documentation was maintained properly for periodic reviews. The project did not suffer from any counterpart funding problems, as the Government took timely corrective measures and made appropriate budget provisions. However, regarding policy and overall coordination, a Project Steering Committee, headed by the Secretary of Finance and representatives of Economic Relations Division, the Finance Division and the BOI, was not able to meet regularly as planned. (b) Implementing Agency or Agencies Performance Rating: Satisfactory 63. The project relied on a single leading agency—the BB, though other agencies were also involved, including the BOI, Planning Commission, and the MOF. Coordination and involvement of all agencies was adequate and there was little staff turnover. Monitoring capacity and internal oversight systems of the BB over the PFIs, and the project as a whole, were strong. The BB led the project with robust implementation capacity, including in M&E, and by now has gained extensive experience in PPP lending management. This experience was distilled into a BB operations manual. However, complexity was increased due to entry into infrastructure sectors, other than power. To address this, the BB successfully increased its capacity to handle a larger pipeline in various sectors. The BB and IIFC (the technical support agency) built on their experience, while the BOI and the Planning Commission (and the new PPP cell that was created) performed adequately through improved capacity-building efforts. 24 Although no new OP 10.00 review was conducted for the interest rate adjustment, the team arranged a field mission for a Lead Financial Sector Specialist, experienced with OP 10.00 review and interest rate movement, to conduct a review of the interest rate options and make recommendations on the one linked to movements in the market (the weighted average deposit rate in the banking sector). 25 64. As the project progressed, the BB strengthened its capacity to carry out all aspects of project management, such as financial management, procurement arrangements, and reporting activities: (a) Financial management. The financial management system including accounting, controls, auditing, and reporting was adequate and satisfied the World Bank’s financial management requirements. All financial management reports (FMRs) reviewed were submitted on time and found to be satisfactory, and the financial audit reports were all received on time. (b) Procurement arrangements. Procurement of all works, goods, and technical services under the project followed the 'Guidelines: Procurement of Goods, Works, and Non-Consulting Services under IBRD Loans and IDA Credits and Grants by World Bank Borrowers' of 2011, updated July 2014. The Deputy General Manager (DGM) was responsible for procurement and she was posted for the last seven years of the project. There were also two deputy directors who worked almost throughout the life of the project. All three personnel took formal procurement training from within and outside Bangladesh. Due to the unorthodox nature of procurement issues under the IPFF, regular interactions between the BB and the World Bank resulted in applying innovation and procurement reviews based on core principles. The BB’s technical adviser, the IIFC, also developed quality project assessment reports, including procurement assessment based on industry practices. (c) Reporting arrangements. The BB submitted all required quarterly and annual reports on time. These reports were informative and provided valuable feedback on how the project was progressing, covering all project activities. The status of performance indicators was incorporated in all progress reports and served as valuable input to the World Bank supervision mission reports. (c) Justification of Rating for Overall Borrower Performance Rating: Satisfactory 65. With a Satisfactory rating for Government performance and a Satisfactory rating for BB performance, overall borrower performance is rated Satisfactory. 6. Lessons Learned 66. The lessons emerging from the IPFF are detailed in the following paragraphs. 67. The ‘learning by implementing’ design is a good practice that can support complex projects in difficult environments to navigate implementation challenges. The IPFF project faced, in addition to the inherent challenges of an infrastructure project, a difficult environment with poor governance practices and no PPP framework. In view of this environment, lessons from previous projects indicated that the project needed to adopt a different approach to reach its PDO. The project was thus designed as a pilot with a small initial project size, to be complemented by supplemental credits on a need basis through a ‘learning by implementing’ approach. The close collaboration between the BB and the World Bank team with a field-based TTL allowed close supervision of the project and continuous engagement with the PFIs and the investors. Although the project went through several restructurings, the ‘learning by implementing’ design was their main driving force. Overall, it was a positive feature of the 26 project and without the built-in flexibility in the design, the project would not have been able to adapt to changes in the market conditions and demands. 68. For example, it is clear from project experience that the single sector exposure ceiling (or cap) introduced in 2012 was not an effective instrument to promote multisectoral diversification, especially within the context of a nascent PPP framework. In the absence of a strong, formalized PPP institutional framework, line ministries/agencies, PFIs, and investors did not yet have the full capacity to structure transactions outside of the power sector, which often are more complex in nature. Thus, the cap was preventing projects in the more mature power sector from receiving financing; in 2014, the project team with the BB removed the cap as part of the project’s fourth restructuring. Although this could be seen as a circular movement, the approach was key in testing approaches to maximize the project’s impact. It was also instrumental in empowering the BB through knowledge transfer and capacity building where needed as the project progressed. Regarding safeguards and procurement, the project initially went through the growing pains of implementing the World Bank’s standards in an environment of low capacity and compliance; the supervision intensity of the project was highly hands-on for the World Bank team and generated delays. This hands-on approach was necessary given the context; however, with the noticeable increase in capacity within the BB and the private sector, and with the World Bank’s performance standards and procurement framework, there is a unique opportunity for IPFF II team to transfer more responsibilities to the implementing agency going forward. 69. The flexible market-driven approach was a key factor in the project’s effectiveness. The facility sought to help participating institutions extend finance for longer tenures for small projects, on the basis that extremely large projects are better supported through stand-alone World Bank projects. This approach was adequate because the IPFF was not designed to rely on a portfolio of transactions that were ready to be submitted for financing but was designed as a market-based financing facility that was demand driven. The use of IPFF resources thus depended on the speed with which infrastructure projects under preparation reach the financing stage, availability of alternative financing sources, and the credit quality of these projects in comparison with IPFF requirements. The project considered the market conditions and accordingly restructured the project five times. 70. For example, the project introduced alternative market reference interest indexes that satisfied the World Bank policy requirements for a competitive rate after the BB raised the issue that the IPFF reference interest rate was discouraging investors and PFIs from using the facility. At the time, the benchmark rate was the prevailing government Treasury bill rate, and it had risen quite dramatically in 2010. After analyzing the issue, the World Bank concluded that the Average Weighted Deposit Rate be considered as a new index to the IPFF credit line. Another demand-driven action was the removal of the cap. As discussed, the 50 percent maximum single sector exposure was a challenge for the project’s performance, as it affected the mature power sector, which had high demand. A project restructuring was necessary to remove the cap and adjust the IPFF pipeline to market demand. Finally, the project’s open architecture allowed for innovation, evolution, and easy entry and exit of parties. Such flexibility and market orientation could only function with adequate checks and balances, as was ensured by effective regulatory oversight from the BB and the application of strict criteria for the financial institution participation. 71. A simple institutional structure is necessary to support the project’s market- driven approach. It is important to stimulate PPPs without creating a complex overhead institutional structure for PPPs and instead allow an organic development of the PPP 27 framework. During project preparation, there were diverging views over the suitability of the project design in terms of finance, risk allocation, and procurement, notably on how to design a project that would strike the right balance between financial viability versus economic efficiency. The emerging consensus was for the project to not take a role in subproject design, which was left to the private sector, but rather support the establishment of a PPP framework to create an enabling environment for PPPs in Bangladesh. The project focused on the economic viability of the infrastructure projects proposed for financing, as well as the governance processes associated with the investment projects proposed for financing and the fairness of the relevant PPP contracts. However, it did not seek to guide the course of the Government’s broader infrastructure development program (for example, large power plants versus small plants and road versus ports). It was therefore important to promote a simple institutional structure that would strengthen government capabilities to identify and procure PPPs that represent value for money and establish the necessary contract management skills. Although, the design of the projects had some flaws and the beneficiaries noted that the World Bank’s quality control processes were at times burdensome, the project tried to maintain a minimal institutional overhead, compatible with the market conditions and incentives. In fact, one of the key design features was the development of a single, very transparent point of handover from the public sector to the private sector, through the allocation of funds to the PFIs. Finally, another important key design feature was that the project would allow for commercial procurement by and on behalf of the private sector (as procurement issues had plagued IDCOL). 72. Good governance and market credibility were the focus of the design of the implementation arrangements. The selection of the BB as the executing agency was considered a potential conflict of interest given the BB’s micro/macro prudential missions and monetary policy mandate. It was one of the main reasons the project was negatively rated in the QAG assessment. Other implementation arrangements were considered but the experience with the PSIDP indicated that it was essential to select an agency with a strong track record on governance. Specifically, the key lessons of the PSIDP were that the infrastructure fund were not sufficient to catalyze private sector investment in the absence of a clear commitment to a transparent and competitive bid solicitation process and that the TA component for subproject preparation was ineffective in a poor governance environment. It is important to note that at the time the state-owned financial institutions were plagued by governance issues and despite a GOB and BB-led initiative to improve their performance, it would have required some time before adequate standards of governance were in place. In view of this, the project team focused on strong governance while designing its implementation arrangements and the only agency that had the integrity and the market credibility to carry the role was the BB. The IDA funds were channeled through a dedicated special account at the BB and were reflected in the GOB accounts. According to demand, these funds flowed to final borrowers. To mitigate against any conflict of interest, it was agreed that the incremental administrative responsibilities of the BB, over and above the existing responsibilities for regulatory oversight of the PFIs, would be minimal. They were limited to operation of the special account; approval of financing requests following technical rather than judgmental criteria (and in any case pursuant to the IDA no- objection and appropriate review of a technical consultant provided under the Project); and the regulation and supervision of the PFIs, which fell within BB responsibilities. 