1. Report and Recommendation of the President
to the Board of Directors
Project Number: 38164
February 2010
Proposed Loans
People’s Republic of Bangladesh: Natural Gas Access
Improvement Project
2. CURRENCY EQUIVALENTS
(as of 15 January 2010)
Currency Unit – Taka (Tk)
Tk1.00 = $0.0145
$1.00 = Tk68.03
In this report, a rate of $1 = Tk70.00 is used.
ABBREVIATIONS
ADB – Asian Development Bank
ADF – Asian Development Fund
BERC – Bangladesh Energy Regulatory Commission
BGFCL – Bangladesh Gas Fields Company Limited
BGSL – Bakhrabad Gas Systems Limited
CNG – compressed natural gas
DPP – development project pro forma
DSR – debt service ratio
EIRR – economic internal rate of return
EMRD – Energy and Mineral Resources Division
FIRR – financial internal rate of return
FNPV – financial net present value
GSRR – gas sector reform road map
GTCL – Gas Transmission Company Limited
GTDP – Gas Transmission and Development Project
ICB – international competitive bidding
IEE – initial environmental examination
IMRS – interface metering and regulating station
IOC – international oil company
JICA – Japan International Cooperation Agency
LIBOR – London interbank offered rate
OCR – ordinary capital resources
Petrobangla – Bangladesh Oil, Gas, and Mineral Corporation
QCBS – quality- and cost-based selection
ROR – rate of return
SCADA – supervisory control and data acquisition
SGC – state-owned gas company
SGCL – Sundarban Gas Company Limited
TA – technical assistance
TGTDCL – Titas Gas Transmission and Distribution Company Limited
USAID – United States Agency for International Development
WACC – weighted average cost of capital
WEIGHTS AND MEASURES
BCF – billion cubic feet
ha – hectare
km – kilometer
m3
– cubic meter
MMCFD – million cubic feet per day
MW – megawatt
TCF – trillion cubic feet
3. NOTES
(i) The fiscal year (FY) of the government and the Bangladesh Oil, Gas, and Mineral
Corporation group of companies ends on 30 June. FY before a calendar year
denotes the year in which the fiscal year ends, e.g., FY2008 ends on 30 June
2008.
(ii) In this report, "$" refers to US dollars.
Vice-President X. Zhao, Operations 1
Director General S. H. Rahman South Asia Department (SARD)
Director T. Kandiah, Energy Division, SARD
Team leader P. Wijayatunga, Energy Specialist, SARD
Team members I. Caetani, Social Development Specialist, SARD
L. George, Energy Specialist, SARD
H. Gunatilake, Principal Energy Economist, SARD
R. Murshed, Project Implementation Officer (Energy), SARD
S. Sasaki, Energy Specialist, SARD
J. Srinivasan, Senior Control Officer, SARD
K. Takebayashi, Energy Specialist, SARD
J. Versantvoort, Counsel, Office of the General Counsel
In preparing any country program or strategy, financing any project, or by making any
designation of or reference to a particular territory or geographic area in this document, the
Asian Development Bank does not intend to make any judgments as to the legal or other status
of any territory or area.
4. CONTENTS
LOAN AND PROJECT SUMMARY i
I. THE PROPOSAL 1
II. RATIONALE: SECTOR PERFORMANCE, PROBLEMS, AND OPPORTUNITIES 1
A. Performance Indicators and Analysis 1
B. Analysis of Key Problems and Opportunities 1
III. THE PROPOSED PROJECT 5
A. Impact and Outcome 5
B. Outputs 6
C. Special Features 6
D. Project Investment Plan 7
E. Financing Plan 8
F. Implementation Arrangements 8
IV. BENEFITS, IMPACTS, ASSUMPTIONS, AND RISKS 12
A. Project Financial and Economic Justification 12
B. Social Assessment and Resettlement 14
C. Environmental Analysis 16
D. Expected Benefits 16
E. Risks and Safeguards 17
V. ASSURANCES 18
A. Specific Assurances 18
B. Conditions 20
VI. RECOMMENDATION 20
APPENDIXES
1. Design and Monitoring Framework 21
2. Gas Sector Assessment and Reform Road Map 23
3. Development Coordination 30
4. Detailed Cost Estimates 32
5. Project Implementation Schedule 35
6. Procurement Plan 36
7. Financial Analysis 41
8. Economic Analysis 45
9. Summary Poverty Reduction and Social Strategy 49
10. Summary Resettlement Plan 52
SUPPLEMENTARY APPENDIXES (available on request)
A. Organization Chart of Executing Agencies
B. Past and Projected Financial Performance
C. Financial Management Review
D. Economic Analysis
E. Summary Initial Environmental Examination
F. Procurement Capacity Assessment
G. Project Readiness Schedule
H. Short Resettlement Plan for Component C
I. Full Resettlement Plans for Components A and B
J. Terms of Reference for Consultants
K. Project Implementation Arrangements
L. Models for Private Sector Participation in Gas Distribution
5. LOAN AND PROJECT SUMMARY
Borrower People’s Republic of Bangladesh
Classification Targeting classification: General intervention
Sector (subsectors): Energy (pipelines, energy efficiency and
conservation)
Themes (subthemes): Economic growth (promoting economic efficiency
and enabling business environment); environmental sustainability
(natural resources conservation, urban environmental improvement)
Location impact: National (high)
Partnerships: Export–Import Bank of Korea (Korea Eximbank)
Environment
Assessment
The project is classified category B. Initial environmental examinations for
the project have been completed and will be updated in line with the
summary initial environmental examination in Supplementary Appendix E.
