Document ofe o The World Bankl FOR OFFICIAL USE ONLY Report No. P-3529-BD REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT IN AN AMOUNT OF SDR 26.5 MILLION TO THE PEOPLE'S REPUBLIC OF BANGLADESH FOR AN ENERGY EFFICIENCY AND REFINERY REHABILITATION PROJECT April 21, 1983 This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. CURRENCY EQUIVALENT The Bangladesh Taka is fixed in relation to a basket of reference currencies, with the US Dollar serving as intervention currency. On January 11, 1983, the official exchange rate was set at Tk 24.48 buying and Tk 24.52 selling per US Dollar. Throughout this report the rates shown below have been used. 100 Paisa = 1.0 Taka US$1.0 = 23.0 Taka (as of October 1, 1982) PRINCIPAL ABBREVIATIONS AIND ACRONYYMS USED ADB - Asian Development Bank ADP - Annual Development Plan bbl - barrel BMR - Balancing, Modernization and Rehabilitation BOC - Burmah Oil Corporation (United Kingdom) BPC - Bangladesh Petroleum Corporation BPDB - Bangladesh Power Development Board bpsd - barrels per stream day BR - Bangladesh Railways BUET - Bangladesh University of Engineering and Technology EHIU - Energy Monitoring Unit ERD - External Resources Division, Ministry of Finance ERL - Eastern Refinery Limited ESPC - Energy Study and Planning Cell, Planning Commission GOB - Government of Bangladesh HYV - High Yielding Variety (of rice) LPG - Liquefied Petroleum Gas MCF - Thousand Cubic Feet oe - oil equivalent p.a. - per annum REB - Rural Electricity Board SFYP - Second Five Year Plan toe - ton of oil equivalent tpy - ton per year USSR - Union of Soviet Socialist Republics FISCAL YEAR July 1 - June 30 FOR OFFICIAL USE ONLY BANGLADESH ENERGY EFFICIENCY AND REFINERY REHABILITATION PROJECT Development Credit and Project Summary Borrower: People's Republic of Bangladesh. Beneficiaries: Eastern Refinery Limited (ERL); Bangladesh Petroleum Corporation (BPC); and Bangladesh University of Engineering and Technology (BUET). Amount: SDR 26.5 million (US$28.5 million equivalent). Terms: Standard. Relending Terms: GOB would onlend part (US$21.4 million) of the credit proceeds to the Eastern Refinery Limited (ERL) for a period of 12 years, including 4 years of grace, at an interest rate of 14% per annum. ERL would bear the foreign exchange risk. The portion of the credit (US$0.98 million) for the financing of technical assistance to BPC will be passed on by GOB to BPC as a grant. The balance of credit proceeds (US$6.12 million) will be retained by GOB to finance the energy efficiency, gas-based feasibility studies, and the research and development components. Purpose and The project would support GOB's efforts to: (a) reduce the Description: level of petroleum imports; (b) initiate energy conservation activities; and (c) carry out pre-investment studies as a basis for exploiting the country's natural gas reserves. The project would comprise: (a) equipment, materials and related engineering services for the rehabilitation of the ERL refinery facilities in Chittagong to increase capacity utilization and a study to determine further modifications required to improve the refinery's yield pattern; (b) technical assis- tance to improve the accounting, financial and management information systems (MIS) of BPC; (c) the development of an energy conservation/diversification program to improve the efficiency of energy use in the industrial sector; (d) feasi- bility studies on gas-based export-oriented projects to lay as a basis for exploiting the foreign exchange potential of the country's natural gas; and (e) research and development on possible uses of natural gas-derived methanol as a blend in middle distillate petroleum products. This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. -ii- Project Risks: The r,lain project risks are those deriving from the integrated nature of the package of investments, technical assistance, studies and institutin-buildling included in the proposed project. The proposed project involves everal institutions and a number of components. A key factor for its success will be effective coordination. In this regard, the appointment of a Project Implementation Coordinator in ERL, an Energy Coordination Conservation Group and energy coordinators in plants participating in the energy conservation program should provide satisfactory safeguards. Nevertheless, taking into accolnt the innovative feature of the energy efficiency component and the weak institutional capacity of ERL and BPC, a substantial effort in monitoring and supervision on the part of IDA staff will be required and is planned for. From a national standpoint, the proposed project entails limited risks than most other projects in Bangladesh involving significant capital outlays and expansion of productive capacity. -iii- Estimated Project Costs 1/ Project Components Local Foreign Total (TJS$ million equivalent) I. ERL Refinery Rehabilitation A. Repairs, Maintenance and Replacements 5.0 10.4 15.4 B. Operating, Maintenance and Management Technical Assistance 0.1 1.9 2c0 C. Training 0.5 0.5 1.0 D. Debottlenecking and Secondary Conversion Techno-Economic Study 0.4 4.2 4.6 Sub-total 6.0 17.0 23.0 II. BPC Accounting and Management Systems Technical Assistance MIS Study 0.1 0.5 0.6 Training - 0.1 0.1 0.1 0.6 0.7 III. Energy Efficiency Energy Audits, Technical Assistance and Training 0.3 1.7 2.0 IV. Gas-Based Projects Feasibility Studies 0.2 2.1 2.3 V. Research and Development Program 0.2 0.2 0.4 Base Cost Estimate 6.8 21.6 28.4 Physical Contingencies 0.7 2.4 3.1 Price Contingencies 1.1 3.4 4.5 Total Project Cost 8.6 27.4 36.0 1/ Net of duties and taxes. -iv- Financing Plan: Local Foreign Total ---(in IJS$ million)--- ERL 7.5 - 7.5 IDA 1.1 27.4 28.5 Total 8.6 27.4 36.0 Estimated Disbursement: Fiscal Year 1984 1985 1986 1987 --------US$ million--------- Annual 7.51 13.27 6.54 1.18 Cumulative 7.51 20.78 27.32 28.50 Economic Rate of Return: About 68% for the refinery rehabilitation component; benefits for the other components are not quantifiable. Staff Appraisal Report: Bangladesh: Energy Efficiency and Refinery Rehabilitation Project, Report No. 4295-BD dated April 21, 1983. Map: IBRD 16640. INTERNATIONAL DEVELOPMENT ASSOCIATION REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT TO THE PEOPLE'S REPUBLIC OF BANGLADESH FOR AN ENERGY EFFICIENCY AND REFINERY REHABILITATION PROJECT 1. I submit the following report and recommendation for a proposed development credit to the People's Republic of Bangladesh for SDR 26.5 million (the equivalent of US$28.5 million), on standard IDA terms, to help finance an energy efficiency and refinery rehabilitation project. GOB would onlend part (US$21.4 million) of the credit proceeds to the Eastern Refinery Limited (ERL) for a period of 12 years, including 4 years of grace, at an interest rate of 14% per annum. ERL would bear the for- eign exchange risk. PART I - THE ECONOMY 1/ Introduction 2. An economic report entitled "Bangladesh: Recent Economic Trends and Medium-Term Development Issues." (Report No. 4277-BD, dated March 4, 1983) has been distributed to the Executive Directors. 3. The first years of independence were difficult for Bangladesh. Its economy was disrupted and its infrastructure severely damaged by the struggle for independence. The country was afflicted by poor harvests and devastating floods in the early 1970s. Agriculture and manufacturing production fell drastically and only recovered to pre-independence levels in the mid 1970s. Inflation, declining real wages, rapid population growth, labor unrest and political instability added to the difficulties. In these early years, Bangladesh's policy makers were by necessity largely preoccupied with matters of relief and rehabilitation and the need to shape a national government out of a provincial administration. The First Five-Year Plan (FY74-78) had to be scrapped and replaced by a scaled-down and refocussed three-year "Hardcore Program" (FY76-78) in response to the enormity of the country's difficulties. 4. Economic progress and increased political stability in the second half of the past decade provided planners the opportunity to turn their attention from crisis management to the longer-range objectives of development. Between FY75 and FY80, GDP increased by about 5.8% p.a. 1/ Parts I and II of this report are substantially the same as Parts I and II of the President's Report for the Public Administration (Train- ing, Personnel and Management) Project (Report No. P-3493-BD), dated March 24, 1983. -2- despite several setbacks in agricultural production. Output in manufac- turing rose by about 6.3% annually between FY75 and FY80, most of this growth taking place outside the jute industry. Although shortfalls in domestic foodgrain supplies and increases in international petroleum prices led to a deterioration in the balance of payments in FY80, the concluding years of the decade witnessed a number of encouraging develop- ments and positive policy measures to attain longer-term development goals. These included a strengthening of budgetary policies, improvements in agricultural and food distribution policies and steps to promote a more active role by the private sector in developing the economy. Recent Economic Developments 5. The economic consolidation in the second half of the past decade has been followed by a period of economic difficulties. Bangladesh experienced serious budgetary and balance of payments problems in FY81 which continued into FY82. The external and domestic resource constraints led to some decline in investment, in real terms, and some loss of momen- tum in the development effort. The management of domestic food situation, due to poor crops, has also posed considerable problems. Although GDP at market prices increased by 6% in FY81 (as favorable weather and stepped-up provision of agricultural inputs helped to increase foodgrain production to a record 14.8 million tons), growth of the economy became negligible in FY82 due to poor crops, lagging rural incomes and consumer demand and the decline in investment. A recovery in winter crops (wheat and boro rice) due to improved weather and the Government's efforts to expand minor irrigation facilities, however, is expected to increase value-added in agriculture by 3.4% and overall growth of the economy by 2.5% in FY83. 6. The economic difficulties experienced in the last few years is indicative of major constraints to sustained economic development in Bangladesh in the near term. These are (a) a severe balance of payments problem; (b) an extremely tight public finance situation; and (c) a food production and management problem. 7. Bangladesh's balance of payments is characterized by a massive structural trade deficit and heavy dependence on foreign aid. Export earnings are currently less than 30% of the import bill and over 50% of these limited export earnings is derived from raw jute and jute goods. Although export earnings doubled over the second half of the past decade due to a significant strengthening of export prices, and remittances from abroad increased rapidly, the current account deficit over the past decade averaged over 10% of GNP annually, financed by external aid inflows, provided mainly on concessional terms by external donors. In FY82 and FY83, however, Bangladesh was adversely affected by (a) a severe deterioration in its terms of trade and (b) a simultaneous stagnation in external aid inflows. A sharp decline in export prices of raw jute and jute goods and of major non-traditional exports (notably leather and fish products), combined with a 14% increase in average import prices (partly reflecting significantly higher petroleum prices), led to a 16% deteriora- tion in Bangladesh's terms of trade in FY81. While import prices remained relatively stable in FY82, export prices declined by a further 16% due to continued stagnation of demand for raw jute and jute goods, and the terms of trade deteriorated further by 17% in FY82. At the same time external aid inflows, which rose steadily until FY80, stagnated or declined; aid disbursements in FY82 were only 4% higher than in FY79 in real terms, and in FY81 were 7% lower than FY79 levels. During FY81 the Government attempted to cope with this reduction in the availability of external resources by resorting to short-term commercial borrowing, short-term deposits from and currency swaps with friendly countries, some run-down of reserves and assistance from the IMF under an Extended Financing Facility (EFF) arrangement concluded in December 1980. However, the EFF arrangement was suspended in July 1981, as the Government's budgetary problems led to a large bank-financed budget deficit and to the violation of credit ceil- ings agreed with the IMF. In FY82 the Government attempted to slow down the growth of imports through a variety of measures. Nevertheless further short-term borrowing of $226 million and a run-down of Bangladesh's meager foreign exchange reserves to about US$100 million (equivalent to about two weeks' imports) were necessary to finance the reduced level of imports. 8. The balance of payments situation in FY83 will benefit from a significant improvement in the terms of trade, a substantial increase in workers' remittances to about US$600 million and a 9% increase in total aid disbursements due to an improved response from donors to Bangladesh's recent requests for more food and commodity aid. The Government has also recently reached agreement with the IMF on a Standby Arrangement in an amount of SDRs 68.4 million covering the second half of FY83. Rising medium and long-term debt service payments (from US$98 million in FY82 to US$155 million in FY83) will, however, claim part of this increase in external reserves; Bangladesh will be also making net payments of about $100 million on outstanding short-term debts. 9. The deterioration in the trade and aid climate had a major adverse impact on public finances during FY81 and FY82. Government's receipts of local counterpart funds--a principal source of taka resources--were reduced, as were its receipts from import duties and sales taxes, which account for nearly 60% of total tax revenues. These budgetary problems were exacerbated by weak financia planning and inadequate domestic adjustments in the face of generally reduced availability of resources. The Government's development programs were predicated on the basis of overly optimistic assumptions regarding resource availabilities; and the poor financial performance of public enterprises, due to low levels of efficiency and delays in increasing their sales prices added a further drain on the budget. A budget deficit of Tk 5 billion or about 2.5% of GNP emerged in FY81 even though the Annual Development Program (ADP) was cutback by 12% in the second half of the fiscal year. In FY82, the cut- backs in imports noted earlier sharply reduced government revenues; and this caused serious difficulties in implementing the ADP which was again initially set at ambitiously high levels. Although the Taka component of the ADP was cutback by 15% in the third quarter of FY82, it was possible to avoid a deficit in the overall government budget only because a sharp - 4 - run-down in government's food stocks as a result of poor domestic crops helped to produce a substantial cash surplus on the food account. 10. Although considerable progress has been made in the past ten years in increasing the availability of irrigation and other inputs and improv- ing agricultural policies, foodgrain production and supply in Bangladesh remains heavily dependent on the vagaries of the weather. Prolonged drought since the summer of 1981 adversely affected the FY82 and FY83 rice crops. The shortfall in foodgrain production in FY82 (0.7 million tons or 5% below FY81 levels) led to high food prices in FY82, low government procurements, increased demand for foodgrain distributed through the ration system and a substantial run-down of public sector foodgrain stocks to about 600,000 tons by end-June 1982, far below the levels considered to be sufficient for food security purposes. In order to replenish stocks the Government made substantial commercial imports, thereby imposing further strain on the balance of payments. 