73. A comprehensive TA component must include a training program for the implementing agency staff as well as E&S risk management capacity building from project inception to anticipate the challenges with environmental compliance in the subprojects. The IPFF benefited from regular training of BB staff. The training not only 28 motivated the project staff, it also allowed the client to develop innovative ideas in approaching solutions and generate healthy debates in assessing projects’ feasibility when the BB had to deal with the PFIs. Each PIU staff had multiple local and offshore training opportunities. Projects such as the IPFF should allocate significant budget for staff development as the types of challenges are unorthodox in nature. Furthermore, the project faced other challenges, especially with environmental compliance. Issues in environmental compliance result from a combination of many factors, which need to be looked into in a holistic manner. These factors can be broadly classified into the following categories: (a) inadequate capacity at project, FI, and entrepreneur levels; (b) inadequately developed EIA consultancy market; (c) low awareness and capacity at the plant level; (d) inadequate resource allocation at all levels; (e) lack of available technical persons at all levels to review complex technology linked environmental issues; (f) lack of compliance monitoring at the end of the project; and (g) inadequate monitoring and compliance enforcement by the Department of Environment (DOE). All these factors negatively affected the project initially, and therefore, the World Bank and BB increased the TA component allocated funding and shifted the necessary resources to develop the PFIs’ and the project investors’ capacity for E&S risk management. These delays could have been avoided through the design of a more comprehensive TA component with dedicated resources to support the PFIs and investors at project inception. 74. Early involvement from the private sector to better assess the demand for infrastructure finance is crucial. The market-driven approach required a good understanding of the pipeline of infrastructure projects that can benefit from the IPFF. Specifically, the project sought to assess, at project preparation, the demand for the IPFF, to have a clearer view of the demand. It engaged with local private financial and entrepreneurial institutions from the outset to ensure a design that suits the needs and capacity of the country’s economy. The PAD included a list of potential projects that were likely to come to fruition after the IPFF launch and that might approach the IPFF for financing based on the project team assessment. These projects were principally in the power and transport sectors. The IPFF was not tied to any of these sectors; however, their assessment related primarily to the financing needs for these initiatives to come to fruition. 7. Comments on Issues Raised by Borrower/Implementing Agencies/Partners (a) Borrower/implementing agencies 75. The borrower’s summary report is reproduced verbatim in annex 7. In addition, the Borrower provided comments to the draft ICR to provide clarifications on procurement, IPF II and on key project’s results (See annex 10 for Borrower’s comments). All the comments were incorporated in the final ICR. (b) Co-financiers Not applicable (c) Other partners and stakeholders Not applicable 29 Annex 1: Project Costs and Financing (a) Project Cost by Component (in US$, millions equivalent) Appraisal Percentage of Components Actual/Latest Estimate Estimate Appraisal Component 1: Infrastructure Financing 102.70 547.50 533 Facilitya Component 2: Capacity Buildingb 2.50 8.66 346 Total Baseline Cost 105.20 556.16 529 Physical Contingencies 0.00 0.00 — Price Contingencies 0.00 0.00 — Total Project Costs 105.20 556.16 529 Front-end fee — — Total Financing Required 105.20 556.16 529 Note: a. Component 1: Appraisal estimate includes IDA’s US$47.50 million + Borrower’s US$10.00 million + Borrowing Country’s Financial Intermediaries’ US$45.20 million. Whereas, actual/latest estimate includes IDA’s US$297.50 million + Borrower’s US$60.00 million + Borrowing Country’s Financial Intermediaries’ US$190.00 million. b. Component 2: Actual/latest estimates (US$8.66 million) comprises US$1.66 million (actual utilization under IDA Cr. No. 4169 BD) and US$7.00 million (allocation under IDA Cr. No. 4693 BD). (b) Financing Appraisal Actual/Latest Type of Percentage of Source of Funds Estimate Estimate Cofinancing Appraisal US$ US$ Borrower/Recipient 10.00 60.00 600 IDA 50.00 306.16 612 Borrowing Country’s Financial 45.20 190.00 420 Intermediaries Total Baseline Cost 105.20 556.16 529 Physical Contingencies 0.00 0.00 — Price Contingencies 0.00 0.00 — Total Project Costs 105.20 556.16 529 Front-end fee — — Total Financing Required 105.20 556.16 529 30 Annex 2: Outputs by Component Component 1: Infrastructure Development Lending Component Table 2.1. Sectors: Power Generation, Transmission, Distribution, and Services (US$, millions) Sl. IPFF Lending Name of Subproject Name of PFI No. Total GOB IDA Doreen Power Generation and Systems Ltd. 1. NCC Bank Ltd. 4.70 — 4.70 (22 MW Power Plant, Tangail) Doreen Power Generation and Systems Ltd. 2. NCC Bank Ltd. 10.00 — 10.00 (22 MW Power Plant, Feni) Doreen Power Generation and Systems Ltd. 3. NCC Bank Ltd. 9.90 — 9.90 (22 MW Power Plant, Narshingdi) Doreen Power House and Technologies Ltd. Dhaka Bank Ltd. and 4. 2.61 — 2.61 (11 MW Power Plant, Mohipal, Feni) IIDFC Ltd. Regent Power Ltd. (22 MW Power Plant, Eastern Bank Ltd., IDLC 5. 7.97 — 7.97 Barabkunda, Chittagong) Finance Ltd., and UFIL United Power Generation and Distribution 6. Dutch-Bangla Bank Ltd. 15.45 7.94 7.51 Ltd. (44 MW Power Plant, Chittagong EPZ) United Power Generation and Distribution Dhaka Bank Ltd., Eastern 7. 13.19 2.12 11.07 Ltd. (35 MW Power Plant, Dhaka EPZ) Bank Ltd., and IIDFC Ltd. Baraka Patenga Power Ltd. (50 MW Power United Commercial Bank 8. 21.98 — 21.98 Plant, Patenga, Chittagong) Ltd. and Trust Bank Ltd. Dhaka Southern Power Generations Ltd. (55 9. NCC Bank Ltd. 26.90 — 26.90 MW Power Plant, Nababganj, Dhaka) Eastern Bank Ltd., Mutual Midland Power Company Ltd. (51 MW 10. Trust Bank Ltd., and Trust 19.15 — 19.15 Power Plant, Ashuganj, Brahmanbaria) Bank Ltd. Dhaka Bank Ltd., Trust United Ashuganj Energy Ltd. (200 MW 11. Bank Ltd., and Mutual 58.50 — 58.50 Power Plant, Ashuganj, Brahmanbaria) Trust Bank Ltd. Dhaka Northern Power Generations Ltd. (55 12. Trust Bank Ltd. 28.97 — 28.97 MW Power Plant, Singair, Manikganj) Total 219.32 10.06 209.26 Table 2.2. Sectors: Port Development (Sea, River, and Land) Including Inland Container Terminals, Inland Container Depot, and Other Services (US$, millions) Sl. IPFF Lending Name of Project Name of PFI No. Total GOB IDA Dhaka Bank Ltd., IDLC KDS Logistics Ltd. (Inland Container Finance Ltd., United 1. 19.32 10.18 9.14 Depot, Sitakunda, Chittagong) Finance Ltd., Trust Bank Ltd., and UFIL Dhaka Bank Ltd., Trust Karnafuly Dry Dock Ltd. (subproject: B 2. Bank Ltd., and The City 18.41 — 18.41 Jetty, Badalpura, Chittagong) Bank Ltd. Karnafuly Dry Dock Ltd. (subproject: A Dhaka Bank Ltd. and Trust 3. 1.45 — 1.45 Dry Dock, Badalpura, Chittagong) Bank Ltd. Total 39.18 10.18 29.00 Table 2.3. Sectors: Water Supply and Distribution, Sewerage, and Drainage (US$, millions) Sl. IPFF Lending Name of Project Name of PFI No. Total GOB IDA D-Water Tech Ltd. (Water Treatment Plant, 1. Dhaka Bank Ltd. 1.22 — 1.22 Chittagong EPZ) M/S Sigma Engineers Ltd. (Water Treatment 2. NCC Bank Ltd. 1.05 1.05 — Plant, Comilla EPZ) 31 Sl. IPFF Lending Name of Project Name of PFI No. Total GOB IDA M/S Sigma Engineers Ltd. (Water Treatment 3. NCC Bank Ltd. 1.16 1.16 — Plant, Comilla EPZ) Total 3.43 2.21 1.22 Table 2.4. Sector: Information Technology (US$, millions) Sl. IPFF Lending Name of Project Name of PFI No. Total GOB IDA AB Bank Ltd., United Commercial Bank Ltd., Trust Fiber@Home Ltd. (Expansion of Nationwide Bank Ltd., IIDFC 1. Optical Fiber Telecommunication 19.27 7.08 12.19 Ltd., GSP Finance Transmission Network) Co (BD) Ltd., and Lanka-Bangla Finance Ltd. Summit Communications Ltd. (Expansion of Prime Bank Ltd., 2. Nationwide Optical Fiber Trust Bank Ltd., and 18.32 3.07 15.25 Telecommunication Transmission Network) IIDFC Ltd. Total 37.59 10.15 27.44 Table 2.5. Sector: Social Sector including Infrastructure in Health and Education (US$, millions) Sl. IPFF Lending Name of Project Name of PFI No. Total GOB IDA United Commercial Bank Imperial Hospital Ltd. (353 Bed Tertiary and Ltd., Trust Bank 1. 20.62 20.62 — General Hospital, Pahartali, Chittagong) Ltd., and GSP Finance Co (BD) Ltd. Total 20.62 20.62 — Grand Total 320.14 53.22 266.92 32 Component 2: Capacity Building Table 2.6. Local Training Program under IPFF Project Sl. Title of Program Venue No. of Participants Duration No. Bangladesh Bank Training 1. Private Sector Infrastructure Guidelines (PSIG) 30 September 5–6, 2007 Academy (BBTA), Dhaka 2. Basics of PPP Environment Hotel Purbani, Dhaka 39 January 16–17, 2008 3. Tender Preparation Aspects Hotel Purbani, Dhaka 32 May 28–29, 2008 4. Private Sector Infrastructure Guidelines (PSIG) Hotel Sheraton, Dhaka 33 October 21–22, 2008 5. Basics of PPP Environment Hotel Sheraton, Dhaka 22 January 25–26, 2009 6. Private Sector Infrastructure Guidelines (PSIG) Hotel Sheraton, Dhaka 19 March 4–5, 2009 7. Basics of PPP Environment Hotel Sheraton, Dhaka 32 October 28–29, 2009 8. Case Studies on PPP Hotel Sheraton, Dhaka 33 February 17–18, 2010 Bangladesh Institute of Bank 9. Financing PPP project 24 November 7–11, 2010 Management (BIBM) 10. Development of PPP project Ruposhi Bangla Hotel, Dhaka 47 June 5–6, 2011 11. Feasibility Study of PPP Projects Ruposhi Bangla Hotel, Dhaka 48 September 15, 2011 PPP Capacity Building Series Training: Phase I (2013- November 2013–November 12. Various Hotel in Dhaka 30 2014) 2014 Hotel Sarina, Dhaka 13. PPP Capacity Building Series Training: Phase II 30 February 2015–June 2015 Lakeshore Hotel, Dhaka Radisson Blu Dhaka Water August 2016–November 14. PPP Capacity Building Series Training: Phase III 35 Garden, Hotel Sarina, Dhaka 2016 October 30–November 30, 15. Financial Modeling Hotel Sarina, Dhaka 35 2016 Table 2.7. Workshop Program under IPFF Project Sl. Title of Program Venue No. of Participants Duration No. 1. Private Sector Infrastructure Guidelines (PSIG) Hotel Purbani, Dhaka 46 April 3, 2008 2. Private Sector Infrastructure Guidelines (PSIG) Hotel Sheraton, Dhaka 24 June 25, 2008 3. Private Sector Infrastructure Guidelines (PSIG) Hotel Peninsula, Chittagong 35 August 28, 2008 4. Private Sector Infrastructure Guidelines (PSIG) NEC Auditorium 33 October 30, 2008 5. Private Sector Infrastructure Guidelines (PSIG) Hotel Royal, Khulna 33 November 18, 2008 6. Private Sector Infrastructure Guidelines (PSIG) Rose View Hotel, Sylhet 38 February 12, 2009 Private Sector Infrastructure Guidelines (PSIG) and 7. Sea Gull Hotel, Cox’s Bazar 23 March 30, 2009 Tourism 33 Sl. Title of Program Venue No. of Participants Duration No. Environmental Impact Assessment and Environmental IPFF Conference Room, 8. 