Project
Description
The project has four components: (i) the construction of 61 kilometers
(km) of gas transmission pipeline for transporting 400 million cubic feet
per day (MMCFD), including interface metering and regulating stations at
selected locations and the installation of compressors at Ashuganj and
Elenga; (ii) safety and supply efficiency improvement in Titas gas field to
increase gas production by 120 MMCFD; (iii) the construction of a 845 km
gas distribution network in the southwest to improve energy access; and
(iv) support for supply and demand management.
Rationale Natural gas contributes 70% of primary energy supply in Bangladesh. It
has dominated the power sector, fueling 85% of power generation. As the
country is highly dependent on natural gas for its economic development,
the sustainability of gas supplies is critical.
Government policy in the gas sector since 1993 has been to attract
private investments to upstream gas field development while improving
the network coverage and operational efficiency of companies that
produce and distribute natural gas. Bangladesh managed to attract
significant investments from the private sector for gas exploration and
increased gas production by over 100% since 1998. The share of gas
production by international oil companies (IOCs) grew to almost 50% of
the total supply in 2008.
Exponentially increasing demand for gas has introduced a supply deficit.
To address the demand–supply gap, national oil companies and IOCs
have been investing in existing fields and new discoveries to increase
production. By 2017, these interventions and the recently concluded 3rd
round of bidding will increase the gas supply by 74% compared to supply
in 2008. The government is currently examining several options to further
improve supply: (i) additional investment in existing fields, (ii) initiating
another round of bidding for exploration; and (iii) importing liquefied
natural gas as a medium- to long-term measure.
The transmission and distribution network is inadequate to meet the
needs of industry, commerce, and households. The capacity of the state
6. ii
gas companies is insufficiently developed to access international
financing. Therefore gas transmission and distribution continue to need
public financing.
Operational performance in the gas sector has been affected by
inadequate investment in all subsectors, compounded by uneconomic
tariffs, inadequate investment resources, inefficient use of gas, and
inadequate capacity in the state-owned gas companies and the
government. The government's gas sector reform road map (GSRR) is
designed to address many of these issues. The GSRR and Asian
Development Bank (ADB) policy dialogue with the government includes
time-bound actions to improve the policy and regulatory environment,
sector planning, and corporate governance, as well as to implement
structural and pricing reforms. Some of the key actions, such as approving
the GSRR, operationalizing the Bangladesh Energy Regulatory
Commission (BERC), licensing gas companies, and cabinet approval for
the proposed gas act, are already accomplished. The government is
committed to continuing the implementation of other measures identified
in the GSRR.
The proposed physical investments are the most urgent components of
the gas sector’s priority investment program. The gas sector master plan
provides the basis for investment planning by the Bangladesh Oil, Gas,
and Mineral Corporation (Petrobangla) and its affiliates. The need to
provide gas to Chittagong from fields in the northeast and the constraints
on the national supply of gas have focused investment priorities on these
areas. Removing bottlenecks in the transmission system has become
critical to ensuring the efficient delivery of higher gas volumes. Safety and
supply efficiency improvement at the Titas gas field is necessary to avoid
a major accident and sustain the current level of production from the field
in the long term. With the extension of the natural gas transmission
pipeline to the Khulna Division under the Gas Transmission and
Development Project (GTDP), improving the distribution network in the
southwest is essential to making gas available to consumers in that
region.