11. The Government endeavored to cope with the intensifying problems facing the economy by placing restrictions on imports, public sector expenditures and bank credit, reducing various subsidies, and allowing the Taka to depreciate. In FY82 the Taka was depreciated by about 10% in relation to a basket of currencies to which it is pegged and by about 22% in relation to the US dollar.l/ However, the rate of domestic inflation, spurred on by sharp increases in foodgrain prices in mid FY82, the adjust- ments in the exchange rate and rapid expansion of domestic liquidity in late FY81 accelerated and the consumer price index increased by 15% over the 12 month period ending June 1982. 12. Faced with continuing prospects of unfavorable terms of trade and stagnating resource availabilities, the Government, in the FY83 budget (in July 1982), introduced a wide range of policy measures designed to adjust the economy to the country's serious resource constraints. Projected development expenditures for FY83 were reduced by nearly 20% in line with resource availabilities, while the increase in recurrent expenditures was limited to 14%, only slightly above the forecast inflation level. The Government also introduced new tax measures expected to yield Tk 1.17 billion (about 0.5% of GDP) in FY83. In addition, a number of substantial subsidy and pricing adjustments aimed at reducing consumption and protect- ing investments were made. Ration prices of wheat and rice were increased by 11% and 8%, respectively and fertilizer prices were increased by 14% on average. The Government also recognized the need to improve the financial performance of public sector enterprises and utilities; and product prices and rates were raised substantially in the case of petroleum products (41%), electricity tariffs (40%) and natural gas (13%). These measures are expected to channel resources from private consumption to public investment and, together with a cash surplus on the food account noted 1/ Change from end-June 1981 to early June 1982. - 5 - earlier, will help improve the overall budgetary position, and restore a greater measure of financial stability. External Debt 13. Debt service payments on medium and long term debt totalled US$94 million in FY80 and US$92 million in FY81. Bangladesh's debt service ratio, about 12.9% in FY80 following some debt relief measures undertaken by various donors, remained at this level in FY81. The debt service ratio might exceed 20% by the mid-1980s, unless careful debt management policies are pursued and aid is provided on concessional terms. Bangladesh's total outstanding and disbursed external public debt amounted to just under US$3.6 billion as of June 30, 1981 with IDA credits and the single IBRD loan accounting for 30% of the total. In FY81, the Bank Group accounted for 3% of Bangladesh's total debt service payments: because assistance is now entirely in the form of IDA credits, debt service to the Bank Group will rise slowly. Development Planning and Policy Issnes 14. The Second Five-Year Plan (SFYP), issued in draft form in May 1980, accords high priority to four major goals: (i) achievement of self-sufficiency in foodgrains by FY85, with domestic foodgrain production targeted to increase to 20 million tons by FY85; (ii) reduction of the population growth rate with a view to bringing down the net reproduction rate to unity by 1990; (iii) progress towards mass literacy through free universal primary education; and (iv) emphasis on energy development, particularly through accelerated exploitation of known reserves of natural gas. 15. The potential for increasing foodgrain output in Bangladesh is considerable. Surface and groundwater resources permit a substantial expansion of irrigation, which in turn would permit increased fertilizer use and shifts to high yielding varieties of rice. The Government has formulated, with assistance from IDA, a Medium-Term Foodgrain Production Plan (MTFPP) which provides an investment portfolio geared towards the attainment of the SFYP target of 20 million tons of foodgrains. This target is now being scaled down in view of the country's resource con- straints. The achievement of even this revised target will depend con- siderably on the allocation of sufficient resources to provide needed inputs to farmers and to permit the private sector to play an expanded role in the provision and servicing of modern agricultural implements and inputs. Other necessary requirements are adequate levels of foreign aid to finance imported inputs, improved extension services and training, and appropriate producer incentives. 16. Achievement of the second objective, reduction of the population growth rate, will require more determined efforts than have been made thus far, especially with regard to birth control efforts which have generally suffered from poor implementation and have had only limited success. Recently, however, birth control activities within the Government have - 6 - been coordinated, while training programs for field staff have been revised and are now, for the first time, considered adequate. GOB is now preparing, with bank assistance, a medium-term implementation plan for the population sector. 17. The third major objective of the SFYP is the attainment of general literacy. The Government recognizes that achievement of the goal will take longer than five years, but it has set itself the ambitious target of introducing universal primary education and enrolling 90% of all children of primary-school age by 1985. IDA has assisted GOB in preparing a medium- term plan for the education sector. 18. A Plan aimed at effecting significant departures from past trends will place severe strains on financial resources and managerial skills. A major challenge which the Government is now facing is to translate the objectives of the SFYP into an operational implementation program on an annual basis. The Government is now revising the draft SFYP, but more work and considerable discipline are needed to identify core programs and projects and protect them to the extent possible in a situation of resource scarcity. A critical factor will also be the extent to which project implementation capabilities are improved. Although immediate improvements can be made, it is unlikely that the efforts of public agen- cies alone would be adequate to achieve the targeted breakthrough. The Government recognizes that in certain key areas greater reliance will have to be placed on the private sector. It also believes that, to a certain extent, activities such as education and rural development should be carried out in a decentralized fashion, with greater emphasis on local initiative and grass-roots participation. 19. Over the past few years, a series of studies undertaken by IDA, GOB and other organizations has concluded that existing trade and industrial policies have distortionary effects on resource allocations within the industrial sector. The Government is now preparing a program for trade and industrial policy reform which is expected to lead to a medium-term program of actions to be pursued across a broad front, includ- ing modifications in the tariff structure, the pattern of domestic indirect taxation, investment incentives, export policies and the mechanism for industrial promotion and planning. PART II - BANK GROUP OPERATIONS IN BANGLADESH 20. Bangladesh became a member of the Bank and IDA in 1972. Ini- tially, Bank Group operations in Bangladesh concentrated on the reactiva- tion of eleven credits, amounting to US$147.11 million, made originally to Pakistan before 1971; in addition, a consolidation loan of US$54.9 million and credit of US$31.04 million to cover liabilities arising from projects located in Bangladesh and completed prior to independence was approved in 1974. As of September 30, 1982, 62 new credits have been approved, total- ing US$2,064.67 million; of these, US$765 million have been for import - 7 - credits (ten imports program credits and two fertilizer imports credits). Annex II contains a summary statement of IDA credits and disbursements as of September 30, 1982, and notes on the execution of ongoing projects. On June 18, 1976, Bangladesh became a member of the IFC, and three invest- ments (for a shipbuilding company, an investment promotion company and a leather factory) have been approved. 21. The focus of IDA assistance in recent years has been on agricul- ture (20 of the projects approved as of September 30, 1982, and two fer- tilizer imports credits). This is consistent with the country's needs and the Government's priorities. Particular emphasis continues to be placed on projects that provide agricultural inputs, including fertilizer, fer- tilizer transport, irrigation, improved seeds, extension, and credit and storage facilities. In addition to agricultural projects, emphasis is also being placed upon complementary infrastructural projects in sectors which facilitate agricultural development or which reduce bottlenecks constraining the economy's overall performance. In the power sector, for example, IDA is assisting in rural electrification and elimination of shortages of generation capacity and distribution facilities which have been a major impediment to utilization of existing industrial capacity. Assistance for developing telecommunications is designed to improve the efficiency of a wide-range of economic and social activities. 22. Industry has been the main beneficiary of the ten imports program credits approved to date. Given the need for substantial net transfers of resources and the persistent structural imbalance and weakness of the economy, program lending will continue to be an important component of IDA operations in Bangladesh. The industrial sector has also benefited from two fertilizer production projects, a jute industry rehabilitation project, several DFC and small-scale industry projects and three IFC loans. 23. The enormity of Bangladesh-s population problem makes this an extremely high priority sector as well, limited only by its absorptive capacity. IDA has made -two credits available in support of GOB's popula- tion program, which is now making some progress. Improved education and availability of trained manpower are also crucial, and lending in this field has emphasized agricultural, technical and vocational training, and primary education. 24. Disbursement of the imports program credits has proceeded satis- factorily. Project disbursements have lagged behind expectations, owing largely to delays in the release of local funds, approval of contracts, employment of consultants, and appointment of staff. Underlying these delays were serious constraints that included a shortage of qualified staff, overcentralized bureaucratic procedures and organizational deficiencies. IDA and GOB have given increased attention to regular monitoring and supervision in order to identify and resolve potential problems. IDA is providing assistance both under specific projects and under technical assistance credits to improve planning, project prepara- tion and implementation capabilities. - 8 - 25. In view of Bangladesh's difficult foreign exchange position and savings/investment gap, IDA credits should continue to cover all foreign exchange costs and a portion of local currency expenditures. PART III - THE ENERGY SECTOR Energy Situation 26. Bangladesh has no known oil reserves, no economically exploitable coal, very limited hydropower potential and a dwindling base of biomass fuels. Total per capita energy consumption, estimated in the range of 100 to 130 kilograms (kg) of oil equivalent (oe) per annum (p.a.) is among the lowest in the world. Less than a third (about 31 kg per capita) of the total consumption is derived from commercial fuels, of which some 52% is supplied from imported petroleum, 40% from indigenous natural gas, 6% from imported coal, and 2% from hydroelectricity. Despite these low levels of energy consumption, Bangladesh is faced with escalating claims of imported energy on its limited export earnings. Bangladesh's oil import bill, which averaged around 30% of export earnings in FY77-79, is estimated to have reached US$543 million, or about 87% of export earnings in FY82. As regards biomass fuels, the forestry base is severely limited while impor- tant sources such as agricultural wastes are rapidly declining due to the progressive shift from traditional varieties to high yielding variety of rice which have less straw material. At the same time, per capita availability of cow dung, also an important source of fuel in the rural areas, is declining. Commercial Energy Consumption 27. Commercial energy consumption in Bangladesh grew at an average annual rate of 5.5% between FY76 and FY79 and 8% between FY79 and FY81. This increase was initially due to a 20% annual increase in gas utiliza- tion between FY79 and FY81. However, the historical consumption does not reflect the real energy demand in the country, since the consumption levels have been constrained by availability of foreign exchange for imported energy and, in the case of natural gas and hydroelectricity, by uncertainties surrounding the timing of the required investment and associated delivery systems. 28. In FY81, industry and power accounted for about 60% of total commercial energy consumption. In particular, the industrial sector accounted for 50% of total natural gas consumption, 77% of coal, and 21% of petroleum fuels. Power generation accounted for 36% of total natural gas consumption, and 16% of petroleum fuels consumption. Residential energy accounted for about 18% of total energy and 27% of petroleum fuel consumption; residential petroleum fuel consumption is mostly in the form of kerosene which is used for lighting purposes in non-electrified households. Transportation accounted for 16% of commercial energy, mainly - 9 - diesel fuel which is used in road and rail transportation and in river crafts. Projected Commercial Energy Consumption 29. Between FY81-85, overall commercial energy consumption is projected to grow at an average annual rate of 6.4%. Substantial changes in the composition of supply are expected over this period and throughout the 1980s, due to the expected increased availability of natural gas on completion of the Bakhrabad Gas Development Project financed with assis- tance from the OPEC Fund, the Japanese OECF and IDA (Credit 1091-BD). Virtually all of the projected increase in the demand is expected to be met by natural gas, consumption of which is expected to grow at about 17% p.a. Petroleum fuel consumption, which is gradually being displaced by natural gas in power generation and in industries in the Chittagong area, is projected to grow at an average annual rate of 2.3%, compared to a historical growth (FY76-81) of 5.9%. As a result, while natural gas will increase its share of commercial energy supply from 40% in FY81 to around 58% in FY85, petroleum fuel's share is expected to decline from 52% to around 45% over the same period. However, as in most developing countries, the consumption pattern in Bangladesh for petroleum will con- tinue to be skewed in favor of middle distillates (kerosene and diesel oil) and require measures to be taken to provide the country's petroleum refinery at Chittagong with secondary processing facilities which would enable the fuel oil displaced by natural gas to be converted into middle distillates. Domestic Commercial Energy Resources 30. Natural Gas: Bangladesh is well-endowed with natural gas. So far, eleven gas fields onshore and one gas field offshore have been dis- covered, all in the eastern part of the country. Gas in place at the 12 fields is estimated at about 12.3 to 13.4 trillion cubic feet (about 280-310 million toe), 1/ of which about 75% should be recoverable through normal production methods. At present, only the Titas gas field is being exploited to any significant extent to supply Dhaka, Ashuganj and Ghorasal, and six other towns. The Bakhrabad Gas Development Project, due to be completed in the current year, will link Chittagong, Bangladesh's main commercial and port city, with the newly-developed Bakhrabad gas field through a 24" high pressure pipeline. Cumulative production of gas up to FY81 is estimated at about 0.35 trillion cubic feet. Based on the projected consumption up to FY85 (paragraph 29 above), an optimistic consumption growth rate of 15% p.a. thereafter, and a recovery rate of 75% of the gas in place, the reserves are estimated to last for about 33 years, even if no new deposits are found. Given the size of its existing deposits, Bangladesh should initiate action to exploit the potential of 1/ tons of oil equivalent. - 10 - its natural gas as a feedstock for use in the manufacturing of economi- cally viable and exportable products, to meet growing energy demand and as a substitute for more costly imported fuel (paragraph 33). Because of the relatively long gestation period of such projects, it is important to initiate as a matter of urgency the necessary feasibility studies and preparatory work and develop an appropriate investment program. The proposed project would support these efforts through the provision of specialized consultancy services to assist in carrying out preparatory studies aimed at identifying the potential of natural gas/natural gas liquids use for either direct export or for export-oriented chemical product industries. 