23 June 15–16, 2010 Management Plan Bangladesh Bank 9. Project Identification and Feasibility Study Ruposhi Bangla Hotel, Dhaka 56 September 16, 2011 Challenges and Prospects of Public-Private 10. Ruposhi Bangla Hotel, Dhaka 60 December 4, 2011 Partnerships (PPP) Project Development 11. PPP Training Needs Assessment Hotel Purbani, Dhaka 56 October 8, 2012 12. Sharing PPP Experience Hotel Purbani, Dhaka 48 January 15, 2013 13. PPP in Tourism Hotel Obokash, Dhaka 32 March 14, 2013 14. View Exchange Meeting with Mongla Port Authority Bangladesh Bank, Khulna Office 36 March 23, 2013 15. View Exchange Meeting with PFIs Hotel Sarina, Dhaka 36 May 4, 2013 Investment Promotion Meeting on development of two 16. Hotel Sarina, Dhaka 66 May 25, 2013 jetties at Mongla Port Environmental Safeguard Implementation for IPFF 17. Hotel Lakeshore, Dhaka 60 November 21, 2013 Investment Workshop 18. PPP law: Broadening the Horizon for Development Pan Pacific Sonargaon, Dhaka 150 October 22, 2014 Table 2.8. Foreign Training Program under IPFF Project Sl. No. of Topic Duration Venue Organizer No. Participants Standard Rules and Procedures of the World Bank National Institute of November 26– 1. for Procurement of Goods, Works and Services for India Financial Management 4 December 7, 2007 World Bank Funded Projects (NIFM), Haryana, India Korea Development Institute Public-Private Partnerships (PPP) for Infrastructure 2. November 13–28, 2008 South Korea (KDI), Seoul, Republic of 5 Development in Korea Korea Standard Rules and Procedures of the World Bank 3. for Procurement of Goods, Works and Services for July 28–August 8, 2008 India NIFM, Haryana, India 3 World Bank Funded Projects Asian Institute of Infrastructure Project Development and 4. March 29–April 4, 2009 Philippines Development Studies, Inc. 6 Management (AIDSI), Philippines Public Administration Public-Private Partnerships: The UK Experience of United 5. September 7–11, 2009 International (PAI), London, 4 roads and transports Kingdom United Kingdom 6. Private Participation in Infrastructure Development August 31–September United States International Law Institute 3 34 Sl. No. of Topic Duration Venue Organizer No. Participants and Finance 11, 2009 (ILI), Washington D.C., USA The Institute for Public- Private Partnerships (IP3), 7. Workshop on Public-Private Partnership December 15–18, 2009 United States 6 Arlington, Virginia, United States 8. Infrastructure Development through PPP March 25–29, 2010 Philippines AIDSI, Philippines 6 SETYM International Inc., 9. Management of Public-Private Partnership May 17–28, 2010 Canada 2 Montreal, Canada Commonwealth Secretariat Sharing and Understanding Perspectives of Key 10. June 1–5, 2010 Malaysia and Prime Minister’s Office, 4 Stakeholders in PPP’s Kuala Lumpur, Malaysia Infrastructure Project Development Through PPP 11. August 14–21, 2010 Philippines AIDSI, Philippines 6 in the Philippines August 30– SETYM International Inc., 12. Project and Programme Impact Assessment Canada 2 September10, 2010 Montreal, Canada United Arab ILI, Dubai, United Arab 13. Public-Private Partnerships (PPP) Infrastructure May 15–26, 2011 2 Emirates Emirates SETYM International Inc., 14. Management of Public-Private Partnership May 16–27, 2011 Canada 3 Montreal, Canada Public-Private Partnerships for Infrastructure 15. July 4–8, 2011 South Korea KDI Seoul, South Korea 10 Development Public-Private Partnership: The UK Experience of United PAI, London, United 16. September 5–9, 2011 3 Roads and Transports Kingdom Kingdom The World Bank and Swiss PPP Days-2012 Global Conference on Public 17. February 21–24, 2012 Switzerland Government, Geneva, 5 Private Partnerships Switzerland Training on Social and Environmental Monitoring SETYM Premises, Kuala 18. February 20–25, 2012 Malaysia 19 of Projects and Program Lumpur, Malaysia International Training Centre (ITC) of the International 19. Works Procure Management May 14–18, 2012 Italy 1 Labour Organization (ILO), Turin, Italy United Nations Development 20. Effective Negotiations in Projects and Procurement May 22–25, 2012 Austria 4 Programme Austria, Vienna Public Private Partnership (PPP) strategies, July 30–August 10, IP3, Washington DC, United 21. United States 4 Methods and Project Structuring Techniques 2012 States 35 Sl. No. of Topic Duration Venue Organizer No. Participants P3 Training Institute, Paris, 22. Course on P3 Stimulus and Economic Growth October 22–26, 2012 France 2 France Workshop on ‘Managing the PPP Unit: Staffing, IP3 Washington DC, United 23. Procedural and Operational Requirements for March 18–22, 2013 United States 3 States Successful PPP Transaction Implementation’ Strategies in Social Infrastructure: Hospitals, IP3, Washington DC, United 24. May 6–17, 2013 United States 2 Schools and Accommodation Sectors States Project Finance and Financial Analysis Techniques IP3, Washington DC, United 25. June 3–14, 2013 United States 2 for Infrastructure Projects States Effective Leadership and Project Team SETYM International Inc. 26. May 27–June 7, 2013 Canada 2 Management Montreal, Canada Environmental Impact Assessment and Good Administrative Staff College, 27. June 24–26, 2013 India 2 Practices Hyderabad, India Crown Agents and United 28. Financial Management of Development Projects July 1–12, 2013 Professional Development, 2 Kingdom United Kingdom SETYM Intl Inc. Montreal 29. PPP Study Tour Canada August 22–28, 2013 Canada 4 and Toronto, Canada Public Private Partnership (PPP) strategies, IP3, Washington, DC, United 30. August 19–30, 2013 United States 3 Methods and Project Structuring Techniques States Venuelinks, United Kingdom 31. PPP Study Tour Turkey February 11–15, 2014 Turkey and Istanbul and Ankara, 6 Turkey Asian Institute of Technology 32. Public Private Partnership February 10–14, 2014 Thailand 8 (AIT), Thailand 33. PPP Financial Modeling March 20–28, 2014 Philippines AIDSI, Philippines 7 Balance Sheet Analysis and Assessment Tools for 34. April 7–11, 2014 Italy ITC of the ILO, Turin, Italy 1 Procurement Practitioners 35. PPP Exposure Visit Program-South Africa June 23–27, 2014 South Africa Venuelinks, United Kingdom 6 36. PPP Exposure Visit Program-Vietnam December 19–26, 2014 Vietnam AIT, Thailand 8 PPP Study Visit Program for the Participants of 37. April 6–10, 2015 South Korea KDI, South Korea 10 Series Training Program-Phase-I 36 Sl. No. of Topic Duration Venue Organizer No. Participants Environmental and Social Assessment of Projects SETYM International, 38. June 22–28, 2015 Canada 14 and Programmes Montreal, Canada View Exchange Meeting and Sharing PPP United Arab 39. July 6–11, 2015 Venuelinks, United Kingdom 7 Experience with U.A.E. Emirates Public Private Partnership Executive Seminar, 40. November 9–17, 2015 Malaysia International Road Federation 9 Malaysia United 41. PPP Training and Exposure Visit London January 25–30, 2016 PPP Experts, UK 8 Kingdom Emerging Trends in Infrastructure Finance: PPP in 42. March 16–19, 2016 Thailand AIT, Thailand 1 Bangladesh, PMBF Program United Nations Economic 43. PPP Forum Geneva: 30 March-01 April, 2016 March 30–April 1, 2016 Switzerland Commission for Europe, 1 Geneva, Switzerland Procurement of Goods and Services: Best Practices SETYM International Inc., 44. during 18-19 July, 2016 in Marrakech, Morocco July 18–19, 2016 Morocco 3 Montreal, Canada Public Private Partnership (PPP) Strategies, Washington, 45. August 8–19, 2016 IP3, United States 2 Methods and Project Structuring Techniques DC PPP Exposure Visit France & Netherlands France and PPP Experts, United 46. October 3–8, 2016 7 Netherlands Kingdom PPP Study Visit in India for the top Six Infrastructure Development 47. Participants of PPP Series Training Program: November 14–19, 2016 India Corporation (Karnataka) Ltd. 10 Phase II (iDeCK), India 37 Annex 3: Economic and Financial Analysis 1. The project achieved a high level of cost-effectiveness despite the delays incurred initially. By December 2016, the project had disbursed 99.8 percent (or US$320.14 million)25 of the allocated funding for Component 1 and 99.25 percent (or US$7.46 million) of the allocated funding for Component 2. For every dollar of long-term debt financing for infrastructure disbursed by the IPFF, approximately US$2.5 in investment in infrastructure was generated.26 In addition, the individual subprojects were cost-effective, all of them showing positive economic indicators:27 (a) net profit margins vary between 14 percent and 59 percent; (b) the return on assets ratio ranged between 6 percent and 156 percent; (c) the return on equity ratio varied between 6 percent and 115 percent; and (d) internal rates of return ranged from 7 percent to 29 percent. All subprojects but one (whose implementation was catching up) were implemented on schedule. 2. The three project-funded water treatment plants are serving 15 export companies in Adamjee, 4 companies in Comilla, and 68 export-oriented companies in Chittagong. These common treatment plants have increased the export companies’ efficiency while providing environmentally friendly systems (now water is sourced from streams deeper than those used for human consumption). 25 Based on December 2016 Restructuring Paper, which reduced the allocated lending enveloping. 26 Total investments in infrastructure increase (as measured by the total amount of equity and debt financing from IPFF, the GOB, and the local financial institutions). 27 Source: Bangladesh Bank IPFF Completion Report, October 2016. 38 Annex 4: Bank Lending and Implementation Support/Supervision Processes (a) Task Team members Names Title Unit Responsibility/Specialty Lending Subrata S. Dhar Senior Education Specialist DFGPE Education Mark Andrew Dutz Lead Economist GTC04 Economic Analysis Syed Abul Kamal Abdul Hye Operations Analyst LCROS Operational Support Zafrul Islam Lead Procurement Specialist GGO06 Procurement Support Abha Joshi-Ghani Senior Adviser GCPDR Operational Adviser Lead Financial Management Suraiya Zannath GGO24 Financial Management Specialist Supervision/ICR A.K.M. Abdullah Senior Financial Sector Specialist GFM06 Team Leader Shamsuddin Ahmad Senior Financial Sector Specialist GFMDR Financial Sector Marghoob Bin Hussein Senior Procurement Specialist OPSPF Procurement Md. Iqbal Senior Energy Specialist GEE06 Energy Support Ziaun Nahar Joya Program Assistant SASFP Operations Support Dr. M. Khaliquzzaman Local Consultant ST GSU06 Operations Support Kyoo-Won Oh Senior Underwriter MIGOP Lawyer Aneeka Rahman Senior Social Protection Economist GSP06 Safeguards Aza A. Rashid Program Assistant GFM06 Operations Support Bridget Rosalind Rosario Program Assistant SACBD Operations Support Alan F. Townsend Senior Industry Specialist CNGPW Industrial Support Michael D. Wong Lead Private Sector Specialist GTCCS Private Sector Lead Financial Management Suraiya Zannath GGO24 Financial Management Specialist (b) Staff Time and Cost Staff Time and Cost (Bank Budget Only) Stage of Project Cycle US$, thousands (including travel and consultant costs) Lending FY05 56.62 FY06 200.60 FY07 0.00 FY08 0.00 Total: 257.22 Supervision/ICR FY05 0.00 FY06 0.00 FY07 65.41 FY08 70.83 Total: 136.24 39 Annex 5: Beneficiary Survey Results 1. As part of the impact evaluation study, three stakeholders’ surveys were undertaken to generate firsthand key information on the impact of the IPFF project. One survey was conducted to collect information from the PFIs and another to gather information from project sponsors, which was split into two, one for funded and another for nonfunded projects. The main results of the beneficiary surveys (PFIs Beneficiary Survey and Project Sponsor Survey) are summarized in this annex. PFIs Beneficiary Survey 2. The 18 PFIs that participated in the IPFF responded to the surveys, which sought to grasp the effect of the IPFF project in Bangladesh from the beneficiaries’ perspectives. 3. To measure indirectly the achievement of the PDO of accelerating private sector-led growth through providing term finance for infrastructure development and promoting domestic infrastructure finance capacity, a question on the level of demand for initiating new PPP projects on the part of project sponsors was raised. This resulted in 61 percent of respondents qualifying the demand as high or very high and 33 percent considering it moderate. A clear minority (6 percent) regards the demand for PPP projects as low. Figure 5.1. Demand for Initiating PPP Projects on the Part of the Private Sponsors Series1 Series1 Very high Low 2 1 11% 6% Series1 Moderate 6 33% Series1 High 9 50% Source: IPFF Project Beneficiary Survey on PFIs. 4. According to the respondents’ perception, there is still a very high demand for initiating projects in the electricity sector (100 percent of the respondents chose this sector as having the highest demand), followed by roads/bridges (with 72 percent) and port development (with 50 percent of the respondents choosing this option). Water and communications seemed to have a minor demand, with only 5 percent and 2 percent, respectively, choosing these answers. 