Impact and
Outcome
The impact of the project will be increased and more reliable access to
natural gas for sustained economic growth, achieved by reinforcing and
augmenting natural gas supply and addressing policy and institutional
constraints.
The main outcome of the project will be expanded capacity and improved
efficiency in natural gas production, transmission, and distribution
systems.
Outputs Part A: Transmission capacity expansion
(i) Part A-1: Ashuganj–Bakhrabad gas transmission loop-line. The
subcomponent will construct a 30 inch, 61 km pipeline from Ashuganj
to Bakhrabad and install interface metering and regulating stations at
the selected locations of Monohordi, Dewanbag, Kutumbupur, Feni,
and Barabkundu.
7. iii
(ii) Part A-2: Installation of compressors at Ashuganj and Elenga.
Under this subcomponent, a compressor will be installed at Ashuganj
with a throughput of 1,500 MMCFD and another at Elenga with a
throughput of 500 MMCFD.
Part B: Safety and supply efficiency improvement in Titas gas field.
This component will service problematic wells in Titas gas field to improve
safety and supply efficiency and add four appraisal-cum-development
wells and processing plants to increase production by 120 MMCFD.
Part C: Access improvement in the southwestern region. The
component will construct a 2-inch to 20-inch, 845 km distribution pipeline
in the southwest, covering the districts of Kushtia, Jhenidah, Jessore,
Khulna, and Bagerhat (including Mongla).
Part D: Supply and demand management. This component will pilot a
remote sensing metering system for industrial consumers and a prepaid
metering system for domestic consumers within the gas distribution
franchise area of Titas Gas Transmission and Distribution Company
Limited (TGTDCL). This component will also develop an investment
program for improving the efficiency of gas use.
Cost Estimates The project is estimated to cost $542 million equivalent, including taxes
and duties of $101 million.
Financing Plan The ADB loan will be $261 million equivalent from ordinary capital
resources (OCR) and $5 million equivalent from the Asian Development
Fund (ADF). Korea Eximbank will provide $45 million equivalent for part
A-1. The government will provide $231 million equivalent through loan and
equity contributions.
Loan Amount and
Terms
(i) A loan of $261 million from ADB’s ordinary capital resources (the OCR
loan) will finance parts A-2, B, and C and will have a term of 25 years
including a grace period of 5 years, an interest rate determined in
accordance with ADB’s London interbank offered rate (LIBOR)-based
lending facility, and a commitment charge of 0.15% per annum.
(ii) A second loan in various currencies equivalent to SDR 3,249,000 from
ADB’s Special Funds resources (the ADF loan) will finance part D and
will have a repayment period of 32 years including a grace period of 8
years, an interest charge of 1% during the grace period and 1.5%
thereafter, and other terms and conditions set forth in the loan and
project agreements.
Allocation and
Relending Terms
The government will make the loan proceeds available to the executing
agencies and cause the proceeds to be applied to financing subproject
expenditures through separate subsidiary loan agreements, the terms of
which must be acceptable to ADB.
Period of
Utilization
Until 30 September 2015
8. iv
Estimated Project
Completion Date
31 March 2015
Executing
Agencies
Gas Transmission Company Limited (GTCL) will be the executing agency
for part A, Bangladesh Gas Fields Company Limited (BGFCL) for part B,
Sundarban Gas Company Limited (SGCL) for part C, and TGTDCL for
part D. Petrobangla will be the executing agency coordinating project
implementation.
Implementation
Arrangements
The direct supervision and monitoring of project implementation and
operational performance will be the responsibility of the executing
agencies. Petrobangla will establish a project coordination unit.
Procurement The procurement of goods and services to be financed under the loans
will be carried out in accordance with ADB’s Procurement Guidelines
(2007, as amended from time to time), except those for part A-1, to be
funded by Korea Eximbank. International competitive bidding procedures
will be used for all procurement funded under the ADB loans. Ancillary
facilities, including building and service areas under domestic financing,
will follow government procedures.
ADB management has approved advance contracting for procuring
equipment and civil works and recruiting consultants, subject to eligibility
in accordance with ADB’s Procurement Guidelines and Guidelines on the
Use of Consultants (2007, as amended from time to time). ADB
management has also approved retroactive financing for consulting
services for implementing part B prior to the signing of the loan
agreement, with a ceiling of $500,000. The borrower and the executing
agencies have been informed that approval of advance contracting or
retroactive financing does not commit ADB to finance the project.