31. Coal: Coal deposits, estimated at around 700 million tons, exist in the northwestern part of the country. However, the deposits are located underneath water-bearing alluvial strata and at depths which pose difficult and costly production problems, thereby inhibiting their development. There are also some peat deposits in the Faridpur and Khulna districts; however, the individual deposits are small and lie under prime agricultural land, making their mining neither practical nor economic. 32. Hydroelectricity: In spite of the very large river systems (Gan- ges and Brahmaputra) running through the country, Bangladesh's hydroelec- tricity potential is rather modest because of the flat deltaic terrain. At present, 80 MW of capacity is being harnessed at Kaptai, in the southeastern part of the country. A 50 MW unit is expected to be commis- sioned later this year and two additional 50 MW units are planned for 1987, bringing the total capacity at Kaptai to around 230 MW. No further conventional sites appear economically justifiable in view of the lower production costs of alternative generating facilities based on natural gas. Scope for Energy Substitution and Conservation 33. Despite Bangladesh's low level of commercial energy consumption (about 31 kg of oe 1/) per capita, the scope for improving the efficiency of commercial energy use and for substituting imported petroleum fuels with domestic natural gas is substantial, particularly in the industrial and power sectors where the bulk of consumption is concentrated in a relatively small number of facilities. The petroleum refinery, and pulp and paper and steel producers are the largest consumers of petroleum fuel (mostly fuel oil) in industry, accounting for 17%, 31%, and 16% respec- tively, while the fertilizer industry is the largest consumer of natural gas (both as a feedstock and fuel), accounting for 73% of total natural gas usage in industry. Other significant consumers of commercial energy in the industrial sector include the jute and textiles industries, and the tea estates. The three main categories which offer the best potential 1/ Comparative levels for Burma and India are 48 kg and 151 kg oe, respectively. - 11 - for fuel substitution and/or energy savings (i.e., substitution and con- servation) in the industrial sector are: (i) facilities ir and around the Chittagong area currently using fuel oil that will have access to natural gas when the Bakhrabad-Chittagong gas pipeline is completed in the current year; (ii) facilities in and around Dhaka and Sylhet currently using gas where energy conservation investments would be attractive; and (iii) facilities such as the Khulna newsprint plant in the western part of the country where natural gas is not expected to be available for the time being and will thus continue to use fuel oil for some time. Total potenr tial annual savings of energy in the industrial sector are estimated at 239,500 toe; the total potential foreign exchange savings are estimated at around US$35 million annually at March 1983 FOB (Chittagong) fuel oil prices. To initiate the institutional structure to carry out the necessary activities for energy conservation, the Government has recently created an Energy Monitoring Unit (EMU) in the Ministry of Energy and Mineral Resour- ces. The proposed project will provide assistance to strengthen the EMU to carry out energy audits to provide the basis for capturing the potenr- tial energy savings. Sector Organization 34. The responsibility for formulating energy policies and programs in Bangladesh is dispersed over numerous agencies. The Bangladesh Oil and Gas Corporation (Petrobangla), established in 1974, is responsible for exploration, production, transmission and distribution of natural gas, while the Bangladesh Petroleum Corporation (BPC) is responsible for imports of crude oil and refined products, and for the refining and marketing of petroleum products. Both corporations are under the supervi- sion of the Ministry of Energy and Mineral Resources, and act as holding companies within each subsector for various subsidiaries functioning under their respective supervision and control. The Bangladesh Power Develop- ment Board (BPDB) is responsible for generation, transmission, and dis- tribution of electric power, while rural electrification is the respon- sibility of the Rural Electrification Board (REB). Non-commercial fuels come under the responsibilities of various government agencies, including the Ministries of Agriculture, and of Local Government, Rural Development and Cooperatives. 35. During the preparation of its draft Second Five Year Plan (SFYP) in FY81, the Government (GOB) realized the need for integrating its energy planning and policy-making processes. Accordingly, GOB has since taken steps to centralize energy planning by establishing an Energy Study and Planning Cell (ESPC) in the Planning Commission with assistance made available under a UNDP-ADB financed project. Petroleum Refining Stib-Sector Operations 36. At present, Bangladesh-s petroleum fuels requirements are met entirely through imports. Petroleum products are obtained from four different sources: (i) domestic refining of imported crude oil in the Eastern Refinery Limited (ERL) facilities at Chittagong; (ii) processing - 12 - of purchased crude oil in Singapore refineries under contractual arrange- ments; (iii) purchases of petroleum products from spot markets; and (iv) barter trade for petroleum products with the Union of Soviet Socialist Republics (USSR). 37. Bangladesh Petroleum Corporation: BPC is a wholly state-owned corporation established in December 1976 to take over Goverment shares in petroleum companies operating in Bangladesh. Except for planning and controlling activities and the responsibility for off-shore processing of purchased crude and disposal of surplus products from refining opera- tions, BPC performs its functions through its subsidiaries. 38. Management responsibility in BPC is vested in a Govern- ment-appointed Board of Directors which consists of a Chairman and five members. Two of the directors--the Joint Secretary of the Ministry of Energy and Mineral Resources and the Joint Secretary, Ministry of Finance and Planning --are ex-officio. BPC has a staff of 208 comprising: 107 in the secretariat (administration), 29 in operations (commercial, distribu- tion and marketing), 18 in planning and training and 54 in finance. 39. Eastern Refinery Limited (ERL): Currently, about 60% of Bangladesh's petroleum requirements are processed at the ERL refinery in Chittagong. ERL was established in 1966 as a fully-integrated refinery responsible for crude oil procurement and processing, and sale of the refined products. It was originally owned 70% by the Pakistan Industrial Credit and Investment Corporation and 30% by French interests. In 1968, the 30% French interests were purchased by the Burmah Oil Corporation (BOC) of the United Kingdom. Following Bangladesh's independence in 1971, the 70% Pakistani interests were taken over by GOB. GOB's interests were subsequently transferred to BPC in 1976. BOC continues to hold 30% of ERL's equity. The refinery, which has a throughput of 34,000 barrels per stream day (bpsd), or 1.6 million tons per year (tpy), was commissioned in 1968. Since 1979, procurement of crude and sale of the refined products have been transferred to BPC, leaving ERL as a processing refinery only. ERL's revenues from that time have been derived from the fee on crude processed for BPC, and also since FY82, from the operating management fee paid by BPC in respect of a 70,000 tpy bitumen plant it operates on behalf of BPC. 40. Petroleum Product Marketing and Distribution: The distribution and marketing of petroleum products is undertaken by three subsidiary marketing companies of BPC: Burmah Eastern Company, Jammunah Oil Company and Meghna Petroleum Company. The major share of the market (40%) is held by Burmah Eastern; Jammunah Oil has 32%; while Meghna Petroleum controls 28%. Facilities for product distribution throughout the country are reasonably adequate. In addition to the above distributing companies, two special products companies, the Eastern Lubricants Blenders Limited and the Standard Asiatic Company, also subsidiaries of BPC, are engaged in the blending and marketing of lubricants and special products. - 13 - IDA's Role in the Energy Sector 41. IDA has to date assisted GOB in the financing of four projects in the energy sector. Credit 934-BD in an amount of US$28.0 million equiv- alent was approved in June, 1979 to assist in extending the power dis- tribution network in the Greater Khulna area. A second project, Credit 1091-BD (Bakhrabad Gas Development Project) in an amount of US$85.0 million equivalent, to assist in the development of the Bakhrabad gas field and construction of a 110-mile 24-inch pipeline to transmit gas from Bakhrabad to Chittagong, was approved in December 1980. In addition, the Association made two subsequent Credits in FY82, amounting to US$132.0 million, to assist in financing the Ashuganj Thermal Power Project (Credit 1254-BD) and the Rural Electrification Project (Credit 1262-BD). 42. The main objectives of IDA-s assistance in the sector are to support: (i) expanded production, distribution and use of natural gas, particularly for power generation and in industry, to meet growing energy demand and as a substitute for more costly imported fuels; (ii) major improvements in domestic oil refinery facilities; (iii) more efficient use of energy through improved energy conservation measures; and (iv) increases in energy prices to economically efficient levels, particularly for electricity, petroleum fuels and gas; (iv) studies to develop gas-based export-oriented industries; and (v) promotion of further gas/oil exploration through further seismic work. IDA's role in the energy sector is being closely coordinated with those of other donors that are active in the sector. As a follow-up to an energy assessment study carried out in collaboration with the UNDP/ADB in 1981, IDA has been assisting GOB in recent months in the formulation of priority energy investment program for FY83-85. This will complement a longer term energy plan being prepared with technical assistance from the Asian Development Bank. PART IV - THE PROJECT 43. The design of the proposed project is based on the findings and recommendations of the joint IDA/UNDP/ADB energy assessment study carried out in October 1981 (paragraph 42). The proposed project was prepared by the Ministry of Energy and Mineral Resources with the assistance of con- sultants and IDA staff and appraised by an IDA mission that visited Bangladesh in May and October, 1982. A report entitled "Bangladesh -- Staff Appraisal Report -- Energy Efficiency and Refinery Rehabilitation Project" No. 4295-BD, dated April 21, 1983, is being distributed separately. Negotiations were held in Washington in April 1983. The GOB delegation was led by Mr. Shafiul Alam, Additional Secretary, External Resources Division of the Ministry of Finance and Planning. A Supplemen- tary Project Data sheet is attached as Annex III. - 14 - Project Objectives and Description 44. The proposed project would assist GOB in its efforts to: (a) reduce the burden of imported petroleum on Bangladesh's balance of payments through improving the operational efficiency of the oil refinery and initiating a program of energy conservation activities; and (b) carry out pre-investment work as a basis for exploiting the foreign exchange earning potential of the country's substantial natural gas reserves. The proposed project would be implemented over a four-year period (1983/84-1986/87) and would include: (i) Refinery Rehabilitation Component (a) the supply of equipment, materials and engineering services to rehabilitate the refinery, increase capacity utilization, improve the efficiency of its operations and reduce its energy consumption; (b) a techno-economic study to determine further modifications required to ensure that the refinery's yield pattern is kept in balance with the changing long-term demand profile for petroleum fuels in the country; (c) training; and (d) operating and maintenance technical assistance. (ii) BPC Techtical Assistance Component technical assistance to improve the accounting, financial and management information systems of the Bangladesh Petroleum Corporation (BPC), the parent company of ERL; and overseas training of up to eight senior and middle management staff; (iii) Energy Conservation Component technical assistance to identify and prepare programs to improve the efficiency of energy use in the industrial sector; (iv) Gas-Based Projects Feasibility Studies Component studies on gas-based export-oriented investments; and (v) Methonal Research and Development Component research and development studies on the possibilities of using natural gas-derived methanol as an extender of middle distillate petroleum products and for other non-conventional applications. The Refinery Rehabilitation Component 45. ERL's facilities are in an acute state of disrepair due to a run-down in preventive maintenance over several years, the cumulative effect of which has been that the refinery is operating at no more than - 15 - 82% of design capability while its yield pattern is considerably less than optimum. The existing processing configuration does not include any secondary conversion facilities and therefore does not provide flexibility to adust the yield to meet the changiag demand profile for petroleum products. For example, the refinery at present produces a surplus of gasoline, naphtha and fuel oil which have to be exported at depressed prices, while substantial amounts of kerosene and diesel oil have to be imported. In addition, the refinery is inefficient in its consumption of energy. The project would provide for the equipment, materials and related engineering services to carry out repair, replacement and main- tenance of tanks, furnaces, vessels, pumps, compressors, pipes, etc., to restore the refinery's mechanical integrity and increase capacity utiliza- tion by about 15%, reduce refinery fuel consumption and losses, and sub- stitute natural gas for about 36,000 tons of petroleum used by the refinery as processing fuel. 46. The refinery rehabilitation component also includes 138 man-months of consultants services to assist ERL in project implementation, operation and maintenance of the refinery throughout the project implementation period. To improve its longer-term maintenance performance, ERL would submit to IDA by December 31, 1984 for its review and thereafter, imple- ment a five-year maintenance plan (Section 3.04(a)(iii) of the Project Agreement). The project