40 Figure 5.2. Sectors with High Demand for Initiating PPP Projects Series1, Other, 17% Series1, Communication s, 28% Series1, Roads / Bridges, 72% Series1, Port development, 50% Series1, Water, 11% Series1, Electricity, 100% Source: IPFF Project Beneficiary Survey on PFIs. 5. From a dynamic perspective, 89 percent of the respondents think that the demand for PPP projects has increased over the last 10 years, or over the period they were involved with the IPFF. This in an indication of the success of the IPFF project in bringing in awareness for the development of infrastructure projects through the PPP. 6. According to the respondents, the main obstacle to developing more PPPs was the lack of qualified personnel, with 67 percent of the respondents choosing this option, and the second main obstacle was the lack of coordination/cooperation between public funding and private funding (61 percent). Notably, the lack of private funding or the risk of the project seem to play a minor role as obstacles to the development of more PPP infrastructure projects. Figure 5.3. Main Obstacles to Developing More PPP Infrastructure Projects Series1, Lack of public funding , 17% Series1, Lack of private Series1, Lack of funding , 39% coordination/ Series1, Lack of cooperation cooperation between public between funding and different private funding, Series1, Lack of industry sectors, 61% competitiveness 28% , 6% Series1, Lack of Series1, qualified Challenging personnel , 67% regulatory environment , Series1, Risk of 33% the project, 39% Source: IPFF Project Beneficiary Survey on PFIs. 41 7. When queried about specific problems the PFIs faced when financing PPP projects, the lack of expertise to handle PPP projects and the difficulty of cash projections in long-term projects were pointed out by 66 percent and 55 percent of the respondents (respectively), denoting once again the need for intervention in investment in human capital. The lack of political stability was also regarded as a problem, with 61 percent of the respondents pointing out this problem. 8. One issue that was pointed out by the respondents is the maturity mismatch of the asset- liability of the banks, denoting that there is still room for World Bank intervention. Also, the lack of a specific single contact point/liaison office where the sponsors can obtain one-stop service such as conducting feasibility studies and obtaining regulatory approvals/permission from concerned ministries, among others, point to the importance of investing in coordination between the public and private financing for further developing this kind of project. The channel of communication that seems to be very good is that of PFIs and implementing agencies, with most of the respondents (55 percent) thinking that there is no information gap/coordination gap between the PFIs and implementing agencies. One of the explanations for this good communication channel may be that the existence of a correct information flow is required to facilitate the implementation of any PPP project. 9. Only 16 percent (3 out of the 18) PFIs have already established a separate PPP financing unit or cell within their institutions. However, as financing infrastructure PPP projects generates a stable cash flow, banks have been able to include long-term assets in their portfolio which results in substantial income for the bank. Accordingly, an 83 percent of the respondents’ institutions are considering redesigning (or have already redesigned) the organizational setup fit for PPP projects. 10. Finally, when specifically queried about human capital, 61 percent of the respondents consider that their organization has adequate human capital/skilled manpower, capable of undertaking feasibility studies for PPP project. However, 89 percent consider that the human capital would require further training, pointing at deficiencies in formation in a wide variety of aspects. 11. The assessment of the respondents regarding the achievements of the IPFF project was also inferred from the survey. Most of the respondents regarded the contribution of the IPFF project to bring awareness on PPPs in infrastructure as high or very high, having a very satisfactory (or satisfactory) vision on the performance both of project sponsors and of the BB The vision on other stakeholders was not as unified, with some negative perceptions. A total of 25 percent of the PFIs rated the performance of the PPP Unit as unsatisfactory, whereas 23 percent rated the performance of BETS unsatisfactory, and 12 percent of the PFIs considered the performance of the World Bank was unsatisfactory. 42 Figure 5.4. PFIs’ Vision on the Performance of the Stakeholders in the IPFF Project* Source: IPFF Project Beneficiary Survey on PFIs. The N/A responses were not considered. Project Sponsors Survey 12. Five project sponsors of IPFF-funded projects responded to the survey. The project sponsors had a positive insight on the adequacy of both loan tenor (with 100 percent of the respondents regarding it moderately or highly adequate) and interest rate (60 percent consider it slightly adequate and 40 percent moderately adequate). Actual project cash flows were either somewhat better (60 percent) or much better (40 percent) than planned cash flows (at loan application time), denoting that subprojects had more positive results than expected from the entrepreneurs’ perspective. 13. According to the project sponsors’ viewpoint (figure 5.5), the projects in the electricity sector are highly attractive for investment (100 percent of the respondents chose this sector); followed by port development and water treatment (with 60 percent). From their viewpoint, health and education infrastructure are moderately attractive (with 60 percent of the entrepreneurs regarding these sectors this way). 43 Figure 5.5. Sectors according to Attractiveness to Invest under PPP Modality Source: IPFF Project Beneficiary Survey. Project Sponsors of funded projects. 14. When inquiring about the main obstacles to developing more PPP infrastructure projects (figure 5.6), the challenging regulatory environment was the most chosen option (100 percent of the respondents pointed at this issue), the lack of coordination and cooperation between public and private funding arose as well as an important issue—with 60 percent of the respondents denoting this point as an issue. Figure 5.6. Main Obstacles to Developing More PPP Infrastructure Projects Series1, Lack of Series1, coordination/ Challenging Series1, Lack of regulatory Series1, Lack of cooperation public funding, environment, competitiveness, between public 40.00% 100.00% 20.00% funding and private Series1, Lack of funding, 60.00% Series1, Lack of cooperation Series1, Risk of the private funding, Series1, Lack of between different qualified project, 20.00% 20.00% industry sectors, personnel, 0.00% 0.00% Source: IPFF Project Beneficiary Survey. Project Sponsors of funded projects. 15. Regarding human capital, among project sponsors there is a consensus that they do have adequate skilled manpower capable of undertaking feasibility studies for PPP projects (100 percent answered so), but 60 percent of the respondents answered that they would also require further training. 16. The assessment of the respondents regarding the achievements of the IPFF project was also queried. Most of the respondents have a very satisfactory (or satisfactory) view on the performance both of project sponsors and of the BB. The exceptions are the PFIs, which got a 20 percent of unsatisfactory rating (see figure 5.7). 44 Figure 5.7. Project Sponsors’ Vision on the Performance of Stakeholders in the IPFF Project* Source: IPFF Project Beneficiary Survey. Project Sponsors of funded projects. Note: The not applicable responses were not considered. 17. It is noteworthy that 80 percent of the respondents would have completed the project(s) over a longer time span in case the IPFF had not existed (figure 5.8), and only 20 percent would have been done anyway. However, it appears that they would have been done anyway; therefore, the main impact of the IPFF project appears to be that it has brought in results in a faster way than if the project had not existed. There is a shortening of the periods to develop infrastructure investments with a consequent gain in production. Figure 5.8. What Would Have Happened with the Project(s) if the IPFF Had Not Existed? Source: IPFF Project Beneficiary Survey. Project Sponsors of funded projects. 45 Annex 6: Stakeholder Workshop Report and Results Not applicable 46 Annex 7: Borrower’s ICR SECTION 1: PROJECT CONTEXT, DEVELOPMENT OBJECTIVES, AND DESIGN Context at Appraisal Country Background Bangladesh is a developing country in South Asia. The country has an area of 147,570 square kilometers and with its 144.04 million inhabitants (as reported by the 2011 Census), the country is both among the world's ten most populated countries and among the most densely populated (976 hab./sq.km). Over the last years, Bangladesh has achieved an average growth of over six per cent since the year 2010. Thus, the country officially migrated from a low-income country status to a lower-middle income country status in 2014, but to achieve its target of becoming a middle-income country by 2021, the country would need further investment in infrastructure. In fact, one of the main constraints the country has to achieving an even higher growth rate is the infrastructure gap. Local Economic Context at Appraisal The 2003 Financial Sector Assessment of Bangladesh highlighted the constraint to growth that imposed the Bangladesh’s financial market, particularly the extent to which the financial markets were dominated by and depended upon the relatively underdeveloped banking system. 28 The development of infrastructure was constrained by the country’s underdeveloped financial sector. The sector was dominated by banks, which engaged predominantly in trade finance and some project finance that was usually limited to 5-6 years maturity. The banks were constrained in their ability to extend term credit beyond that because of their dependence on short-term deposits, which clearly contrasts with the long-term nature of investment in infrastructure projects. Security markets were also (and continue to be) underdeveloped. The corporate debt market was nascent, and government debt securities were a few and lacked liquidity. Corporate debt was channeled through banks that put again limits on maturity period of debt financing. Finally, international flow of capital was very limited due to the low country’s rating and competitiveness in attracting foreign investment. Bangladesh was urgently requiring improvement in infrastructure services, mainly in power and transport. Power shortages reduced output by an estimated US$ 1 billion per year and GDP growth by 0.5 percent per year. To quantify the lack of reliability of the power grid, 71.5 percent of enterprises in Bangladesh reported having a generator, with significant costs on enterprises. 29 Congestion in the national port costed the country in foregone exports and impeded rapid access to imports. Improving the country’s transport system was essential to reducing delivery times. Although communications appear to hamper enterprise operations and growth much less than power and transport, it also constrained them. Given the limited capacity of financial markets and the economic need for infrastructure investment in Bangladesh, the case for intervention in finance for infrastructure was clear. 28 PAD, page 1. 29 PAD, pages 3–4. 47 Rationale for World Bank Group involvement The project rationale presented in the PAD was built on the observed need to find adequate long term funding for the investments needed in Bangladesh to maintain power supply and other infrastructure development needed to promote sustained economic growth. The key rationale for the support was founded upon the following needs: (a) Bangladesh foreign exchange reserves were inadequate for the country’s foreign country investment needs. (b) Long-term financial needs of infrastructure projects were not being met by commercial banks in Bangladesh. There was a significant role for a development- partner supported facility to develop capacity to appraise infrastructure projects and assume credit risk while facilitating local participation and capacity building for longer-term sustainable domestic financing capacity. (c) The ability of banks to extend term credit beyond five years was very limited because of their dependence on short-term deposits. The ability of the Bank to offer financing for terms up to 20 years was extremely important. (d) The requirements for infrastructure investment and the limited capacity of financial markets, made a strong case for government intervention in finance, on a temporary basis in order to allow capacity building to address market deficiencies. (e) Infrastructure projects as PPP require investment over an extended period of time, which invariably covers more than one government. There was an important role of development partners in infrastructure projects, given that the engagement of such institutions transcends political boundaries. Project Development Objective and Key Indicators Project Development Objective The Project Development Objective was to accelerate private sector-led growth through providing term finance for infrastructure development and promoting domestic infrastructure finance capacity. The project aimed to: (a) Supplement the resources of the Bangladesh financial markets to provide term finance for infrastructure and other investment projects beyond the capacity of local financial institutions; and (b) Promote the role of private sector entrepreneurs in the development of infrastructure. The project’s key indicators are presented immediately below. 