Consulting
Services
International consultants associated with national consultants will support
the GTCL for part A, BGFCL for part B, SGCL for part C, and TGTDCL for
part D in implementation activities, including design, engineering,
procurement, construction, human resource development, and energy
efficiency improvement. All consultants will be recruited in accordance
with ADB’s Guidelines on the Use of Consultants using the quality- and
cost-based selection method. Consultants will be engaged as a firm.
Project Benefits
and Beneficiaries
The government’s ongoing reform program based on the GSRR will
strengthen the financial position of sector entities, enhance public–private
partnership, and improve sector and corporate governance. The project
will create efficient and viable gas infrastructure to address priority supply
and network constraints. These interventions will ensure sustained growth
in the gas sector, which is critical to the country's economic development.
An estimated 200,000 households will gain access to gas through the new
distribution network. The project will have a positive impact on the
environment and health, particularly of women and the poor, who are the
most vulnerable to indoor air pollution from the use of biomass and
fuelwood, which will be replaced with natural gas. An additional 1,400
9. v
industrial and commercial establishments and 35 compressed natural gas
filling stations will have access to gas in the southwest. Industries such as
jute mills, textile weaving factories, small cottage industries, and textile
mills, and commercial entities such as restaurants and bakeries, will
benefit, generating significant employment in the region and thus reducing
poverty. The project will directly create 3,000 person-months of job
opportunities during implementation.
The subcomponents are financially sound and economically viable, with
financial internal rates of return ranging from 5.5% to 9.5%, greater than
the weighted average cost of capital of 2.7%. The economic internal rate
of return for the integrated project is 32%. Sensitivity analysis indicates
that the project remains viable under adverse conditions.
Risks and
Assumptions
Policy reforms. The main policy risk is failure or delay in introducing
required reforms and restructuring under the GSRR. Measures have been
included in the project as assurances. ADB will maintain a regular policy
dialogue with the government on these issues.
Cofinancing. Korea Eximbank cofinancing is expected for part A-1 of the
project under parallel financing. In the unlikely event that Korea Eximbank
financing is not forthcoming, part A-1 will be excluded from the project
scope. This would not affect the viability or implementation of the
remaining components, as each is independent.
Project readiness. Delays in implementing previous ADB-financed
projects in the gas sector, frequently caused by the executing agencies’
inadequate project readiness, is an area of concern, including delays in
government approvals for project component proposals, slow progress in
land acquisition, and cumbersome procurement procedures. Taking into
account these lessons and to mitigate this risk, the government and the
executing agencies have undertaken various advance actions. These
include the approval of the development project pro formas, preparation of
environmental and resettlement requirements, and preparation of
procurement documents. Measures have been incorporated in project
design to reduce delays by allowing advance procurement, retroactive
financing, and advisory support for implementation.
Good governance. The project design includes various measures to
promote good governance and mitigate the risk of corruption by
enhancing transparency and accountability in doing business. These
include disclosing project and procurement-related information on a
project website and preparing bid specifications and packaging to ensure
maximum competition under international competitive bidding. Any
procurement issues can be immediately addressed through the recently
strengthened procurement oversight and on-site advice available at the
resident mission, minimizing delays and opportunities for corruption.
10. I. THE PROPOSAL
1. I submit for your approval the following report and recommendation on proposed loans to
the People’s Republic of Bangladesh for the Natural Gas Access Improvement Project.1
The
design and monitoring framework is in Appendix 1.
II. RATIONALE: SECTOR PERFORMANCE, PROBLEMS, AND OPPORTUNITIES
A. Performance Indicators and Analysis
2. Government policy in the gas sector since 1993 has been to attract private investments to
upstream gas field development while improving the network coverage and operational efficiency
of national gas companies. Bangladesh managed to attract significant investments from the
private sector for gas exploration and increase gas production by over 100% since 1998.
However, the rapid increase in demand for gas for power generation and residential, industrial,
and commercial use has recently brought gas supply shortages.
3. The operational performance in the sector is affected by inadequate investment in all
subsectors. Uneconomic tariffs, the lack of adequate investment resources, inefficient gas use,
and inadequate capacity in state-owned gas companies (SGCs) and the government have
acerbated this situation. The updated gas sector reforms road map (GSRR) is designed to
address these issues. The GSRR and the Asian Development Bank (ADB) policy dialogue include
time-bound actions to improve the policy and regulatory environment, sector planning, and
corporate governance, as well as to implement structural and pricing reforms. Key actions, such
as approving the GSRR, operationalizing the Bangladesh Energy Regulatory Commission
(BERC), licensing gas companies, and cabinet approval for the proposed gas act, have been
completed. The government continues to implement other measures in the GSRR. A sector
assessment and the GSRR are in Appendix 2.