would also provide 320 manr-months of consultants services, including an estimated 295 man-months of specialized consult- ants, to carry out a study to debottleneck the refinery and determine the appropriate secondary conversion capacity required to remove the imbalance between the refinery yield pattern and the country's long-term demand profile for petroleum products. The study is divided into two phases, the first phase covering the techno-economic analysis of the various options for secondary conversion and the second phase covering the basic engineer- ing and tender documents preparation of the option selected. ERL would submit to IDA, GOB and BPC, no later than November 30, 1983, the results of the first phase as well as the recommendations of GOB and BPC (Sec- tion 3.04(a)(i) of Project Agreement). The refinery component also covers training, including 36 man-months of the services of a training manager to upgrade the skills of existing refinery staff and train new staff. As a condition of credit effectiveness, GOB would cause ERL to appoint a train- ing specialist to assist in the design and implementation of a training program (Section 6.01(c) of the DCA). ERL would, by December 31, 1983, submit for the Association's review and implement thereafter its training program, taking into account the Association's comments (Sec- tion 3.04(a)(ii) of the Project Agreement). To ensure that staff trained under the proposed project are discouraged from leaving prematurely, ERL would cause the employees participating in the training program to provide assurances of continued employment with ERL for not less than five years or in case of non-compliance to compensate ERL by paying the training costs incurred by ERL (Section 3.04(b) of the Project Agreement). - 16 - BPC Technical Assistance Component 47. BPC's existing accounting and management information systems are inadequate for effective decision-making. The last set of BPC's financial statements examined by independent auditors is that for FY79. The delays in having its accounts audited reflect the existing weaknesses of BPC's accounting and management information base which need to be addressed. The proposed project would provide (i) 45 man-months of consultant serv- ices to review, in association with BPC-s external auditors, the existing accounting, control and management information systems of BPC and design an improved system; and (ii) training abroad of up to eight BPC senior and middle level management staff in petroleum accounting, planning and management information systems. GOB would, no later than June 30, 1984, cause BPC to submit the results and recommendations of the accounting and management study for review by the Association and implement its recommen- dations thereafter, taking into account the comments of the Association (Section 3.06 of the DCA). Energy Conservation Component 48. The above component would finance (i) 110 marr-months of consultant services to assist the newly-created Energy Monitoring Unit (EMU) to prepare a national energy conservation program as part of GOB's efforts to address the long-term issues of energy demand management; (ii) oversees training of EMU's staff; (iii) development of a library of relevant tech- nical literature on industrial energy conservation; and (iv) mobile energy measuring equipment for use by EMU staff. About 85 man-months of the consultant services would be utilized to carry out energy audits in up to 40 medium to large energy-using enterprises (i.e., enterprises consuming more than 1,000 tons of oil p.a. or 2,500 toe p.a. of natural gas). The remaining man-months will be used in assisting the EMU to organize its internal procedures and in launching the industrial energy conservation program. It is the intention of GOB to package the results of the energy audits into an industrial energy conservation project for possible donor assistance at a later stage. Gas-based Project Feasibility Studies 49. This component would finance 140 manr-months of specialized con- sultant services to carry out a study (a) to identify potential uses of natural gas either for direct export or for chemical product industries for export markets (e.g., gas exports to India, methanol and methanol derivatives, and ammonia-urea fertilizer); (b) assess the investment needed for such projects and evaluate their economic benefits; (c) formu- late a priority investment program based on economic benefits; and (d) recommend an incentive structure for attracting foreign private capi- tal participation into such investments. Phase II of the studies, also covered under the component, will focus on detailed feasibility studies of economically-attractive projects emerging out of the Phase I. - 17 - Methanol Research and Development Component 50. An export-oriented methanol project, based on natural gas, and sponsored by the Davy McKee Corporation of the United Kingdom and a private Bangladeshi investor is currently under consideration by GOB. In addition, GOB is also keen on exploring the possibilities of methanol use, in Bangladesh, as an extender of middle distillates and in other non- conventional applications. Preliminary work in this area has already been carried out at the Chemical Engineering Department of the Bangladesh University of Engineering and Technology (BUET). The research and development component of the proposed project would support a program to continue the above research work over a three-year period. The work to be carried out would include studies of methanol as a blended fuel, the appropriate levels of blend, properties for safe handling, toxicity levels and the potential for methanol use as a domestic and/or industrial fuel. Project Implementation 51. Implementation of the refinery rehabilitation component is expected to be completed by March 1986; the technical assistance program to improve BPC's accounting and management information system is expected to be initiated by September 1983 for completion by March 1985; the energy conservation component is expected to begin in March 1984 and scheduled for completion by September 1985. The detailed feasibility studies of gas-based export-oriented projects would be executed over a 28-month period starting in June 1983; the research and development on methanol use would support on-going research efforts by BUET. 52. ERL will be responsible for the implementation of the refinery rehabilitation component with assistance from local contractors and vendor technicians to install equipment. Implementation of the rehabilitation program is designed to ensure that the refinery can continue to operate during repair/maintenance work; activities requiring a shutdown of the refinery will be scheduled for the 1983 and 1984 planned maintenance shutdown periods. As a condition of credit effectiveness, GOB would cause ERL to appoint a Project Implementation Coordinator with experience and qualifications satisfactory to the Association, to be responsible for the procurement and supervision of the necessary repairs, maintenance and replacement under the project (Section 6.01(c) of the DCA). The BPC accounting and management information systems improvement study would be carried out under the supervision of BPC-s Finance Director. The energy efficiency component would be implemented by the EMU. GOB has already established EMU and would appoint its Managing Director as a condition of credit effectiveness (Section 6.01(d) of the DCA). It will be a condition of disbursement for the portion of the Credit allocated to the energy efficiency component that GOB has: (a) adequately staffed the EMU with persons whose qualifications and experience are satisfactory to the Association; and (b) established an Energy Conservation Coordination Group with membership, functions and powers, satisfactory to the Association (Section 3.07(a)(i) and (ii) and Schedule I, paragraph 4(b) of the DCA). - 18 - GOB also would cause each of the concerned public sector corporations and major energy-consuming industries to be assisted under the energy efficiency component, to designate an energy coordinator at the corporate level and an energy manager for each plant, to be responsible for their respective units- energy conservation/diversification activities (Section 3.07(b) of the DCA). The gas-based projects feasibility studies would be carried out by the Chemical Industries Section of the Planning Division of the Ministry of Finance and Planning with the assistance of consultants. GOB would submit the results of Phase I of the gas-based projects feasibility studies for the Association's review and comments before commencing any detailed feasibility study under Phase II (Section 3.05 of the DCA). The Bangladesh University of Engineering and Technology (BUET) would carry out its research program on methanol in collaboration with an experienced foreign research institution. It will be a condition of disbursement for the portion of the proposed Credit allocated to the research and development component that BUET has made arrangements, satis- factory to the Association, for collaboration with an experienced foreign research institution to assure itself of peer review of its work (Section 3.08 (a) and (b) and Schedule I, paragraph 4(c) of the DCA). Monitoring and Reporting 53. Each of the above executing agencies (ERL, BPC, EMU, Planning Division of the Ministry of Finance and Planning, and BUET) will be required to keep separate records and accounts on their respective com- ponents. GOB would cause the Ministry of Energy and Mineral Resources to prepare quarterly progress reports covering all aspects of the proposed project, based on a review of the activities under each component, for submission to and exchange of views with the Association (Section 3.04(c) of the DCA). Project Costs and Financing 54. Total project costs, including physical and price contingencies, are estimated at US$36.0 million equivalent, net of duties and taxes, of which US$27.4 million equivalent is in foreign exchange. Physical contin- gencies were calculated at 10% of base cost estimate for the refinery rehabilitation component and 15% for all the other components. Price contingencies were calculated on the basis of expected increases in inter- national prices, in dollar terms, of 8% in 1983, 7.5% in 1984, 7% in 1985 and 6% in 1986. These rates were applied on both foreign and local costs, on the assumption that the difference between international and domestic inflation rates will be accounted for in the foreign exchange rate adjust- ments undertaken by GOB periodically. Costs of consultants have been estimated at US$14,000 per man-month, on average, in foreign exchange to cover salaries, overhead, fixed fees and international travel expenses; and at US$1,800 per man-month in local currency to cover living allowan- ces, support staff and other local expenditures. 55. The proposed IDA credit of SDR 26.5 million (US$28.5 million equivalent) would finance 100% of the foreign exchange cost plus 13% of - 19 - local costs or 79% of total project costs. ER1 would finance the balance of local costs. To ensure prompt provision of budgetary funds and the hiring of project staff, approval of the Project Proforma 1/ by the Bor- rower would be a condition of credit effectiveness (Section 6.01(b) of the DCA). On-lending Terms 56. GOB would onlend US$21.4 million of the proposed credit to ERL at an interest rate of 14% per annum. The repayment period would be 12 years, including 4 years of grace. ERL would bear the foreign exchange risk. The execution of a subsidiary loan agreement between GOB and ERL, satisfactory to the Association, would be a condition of effectiveness of the proposed credit (Section 6.01(a) of the DCA). The portion (US$6.12 million) of the proposed Credit to be used for the energy conservation, the gas-based projects feasibility studies and the research and develop- ment components would be retained by GOB for those components. The por- tion (US$0.98 million) of the proposed credit allocated for the BPC tech- nical assistance component will be passed on as a grant. Procurement 57. Equipment financed under the IDA credit will be procured by inter- national competitive bidding (ICB) in accordance with IDA guidelines except for (i) up to US$2.2 million in equipment proprietary to process design or requiring compatibility with existing units which will be procured from single source by negotiation; and (ii) up to US$1.7 million for items costing less than US$80,000 which will be procured through limited international bidding, on the basis of at least three price quota- tions from suppliers outside Bangladesh. Consultants services will be hired in accordance with IDA guidelines. Disbursements 58. Disbursements will cover (i) 100% of the foreign costs and 100% of local ex factory costs of equipment for repairs, maintenance and replace- ment; and (ii) 100% of the foreign costs of overseas training; and (iii) 100% of the costs of technical assistance/consultants services for super- vision and various studies. All withdrawal applications will be fully documented. 59. The estimated disbursements of the IDA credit take into account the Bank Group's experience on projects reflecting the characteristics of the individual components and disbursement experience in Bangladesh, in particular. The proposed Credit is expected to be completely disbursed by the first quarter of calendar 1987. 1/ An internal GOB document, the approval of which is a prerequisite for the release of funds and the hiring of staff. - 20 - ERL's Finances 60. ERL's financial performance has been generally satisfactory except for the debt/equity ratio which stood at 72:25 as of June 30, 1982. Nearly 60% of ERL's long-term outstanding debt relates to debts (amounting to about US$5.4 million at the current exchange rate) contracted before the creation of Bangladesh and whose servicing were frozen by GOB after 1971. The bulk of this debt (around $4.1 million equivalent) is due to ENSA (France) for the construction of the refinery. A major factor accounting for the delay in reaching a satisfactory resolution of this issue is that GOB has still to agree on the appropriate agency that will be liable for payment of the debt, since ERL is no longer an integrated refinery and does not have any earning potential from the substantial added value of the refined products. GOB would, no later than June 30, 1984, provide an appropriate disposition of ERL's long-term debt incurred before November 1971 in a manner that will not adversely affect the finan- cial situation of ERL (Section 4.03 of the DCA). 61. The rehabilitation of the refinery will have a positive effect on ERL-s financial situation. Net income after taxes is estimated to increase from Taka 27.3 million in FY84 to Taka 51.7 million in FY87, while internal cash generation is projected to increase from Taka 77 million to Taka 194.7 million over the same period. The financial rate of return in real terms on the rehabilitation component is calculated at 17%. 