48 PDO Outcome indicator In the PAD, the PDO outcome indicator was specified as follows: Increase in total investments in infrastructure (as measured by the number of PPP). The revised PDO indicators are as follows: (a) Total investments in infrastructure increase (as measured by the total amount of equity and debt financing from IPFF, GoB and the financial institutions). (b) Total amount of debt financing from IPFF, GoB, and local financial institutions. (c) Total amount of equity from the private sector entrepreneurs on the transactions supported by IPFF. Intermediate Outcome Indicators (IOIs)30 For Component 1: Evidence of timely and satisfactory progress toward the delivery of Component 1 outputs, as planned, including the following specific measures: (a) US$50 million worth of private sector infrastructure investments are realized using the IPFF; including contribution from PFIs, Government and project sponsors. (b) At least 3 domestic financial institutions use the IPFF. (c) PFIs maintain eligibility criteria. For Component 2: (a) Number of PPP that follow PICOM guidelines. (b) Environmental assessments are undertaken for all infrastructure projects financed under the facility in coordination with the DOE. (c) Percentage of projects reviewed regarding investment project eligibility. (d) Increase in the number of staff trained to undertake analysis of infrastructure projects. Later, in the ISRs, the indicators were presented as follow: For Component 1: (a) Long term debt financing for infrastructure increases (as measured by cumulative debt financing from IPFF). (b) Number of financial institutions using the IPFF. (c) Percentage of PFIs maintaining Bangladesh Bank (BB) eligibility criteria. 30 In the PAD (p. 44), the IOIs are referred as ‘Output Indicators’. 49 (d) The project results in 100 MW of additional electricity added to national capacity For Component 2: (a) Percentage of financed infrastructure projects using DOE environmental assessments. (b) Percentage of projects reviewed for project eligibility on behalf of BB. (c) Number of PFI staff trained to undertake financial analysis of infrastructure projects. Main Beneficiaries Although beneficiaries were not explicitly defined in the PAD, the primary beneficiaries were local financial institutions (to be known as Participating Financial Institutions, PFI) and private sector entrepreneurs in their role of project sponsors. The secondary beneficiaries were the downstream users of infrastructure in Bangladesh. This group covers a wide spectrum of the Bangladesh society. Given that the sub-projects were tentatively identified as a pipeline in the PAD, these secondary beneficiaries could not be known with certainty at project design. Project Components The project had two components: Component 1: Infrastructure Development Lending Component (original: US$47.5 million; revised US$297.5 million) This component provided a funding mechanism that operated under the oversight of BB with existing regulated local financial institutions (PFIs). The funds were allocated to the PFIs for on lending to private sector infrastructure sub-projects competitively selected by the Government or put forward by Project Sponsors following GOB and WB guidelines. The funds came from the Government and were thus administered by the BB. The projects were selected on market terms, on a first-come first-serve basis, requiring at least a 30 percent equity component from the private infrastructure promoter and a further minimum of 14 percent of third-party funding. The required portion of equity component and non-IPFF loan was revised to 25% and 15% respectively of the total project cost of the sub-projects. The PFIs were required to co-invest as well as assume all credit risk to reinforce alignment of their interests and those of the Government. PFIs were responsible for credit administration and recovery. 50 Component 2: Technical Assistance Component (original: US$2.5 million; revised: US$12.5 million; effective: 8.66 million)31 The technical assistance component assisted Bangladesh Bank (BB) and project stakeholders in the implementation of the project. This component included the following: (a) Technical assistance for capacity building for the development of infrastructure finance capacity amongst the local market participants and within BB. The technical assistance aimed at facilitating Bangladesh Bank's approval of infrastructure financing proposals. (b) Infrastructure Investment Facilitation Center (IIFC) support to PICOM for policy and regulatory reform. IIFC acted in the first instance as a provider of technical assistance to the GoB and a small central facilitation and advocacy unit to provide support for policy development and capacity building within the line ministries. IIFC also provided support in designing and managing capacity-building programs. IIFC had responsibility solely to the GoB, in particular to PICOM and the Board of Investments and on a contractual basis under the project to BB. (c) Support for environmental assessments. The Technical Assistance (TA) component also funded supervision and preparation of Environmental Impact Assessments (EIA) to assure the quality required by the GoB and for eligibility for World Bank Group funding. Revised Components Although the project was restructured (section below), project components remained the same. Other Significant Changes Restructuring The IPFF project was restructured three times: (a) Due to the quick disbursement of the initial US$ 47.50 million loan, and having proved a successful pilot, IPFF was scaled up in 2010, with an additional financing of US$ 257 million. (b) In December 2012, the second restructuring was undertaken to extend the closing date from December 31, 2014 to December 31, 2015, to reallocate funds from the investment to the TA component to emphasize on project development, to extend sector eligibility to infrastructure in health, education and information technology, and to limit single sector exposure to 50% of the investment credit line. The project was 31 The revised TA component will be US$8.66 [US$1.66 (actual utilization during Phase 1) and US$7 million (allocation for the Phase 2)] instead of US$12.50 million. The unspent amount of TA has been refunded to the WB. 51 also restructured to allow the IPFF Credit line from the Government to PFIs to use an additional market based interest rate. (c) The third restructuring was set up for reallocation of TA component to On-lending component and for the extension of the closing date from 31.12.2015 to 31.12.2016. SECTION 2: KEY FACTORS AFFECTING IMPLEMENTATION AND OUTCOMES Project Preparation, Design and Quality at Entry Soundness of the Background Analysis The project design took particular note of positive and negative aspects of two related projects in Bangladesh: the Financial Institutions Development Project (FIDP) and the Private Sector Infrastructure Development Project (PSIDP). The IPFF aimed at complementing and supporting achievements of the FIDP project while taking into account the lessons learned from the PSIDP. The PAD described some key experiences that were taken into account for project design: (a) The importance of a strong support from the BB: BB has shown itself to be a consistent agent for reform and key to success in the context of private sector development. (b) The governance and control issues arising from attempts to establish a body that results independent from government and transparent in actions but at the same time responsible for public funds. (c) The challenge imposed by the International Development Association’s (IDA) procurement requirements in sponsoring infrastructure funds. (d) The challenge that represents for government agencies to act as commercially oriented entities, to be perceived as proactive in marketing their services and responsive to market needs. (e) The importance of identifying the pipeline of projects. Documentation also indicates that various options were considered during project preparation. A first one was for the BB to provide a waiver from a single borrower limit and capital allocation for IPFF credit. Another was the creation of a take-out facility or structure under which IPFF was routed to PFIs in a form that protected their capital adequacy position, direct assumption of credit risk by government or through securitization. These options were discarded since it was considered more practical that the IPFF relied upon syndication to spread the credit risk amongst the financial sector. The approach of working through PFIs under the administration of BB -as the implementing agency-shows that the project has taken into consideration the importance of the BB, using even a similar eligibility criteria to that developed for FIDP to select PFIs under IPFF, including in IPFF 52 both bank and non-bank financial institutions. This approach also enabled the credit risk to be spread across the financial sector. Assessment of Project Design Project design was simple, adequate and prudent, with a medium-term view in mind. It was designed as a pilot operation that could be “augmented by AF to meet market demand”32, which proved to be the case. There were no evident flaws in this project. One of the most complex issues that might be a correct assessment of the pipeline of projects had a problem that was tackled during restructuring; the identification of projects was good enough to assure there were enough quality projects to be financed. Adequacy of Government’s Commitment The IPFF designed adequately a mechanism to provide and control for the IDA funds and the development of projects: the GoB selected the BB as the implementing agency, showing strong institutional commitment. As part of the counterpart fund, the GoB provides on-lending component that is 20% of the total disbursement of loan under IDA on-lending component. Besides, the Government enacted PPP laws and created PPP Authority that eventually enhanced capacity within the government and resulted in a strong pipeline projects prospective for funding from IPFF. All the initiatives indicate a strong commitment of the Government to provide public facilities through PPP in Bangladesh. Safeguard Design Issues The PAD covered safeguard issues well.33 Given that the IPFF acted as a Financial Intermediary (FI), before approving a sub-project, the FI had to verify that sub-projects complied with the Environmental and Social Management Framework (ESMF). IPFF acknowledged the limited national capacity to manage environmental and social risks, making ineligible certain activities: activities on the IFC/MIGA exclusion list, investment entailing involuntary resettlement, and investment in protected areas were not to be financed. Pipeline Issue The PAD recognized the importance of a good pipeline of sub-projects. The initial pipeline was very good, resulting in a high percentage of financed projects within the original pipeline. The pipeline was updated at important times of project life, such as at the time of AF and that of supervision missions. Pipeline projects assure not only that are there enough projects to exhaust the current loan proceeds, but also to be funded through an eventual follow-on loan. Assessment of Risks The IPFF took into account lessons from PSIDP and built upon best practice, especially the Emerging Africa Infrastructure Fund. In the case of the IPFF, the risk bearer is both private sector 32 PAD, page 10. 33 PAD, pages 30-31 and Annex 10. 