B. Analysis of Key Problems and Opportunities
1. Natural Gas Supply–Demand Balance
4. Bangladesh has 12.5 trillion cubic feet of discovered gas reserves remaining and 32 trillion
cubic feet of potential reserves to be confirmed through exploration. Until the 1990s, gas
production capacity exceeded demand. Since then, domestic demand for gas has increased
exponentially, with higher demand from industry and power generators. International oil
companies (IOCs) have significantly helped increase gas production to match rising demand.
Their share of gas production grew to reach almost 50% of the total supply in 2008.
5. Current daily average gas demand of 1,890 million cubic feet per day (MMCFD) is
expected to increase to 3,559 MMCFD by 2017. Recent investments by national oil companies
and IOCs will increase gas production by 49%, to 3,055 MMCFD, by 2017. The government has
finalized contracts following a 3rd round of bidding that will bring additional production,
contributing to the overall increase in supply by 74% and bringing it to 3,555 MMCFD by 2017.
The government is examining other options to further improve gas supply: (i) additional investment
in existing fields, (ii) initiating another round of bidding for exploration, and (iii) importing liquefied
natural gas. The GSRR has emphasized improving efficiency and mobilizing private resources to
support production, and supply.
1
ADB. 2007. Technical Assistance to the People’s Republic of Bangladesh for Preparing the Gas Sector Development
Program. Manila.
11. 2
2. Gas Sector Regulation and Pricing
6. As the regulator of the upstream gas sector, the government sets the wellhead gas tariff
for SGCs, which is substantially below world market prices and the prices of alternative fuels.
These prices do not provide sufficient revenue to support further gas exploration by the state-
owned companies. The price of gas from IOCs is linked to world market prices. Blended gas from
SGCs and IOCs, with an average wellhead price of about one-tenth of the world market price,
provides the basis for downstream gas prices.
7. The BERC recently started regulating the downstream gas sector, and most gas
companies have obtained operating licenses from it. In its recent first tariff order, BERC could not
address the issue of unsustainably low gas prices, as the wellhead price was not within its
regulatory purview. Its tariff order for the integrated sector does not reflect the cost of network
operations. The policy of making gas available to users at a minimal price has caused inefficient
gas use and underinvestment in gas infrastructure. The GSRR and ADB policy dialogue with the
government include actions to ensure efficient gas sector regulation, regarding pricing in
particular. The government is expected to fully operationalize the BERC with a complete legal
framework through the gas act and government pricing policy guidelines.
3. Government Policies and Plans
8. Priority elements of the government’s energy sector strategy include (i) ensuring good
governance through the autonomy of sector entities, including private sector participation;
(ii) designing and implementing a competitive and equitable pricing policy; (iii) strengthening and
improving commercial operations; (iv) enacting laws to strengthen the legal framework to enable
effective private sector participation and defining the sector restructuring program;
(v) implementing an action program to improve the financial performance of gas sector entities;
and (vi) strengthening institutional capability in policy making and monitoring. The gas sector
master plan for 2005–2025 envisages investments of $2.5 billion in exploration, field development,
transmission, and distribution. An investment of $363 million is envisaged in oil and gas
exploration, $179 million in appraisal and field development, and $46 million in renovating wells to
sustain production. Nearly 522 kilometers (km) of gas transmission pipeline will require about $1.8
billion, and 1,300 km of distribution pipeline will require $150 million.
4. Lessons
9. The evaluation of energy sector assistance programs in Bangladesh outlined several key
lessons typical to the gas sector.2
These lessons include the need to (i) minimize delays in project
implementation; (ii) improve local capacity in project preparation, implementation, and operation,
as well as the selection of appropriate technology; (iii) improve ownership of technical assistance
projects; and (iv) improve project and financial management capacity in project implementing
agencies. Gas Transmission and Development Project (GTDP) experienced delays from
procurement difficulties, involving cost overruns and institutional weaknesses in introducing and
implementing new technologies, which required careful drafting of technical specifications.
Unsustainable gas pricing was highlighted as a main cause of the inefficient allocation and use of
gas.3
2
ADB. 2003. Sector Assistance Program Evaluation of Asian Development Bank Assistance to Bangladesh Power
Sector. Manila.
3
ADB. 2009. Sector Assistance Program Evaluation of Asian Development Bank Assistance to Bangladesh Energy
Sector. Manila.