62. GOB would cause ERL to follow prudent financial practices in its operations and meet the following requirements: (i) maintain a debt/equity ratio of no greater than 65:35 after FY87; (ii) maintain a current ratio of at least 1.5:1; (iii) not to incur any additional debt during the project implementation period and thereafter in any fiscal year, if by so doing the projected debt service coverage will fall below 1.5; and (iv) not make any investments in fixed assets (other than the refinery rehabilitation component under the proposed project and for maintenance purposes) during the project implementation period in excess of US$5.0 million equivalent, without the prior approval of the Associa- tion (Section 4.03(a)(i)-(v) of the Project Agreement). ERL would insure its refinery facilities against such risks and in such amounts, satisfac- tory to the Association (Section 3.03 of the Project Agreement). Audit Reqtirements 63. GOB would cause BPC to forward its audited financial statements for FY80, FY81 and FY82 to the Association for its review, no later than December 31, 1983 (Section 4.01(d) of the DCA). Thereafter, GOB would cause BPC and ERL to have their accounts and financial statements audited annually by external auditors, satisfactory to the Association, and for- ward such audited statements to the Association for its review, no later than six months after the end of each fiscal year (Section 4.01(c) of the DCA and Section 4.02(a), (b), and (c) of the Project Agreement). - 21 - Petroleum Product Prices 64. GOB's pricing policy with regard to petroleum products is based on the principle of periodic adjustments to recover increases in procurement, processing and distribution costs. The most recent adjustment was on July 1, 1982, when prices were increased by 41% on a weighted average basis. The current ex-refinery price levels are at or above import parity equivalent prices. Retail prices are also satisfactory. While the Government is committed to the principle of periodic price adjustments to recover the full cost of petroleum products, delays in the implementation of this pricing policy have been evident in the past. GOB would review and make adjustments, at least once each year, to the ex-refinery and retail prices of petroleum products to such extent as may be required to ensure that sufficient revenues are generated by BPC in each fiscal year to cover the full cost of the petroleum procurement, processing and han- dling (Section 4.02 of the DCA). Project Benefits and Justification 65. The quantifiable benefits from the proposed project relate primarily to the refinery rehabilitation component and are two-fold: (a) additional production of about 267,000 tons per year of refined petroleum products which would otherwise have had to be imported; and (b) replacement of about 36,000 tons per year of imported fuel oil by domestic natural gas in refinery processing operations. These benefits are expected to result in an annual reduction of Bangladesh-s oil import bill ranging from about US$19 million in FY86 to US$26 million by 1995. The economic rate of return for the refinery rehabilitation component is estimated at around 68%. The economic analysis took into account only the refinery rehabilitation investments, the associated incremental operating costs after rehabilitation and the incremental benefits from increased yields and energy savings. In addition to these benefits, the proposed project would assist in improving the management and operations of BPC. Additional benefits that are expected to accrue from proposed project components are as follows: the techno-economic study is expected to result in a modification of ERL-s refinery and further reduce the cost of imported petroleum to Bangladesh; the energy audits which are expected to lead to an energy conservation project the economic benefits of which are expected to be high; and the gas-based projects feasibility studies which are expected to identify areas through which Bangladesh could exploit the foreign exchange potential of its abundant natural gas resources. Risks 66. The main project risks are those deriving from the integrated nature of the package of investments, technical assistance, studies and institution- building included in the proposed project. The proposed project involves several institutions and a number of components. A key factor for its success will be effective coordination. In this regard, the appointment of a Project Implementation Coordinator in ERL, an Energy Coordination Conservation Group and energy coordinators in plants - 22 - participating in the energy conservation program (paragraph 52) should provide satisfactory safeguards. Nevertheless, taking into account the innovative feature of the energy efficiency component and the weak institutional capacity of ERL and BPC, a substantial effort in monitoring and supervision on the part of IDA staff will be required and is planned for. From a national standpoint, the proposed project entails limited risks than most other projects in Bangladesh involving significant capital outlays and expansion of productive capacity. PART V - LEGAL INSTRUMENTS AND AUTHORITY 67. The draft Development Credit Agreement between the People's Republic of Bangladesh and the Association, the draft Project Agreement between the Association and the ERL and the Recommendation of the Commit- tee provided for in Article V, Section l(d) of the Articles of Agreement are being distributed to the Executive Directors separately. 68. Special conditions of the project are listed in Section III of Annex III. Additional conditions of effectiveness of the proposed credit include: (i) the execution of a satisfactory Subsidiary Loan Agreement between the borrower and ERL (paragraph 56); (ii) the approval of the Project Proforma by the borrower (paragraph 55); (iii) the appointment of a training manager by ERL (paragraph 46); (iv) the appointment of a Project Implementation Coordinator by ERL (paragraph 52); and (v) the appointment of EMUNs Managing Director by GOB (paragraph 52). It would be a condition of disbursement of the proposed credit allocated for: (a) the energy efficiency component, that GOB has adequately staffed the Energy Monitoring Unit and formed the Energy Conservation Coordination Group in a manner, satisfactory to the Association (paragraph 52); and (b) the research and development component, that the Bangladesh University of Engineering and Technology has entered into an arrangement, satisfactory to the Association, for collaboration with an experienced foreign research institution (paragraph 52). 69. I am satisfied that the proposed credit would comply with the Articles of Agreement of the Association. PART VI - RECOMMENDATION 70. I recommend that the Executive Directors approve the proposed credit. A. W. Clausen President April 21, 1983 By E. Stern Washington, D. C. -23- Annex I TABLE 3A Page 1 BANGLADESH - SOCIAL INDICATORS DATA SHEET BANGLADESH REFERENCE GROUPS (WEIGHTED AV>RAGES AREA (THOUSAND SQ. KM.) - MOST RECENT ESTIMATE)- TOTAL 144.0 MOST RECENT LOW INCOME MIDDLE INCOME AGRICULTURAL 97.3 1960 /b 1970 /b ESTIMATE /b ASIA & PACIFIC ASIA & PACIFIC GNP PER CAPITA (US$) 40.0 70.0 130.0 261.4 890.1 ENERGY CONSUMPTION PER CAPITA (KILOGRAMS OF COAL EQUIVALENT) .. 24.9 39.7 448.7 701.7 POPULATION AND VITAL STATISTICS POPULATION, MID-YEAR (THOUSANDS) 53491.0 68117.0 88513.0 URBAN POPULATION (PERCENT OF TOTAL) 5.1 7.6 11.0 17.3 32.4 POPULATION PROJECTIONS POPULATION IN YEAR 2000 (MILLIONS) 141.0 STATIONARY POPULATION (MILLIONS) 321.3 YEAR STATIONARY POPULATION IS REACHED 2125 POPIULATION DENSITY PER SQ. KM. 371.5 473.0 600.7 158.1 255.9 PER SQ. 101. AGRICULTURAL LAND 561.9 703.0 889.0 355.9 1748.0 POPULATION AGE STRUCTURE (PERCENT) 0-14 YRS. 44.3 46.3 42.8 36.8 39.9 15-64 YRS. 52.5 51.0 54.6 59.7 56.8 65 YRS. AND ABOVE 3.2 2.7 2.6 3.5 3.3 POPULATION GROWTH RATE (PERCENT) TOTAL 1.9 2.4 2.6 2.0 2.3 URBAN 3.6 6.3 6.5 3.3 3.9 CRUDE BIRTH RATE (PER THOUSAND) 53.5 49.2 45.3 29.3 31.8 CRUDE DEATH RATE (PER THOUSAND) 28.1 22.7 18.2 11.0 9.8 GROSS REPRODUCTION RATE 3.6 3.4 2.9 2.0 2.0 FAMILY PLANNING ACCEPTORS, ANNUAL (THOUSANDS) .. 373.0 1607.0 USERS (PERCENT OF MARRIED WOMEN) .. .. 8.9/c 19.3 36.3 FOOD AND NUTRITION INDEX OF FOOD PRODUCTION PER CAPITA (1969-71-100) 106.0 101.0 97.0 108.1 115.6 PER CAPITA SUPPLY OF CALORIES (PERCENT OF REQUIREMENTS) 87.3 84.7 .. 97.3 106.4 PROTEINS (GRAMS PER DAY) 43.9 42.7 .. 56.9 54.4 OF WHICH ANIMAL AND PULSE 9.1 8.7 .. 20.0 13.9 CHILD (AGES 1-4) MORTALITY RATE 24.8 23.0 20.0 10.9 6.7 HEALTH LIFE EXPECTANCY AT BIRTH (YEARS) 37.3 41.6 46.3 57.8 59.8 INFANT MORTALITY RATE (PER THOUSAND) 159.0 150.3 136.1 89.1 63.7 ACCESS TO SAFE WATER (PERCENT OF POPULATION) TOTAL .. 45.0 53.O/d 32.9 32.0 URBAN .. 13.0 15.0/7 70.7 51.9 RURAL .. 47.0 55.0/1i 22.2 20.5 ACCESS TO EXCRETA DISPOSAL (PERCENT OF POPULATION) TOTAL .. 6.0 5.0/e 18.1 37.7 URBAN .. .. 40.0/ie 72.7 65.7 RURAL .. .. .. 4.7 24.0 POPULATION PER PH1SICIAN .. 8427.2/f 12691.9/c 3297.8 8540.4 POPULATION PER NURSING PERSON .. 76808.3 40489.7/i 4929.3 4829.4 POPULATION PER HOSPITAL BED TOTAL .. 702l.5/j 4499.3/c 1100.4 1047.5 URBAN .. BIB.S/j 627.4/c 301.3 651.6 RURAL .. .. 23362.4/c 5815.7 2597.6 ADMISSIONS PER HOSPITAL BED .. .. .. .. 27.0 HOUSING AVERAGE SIZE OF HOUSEHOLD TOTAL .. 5.9/h 5.8 URBAN . 6.17ih 6.1 RURAL .. 5.97i 5.8 AVERAGE NUMBER OF PERSONS PER ROOM TOTAL .. .. URBAN .. .. RURAL .. .. ACCESS TO ELECTRICITY (PERCENT OF DWELLINGS) TOTAL .. .. 3.5 URBAN .. .. .. RURAL .. .. .. -24- Annex I TABLE 3A BANOLADZH-- 6SCIAL INDICATORS DATA SHEET LANGLADESH REPERENCE GROUPS (WEIGHTED AVEPGES O CEO - MOST RECENT ISTMAT- MOST RCZCNS LW "INCOM MIDDLS INCOME 1960 /b 1970 Lb ESTIMATE Lb AiXA 6 PACIFIC ASIA 6 PACIFIC EDUCATION ADJUSTED ENROLLMENT RATIOS PRIMARY: TOTAL 47.0 52.0 65.0 97.4 96.2 MALE 66.0 68.0 79.0 101.0 99.8 FEMALE 26.0 34.0 49.0 87.8 92.1 SECONDARY: TOTAL 8.0 19.0 25.0 53.0 37.6 MALE 14.0 29.0 38.0 63.8 41.1 FEMALE 1.0 8.0 11.0 41.3 34.1 VOCATIONAL ENROL. (1 OF SECONDARY) 1.0 0.8 0.7 1.7 20.8 PUPIL-TEACBER RATIO PRIMARY 45.1 43.8 37.7 35.5 SECONDARY ,, 26.4 24.9 20.2 25.0 ADULT LITERACY RATE (PERCENT) 21.6 23.0/h 26.0/c 52.1 73.1 CONSUMPTION PASSENGER CARS PER THOUSAND POPULATION 0.4 0.4 1.5 9.8 RADIO RECEIVERS PER THOUSAND POPULATION 6.0 8.2 35.4 116.5 TV RECEIVERS PER THOUSAND POPULATION 0.5 3.2 37.6 NEWSPAPER (-DAILY GENERAL INTEREST") CIRCULATION PER THOUSAND POPULATION 4.7 16.4 53.7 CINEMA ANNUAL ATTENDANCE PER CAPITA 3.6 2.8 LABOR FORCE TOTAL LABOR FORCE (TEOUSANDS) 19251.6 23611.0 31477.4 FEMALE (PERCENT) 15.2 16.6 17.5 29.5 33.6 AGRICULTURE (PERCENT) 87.0 86.0 74.0 70.0 52.2 INDUSTRY (PERCENT) 3.0 3.0 11.0 15.0 17.9 PARTICIPATION RATE (PERCENT) TOTAL 36.0 34.7 35.6 40.0 38.5 MALE 58.7 55.9 56.9 51.8 50.5 FZMALE 11.4 11.9 12.9 23.8 26.6 ECONOMIC DEPENDENCY RATIO 1.3 1.4 1.3 1.0 1.1 INCOME DISTRIBUTION PERCENT OF PRIVATE INCOME RECEIVED BY HIGHEST 5 PERCENT OF HOUSEHOLDS 18.3/i 14.6/k HIGHEST 20 PERCENT OF HOUSEHOLDS 44.57! 44 1I/ 42.2/% LOWEST 20 PERCENT OF HOUSEHOLDS 6. 97I 8.773 6.97, LOWEST 40 PERCENT OF BOUSEHOLDS 17S97 19. 63 18.27k POVERTY TARGET GROUPS ESTIMATED ABSOLUTE POVERTY LNCOME LEVEL (US$ PER CAPITA) URBAN 139.0/c 133.8 194.7 RURAL 111.0/c 111.1 155.1 EST LIATED RELATIVE POVERTY INCOME LEVEL (USs PER CAPITA) URBAN 178.2 RURAL 164.9 ESTIMATED POPULATION BELOW ABSOLUTE POVERTY INCOME LEVEL (PERCENT) URBAN 86.0/c 43.8 24.4 RURAL . 86.0/ig 51.7 41.1 Not available Not applicable. NOTES la The group averages for each indicator are populationveighted arithmetic means. Coverage of countries among the indicators depends on availability of data and is not uniform. /b Unless othervise noted, data for 1960 refer to any year betwden 1959 and 1961; for 1970, between 1969 and 1971; and for Most Recent Estimate, between 1978 and 1980. /c 1977; /d 1976; /e 1975; /f Registered, not all practicing in the country; /j 1972; /h 1973; /i 1964; /J 1967, Lk 19747. May 1982 -25- Anns. I Notes oihotch he ..t oP tne re nrn ~oiilo ]td teseratdritn -tIrliable, it should also be tetd iliac thy cy not be inter- ratonll ocysuna acoeo te oo f etot'eldd hiftittot and .ontepis osena by dIff--et cowete Io coilotIng tm dais. lTM data III-055 toniesa, uaehol no leecrlbo tedero of segnitode, indicateL it-de, sod Trctresrreeejor difhe-nnt..s betne etie flee reftrerce gec-pe r I eh aecttyiro.p of ttta clt] o-t c-1ty seaoi .o.outry group pith so-shee hicte- gtm. Ltoese th-sn testy froo tatlocoltcal .cf lltiesI. I the.eoe grop losbt- isee at_ooseietlgbtd eretneo eeefa ec "aditttadeonol l 00-foty oh the.aten iat pcodtafretlfIctror SI-c the ce-if o cttte sn the otc-to- depends on ho -nilabulliv of data se nrnstlc.csitetc oeeoea trl e ata...e.. of et bodi--iottoniother. l. -be ....a.e at. only se-lo in cop-rteg its -aS o .tlr,i ottotanats opts.) Populaiot Per deepitalitol - toe. ohat adrural- Pntaintecial Ictsi- otl orot sn -cW-etIg land te and led ..e..a idyar. .ad rural) dIvidd by thei eptistee 1heceibo E.rtlnri -bsiob of fIct -opa -te seed rnspotstily op psrnentnty stoioi o p"i"t sad pli-et is--a and spoolsliesd hesp..elanre hen crop.. Pa..te . "a ova iertoe ic-dst e to !le failso; 1979 dat.- hableeteonss epel r aalteecpyastly taffed GNP PEd coIAl (,IS$) GNOlP pe -a ia n ae o otn sea rra -La-doll are settinclded. tuolhe-I aa t -ec. iaoia'dn health c.tored In,, oce ncorcio eanhod 00 od isd ton jl-O hse -I, n endirol c...e. -rot p- -1ety stffed by a fpbyelioi (heby 1970, _et ,0d 191oas odel essat ese,sdie tc.l hliob llo it-paitntatt_ n ,.dd p~~~~~~~~~~~~~~~~~~ain o rtd alntdrnc fsdtl,.. ftIties IaIssO L!o t-t rs cloaa-I o aia dd.9,7, Itoo IS9P cntoe.prle ea oPitl ectolded only so. de "eeaI Iro heitale -ioldd bythtoe ofad. PCPILII1-_ 17t.li1l.L STATlhTlCh PotalPeesto M is-Yea- lacsse . s 5July L. 9IhI, 1970. sod Ad FhAbINi data h,t ..e h bseol oesn e h ,seed - oal,rse n ttl Mrla ..us t I Ijrrc -1eftosl -- -a oo ta ottlpplto bsaod ossss ri hlftdaeu hr i-tie dqeaeIe p ~eeng ,,oottrtou t idhI. 1910, sod 1930 sate_h nsbl yetiaio epsc .....t..A YnterJil- lrr popular to p-e]ootiine or bateda 1919 btr ofPi eo Ie rest slErlise, sod tota attpio satetns toa ooottof5tsdaoad ie - oetlly. cod forth ity roe.deelse spoetioay. Deslilecs sealude o-.Pee.coe s ters n Pnolotetoepanancterelee e .talty 1tot _eo_rico oh - eltsIo sss tcc d pats. toZ Ib epetoc 'tbleoIn- doo airthosey pe -cp- Intr Aoest ietrct lpotEtn soanellens"I Itetil. arba, aed fetal -to .ad -emIth etir. booty taiim a 77.15ess Ihe par- Canretinl..I d-iellfsetl lttitn eIloin ps- -ec f-es o lr-il ity rein also hen thre lenels aseu donts Io oh totl, urban an...d -ute doaIllIeeet-seattio y. f-tItIt_ty tod tg na in-s Ieon end pc felily PIseie- prf. ette -ah otney is t~hen aisi d or ec these. o c tesisof -"taity EDUCATION th ih oeceqa ntedah oe n lotras_rcooe etole toh al ae s-- -thepieae lon- en ...e..cs of reeeeti- In the obey 100, an htt rate of endLo of he-tlie Yet ho. ....PIoon- Secordary terl-toal tale aed fen1l - Cownitad as shee; s"I'dor hornnnl l-o-eoito ta reachea - lbs fet oin nrtsaypopolseion p_oodsc sese . ca eti.or h-e tr aingineoo sle enl et1 -e -oah-a ctlly oh 12 to 17 jea- of ......spoeda-n-a .. ...es eo -eeeelly Pert0 ,e gnoior .od C--Ieed soalen lef- elolarl ad trily o es dptietof ceotst inetinthne. celet IhO. 191 and 171 den. ~eti-sscbeecarte peter,l ad es-od-r - Total -sd-nt nneilod he Potu....s io nEct-r (Percent - Child-e If-l4 .e.e....t. e-oe li- eri-oy sod -eAdet I.-Iic dinided by t-bl-r of reaher te 'h- hiyss.st eie415yacsd oer o atei - Of eid-yna- pops- soc..e.pendit le-l.. lto;Ad 19ff.ad19f dn. Adlt litetc _tet ip- ....t) - l.it--esdil1 (blue no reed sod ind FPoplato Iy-Th tscc (peret _ toe- O .oeoa greeth Iep f -sel ldd- saP.....utagao ef aldet peptisto aced 15 yeaee sdoer year tr.. -ie fo I951-h. "907, sr 9ff-do foesu-tlo rCo-th R,t Jeer-tet)- stro - -aes eeh roo iobeo fpsp- OCLVTIIbipi .950ofo lh-60, 196f-' . ed 97-if P...peacete Ceti lOst tht-d toenithon P - P..... te cotisae Crd R-eedt (toe c--nod) -dnoiIleotb per ro-se oet-ar idta s-eill lace thee eicht proaneiossairs,hc-.n. s-d py.to;19~0. 1970. n-o ItfI lon.- siltar enitee loco heth otetee ortoai I- nonseL eat's Pee eh..os.d of shey-no Pot2esene(o hoen ulati-ni - Aflltye f1teene o tasi ocplaio; lAid, lyfI.ad 9dl -as-ood-ae-t asnri' puuir pa, pbuad ofPouai; noltodI itone teRodi, haehoes seto d_o R`rIaone aill blne to 1 .r....rerI--tc Inesehsadi artso elesinofrm oil Iy tote; ooallrfle-rea -tnafe endin be19b 19. and 19f.- sot._ Icoo teltf-ia...ied I iteesien facile Plseoop-icce -ecr .-Inoa (tootsotfc) i - Ifete 0 cols of actator 770heoies(nr hoad toe....nien.S 1 eeieefr r een lasse Pltotos-Lnes (eece-s e-sralnoose) - Penretag- of -ee --e "In tostie n inened ofpen teietrati- of E- s bn eon he-ofot. Eee ef ihid-1f -tog be 1'daily" if i apear snh. .-Iourtin a sed FWD ei nrn eeasepteeesANDdlI. 99 sd11 aets. ONtotal labo ropes Iftncreoe-a - - oa - eeii anie peses. httl pet eeit supro elre rore ftdoteen -isetd fresed fotesa and sot-p.oeddbutaedidie ho-notes,oto-et.ec. qnsn.itlnn sed i f. prso-eco-eg cod. Itne .!he. ItiL.etto d. feeia-AeOrttitaE Iereh-ietbe steig ottp unn ,tte _Itens P,e by. 25 based ongt 19ysioioir0i o de e total actt- fishe so pt -estsd o toa laeefrt;IO- 11 ed9lfas hoo- hedy A-len l; 1911-9 . 