53 and the government.34The body of the PAD35included a comprehensive general risk and mitigation analysis. The risks identified are the following: (a) Lack of Government ownership. Ownership of the project concept on the part of the Government of Bangladesh was essential. BB agreed to act as government sponsor. (b) Vested interests are insurmountable. Implementation of IPFF would challenge existing well-established interests in favor of the status-quo. The key agent for change in the project was the empowerment of private sector entrepreneurs and the creation of a “positive” vested interest, through their investment, to counter those obstacles. (c) Investment projects do not materialize. A strong pipeline of potential infrastructure projects was identified. (d) The project crowds out local financial markets. The initiative did not mobilize resources other than those from donors or participants in the domestic financial markets. Emphasis was on the avoidance of “crowding out” and rather acting as a catalyst for commercial funding. (e) Insufficient technical expertise in Bangladesh. There were a number of leading financial institutions in Bangladesh, and an increasing number of Bangladeshis with substantive experience in leading international markets have returned to assume key positions in local financial institutions. (f) Private sector financial institutions do not participate, and infrastructure promoters do not invest. A number of financial institutions and entrepreneurs had already expressed a strong interest in the project. (g) Erosion of governance standards in the financial sector. IDA would not provide finance for investment projects in the infrastructure sector that do not meet appropriate governance standards. Implementation The implementation of the initial phase of the project was smooth and successful. IPFF was able to disburse the full amount under the on-lending component quickly and well ahead of the closing date. This resulted in setting-up seven small power plants. Given the positive result of the IPFF and the estimate that there would be a solid demand for long- term IDA credit, the IPFF was scaled up in 2010. 34 Although Government minimized risks of loan recovery, since BB holds accounts of PFIs and can withdraw repayments automatically. 35 PAD, pages 24-25. 54 Factors That Contributed to Successful Implementation Several factors were critical for the successful implementation of the project: (a) Flexible and well-thought project design. Project design activated demand, privileging proactivity: most active PFIs would identify project sponsors and other PFIs to participate in syndication efforts, structuring finance for economically sound infrastructure projects. Repayments were well channeled: project income stream would be deposited into an escrow account at a PFI, which in turn has its deposits at BB. (b) BB’s Project Cell staff. In addition of having adequate professional competences, project staff was committed, motivated and proactive. Project staff acted as facilitators (as opposed to “gate-keepers”. Most stakeholders expressed high degree of satisfaction with the project team during interviews and sub-project visits. (c) Strong financial incentives. The combination of longer loan tenors and lower interest rates than those available in the market were very convenient for both, PFIs and project sponsors. This combination offset the additional transaction costs implied by environmental and social safeguards and WB processing. It also allowed in a few cases for loan repayment ahead of schedule. (d) Strong project pipeline. As discussed above, the pipeline was always strong, and expanded beyond initial power generation projects. The project pipeline greatly benefited from the possibility of “self-selected projects” in the eligible sectors (which covered a wide spectrum of possibilities) and from capacity building efforts. Effects of Project Restructurings Implementation of the 2010 scaled-up IPFF phase was not smooth. The pipeline of projects did not move as planned. A restructuring was implemented in the year 2012, to lift a 50% maximum sector limit that while aiming at diversifying the credit line, ended up constraining the demand for long term financing in the power sector. A second restructuring in the year 2013 took into account the existing concerns with interest rates of IPFF on on-lending credit line facilities. These restructurings did have impact, especially concerning the 50% maximum sector exposure. This threshold impacted the power sector that was mature and had a high demand. There were also difficulties with finding new sub-projects for the pipeline. Once the initial pipeline sub-projects that were regarded to as ‘fully structured deals’ were financed, it was harder to find additional eligible projects for the pipeline. To mitigate this risk after restructuring there was a stronger emphasis on technical assistance for project development. Mid-Term Review The Mid-term review concluded that the 50% maximum sector exposure limit (for the on-lending component), constrained demand for long term financing in the power sector. The project was restructured to lift this ceiling, and aligned the PDO statement and PDO indicators, by adding a PDO outcome indicator measuring the role of private sector entrepreneurs in infrastructure 55 36 development. Therefore, the PDO indicator, “total investments in infrastructure” was disaggregated into two: (a) “total amount of equity and debt financing from IPFF, GoB and the local financial institutions” (as a measure of the financial intermediation leveraged); (b) “total amount of equity from the private sector entrepreneurs on the transactions supported by IPFF” (as a measure of the role of private sector entrepreneurs in the development of infrastructure). Monitoring and Evaluation Design, Implementation, and Utilization As described in the PAD, M&E design was simple and straightforward, with monitoring being coordinated by the BB. The BB was in turn to prepare and submit to the World Bank semi-annual reports on utilization and status of the IPFF and semi-annual assessments of the progress of the technical assistant sub-component. BB was responsible for ensuring that the PFIs: a) verified the status of investment projects supported by IPFF and b) prepared investment loan portfolio management and progress reports. The GoB was also expected to prepare and submit to the WB a report on the execution of the project, its cost and benefits. Reviews to assess progress in implementing the IPFF were planned to take place every six months, with the BB being responsible for the preparation of necessary documentation and planning of review meeting. The PDO indicators and IOIs flew logically from the PDO and the targeted failures were clear: to increase the infrastructure financing matching the long payback period of the infrastructure projects, supplementing the shorter term financing available in the Bangladesh banking system. Safeguard and Fiduciary Compliance There were a number of challenges in ensuring effective safeguards compliance for the project, and some actions were needed for addressing them. Timing of ESIA vis-à-vis project design decisions and start of construction. Subprojects were designed and often under initial construction by the time EIAs were conducted and submitted for financing. On the social safeguards side, land acquisition took place even earlier. Given this, consultation was not likely to offer meaningful opportunities for stakeholders to provide input on project design and impact management and design changes or additional mitigation and management measures became more costly for the sponsor. In order to overcome these issues, the project supported the development of environmental and social screening guidelines and hiring of environmental and social experts within the Project Implementation Unit (PIU) in order to improve integration of environmental and social issues into design studies, citing decisions and EIAs from an early stage. Project ESMF lacked clarity and precision. The ESMF was updated to be more reader-friendly, specifying better roles and responsibilities, to increase accountability and to highlight the 36 The indicator included total amount of equity and debt financing from IPFF, GOB and the local financial institutions and equity from the private sector entrepreneur. 56 differences between national standards and World Bank standards and ESIA completion and approvals timelines. Limited pool of qualified national consultants for conducting ESIAs, and limited awareness of safeguard policy requirements by PFIs and project sponsors. The quality of EIAs and SIAs that were submitted to BB for subprojects requesting IPFF financing was weak. To overcome this issue, capacity building workshops were organized. A few environmental safeguard capacity building workshop and training both at home and abroad was sponsored by BB and facilitated by World Bank environmental specialists. A similar workshop was planned for social safeguards capacity building. Also, IPFF was to support scaling up of the Green Finance Initiative with interested PFIs. IIFC and Development Planners and Consultants TORs were not consistent with services being provided in practice - coverage and quality gaps. Together, the TORs for IIFC and DPC were broad-reaching in covering the key areas of environmental support to project implementation. However, in reality, none of the firms were executing all aspects of their TORs effectively. To overcome this issue, BB was to hire technical assistance to subproject proponents to provide for the preparation of ESIA, ESMP and audit documents. Additionally, BB was to evaluate DPC’s and IIFC’s performance. Once ESMF is revised, additional capacity building needs on ESMF implementation– especially with PFIs – was to be assessed. Insufficient proactivity in identifying and resolving safeguards compliance issues on behalf of Bangladesh Bank before requesting World Bank No Objection. Subprojects were sent for World Bank No Objection with reports that explicitly indicated that the subproject was not yet ready for No Objection on environmental aspects. To overcome this issue, IIFC was to present findings to BB in addition to submitting report, while the BB cover letter to loan applications was to specifically reference the investment’s readiness on environmental and social grounds, and to clearly indicate the expected timeframe to reach compliance on any noted non-compliant aspects. Post completion Operation/Next Phase Given the positive contribution IPFF has had in promoting private sector participation in infrastructure development and crowding-in long-term finance, there is high interest in a follow- on IPFF project. A new IPFF2 project is very timely and supported by market participants. Indeed, during the 2015 WB mission, the pipeline of projects was such that the demand for IDA finance was estimated around US$250-400 million (see Annex 12). Stakeholders interviewed for the purpose of this ICR expressed the continued need for the continuation of an IPFF-like funding mechanism. Although local financing institutions have extended their terms of financing to up to eight years in certain cases (combining loan refinancing with foreign export-import banks´ loans) still there is a need for longer loan tenors. Despite the progress achieved so far, the need for investments in power generation infrastructure remains high in Bangladesh, as the recent controversy on plans to build a coal-fired power plant in Rampal demonstrates. Rampal is located near the Sundarbans, the world’s largest mangrove forest, a UNESCO world heritage site. The need is so high that the current government is investing much political capital in defending the project, amidst protests from civil society. 57 SECTION 3: ASSESSMENT OF OUTCOMES Relevance of Objectives, Design, and Implementation Rating: High relevance The project objectives remain highly relevant to the needs of the country in general (still for the power sector). The project design of seeking to crowd-in the private sector investment in financing, while constructing infrastructure facilities remains consistent with GoB’s priorities. The private sector participation in the form of PPPs is consistent with the Bank’s operational guidance, acknowledging the critical component of public support, in the form of IDA/IBRD guarantees and other forms of credit enhancement. The project addressed issues in the provision of long term financing for the development of infrastructure that remains highly relevant for the current business environment as it can address some of the critical challenges that the country is still facing i.e. long term financing and infrastructure deficit. Project design encompassed an increase in power generation, port facilities, EPZ and water treatment within these zones, and in communication networks. Overall, the project design addressed a wide range of infrastructure sectors and made in-time reforms in order to cope with some issues of single sector exposure that were particularly impeding the development of additional power projects. Achievement of Project Development Objectives Efficacy Rating: Satisfactory The PDO was clear and fully in line with Bangladesh development priorities, as they were set up in the Five-year Development Plan37, and continues to be the case at the drafting of this ICR. The impact of IPFF can be appreciated in the following dimensions. Development of PPP as a practice in Bangladesh Increased stakeholder capacity Through capacity building activities and the “coaching” of stakeholders during the development of actual PPP investment projects, capacity building reached different types of stakeholders that learnt to work together towards PPPs:  PFIs, that seized the opportunity and worked well, even promoting unsolicited projects.  