12. 3
10. To mitigate these risks, executing agencies have undertaken various actions. These
include advance approval of development project pro formas (DPPs) and the preparation of
procurement documentation. Measures have been incorporated in the project to reduce delays
through advance procurement and consultancy support for implementation. Substantial technical
capacity building in executing agencies has been incorporated. Cost estimates have been
carefully prepared, and an adequate contingency budget has been provided, taking into account
past experience to avoid cost overruns. External expertise has been brought into drafting the
technical specifications for the new technologies, and they have been revisited based on recent
experience. An independent assessment of the specifications has been carried out. Several
measures have been included in the project to address the gas pricing issue.
5. ADB Sector Strategy
11. ADB strategy for developing the gas sector covers support for (i) improved
commercialization, including private sector participation, by deepening sector reforms and
unbundling sector activities; (ii) increased access to natural gas at affordable prices across the
country; and (iii) policy and institutional measures aimed at improving energy efficiency in
distribution and promoting natural gas for transport. ADB’s continued support for the gas sector
under public sector financing is considered crucial to (i) maintaining the policy dialogue on
strengthening corporate governance, pricing reforms, and private sector participation; (ii) helping
to expand the supply of natural gas to meet energy demand in less-developed areas while
improving the efficiency and safety of gas production, transmission, and distribution companies
that cannot access international financing; (iii) promoting good practices on environmental and
social safeguards; and (iv) capacity building in the SGCs to improve their long-term planning and
ensure timely project implementation.
6. Policy Dialogue
12. The policy dialogue during the preparation of the project led the government to adopt the
GSRR, which sets out the plan for advancing the policy framework, regulatory instruments, sector
planning, access to natural gas, corporate governance, gas sector restructuring, and private
sector participation. The government has progressed on these reform actions. The GSRR and its
implementation status are described in Appendix 2. The following paragraphs describe the key
elements of the GSRR and the continuing policy dialogue.
13. National action plan for gas sector reform. Under the GSRR, a time-bound sector
reform action plan, the government will (i) strengthen the policy formulation and monitoring system
at the Energy and Mineral Resources Division (EMRD); (ii) adopt and implement the gas sector
master plan for exploration, development, transmission, and distribution, including expanding the
network to less-developed regions; (iii) create a framework for monitoring and updating; (iv)
execute a capacity-development program focusing on corporate governance, financial
management, and system management in gas sector entities; and (v) make the hydrocarbon unit
a permanent part of the EMRD to provide technical advice.
14. Legal and regulatory framework. A number of issues needed to be addressed to ensure
sustained gas sector growth. These include (i) the EMRD approving upstream gas pricing
guidelines, (ii) determining gas prices pursuant to these guidelines, and (iii) legally enforcing
BERC tariff regulations for downstream activities. The BERC has started regulating the gas sector
by licensing SGCs and issuing tariff orders. The gas act, which would ensure better regulation of
gas infrastructure, was approved by the cabinet and is awaiting parliamentary approval.
13. 4
15. Loss reduction. The overall gas system loss ranged from 4.5% to 6.5% from fiscal year
(FY) 2000 to FY2005. This situation has improved in recent years, with average losses falling to
1.3% and that of non-bulk supply to 2.8%. A comprehensive plan for improving efficiency and
reducing system losses in the entire gas sector has been adopted for implementation under the
GTDP. Further, the enactment of the proposed gas act under the GSRR will empower distribution
companies to take legal action against fraud, theft, malpractice, and delinquent customers.
16. Market-oriented gas pricing. There is a need to set gas tariffs in consideration of the
remaining gas reserves, cost of network services, and need for significant investment in the gas
sector. The adoption of the new pricing framework incorporating these principles will improve
sector entities’ ability to cover their operating expenses, debt-servicing liabilities, and future
investment requirements. The EMRD will issue pricing policy guidelines to address these pricing
issues. ADB is assisting the government in conducting a comprehensive gas pricing study to
refine these policy guidelines.
17. Private sector participation. Future exploration and gas production will be undertaken
predominantly by the private sector through production-sharing contracts. Private sector
participation will be encouraged in the construction of distribution pipelines and associated
facilities on a build–own–operate–transfer basis. IOCs will be encouraged to invest in gas
transmission facilities. A public–private partnership model will be demonstrated in the installation
and operation of Muchai gas compression station by an IOC to strengthen the gas transmission
system. The government will approve a policy framework on private sector participation in existing
gas distribution companies by December 2010. The newly formed distribution company, Sudarban
Gas Company Limited (SGCL), will sign contracts with private entities for operation, maintenance,
metering, and billing from the start of its operations. Possible models for private sector
participation in distribution are in Supplementary Appendix L.