1970aed197 dat.",19-6-.-19flso 19ff, dots. 90 l~ pols ponib,of.ii lt Idf re oboold h conlP.- sto . ltse tee-rfone g-esecuso h eost n Ion 0iZ -s e. a onisel pronhe as enennags le the nopi, preptee by pac i ti -hird R_nso esdne ai --Iie ..ppclte . edfe=e 15 sed hi sod oP tyte on detod re lf naie;1f,97ad1ff data, of_ holttedha9 ds. l' oh-90ld FM hat`o-ard1lIce irs s 1910,d 19770. so-9f os h.soob peen ner ee.sthntt.1orltlseht iie Chrrdnteg-c ofoetreonie ouatos lo so dsttao are ape bit pe goto moos of its cett . Mran _coo i -ete -It- bytsrua foinreteseen sodeoct lotete d.nr. ee tree _lfO- nee.. ftehosoy_elniatafueneheeolo oso Iloho he...nandreos...4 AttesH tolotr.Osecl ntre of toeslTthn -fttl u.tba.aIPee Y- PonobtIIsto thyn. ..... Pplationdnie bPti fpecieo p..--Y- eston. end tona fete d hietai.,. eln olftd Indet e.a.doe satb GO'fnl it aetnh..ity.onnh- t -otos f nelyiet se ....ntt ..... see Poeloisspe fiiehenPeeen- opeston tednahrettne ofprtti teIfy 96 sei an feel frdnas noss. oottI. tres.lplctis n-eeooo tutshngeesliistlehn.c h fh-hld d .. I 29 .r Annex 1 Page 4 BANGLADESH ECONOMIC INDICATORS Population: 91.5 million (January 1982) GNP Per Capita: US$120 (FY81) Amount Average Annual Increase (X) Share of GDP at Market Prices (7) (million US$ (in constant FY75 prices) (in current prices) in current prices) Indicator FY81 FY60-70 FY70-75 FY75-81 FY60 FY70 FY75 FY81 NATIONAL ACCOUNTS Gross domestic product /a 11,989 4.0 -0.6 6.0 100.0 100.0 100.0 100.0 Agriculture /a 6,423 3.1 -1.3 4.3 59.9 56.9 62.5 53.6 Industry /a 1,680 7.9 -3.2 6.0 7.7 9.6 11.3 14.0 Services 7a 3,887 4.9 3.3 8.8 30.1 30.0 26.2 32.4 Consumption 11,701 4.4 -0.7 5.7 92.4 92.8 99.1 97.6 Gross domestic investment 2,064 10.9 -10.9 20.2 6.9 11.3 8.1 17.2 Exports of goods & nfs 859 0.8 -11.7 5.7 10.0 8.3 3.2 7.2 Imports of goods & nfs 2,635 8.8 -12.0 3.6 9.3 12.5 10.4 22.0 Gross national savings 639 26.5 -17.7 -8.4 0.9 6.1 1.0 5.3 Amount Composition of Merchandise Trade (Z) (million US$ (in current prices) in current prices) FY81 FY73 FY75 FY80 FY81 MERCHANDISE TRADE Merchandise exports 710.8 100.0 100.0 100.0 100.0 Primary /b 165.2 40.4 29.6 24.3 23.2 Manufactures 545.6 59.6 70.4 75.7 76.8 Merchandise imports 2,524.0 100.0 100.0 100.0 100.0 Food 342.4 44.1 41.5 29.1 13.6 Petroleum 490.1 3.2 11.1 15.7 19.4 Machinery & equipment 580.0 13.8 9.6 20.0 23.0 Other 1,111.5 38.9 37.8 35.1 44.0 FY74 FY75 FY76 FY77 FY78 FY79 FY80 FY81 PRICE AND TERMS OF TRADE INDICES (1972/73=100) GDP Deflator 140.6 240.5 183.1 177.2 203.6 216.8 249.2 264.0 Exchange rate (Tk/US$) 7.9661 8.8759 14.8521 15.4667 15.1215 15.2228 15.4777 16.3447 Export price index 103.7 123.5 107.1 111.8 127.7 167.5 200.9 178.6 Import price index 152.8 194.8 186.2 183.1 179.4 218.0 250.3 283.9 Terms of trade index 67.9 63.4 57.5 61.1 71.2 76.8 80.3 62.9 As % of GDP (at current prices) FY73 FY75 FY77 FYSO FY81 PUBLIC FINANCE Current revenue 5.0 5.4 9.5 10.6 12.0 Current expenditure 6.5 4.5 7.8 7.8 7.6 Current surplus (+) or deficit (-) -1.5 +0.9 +1.7 + 2.8 + 4.4 "apital expenditure 8.8 3.1 9.5 13.5 12.1 Foreign financing 7.1 2.4 6.0 8.3 7.7 FY60-70 FY70-75 FY75-80 FY80-81 OTHER INDICATORS GNP growth rate (%) 4.2 -0.7 5.8 7.9 GNP per capita growth rate (%) 1.5 -3.3 3.0 5.2 Energy consumption growth rate (%) = not available = not applicable /a At market prices. Th Raw jute, tea and (in FY81 only) rice. ASADD April 15, 1982 -277- Annex I Page 5 BANGLADESH BALANCE OF PAYMENTS, EXTERNAL CAPITAL AND DEBT (million US$, in current prices) BALANCE OF PAYMENTS Actual Projected FY74 FY75 FY76 FY77 FY78 FY79 FY80 FY81 FY82 FY83 Net exports of goods -551 -1,050 -885 -454 -859 -946 -1,645 -1,813 -1,780 -1,938 Exports of goods 374 352 381 411 490 610 727 711 640 732 Imports of goods -925 1,402 -1,266 -865 -1,349 -1,556 -2,372 -2,524 -2,420 -2,670 Net exports of services -21 12 -24 -29 -32 -27 3 11 -70 -120 Workers- remittances 19 34 62 81 113 143 210 377 400 450 Current account balance -553 -1,004 -847 -402 -778 -830 -1,432 -1,425 -1,450 -1,608 ' Direct private investment .. MLT loans (net) 276 498 498 238 398 420 581 481 501 Grants & grant-like flows 174 382 245 265 393 553 591 616 650 -1,608 Other capital flows (net) 45 275 52 -20 -38 -19 141 304 199 * Change in reserves (- = increase) 58 -151 53 -81 25 -124 119 24 100 - International reserves (end of period) 115 266 213 294 269 393 274 250 150 150 Reserves as months of imports of next year 0.98 2.52 2.95 2.62 2.07 1.99 1.30 1.24 0.67 0.63 Actual FY74 FY75 FY76 FY77 FY78 FY79 FY80 FY81 GROSS DISBURSEMENTS Official grants 173.8 382.3 244.7 264.8 392.6 553.2 590.8 616.4 Gross disbursements of MLT loans 287.4 518.9 563.5 268.3 435.3 476.8 631.4 531.0 Concessional 201.4 458.4 533.0 244.1 400.8 456.4 601.6 509.6 Bilateral 150.4 342.8 389.9 144.0 261.9 212.6 272.7 255.2 IDA 51.0 112.5 127.8 86.1 88.2 152.5 152.1 170.9 Other multilateral - 3.1 15.3 14.1 50.7 91.3 176.9 83.4 Non-concessional 86.0 60.4 30.4 24.1 34.5 20.4 29.8 21.4 Official export credits 40.6 45.2 16.5 5.6 1.7 3.3 16.8 2.0 IBRD Other multilateral 5.4 0.3 1.1 0.5 0.5 0.1 0.3 0.8 Private 40.0 14.9 12.8 18.0 32.3 17.0 12.7 18.6 EXTERNAL DEBT Debt outstanding and disbursed (end of period) 492.8 1,352.6 1,795.9 2,051.5 2,569.2 2,949.2 3,215.6 3,584.8 Official 383.3 1,232.8 1,689.0 1,939.8 2,435.6 2,808.3 3,068.8 3,462.1 IBRD - 54.9 54.9 54.9 54.9 54.9 54.9 54.9 IDA 105.6 255.3 379.8 465.9 554.2 706.7 858.8 1,028.5 Other 222.8 922.6 1,254.3 1,419.0 1,826.5 2,046.7 2,155.1 2,378.7 Private 109.5 119.8 106.9 111.6 133.6 140.9 146.8 122.7 Undisbursed Debt 580.8 1,019.4 947.5 1,015.8 1,335.4 1,659.1 1,716.7 2,068.4 DEBT SERVICE Total debt service payments 18.0 31.3 87.4 58.5 69.2 95.1 93.7 92.0 Interest 7.3 10.1 21.9 28.4 32.1 38.1 43.3 42.0 Payments as % of export earnings 4.8 8.9 22.9 14.2 14.1 15.6 12.9 12.9 Payments as % of GNP 0.2 0.2 1.2 0.9 0.8 1.0 0.8 0.7 Average interest rate on new loans (Z) 3.2 2.0 1.7 1.6 1.5 1.4 1.4 1.6 Official 2.9 2.0 1.6 1.5 1.3 1.4 1.2 1.5 Private 5.1 2.3 7.8 6.4 6.2 6.1 6.9 7.2 Average maturity of new loans (years) 26.1 35.5 41.6 40.1 37.7 35.9 33.6 35.9 Official 28.3 35.8 42.2 40.8 38.6 36.3 34.2 36.2 Private 13.3 15.3 11.3 11.0 9.5 14.8 19.3 18.5 BANK GROUP EXPOSURE (%) IBRD DOD/total DOD - 4.0 3.0 2.6 2.1 1.8 1.7 1.5 IBRD disbursements/total gross disbursements - - - - - - - - IBRD debt service/total debt service - - 1.8 5.6 4.8 4.1 3.7 4.0 IDA DOD/total DOD 21.4 18.8 21.1 22.7 21.6 24.0 26.7 28.6 IDA disbursements/total gross disbursements 17.7 21.7 22.7 32.1 20.3 32.0 24.0 32.1 IDA debt service/total debt service 1.3 3.1 2.5 5.3 5.4 4.6 6.0 7.3 As % of Debt Outstanding at End of FY81 TERM STRUCTURE Maturity structure of debt outstanding (%) Maturities due within 5 years 13.5 Maturities due within 10 years 36.8 Interest structure of debt outstanding (Z) Interest due within first year 1.6 . = not available. ASADD April 15. 1982 -28- ANNEX II Page 1 THE STATUS OF BANK GROUP OPERATIONS - BANGLADESH A. STATEMENT OF BANK LOANS AND IDA CREDITS (as at September 30, 1982) Amount (less cancellations) Loan or US$ Million /a Credit Number Year Borrower Purpose Bank IDA Undisbursed One loan and 21 credits fully disbursed 54.90 684.32 - 341 1972 Bangladesh Tubewells (replaces Credit No. 208-PAK of 1970) - 14.00 0.65 408 1973 Bangladesh Highways (replaces Credit No. 53-PAK of 1964) - 25.00 2.77 410 1973 Bangladesh Cereal Seeds - 7.50 0.10 487 1974 Bangladesh Telecommunications II - 20.00 5.29 527 1975 Bangladesh Ashuganj Fertilizer - 62.00 1.88 533 1975 Bangladesh Population - 15.00 3.43 542 1975 Bangladesh Barisal Irrigation - 27.00 12.31 605 1976 Bangladesh Karnafuli Irrigation - 22.00 7.64 621 1976 Bangladesh Agricultural and Rural Training - 12.00 3.48 631 1976 Bangladesh Rural Development - 16.00 5.97 632 1976 Bangladesh Bangladesh Shilpa Bank - 25.00 3.55 724 1977 Bangladesh Shallow Tubewells - 16.00 2.55 725 1977 Bangladesh Muhuri Irrigation - 21.00 11.84 729 1977 Bangladesh Extension and Research - 10.00 2.62 735 1977 Bangladesh Inland Water Transport II - 5.00 2.12 765 1978 Bangladesh Jute - 21.00 13.40 787 1978 Bangladesh Foodgrain Storage II - 25.00 16.68 825 1978 Bangladesh Small-Scale Industry II - 7.00 3.15 828 1978 Bangladesh Agricultural Research - 6.00 1.58 864 1978 Bangladesh Drainage and Flood Control - 19.00 13.57 872 1978 Bangladesh Technical Assistance III - 10.00 4.87 890 1979 Bangladesh Oxbow Lakes Fisheries - 6.00 5.06 912 1979 Bangladesh Vocational Training - 25.00 20.79 921 1979 Bangladesh Population & Family Health II - 32.00 28.93 934 1979 Bangladesh Greater Khulna Power Distribution - 28.00 27.41 941 1979 Bangladesh Dacca Water Supply & Sewerage II - 22.00 10.48 /a Prior to exchange rate adjustments. -29- ANNEX II Page 2 A. Bank Loans and IDA Credits to Bangladesh (Cont'd) Amount (less cancellations) Loan or US$ million /a Credit Number Year Borrower Purpose Bank IDA Undisbursed 955 1979 Bangladesh Small-Scale Drainage and Flood Control - 25.00 22.34 964 1979 Bangladesh Highways II - 10.00 8.83 980 1980 Bangladesh Imports Program VIII - 50.00 0.05 990 1980 Bangladesh Low-Lift Pumps - 37.00 21.55 1001 1980 Bangladesh Chittagong Water Supply II - 20.00 19.20 1023 1980 Bangladesh Fertilizer Industry Rehabilitation - 29.00 26.79 1032 1980 Bangladesh Jute Industry Rehabilitation - 20.00 15.60 1042 1980 Bangladesh Mangrove Afforestation - 11.00 9.49 1044 1980 Bangladesh Fertilizer Imports II - 25.00 0.20 1054 1980 Bangladesh Education IV (Primary Education) - 40.00 36.05 1065/C 1980 Bangladesh Small Scale Industry III - 35.00 34.42 1071/c 1980 Bangladesh Imports Program IX - 65.00 12.80 1091/c 1981 Bangladesh Bakhrabad Gas Development - 85.00 50.71 1096/c 1981 Bangladesh Fertilizer Transport Project - 25.00 18.98 1117/C 1981 Bangladesh Bangladesh Shilpa Bank II - 50.00 44.22 1124/c 1981 Bangladesh Technical Assistance IV - 16.00 15.98 1140/c 1981 Bangladesh Hand Tubewells - 18.00 16.30 1147LC 1981 Bangladesh Agricultural Credit - 40.00 40.00 1184/c 1982 Bangladesh Drainage and Flood Control II - 27.00 26.00 1194/c 1982 Bangladesh Imports Program X - 100.00 66.55 /c 1204/b 1982 Bangladesh Chittagong Urea Fertilizer - 15.00 15.00 /c 1205/b 1982 Bangladesh Textile Industry Rehabili- tation - 30.00 30.00 /c 1215/b 1982 Bangladesh Extension and Research II - 27.00 27.00 /c 1247/b 1982 Bangladesh Chittagong Port - 60.00 60.00 /c 1254/b 1982 Bangladesh Ashuganj Thermal Power - 92.00 92.00 /c 1262/b 1982 Bangladesh Rural Electrification - 40.00 40.00 /c 1287/b 1982 Bangladesh Second Deep Tubewells - 68.00 68.00 Total 54.90 2,242.82 1,030.16 of which has been repaid - 0.40 - Total now outstanding 54.90 2,242.42 1,030.16 Amount sold 0.00 Total now held by Bank and IDA 54.90 2,242.42 Total undisbursed - 1,030.16 1,030.16 /a Prior to exchange adjustments. /b Not yet effective. /c IDA 6th Replenishment Credits denominated in SDRs. Amounts of principal shown in US$ equivalent at time of negotiation and undisbursed amounts computed at the September, 1982 rate. ANNEX II Page 3 /a B. STATEMENT OF IFC INVESTMENTS (as of September 30, 1982) Fiscal Amount in US$ Million Year Obligor Type of Business Loan Equity Total 1979 Highspeed Shipbuilding Ship- and Heavy Engineering building Co. Ltd. 1.20 0.36 1.56 1980 IPDC DFC - 1.05 1.05 Total gross commitments 1.20 1.41 2.61 less cancellations, terminations, repayments and sales - - - Total commitments now held by IFC 1.20 1.41 2.61 Total undisbursed 0.65 - 0.65 /a The following IFC investment has been approved but not yet signed: 1981 Asia Leather Industrial Company Ltd. Tannery 2.1 .2 2.3 C. STATUS OF PROJECTS IN EXECUTION AS OF SEPTEMBER 30, 1982 1/ Agricultural Projects Cr. No. 341 Tubewells Project; US$14.0 Million Credit of November 6, 1972; Effective Date: January 17, 1973; Closing Date: December 31, 1982 Implementation of the tubewell component is complete and a PCR has been issued. However, the credit remains open to permit completion of a delayed pilot command area development component which is also being financed under the Extension and Research Project (Credit 729-BD). 1/ These notes are designed to inform the Executive Directors regarding the progress of projects in execution, and in particular to report any problems which are being encountered, and the action being taken to remedy them. They should be read in this sense, and with the under- standing that they do not purport to present a balanced evaluation of strengths and weaknesses in project execution. -3)1- ANNEX II Page 4 Cr. No. 410 Cereal Seeds Project: US$7.5 Million Credit of June 29, 1973; Effective Date: January 30, 1974; Closing Date: December 31, 1981 The project closed on December 31, 1981. The Government have been requested to confirm that no further applications for expenditure are pending and that the undisbursed balance amount can be cancelled. Cr. No. 542 Barisal Irrigation Project: US$27 Million Credit of April 29, 1975; Effective Date: September 30, 1975; Closing Date: June 30, 1984 Barisal Irrigation Project I was completed on June 30, 1981 and taken over on maintenance. Barisal extension was taken up with the savings of BIP 1. Farmers response for the dry season (Boro) cultivation has been much below expectation mainly due to the land tenure system and credit facilities. However, there has been an increase of one third over the previous years cultivation. Good progress is maintained on civil works construction in the extension area. Procurement preliminaries for the primary pumps, gates and low lift pumps have been completed and deliveries should have started. Agricultural demonstration farms are in operation in the extension area. Generally progress is satisfactory. The project could be completed before the Closing Date. Cr. No. 605 Karnafuli Irrigation Project: US$22 Million Credit of January 28, 1976; Effective Date: February 24, 1976; Closing Date: December 31, 1983 Project implementation which was about 2.5 years behind schedule has shown remarkable progress in 1981/82 and if adequate funds are released in 1982/83 completion except for flood embankments will be by June 1983. GOB expects to provide shortly technical justifications and social reasons for the deletion of embankments. The trend on agricultural development is encouraging and expected benefits would be attained. The current project estimates with embankments and including additional intricate works show a cost overrun of 37.5%. The fisheries component is essentially completed. The Raipur hatchery is in full production and final disbursements are expected to be made up to the end of 1982. Cr. No. 631 Rural Development Project: US$16.0 Million Credit of June 3, 1976; Effective Date: August 3, 1976; Closing Date: June 30, 1983 Following a request from GOB that the credit closing date be extended to allow completion of components initially delayed, the closing date has been extended to June 30, 1983. Project implementation is now -32- ANNEX II Page 5 proceeding satisfactorily and the project should be completed according to the new schedule. Sale of Deep Tubewells is almost complete but sale of Low Lift Pumps is slow. The Rural Industries component has been intensified. Project management is much improved. Cr. No. 724 Shallow Tubewells Project: US$16 Million Credit of July 1, 1977; Effective Date: December 9, 1977; Closing Date: December 31, 1982. Progress in procurement has been satisfactory. All 10,500 pumpsets have been procured. About 55% of the pumpsets have already been sold. The construction of workshops is proceeding with a modified program and workshop equipment has been ordered. Cr. No. 725 Muhuri Irrigation Project: US$21.0 Million Credit of July 1, 1977; Effective Date: January 6, 1978; Closing Date: June 30, 1983. Project implementation which was about two years behind schedule will suffer a further setback for delays in finalizing the design and tender documents for the closure dam work. The Feni Regulator is expected to be operational in February 1983. Agricultural and IRDP activities will commence in early 1982/83. Farmers- response for adoption of improved agricultural practice and