Line Ministries, which were able to build best PPP practice into their bidding processes (About 90 government officials were trained). 37 FY02-FY06, FY06-FY10, and FY11-FY15, respectively. 58  PPP Authority, which was started with operational support from IPFF and benefited from its experience financing infrastructure projects  Project Sponsors, who learnt to incorporate safety, social and environmental safeguards into their projects Learning and demonstration effects IPFF demonstrated that PPP can be streamlined in Bangladesh, starting with “easier” less risky PPP projects and evolving into “less obvious”, riskier projects. Thus, the first PPPs were in the energy sector, where government guaranteed revenue. In addition, local project sponsors were able to enter the energy production market. For example, Doreen Power, which had operations in various sectors, was able not only to enter the energy production business with a small plant in 2007but also to steadily increase its production capacity (technology learning) with successive IPFF sub-projects. Doreen will be building additional power plants because of government (non- IPFF) procurement. Optic fiber infrastructure projects introduced a higher level of risk to PPP, since there was no guaranteed revenue stream. One of current IPFF pipeline projects consists in a High-Tech Park at Kaliakoir, a project that goes beyond infrastructure, to include economic activity and services built on that infrastructure. In addition, IPFF is demonstrating that it is possible to develop PPPs in the social sector. For example, the syndication for Chittagong’ Imperial Hospital (a private endeavor) was “oversubscribed”. Although this sub-project is still in IPFF pipeline waiting for WB’s no objection, construction of the hospital is well advanced, counting with UCB’s bridge financing. UCB is the lead arranger for the IPFF proposed loan. In the case of Imperial Hospital, there are neither guaranteed revenues nor necessarily a captive market. PFIs learnt to make a judgment on projected cash flows derived from a business plan, the strength of the private sponsors (in this case a local eye hospital and local partnering corporations) and their background. Demonstration in the social sector is not limited to a private endeavor. For example, the PPP Authority is finalizing a PPP that has to do with the refurbishing and operation of a dialysis center at a public hospital, a case that promises to be replicated in ten different locations of the country, constituting a national network of dialysis centers. Institutionalization of PPP for infrastructure in Bangladesh By the start of the IPFF in 2006, there was no PPP-focused organization in Bangladesh. During the IPFF implementation period there were several developments regarding the institutionalization of the PPP practice in BD that are largely attributable to IPFF. Since 2006, PPP practice in Bangladesh evolved from guidelines to policy, to law, to the creation of an independent office and related financial mechanisms. Bangladesh’ PPP Authority was started in 2012 with the technical assistance of IPFF. IPFF has been covering all of PPP Authority’s operational expenses and technical assistance needed for its establishment. Very importantly, IPFF did the hiring of consultants and legal advisers needed to set-up the Authority and build the PPP legal framework. The main policies and regulations were put in place: the PPP Law was enacted in 2015 and the procurement guidelines were elaborated 59 and approved in 2016.38Because of this work, a vibrant project pipeline was built, consisting on 44 projects in sectors that go beyond those supported by IPFF, including transport, economic zones, energy, tourism, civil accommodation, social infrastructure, housing, health and education. The project awarded by the PPP Authority is the “Construction and Operation of Two Jetties at Mongla Port”, a USD 35 million project that was originally supported at the development stage by the IPFF Project Cell.39 In addition to the PPP Authority, the Government of Bangladesh started financing mechanisms to support projects developed by the Authority. These mechanisms are the Bangladesh Infrastructure Finance Fund Limited (BIFFL), the PPP Technical Assistance Fund (PPPTAF) and the Viability Gap Fund (VGF). Increased infrastructure capacity IPFF catalyzed and increased infrastructure capacity predominantly in the energy sector, followed by the information technology sector, industrial water treatment and inland container terminals. IPFF accomplished this by empowering Bangladeshi corporations that had demonstrated their implementation capacity. Not only had they the financial capacity to contribute a sizable amount of equity to sub-projects, but also the management and technical expertise to make the sub-projects happen. Annex 2 shows main characteristics of IPFF supported sub-projects. Power Generation IPFF supported sub-projects that added 589 MW electricity generation capacity to the national grid, which represents 4.4% of the current installed capacity of BPDB Power Plants40. Supported power generation plants comply with higher environmental standards than average power plants in Bangladesh. For example, only three out of thirty fuel run power plants in Bangladesh have desulfurization plants, all corresponding to IPFF funded plants. In addition, all IPFF-supported plants were subject to external environmental monitoring by BETS. BETS´ monitoring translated into action plans for improved environmental management of the power plants. This was particularly important to solve environmental issues that arose in some cases, within a context in which external monitoring is not enforced by government agencies. Information Technology IPFF supported the nationwide expansion of a fiber optic cable network (corresponding to the company Fiber@Home Limited) that now is reaching the 6832 Km optical fiber long haul backbone. Fiber@Home is one of the two private sector licensees for deployment of optical fiber. 38 The Asian Development Bank also contributed to covering technical assistance expenses towards the writing of documentation. 39 This project was later taken out of the IPFF portfolio due to World Bank’s environmental concerns, since the project location (albeit being an expansion of an existing facility) was adjacent to the protected Sundarbans mangrove forest. 40 Based on data from Bangladesh Power Development Board. http://www.bpdb.gov.bd/bpdb/index.php?option=com_content&view=article&id=150&Itemid=16. Last consulted 09/23/2016. 60 The other one is Summit Communications, which currently has a similar sub-project to Fiber@Home in IPFF’s pipeline. Industrial Water Treatment IPFF supported water treatment plants at three of the eight Export Processing Zones in Bangladesh. The three water treatment plants serve 15 export companies in Adamjee, 4 companies in Comilla and 68 export oriented companies in Chittagong. As a result of having common treatment plants (as opposed to individual sourcing and treatment), export companies became more efficient (their machinery works better, while reducing water related costs) and more environmentally friendly (now water is sourced from streams deeper than those used for human consumption). Inland Container Terminals IPFF supported the expansion of two inland container terminals in the Chittagong area. KDS Logistics has built a two-storied Container Freight Station of about 108,000 square feet, allowing expanded capacity to support exports. The expansion meant for KDS a 44% increase in its cover shed capacity, while it also represents a 10% increase of capacity in the Chittagong area, where 16 companies operate. Consequently, KDS is expanding its export container stuffing from about 40,000 TEUs to 68,000 TEUs per year (a 70% increase). Achievement of Component 2 objectives: The IPFF had a Technical Assistance Component for engaging technical advisors and environmental and social consultants for providing advice and consultancy support to the IPFF Cell, as well as capacity building of the key stakeholders of PPP in Bangladesh. The implementation of PPP required a new set of skills and capacities. The PPP Authority tracked and coordinated a list of priority projects for implementation as PPP. Additionally, the PPP Authority managed a master list of both completed as well as proposed PPP projects in Bangladesh and had to do an assessment of training needs and a plan for PPP capacity building. This included the targeting of which specific infrastructure sectors, and which infrastructure line ministries and executing agencies in Bangladesh required the training and capacity building on PPP management first (under the PPP Capacity Building Plan). All PPP stakeholder organizations needed basic-level training on PPP, what they are, their goals & rationale, examples, and what is generally required to manage and implement PPP. Very few PPP cells had both experience and some proven capacity to manage and implement PPP. Specific capacity gaps were identified and were the basis for the design of the PPP Awareness Creation and Capacity Building Plan. The Plan provided detail on the specific training curricula and the learning outcome statements for each of the recommended PPP training and capacity building events and programs. This, since not all officials in Bangladesh required the same level of detail in their PPP training programs. The PPP Training Needs Assessment identified a number of target stakeholder groups, who needed training for their PPP-related staff, including those in the PPP Cells that were responsible for overseeing and managing key PPP project preparation and review procedures. 61 The overall objective of the capacity building and awareness creation plan was to achieve a successful and sustainable PPP program and successful PPP transactions in Bangladesh. The plan aimed at reinforcing staff capacity of each of the key PPP stakeholder organizations to manage all phases of the PPP project cycle to complete the implementation of priority PPP transactions in Bangladesh. There were three results components. For Component 1, awareness and understanding of how to manage the basic requirements of the overall PPP Project Cycle were developed. For Component 2, practical skills to be able to manage specific tasks within each key phase of the PPP Project Cycle were developed. And for Component 3, advanced level skills were developed to both direct and to complete specific PPP transactions tasks: (a) skills for managing the financing for PPP, including financial and economic analysis and financial modeling; (b) skills in designing, drafting and negotiating PPP contracts; and (c) first-hand understanding of policy and practical techniques for effective management of PPP. The identified target groups were the following: Administrative Units (PPP Authority, PPP Unit); Infrastructure Line Ministries and Executing Agencies; IPFF Project Cell at the BB; Private Investors, Chambers of Commerce; Local commercial banks and non-bank financial institutions. Based on the face to face mode of delivery, training can be classified as follows: short duration events (three to seven days); long courses (7-15 days or a month); CD or web site based training (these were designed for busy officials to avoid difficulty of gathering them in one place. Besides, there was the establishment of a PPP Resource and Knowledge Centre, a Workshop of PPP Training of Trainers and a Panel of PPP Experts & Trainers. Efficiency Rating: Satisfactory Project development objectives were achieved with efficiency. Project coordination and implementation was carried out by an efficient and small project cell. Individual sub-projects were cost-effective, all of them showing positive economic indicators: (i) net profit margins vary in between 14 and 59%; (ii) the return on assets ratio ranged in between 6 and 156%; (iii) the return on equity ratio varied between 6 and 115%; and (iv) internal rates of return ranged from 7% to 29%. All sub-projects but one (whose implementation was catching up) were implemented on schedule. Justification of Overall Outcome Rating Although the achievement of outcomes was not smooth, with an initial easy implementation of the project and a few years where the project faced some implementation difficulties, from the year 2014 onwards the project delivered its objectives and kept incorporating projects to the pipeline (see Annex 2). Summary of overall outcome rating Overall outcome Relevance Efficacy Efficiency rating High Satisfactory Satisfactory Satisfactory 62 Overarching Themes, Other Outcomes and Impacts Poverty Impacts, Gender Aspects, and Social Development This aspect has not been documented for the IPFF project. The project, however, has made a positive contribution in terms of improved availability and reliability of power to general electricity consumers including poorer households. Institutional Change/Strengthening The spillover effects of IPFF included: (a) Spreading the know-how of long term financing among the local financial institutions –not only through the on-lending operations under IPFF but also from the workshops and training programs supported by the IPFF TA component. (b) Structuring infrastructure investment proposals across different sectors: the PPP Authority has developed a pipeline of private sector-led infrastructure proposals in the country. (c) Instilling E&S safeguard global best practice during construction as well as in the implementation phase of infrastructure projects. Summary of Findings of Beneficiary Survey and/or Stakeholder Workshops Not applicable. Key findings will be developed as part of the impact evaluation study. SECTION 4: ASSESSMENT OF RISK TO DEVELOPMENT OUTCOME Rating: Moderate The risk of reversal at this stage is moderate. Future infrastructure investment continues to depend on long- term finance. The development of the capital market is still incipient, and this type of long-term finance depends of additional support for development. Maintaining IDA engagement in a new IPFF2 project would certainly contribute to lower the risk to development outcome. SECTION 5: ASSESSMENT OF BANK AND BORROWER PERFORMANCE Bank Performance Rating: Moderately Satisfactory Bank Performance in Ensuring Quality at Entry The Bank’s performance during preparation and appraisal was Satisfactory. The Bank team took into account lessons learned from the previous series of credits, specifically targeting risks and design to assure quality at entry. 