7. Development Coordination
18. Assistance from major development partners is coordinated by the Economic Relations
Division of the Ministry of Finance, with the support of the EMRD. Coordination among the
development partners is carried out through the local coordination group consisting of focused
subcommittees for core areas of assistance. As the leading development partner in energy, ADB
chairs the energy subcommittee and holds regular meetings with all development partners. These
efforts have greatly advanced sector reforms, improving the regulatory environment in particular.
Energy subcommittee meetings were held during fact-finding and appraisal missions to enlighten
development partners on progress. The energy subcommittee expressed its support for the
project. During bilateral meetings, the World Bank, Japan International Cooperation Agency
(JICA), and the Export–Import Bank of Korea (Korea Eximbank) expressed their support.
19. The other main development partners in the energy sector are JICA, KfW, the United
States Agency for International Development, and the World Bank. In the gas sector, ADB has
provided public sector loans of $675 million and technical assistance grants of $5.4 million
covering gas exploration, production, transmission, distribution, and energy efficiency. Further
details are in Appendix 3.
8. Rationale for the Project
20. The government’s poverty reduction strategy emphasizes implementing policies to expand
the natural gas network to cover less-developed areas. The strategy will accelerate balanced
regional development that will help reduce widespread poverty. The project aims to expand
14. 5
access to this main indigenous energy source in Bangladesh to meet increased demand for
primary commercial energy.
21. Early in 2009, the government approved the GSRR, which is now under implementation. It
includes strategies and actions to improve the policy, regulatory, and operational environment
toward ensuring the sustainability of the gas sector. The effective implementation of the GSRR is
critical to creating an environment conducive to better commercial orientation in the SGCs and to
stronger private sector participation downstream in the gas sector. Further, as the capacity of the
SGCs is not adequately developed to access international financing to meet their investment
needs, they need public financing. Under these conditions, fully implementing the GSRR relies
heavily on continued ADB support, particularly for increasing supply efficiency and removing
transmission bottlenecks.
22. The reinforcement of the transmission system with the compressors at Muchai, Ashuganj,
and Elenga is essential to ensuring reliability and efficiency in gas delivery. Financing these
compressors was originally included in the scope of the ongoing GTDP. The cancellation of two
bidding rounds delayed procurement. Finally, the delayed procurement could not be completed
because funds under the GTDP were inadequate as costs escalated significantly above the cost
estimates, owing to sharp increases in commodity prices. As the four components in the GTDP
are independent, they are technically and economically viable as separate components. Therefore
the absence of the compressor component does not affect the technical or economic viability of
the remaining GTDP components.
23. Because of the urgency and critical requirement of the compressors in transmission
operation, the government offered the installation of a compressor at Muchai to the private sector
and requested ADB to fund compressors at Ashuganj and Elanga. Network, economic, and
financial analyses confirmed the need for these compressors to strengthen transmission and their
viability within the project. The cost estimates, technical specifications, and contract packaging of
the compressors have been carefully reviewed in light of recent experience to ensure maximum
competition and rectify technical and procurement issues that arose under the GTDP. Recent
strengthening of procurement oversight at the ADB resident mission has improved the
procurement environment through on-site advice on procurement issues and quarterly
procurement workshops for executing agencies. The design and implementation of
comprehensive executing agency training on wise procurement is planned.
24. The proposed physical investments are the most urgent components of the gas sector
investment program. The subcomponents have been selected considering their financial and
economic viability and their social, environmental, and poverty reduction impacts. They will
contribute to poverty reduction by making clean energy available in less-developed areas.
III. THE PROPOSED PROJECT
A. Impact and Outcome
25. The impact of the project will be increased and more reliable access to natural gas,
providing sustained economic growth by reinforcing and augmenting natural gas supply and
addressing policy and institutional constraints.
26. The main outcome of the project will be expanded capacity and improved efficiency in
natural gas production, transmission, and distribution systems.
15. 6
B. Outputs
27. The outputs of the project will comprise three investment components—in gas
transmission, safety and supply efficiency improvement, and access improvement—as well as a
supply-and-demand management component. The specific activities of the project are as follows:
(i) Part A: Transmission capacity expansion. Two subcomponents will assist in
transmitting gas to consumption centers, including those in less-developed regions.
(a) Part A-1: Ashuganj–Bakhrabad gas transmission loop-line. The
subproject will construct a 30-inch gas loop pipeline running 61 km from
Ashuganj to Bakhrabad, with a throughput of 400 MMCFD, and install major
transmission–distribution interface metering and regulating stations at
selected locations such as Manohardi, Dewanbhog, Kutumbpur, Feni, and
Barabkund.