group formation appears good. A cost overrun is expected due to a likely increase in the cost of the closure works. Cr. No. 729 Extension and Research Project: US$10 Million Credit of July 1, 1977; Effective Date: January 6, 1978; Closing Date: June 30, 1982. As of September 30, 1982 US$7.38 million had been disbursed. The credit was closed on June 30, 1982 and payment for commitments in the pipe- line will continue. Cr. No. 765 Jute Project: US$21 Million Credit of February 8, 1978; Effective Date: April 14, 1978; Closing Date: June 30, 1983. Farmers have been encouraged to use higher quantities of fertilizer, resulting in higher yields. As expected, higher jute production forced marginal jute farmers to switch to rice production in the aus season. Consequently rice production has increased. IDA credit on lending problem has also been solved. Staff travel allowance is inadequate and that is hampering production credit recovery effort. Staff housing component has been scaled down. -33- ANNEX II Page 6 Cr. No. 787 Foodgrain Storage II Project: US$25 Million Credit of April 12, 1978; Effective Date: September 29, 1978; Closing Date: December 31, 1982 The project had a slow start due to administrative difficulties, problems in land acquisition and material shortages. Implementation of the 165,000 MT storage construction program has gained additional momentum and is now satisfactory. The storage rehabilitation component has been reduced from 25,000 MT to 10,000 MT, and the number of paddy drying from 15 MT to 5 MT as a result of implementation delay. Contracts for rehabilitation have been awarded for 7,750 MT, and tenders are being issued for civil works construc- tion of paddy dryers and evaluated for drying equipment. Quality control equipment has been procured, but considerable additional efforts are required in the area of grain quality control and inspection. The project is now anticipated to be completed by June 30, 1983. Cr. No. 828 Agricultural Research Project: US$6 Million Credit of June 16, 1978; Effective Date: November 15, 1978; Closing Date: December 31, 1984 Implementation of the project is progressing satisfactorily. Almost all research station buildings are now complete and farm development only remains to be finished at the Jessore and Hathazari stations. Research programs on research stations and those supported by the research grant scheme are being vigorously pursued. The technical monitoring scheme is now operating well and a monitoring and evaluation cell, established at BARC headquarters, will now apply techniques pioneered under the project to all grant-supported research. Cr. No. 864 Drainage and Flood Control Project: US$19.0 Million Credit of December 22, 1978; Effective Date: October 19, 1979; Closing Date: June 30, 1984 Of the three sub-projects financed under the project, Chenchuri Beel (CCB) and Kolabashakhali (KBK) are expected to be completed on schedule in mid-1983. Delays have been experienced, however, in the implementation of the Brahmaputra Right Embankment (BRE). Agreement has recently been reached on retirement of the embankment and disbursement for this part of the project is expected to accelerate. Cr. No. 890 Oxbow Lakes Fishery Project: US$6 Million Credit of April 3, 1979; Effective Date: February 13, 1980; Closing Date: June 30, 1984 The project is designed to assist in the development of a group of six oxbow lakes through the introduction of composite techniques for fish culture and improved lake management technologies. Hatchery and rearing facilities will be established for the production of carp fingerlings for stocking of project lakes where little stocking took place in the past. As a result, annual carp production from project lakes is estimated to increase ANNEX II Page 7 from 138 MT to 1,100 MT, representing an eight fold increase. Hatchlings and fry will also be sold to pond owners. This will have a country-wide impact introducing for the first time fish farming technology based on composite fish culture for small water bodies in private ownership. A project implementation unit, supported by an international consultancy firm has been set up within the Directorate of Fisheries. Construction of the central hatchery at Lake Baluhar started in January 1982, some 12 months behind schedule. The delay was caused by managerial and administrative weaknesses and shortage of counterpart funds. It is now expected that the central hatchery will start operations in March/April 1983 and the satellite hatcheries one year thereafter. Full project benefits are expected for 1986. Cr. No. 955 Small Scale Drainage & Flood Control Project: US$25.0 Million Credit of October 30, 1979; Effective Date: May 21, 1980; Closing Date: December 31, 1984 A total of 19 subprojects were approved in FY81 and FY82 respectively. Construction has been completed on eleven subprojects. Progress is satisfac- tory. However, there is a need to increase substantially the allocations to the revolving fund to avoid delays in project implementation due to shortages of funds. This issue is currently being discussed with GOB. Cr. No. 990 Low Lift Pump Project: US$37.0 Million Credit of April 4, 1980; Effective Date: September 8, 1980; Closing Date: December 31, 1984 Three thousand two-cusec LLPs and 1,500 one-cusec LLPs under the Phase I sales program, were delivered in October 1980. Orders have also been placed for the remaining 4,000 LLPs. About 40% of the LLPs under Phase I of the sales program has been sold. A detailed project Action Plan has been prepared. About 95% of the projected disbursements (as percentage of appraisal estimate) has been made. Cr. No. 1042 Mangrove Afforestation Project: US$11.0 Million Credit of June 27, 1980; Effective Date: September 26, 1980; Closing Date: December 31, 1985 Overall Project performance is good. The establishment of planta- tions was carried out according to SAR targets in 1981 and current progress indicates that this year's target will also be achieved. The procurement of essential equipment and materials has been completed. The civil works program has now started and physical progress on the first phase is estimated at about 15%. However, staffing remains behind the SAR target. The implementa- tion of the Plantation Trial Unit Program has been delayed. No activity on the Public Relations Component has been started. As a response to the April/May Supervision, FD has agreed to give high priority to intensify overall activity on the lagging operations. -35- ANNEX II Page 8 Cr. No. 1140 Hand Tubewells Project: US$18.0 Million Credit of July 8, 1981; Effective Date: February 11, 1982; Closing Date: March 31, 1985 The project is proceeding satisfactorily. Civil works are complete and plans are well in hand for local foundries to fabricate pumpheads. However, shipment of raw materials has been delayed by preshipment inspection problems. BUET and BARC/BARI are being contracted to carry out laboratory and field testing of alternative handpump models. Cr. No. 1147 Agricultural Credit Project: US$40.0 Million Credit of June 9, 1981; Effective Date: October 6, 1981; Closing Date: December 31, 1985 This project is designed to provide long-term credit to farmers for investments in minor irrigation and other agricultural development, and to private borrowers for grain storage facilities. Progress in privatization of shallow tubewells is proceeding very slowly. Although import licenses have been issued to authorized private dealers, opening of the letters of credit is delayed by a new directive not to import certain makes previously author- ized. STW prices set by GOB are still below those of private dealers. Appointment of consultants to assist Bangladesh Bank, the implementation agency, is yet to be made. Cr. No. 1184 Second Drainage and Flood Control Project: US$27.0 Million Credit of January 8, 1982; Effective Date: July 14, 1982; Closing Date: June 30, 1987 This Credit became effective on July 14, 1982. Cr. No. 1215 Second Extension and Research Project: US$27 Million Credit of March 16, 1982; Closing Date: June 30, 1988 This Credit is not yet effective. Cr. No. 1287 Second Deep Tubewells Project: US$68.0 Million Credit of August 10, 1982; Closing Date: December 31, 1986 This Credit is not yet effective. Industry and Imports Program Credits Cr. No. 527 Ashuganj Fertilizer Project: US$62.0 Million Credit of February 11, 1975, as amended by Amending Agreement of June 18, 1979; Original Credit Effective Date: December 19, 1975; Supplementary Credit Effective Date: August 1, 1979; Closing Date: June 30, 1985 The project was cofinanced by the Asian Development Bank, KfW, EEC, IFAD, the OPEC Special Fund, and the Governments of Iran, Switzerland, UK and US, for a total of about US$190 million equivalent, in addition to the IDA credit. Because of the additional site works, the delays and currency -36- ANNEX II Page 9 fluctuations, supplemental financing was necessary and has been obtained. The Project has now been mechanically completed. Despite continuing minor commissioning problems, production of urea was started in December 1981, about six months later than anticipated at the time of supplementary financing, and total project costs are likely to be about US$15 million higher than that approved at the time of IDA supplementary financing. Cr. No. 632 Bangladesh Shilpa Bank Project: US$25.0 Million Credit of May 20, 1976; Effective Date: November 8, 1976; Closing Date: June 30, 1983 Institutional upgrading program instituted under the credit are still under implementation, continuing the improvement on BSB's loan account- ing and staff training. However, because of declining collection BSB's financial position has weakened significantly. This area of operational weakness is receiving close GOB/IDA attention, and IDA is coordinating closely with ADB and KfW to implement an action program to restore BSB's financial viability. Cr. No. 825 Small Scale Industry II Project: US$7 Million of June 16, 1978; Effective Date: September 15, 1978; Closing Date: March 31, 1983 The Project appraisal and processing capabilities of the implement- ing Banks have developed rapidly, and the Project is expected to be completed ahead of schedule. There has been significant improvement in institutional capabilities of the commercial banks; and staff of the Small and Cottage Industries Corporation have begun preparation of subsector and area studies for small industry promotion. The project was fully committed by the commer- cial banks in July 1980. Cr. No. 980 Eighth Imports Program: US$50 Million Credit of April 4, 1980; Effective Date: April 21, 1980; Closing Date: February 28, 1982 As of September 30, 1982 US$49.9 million has been disbursed. The credit was closed on February 28, 1982 and payment for commitments in the pipe- line will continue. Cr. No. 1023 Fertilizer Industry Rehabilitation Project: US$29 Million Credit of June 4, 1980; Effective Date: September 8, 1980; Closing Date: December 31, 1983. The reorganization of the project entities into three separate fertilizer manufacturing companies has been accomplished, and project financing agreements have been executed. Consultants for providing engineering services have been selected and their contracts approved. Cr. No. 1032 Jute Industry Rehabilitation Project: US$20 Million Credit of June 4, 1980; Effective Date: July 22, 1980; Closing Date: June 30, 1984 Project implementation has been fairly satisfactory though some delay has been experienced in the recruitment of consultants. Tender Notices -37- ANNEX II Page 10 for procurement of spares have been issued and those for the construction of two new training centers are in preparation. Cr. No. 1044 Second Fertilizer Imports Project: US$25 Million Credit of June 27, 1980; Effective Date: November 11, 1980; Closing Date: March 31, 1982 As of September 30, 1982 US$24.8 million had been disbursed. The credit was closed on March 31, 1982 and payment for commitments in the pipeline will continue. Cr. No. 1065 Small-Scale Industry III Project: US$35 Million of October 17, 1980; Effective Date: January 15, 1981; Closing Date: June 30, 1984 The credit became effective on January 15, 1982. The credit com- ponents of the project are moving well, particularly in the area of small- medium sized projects. Progress is also satisfactory on the technical and marketing service components of the technical assistance elements of the project. Cr. No. 1071 Ninth Imports Program: US$65 Million Credit of October 17, 1980; Effective Date: November 11, 1980; Closing Date: December 31, 1982 Progress on implementing ongoing action program requirements continue satisfactorily albeit somewhat behind schedule. During FY81, GOB has initiated a number of the policy changes required under the credit, particularly in the areas of agriculture/irrigation policy. Cr. No. 1117 Bangladesh Shilpa Bank II Project: US$50.0 Million Credit of March 31, 1981; Effective Date: August 12, 1981; Closing Date: April 30, 1986 This project continues IDA's involvement with BSB initiated under Cr. 632-BD. Institutional upgrading programs initiated under that credit are being continued and GOB/IDA are monitoring carefully BSBs operation in the areas of loan recoveries and project appraisals. IDA is also coor- dinating closely with ADB and KfW to implement an action program aimed at improving BSB-s collection performance and financial viability. As of September 30, 1982 US$31.7 million of the credit has been committed and US$5.0 million disbursed. Cr. No. 1194 Tenth Imports Program US$100.0 Million Credit of January 26, 1982; Effective Date: February 22, 1982; Closing Date: June 30, 1984. This Credit became effective on February 22, 1982. As of September 30, 1982 US$33.4 million had been disbursed. -38- ANNEX II Page 11 Cr. No. 1204 Chittagong Urea Fertilizer Project; US$15.0 Million Credit of February 10, 1982; Closing Date: December 31, 1986 This Credit is not yet effective. Cr. No. 1205 Textile Industry Rehabilitation Project: US$30.0 Million Credit of February 10, 1982; Closing Date: December 31, 1985 This Credit is not yet effective. Education Projects Cr. No. 621 Agricultural and Rural Training Project: US$12.0 Million Credit of March 25, 1976; Effective Date: June 30, 1976; Closing Date: June 30, 1983 All civil works have virtually been completed except for construc- tion of two new Thana Training Units (50% complete) and for renovation of two existing Agricultural Training Institutes (ATI), both of which have been slow to complete due to lack of Taka funds. GOB has now released the needed funds and work has resumed. The latest estimate (June 1982) for completion of all works is December 1982. As a result of student strikes in 1981, no first year students were enrolled and all ATIs are currently operating at only about 50% capacity. The Directorate of Agriculture (Extension and Management) intends to utilize the excess space this year for in-service training of VEAs. Staffing is adequate and all ATI instructors have received in-service training under the project. The course to train project managers and those civil servants directly concerned with implementation of IDA financed agricultural projects has been successful and an extension of the course to December 1982 has been recently approved by IDA. A further extension to June 1983 is now under consideration. At the request of GOB, extension of the closing date from June 30, 1982 to June 30, 1983 has been granted by IDA to allow enough time to complete all remaining civil works and project activities and to close all project accounts. Cr. No. 912 Vocational Training Project: US$25.0 Million Credit of May 31, 1979; Effective Date: November 2, 1979; Closing Date: June 30, 1985 Progress is evident in several areas of project activity. Bids have been invited, and the layout plans completed, for the 5 New TTCs. Equipment being procured by the ILO has started arriving in Bangladesh, and arrangements for storage, checking, and installation (where possible) are well advanced. Instructor and In-Plant Training programs are underway. The majority of Technical Assistance