63 Bank Performance in Quality of Supervision The Bank’s performance during supervision is rated Moderately Satisfactory. The team was proactive in identifying issues and threats to the achievement of the PDO, and worked with the BB to find solutions. The Bank’s technical, safeguard and fiduciary teams provided regular support and made positive contributions, especially in alerting the issues raised with the ESIA analysis, in order to correct them and make the following restructurings good enough for the project reach its current phase. However, there were issues related to response times related to procurement and communications. Procurement issues often took long time (e.g. several months) to be resolved, while there were miscommunications cascading from the WB, to PFIs to project sponsors. While usually in a relationship all parties bear shared responsibility, the WB is responsible for leading these processes when related to no objections. In addition, there were no official Bank communications related to sub-projects that started the IPFF process but failed to get final WB approval. Borrower Performance Rating: Satisfactory Government performance The positive performance of the GoB was evidenced in many interventions and actions. The first one was the proactive measure of the project restructuring. The 2014 IPFF support mission noted that there was scope for improved communication among IPFF project cell and other stakeholders. Notably, the PPP Authority under the Prime Minister’s office and the PPP unit under MoF appear positively implemented at present. Implementing agency performance The IPFF Project Cell at BB has worked proactively and devoted substantial effort and resources in order to ensure procurement of sub-projects and to comply with the EIA requirements for these projects. The results of these efforts are evident for the amount that has been channeled through PPP and the infrastructure projects that have been constructed. SECTION 6: LESSONS LEARNED Preparation of infrastructure projects requires intensive effort in preparing a pipeline. Even when a noticeable effort was undertook in order to prepare a strong pipeline of projects, this pipeline was almost exhausted in 18 months and after that it was more difficult to add projects to the pipeline. This asks for developing an approach that emphasizes detailed assessment of a potential pipeline, especially working in developing EIA and safeguard assessment on the existing sub-projects. Investment in capacity building is crucial. Even when a significant amount of resources was devoted to technical assistance from the beginning of the project, this assistance was rather small when compared to the needs for developing of the various types of “know-how's” to develop successful infrastructure PPPs specially on impact assessment, risk assessment and safeguard issues. Capacities need to be developed in different dimensions: technical, financial, fiduciary and related to environmental and social safeguards. Training activities are good and they need to be 64 repeated, keep engaging additional participants (to cover for staff turn-over and to expand awareness) and be supported through coaching exercises. This is particularly important to ensure practical implementation of what it is learned. PPPs are intensive in human resource capacities: both, in terms of quality and quantity, thus, repetition and reinforcement of trainings are needed. Awareness is a time-lasting process. Even when IPFF project successfully introduced the concept, most importantly in the power sector, awareness building programs should be taken from government as well as private levels towards PPPs. In order to continue with this process, PPP related training, workshops and seminars may be arranged for capacity building regarding PPP concepts, techniques, legal issues for line ministries/implementing agencies, private sponsors and other stakeholders. There is still a lot of space for these interventions; lenders such as banks/FIs would need a PPP unit (and a separate PPP guideline) for dealing with PPP projects. For this to happen, more awareness programs are needed. Institutionalization is feasible but takes time. Consistency in procedures, stakeholder acceptance and demonstrable results are needed to lay the foundations for institutionalization of a financing mechanism such as IPFF. It has taken 5 years for the PPP Authority to show first results, which to the eyes of stakeholders may seem as a prolonged period of time, but in “government time-scale” is a notable achievement. The PPP Authority as it is set-up, combined with BIFFL and complementary funds PPPTAF and VGF conform an “institutional platform” for the development (locally driven) of infrastructure PPPs in Bangladesh. There needs to be a better balance between international and domestic decision making within the World Bank. It is assumed that decision making within the World Bank is subject to approval from the country, at office level as well as at head quarter level. In the absence of up to date information regarding the approval status in relevant cases, unintended miscommunication and misunderstanding arises among local WB officials, PFIs, sponsors and other stakeholders. A proper delegation of decision-making power and coordination in decision-making process between local and head office of the World Bank would facilitate better transparency in WB decision- making process and would avoid unintended wrong signal to the market. Environment is better taken care of if sensible compromise situations are agreed upon. On one hand, there are clearly differences in criteria between the World Bank and Bangladeshi actors when it comes to safeguarding the environment. On the other hand, the project demonstrated that project sponsors are willing and able to go the extra mile incorporating environmental safeguards if the proper incentives are in place. Few projects suffer unnecessary delays waiting for minor environmental requisites to be implemented. Furthermore, a couple of projects were objected for funding under minor environmental concerns and were implemented anyway with third party financing and no improved technical design. The end result would have been better if the Bank had agreed to fund a compromise solution, since the project sponsor could have benefited from World Bank’s technical assistance during implementation. Competition is good for project appraisal. The choice of private sector partners would benefit from a transparent and competitive bidding process following international standards. As PPP projects are large in size and the implementation is very challenging, the selection of private sector partners strictly on the basis of their financial and technical capacity would improve ensure creditworthiness of PPP projects. Besides, the selection criteria of private sponsors done by 65 line ministry/implementing agency should also coincide with the criteria desired by the financiers (lenders). This can be done by ensuring that the terms of concession agreements are transparent and protective of the public interest. Project implementation depends on the ability to develop a financing package with a suitable mix of finance. It is important to note that the financing mix varies across sectors. Telecommunication projects, which face relatively high market risks, may require a relatively low debt component, with debt-equity ratios close to 1:1 whereas power projects with assured power purchase agreements may be financeable at debt-equity ratio of 2.5:1 or even 3:1. The maturity requirements of the debt would also vary across sectors. Power and roads, which have longer payoff periods, require long maturities whereas telecommunication projects can manage shorter maturities. It is important that the varying limitations and constraints associated with each source of financing are taken into account when devising financing packages for individual projects for considering these challenges. PPPs require strong political support and commitment. Large infrastructure projects usually need a relatively long period for their implementation, and therefore a very high level of political support and commitment is required for making PPP initiative successful. It is important that during the implementation phase of PPP projects the change of political power would not affect the projects. It is important that the government makes strong efforts to build consensus among, and obtain support of all political parties and representative civil society groups to ensure the policy continuity over the lifespan of the project. A broad national consensus on the concept and benefits of PPP will also boost the confidence and trust of investors. It will also generate interest among entrepreneurs (domestic and from abroad) to invest in PPP projects and hence open up opportunities for getting more foreign direct investment in the country. There is a need of improved coordination among PPP Stakeholders. This is an issue that arose in the surveys among key stakeholders. In this regard, implementing agency/line ministry should be proactive with respect to providing adequate information to all the concerned parties about the status of the projects. If required, inputs and opinions of potential private investor may be considered during the selection of consultants for the Detailed Feasibility Study by the Office for PPP for ensuring transparency and avoid information asymmetry. The policy may also consider a basic set of universal pre-qualifications to supplement the RFQ process and eliminate the need to evaluate investors who do not meet the qualification criteria upfront. In fact, elimination of gap regarding project screening, approval, implementation, management etc. may encourage the private parties including banks towards PPP projects and ensure transparency as well. 66 Annex 8: Comments of Co-financiers and Other Partners/Stakeholders Not applicable. 67 Annex 9: List of Supporting Documents 1. Project Appraisal Document, Report No.: 34231-BD, dated April 4, 2006 2. Project Paper, Report No.: 53960-BD, dated April 1, 2010 3. Project Paper, dated August 23, 2012 4. Project Paper, Report No. 77908-BD, dated May 21, 2013 5. Project Paper, dated February 10, 2014 6. Project Paper, Report No. RES26583, dated December 26, 2016 7. Implementation Status and Results Back to Office Reports/Aide Memoires/Mission Notes - December 2006 through June 2015 8. First Mid Term Review Reports, dated October 27–November 4, 2008 9. Second Mid Term Review Reports, dated November 10–December 9, 2013 10. Bangladesh Country Assistance Strategy 11. Memos regarding amendments to the Credit Agreements and Reallocation of funds 12. Final Impact Evaluation Report, dated December 22, 2016 13. Borrower’s Evaluation Report, dated October 2016 68 Annex 10: Borrowers comments to the ICR 69 70 71 Annex 11: Map 72