experts are deployed, and a fellowship training program (suspended for 1 year) prepared. Curriculum Development, trade standards and tests, and a national vocational training policy are under preparation. Increased cooperation between the Ministry of Labor (TTCs) and Ministry of Education (VTI) in Vocational Training is also evident. Project management, however, continues to be weak and the failure to replenish the Revolving Fund has hampered instructor and In-Plant training programs. -39- ANNEX II Page 12 Cr. No. 1054 Fourth Education (Primary) Project: US$40.0 Million Credit of June 27, 1980; Effective Date: December 1, 1980; Closing Date: December 31, 1986 The construction program is now underway, but it emphasizes school repairs and other minor works at some 300 schools. However, designs, plans and estimates for a further 611 schools (including 289 new schools) and other project buildings are being prepared. Schedules for school furniture have been prepared and tenders invited. Textbooks for Class I & II students procured and tenders invited for the manufacture of girls uniforms. Most staff are now in position but effectiveness of project management is being hampered by internal conflicts at the project Director level. A plan for the recurrent training of teachers has been prepared and the training of PTI instructors, Thana Education Officers and Asst. Thana Education Officers, is underway. During the past year 370 officers and teachers were trained. Four experts under the technical assistance component of the project are now in post and an agreement signed with the British Council to undertake four studies required under the project. Population Project Cr. No. 533 Population Project: US$15 Million Credit of March 10, 1975; Effective Date: September 25, 1975; Closing Date: September 30, 1982 As of September 30, 1982 US$11.57 million had been disbursed. The credit was closed on September 30, 1982 and payment for commitments in the pipeline will continue. Cr. No. 921 Second Population and Family Health Project: US$32.0 Million Credit of May 31, 1979; Effective Date: April 1, 1980; Closing Date: December 31, 1983 Project execution, except for the first tranche of the Family Welfare Center's component, effectively commenced only in July 1980, about one year behind schedule. While the Information, Education and Motivation (IEM) and Research and Evaluation parts of the project are proceeding satisfactorily, the civil works and Family Welfare Centers components of the service delivery and training parts of the project are significantly delayed and their completion within the original four year implementation period (July 1979-June 1983) is no longer feasible, owing not only to the initial one year delay in implementation but also to weak implementation capacity of responsible agencies, and the impact of budget cuts following the Government s de facto devaluation of the Taka since appraisal, will result in significant savings. A two year extension of the project implementation period or a reduction in the projects infrastructure components to match implementation capacity with subsequent reallocation of the IDA credit are currently being discussed with the Government. -40_ ANNEX II Page 13 Transport Projects Cr. No. 408 Highways Project: US$25.0 Million Credit of June 29, 1973; Effective Date: August 7, 1973; Closing Date: December 31, 1982 All works under the project are now complete. Arbitration on the Sitalakhya Bridge contractor's claims has been completed, and the Government has announced that it intends to contest the award, although an out of court settlement remains a possibility. The Closing Date of the credit extended to March 31, 1981 has been extended to December 31, 1982 to enable the use of uncommitted credit balance to meet the cost of eligible components of the arbitration. Significant failures have appeared on Feni Bypass. Cr. No. 735 Inland Water Transport II Project: US$5.0 Million Credit of September 30, 1977; Effective Date: March 13, 1978; Closing Date: December 31, 1982 Spare parts for BIWTA vessels, navigation aids, hydrographic and cargo handling have been ordered. Most spare parts for BIWTC cargo vessels and BIWTA service vessels have been delivered and are on order. Consultants appointed to carry out studies on IWT sector, fleet scheduling of BIWTC and accounting systems for BIWTA and BIWTC have submitted their reports. Imple- mentation of the recommendations of the accounting studies is in progress. At the request of the Borrower the closing date has been extended to December 31, 1982. Cr. No. 964 Second Highway Project: US$10.0 Million Credit of December 21, 1979; Effective Date: August 29, 1980; Closing Date: June 30, 1984. Project implementation has been seriously delayed by the Borrower-s failure to award construction contracts in reasonable time. This failure has resulted in increased project cost due to inflation. The problem appears to result from factors outside the control of RHD, e.g., the inability of the "Procurement Committee" to take timely decisions and standard Government procedures which are in conflict with IDA procurement principles. Cr. No. 1096 Fertilizer Transport Project: US$25.0 Million Credit of February 13, 1981; Effective Date: July 24, 1981; Closing Date: December 31, 1984 Trial dredging at Chittagong Port has been completed and results of the survey are expected by end-1982. Also dredging work at the inland river port of Baghabari has been completed and pontoons are to be in place shortly. Tenders for procurement of railway material have been issued. Progress on other project components has been slow, but regular supervision missions are providing assistance to speed up implementation. Disbursement of funds, on the other hand, has been satisfactory. -41-- ANNEX II Page 14 Cr. No. 1247 Chittagong Port Project: US$60.0 Million Credit of May 21, 1982; Closing Date: December 31, 1987 This Credit is not yet effective. Telecommunications Projects Cr. No. 487 Second Telecommunications Project: US$20.0 Million Credit of June 26, 1974; Effective Date: July 23, 1974; Closing Date: June 30, 1983 The project execution is largely behind schedule due to previous delays in procurement, civil works and reduced output of the domestic telephone cables and switching equipment factories. Difficulties were also experienced in completing the local construction and installation of the systems. TTB, a Government board since April 1979, is making significant progress in organiz- ing its finances and accounts, and in managing its operations and development. TTB funds had until recently all been deposited in an overall Government account. Since July 1981, TTB has a designated bank account to which all funds are deposited and withdrawn and the accounting functions have been transferred from Controller-s Auditor General to TTB. The overhaul of account- ing functions, staff and methodology is proceeding very well. Recruitment of staff has been completed and TTB now has an established and trained cadre of financial staff. Commercial accounts will be preapred from FY82/83 onward. In general, financial performance of TTB is reasonably good. Thus, TTB is gradually achieving a level of financial autonomy that will permit it to adjust its development program within the overall framework of the agreed budget. Covenants under the project are now being complied with. Since May 1981, TTB has taken final procurement action to commit the funds remaining under the project. Works related to last procurement, including national trunk and international electronic telephone exchanges, will be completed by June 1983. Adequate actions as would be required to further improve TTB's management, operations and development capability, will be considered under the proposed third telecommunications project. Technical Assistance Credits Cr. No. 872 Third Technical Assistance Project: US$10.0 Million Credit of December 22, 1978; Effective Date: January 19, 1979; Closing Date: June 30, 1983 37 subprojects, totalling about $10.7 million have been approved. The credit is about half disbursed and has been over allocated to increase disbursements. Sixteen subprojects have been completed. The remaining subprojects are proceeding smoothly except in several instances, consultant contracts have not been finalized. -42- ANNEX II Page 15 Cr. No. 1124 Fourth Technical Assistance Project: US$16.0 Million Credit of March 31, 1981; Effective Date: June 10, 1981; Closing Date: April 30, 1985 This Credit became effective on June 10, 1981. Three subprojects for about $0.2 million have been committed. A number of proposed subprojects totalling about $7.0 million have been agreed in principle and steps are being taken to secure consultant services. In addition, a pipeline of subprojects totalling about $15.0 million is under consideration. Power Projects Cr. No. 934 Greater Khulna Power Distribution Project: US$28.0 Million Credit of June 18, 1979; Effective Date: November 20, 1979; Closing Date: June 30, 1984 Foreign consultants (Motor Columbus - Switzerland) have been ap- pointed as scheduled and have begun design work. Project execution is about one year behind schedule due to administrative difficulties in preparing maps for the project areas and to the inability of the beneficiary (Power Develop- ment Board) to provide adequate local staff for project implementation. To improve the situation, local consultants have been appointed in September 1981 and conditions have been created to recuperate part of the delay. Cr. No. 1091 Bakhrabad Gas Development Project: US$85.0 Million Credit of February 13, 1981; Effective Date: June 16, 1981; Closing Date: December 31, 1984 Major procurement activities have been completed. Construction of the Bakhrabad-Chittagong pipeline has been suspended because of the current monsoon. The construction contract requires completion of the pipeline by end-March 1983 in line with the original schedule. The last gas well (BK-5) has been completed. Test results from the drilling program so far confirm gas reserves and well productivity forecasts by reservoir consultants. Cr. No. 1254 Ashuganj Thermal Power Project: US$92.0 Million Credit of June 30, 1982; Closing Date: June 30, 1987 This Credit is not yet effective. Cr. No. 1262 Rural Electrification Project: US$40.0 Million Credit of June 30, 1982; Closing Date: June 30, 1989 This Credit is not yet effective. -43- ANNEX II Page 16 Water Supply and Sewerage Projects Cr. No. 941 Second Dacca Water Supply and Sewerage Project: USS22.0 Million Credit of June 29, 1979; Effective Date: November 30, 1979; Closing Date: June 30, 1983 DACCA WASA's consulting engineers have completed design and it is expected that procurement will be completed by early 1983. Physical progress is one year behind schedule. Early delays resulted from slow startup and sluggish procurement but are currently due to land acquisition problems, which have recently been mostly overcome, and shortage of local currency with which to pay civil works contractors. Also, recently, DACCA WASA raised its tariff by 30% and GOB paid off all arrears. Cr. No. 1001 Second Chittagong Water Supply Project: US$20.0 Million Credit of April 4, 1980; Effective Date: April 9, 1981; Closing Date: December 31, 1985 After early delays in selecting consultants for the project a firm is in place and design is now well advanced. Selection of a second consultant for a sewerage/sanitation study has been made. An expatriate financial adviser has proved effective. Procurement has started but implementation will be about 1-1/2 years behind schedule. Recent tariff increase is not sufficient and another increase by July 1, 1983 is expected. While there has been improvement in the collection of arrears from Government departments, further improvement is still necessary. -44- ANNEX III Page 1 of 3 BANGLADESH ENERGY EFFICIENCY AND REFINERY REHABILITATION PROJECT SUPPLEMENTARY PROJECT DATA SHEET Section I: Timetable of Key Events (a) Time taken to prepare project: Ten months (b) Agency which prepared the project: Ministry of Energy and Mineral Resources (c) Project first presented to IDA: Mid 1981 (d) First IDA mission to review project: November 1981 (e) Departure of Appraisal Mission: May 1982 (f) Completion of negotiations: April 1983 (g) Planned date of effectiveness: August 1983 Section II: Special IDA Implementation Actions (i) Financing of 10 man-months consultant services under Credit 1124-BD (Fourth Technical Assistance Credit), to carry out inspection of ERL's refinery, prepare -45- ANNEX III Page 2 of 3 detailed implementation design and bidding documents, including bill of materials with specifications, for the acquisition of needed equipment and materials. (ii) Financing of engineering studies and equipment and materials for energy conservation/diversification investments under Credit 1091-BD (Bakhrabad Gas Development Project). Section III: Special Conditions (a) GOB would: (a) cause ERL to submit by December 31, 1983, for the Association's review and implement thereafter, a training program, taking into account the Association's comments (paragraph 46); (b) obtain from each staff member selected for training under the proposed project, an assurance in support of his continued employment in ERL for a period of, at least, five years after completing his training program, failing which such employee will reim- burse ERL the costs involved in his training (paragraph 46); (c) submit for the Association's review and comments its proposals for the provision of secondary conversion facilities to ERL's refinery (paragraph 46); (d) submit for the Association's review and implement thereafter a five-year maintenance plan for ERL's facilities (paragraph 46); no later than June 30, 1984, dispose of ERL's long-term pre-independence debt and adopt payment proce- dures which will not adversely affect the financial condi- tion of ERL (paragraph 60); submit the results of Phase I of the gas-based projects feasibility studies for the Association's review before commencing any detailed feasibility study under Phase II (paragraph 52); and on-lend the portion of the proposed credit intended for ERL for a period of 12 years, including 4 years of grace, at an interest rate of 14% per annum (paragraph 56); (b) GOB would cause ERL to: (a) insure ERL's refinery facilities for an amount satisfactory to IDA (paragraph 62); and (b) review and make adjustments at least once each year to the ex-refinery and retail prices of petroleum products to such extent as may be required to ensure that sufficient revenues are generated by BPC in each fiscal year to cover the full cost of the petroleum procurement, processing and handling (paragraph 64); ANNEX III -46- Page 3 of 3 (c) Conditions of effectiveness would be: (i) the execution of a satisfactory Subsidiary Loan Agree- ment between the Borrower and the Eastern Refinery Limited (paragraph 56); (ii) the approval of the Project Proforma (paragraph 55); (iii) the appointment of a training specialist by ERL (paragraph 46); (iv) the appointment of a Project Implementation Coor- dinator by ERL (paragrah 52); (v) the appointment of EMU's Director by GOB (paragraph 52). (d) It will be a condition of disbursement for: (i) the energy efficiency component, that GOB has (i) adequately staffed the Energy Monitoring Unit with persons whose qualifications and experience are satis- factory to the Association; (ii) has established and staffed the Energy Conservation Coordination Group; and (iii) caused each public sector corporation and major energy-consuming industry to designate an energy coordinator and an energy manager, respectively, to be responsible for energy conservation/diversificaton activities (paragraph 52); (ii) the research and development component that the Bangladesh University of Engineering and Technology has entered into an arrangement, satisfactory to the Association, for collaboration with an experienced foreign research institution (paragraph 52). IBRD 16D640 8 a . E ax , X ~~~~~BANGLADESH X t + v , W ~~~~I N D ! 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