(b) Part A-2: Gas compressors at Ashuganj and Elenga. This subproject will
install a compressor at Ashuganj with a maximum throughput of 1,500
MMCFD and another at Elenga with a maximum throughput of 500
MMCFD.
(ii) Part B: Safety and supply efficiency improvement in Titas gas field. The first
subproject (part B-1) will undertake activities to improve safety at existing
problematic wells in Titas field. The second subproject (part B-2) will improve
supply efficiency through four additional appraisal-cum-development wells and
install processing plants in Titas field to increase gas production by 120 MMCFD.
(iii) Part C: Access improvement in southwestern region. This component will
construct 2-inch to 20-inch gas distribution pipelines of 845 km to provide gas to the
districts of Kushtia, Jhenidah, Jessore, Khulna, and Bagerhat (including Mongla).
(iv) Part D: Supply and demand management. This component will establish gas
metering at consumer connections of Titas Gas Transmission and Distribution
Company Limited (TGTDCL). Its scope will include installing prepaid meters for
domestic consumers4
and, for industrial consumers, replacing existing meters with
remote sensing meters on a pilot basis. This component will assist in developing a
portfolio of projects for improving energy efficiency.
28. All the project components include capacity building in the form of training and
implementation support. Training components entail carrying out an assessment of training needs
in each executing agency, developing curricula, and conducting training programs.
C. Special Features
29. Private sector participation in distribution. The SGCL will start its operations in the
southwest by late 2012. The policy framework for private sector participation in distribution and the
required enabling environment will be in place by that time. The SGCL will set up five geographic
business units and enter into contracts with private entities for operation, maintenance, metering,
and billing for supply to consumers from December 2012.
4
Providing clean energy access to the poor is a key parameter in household selection supported by ADB's Energy for
All initiative. This pilot project is expected to be scaled up under a subsequent loan.
16. 7
30. Interface metering and regulating stations. The installation of interface metering and
regulating stations will allow monitor the efficiency the transmission systems, assisting in loss
reduction. The GTCL has established gas manifold stations but the metering devices are not
available or are inadequate to cope with the increased demand for gas supply at several manifold
stations. The project will support the installation of additional meters to address these concerns.
31. Geographical focus and poverty reduction. The gas transmission component has three
distinct parts: to remove supply bottlenecks in the entire network, to improve gas flow, and to add
an extension pipeline to meet projected demand in major consumption centers. The gas
distribution network will expand access to cleaner fuel in less-developed towns. These efforts will
increase small- and medium-scale industries’ access to clean fuel, particularly in the less-
developed southwest, increasing employment there.
32. Air quality improvement. The project will support the use of natural gas in power
generation, industries, and transport. Also, it will promote the use of cleaner fuel in households.
Wider use of natural gas will improve ambient air quality in urban centers and household indoor air
quality. The benefits from reduced greenhouse gas emissions will be significant.
D. Project Investment Plan
33. The project is estimated to cost $542 million equivalent, comprising $311 million in foreign
exchange and $231 million equivalent in local currency. The cost includes taxes and duties of
$101 million. Physical and price contingencies amount to $55 million, and financing charges in
accordance with ADB’s guidelines and procedures amount to $41 million. The cost estimate by
component and subcomponent is summarized in Table 1, and detailed cost estimates are in
Appendix 4.
Table 1: Project Investment Plan
($ million)
Item Amounta
A. Base Costb
1. Part A: Transmission capacity expansion
(A-1) Ashuganj–Bakhrabad pipeline and interface metering and regulating stations 81
(A-2) Ashuganj and Elenga compressor stations 173
2. Part B: Safety and supply efficiency improvement
(B-1) Safety improvement 9
(B-2) Supply efficiency improvement 103
3. Part C: Access improvement in southwestern region 73
4. Part D: Supply and demand management 8
Subtotal 447
B. Contingenciesc
54
C. Financing charges during implementationd
41
Total (A+B+C) 542
a
Includes taxes and duties of $101 million.
b
Mid-2009 prices.
c
Physical contingency and price contingencies.
d
Interest during construction and commitment fee.
Sources: Asian Development Bank and executing agency estimates.
17. 8
E. Financing Plan
34. The government has requested ADB to provide a loan of $261 million from its ordinary
capital resources (OCR) to finance parts A-2, B, and C. The loan will have a 25-year term
including a grace period of 5 years, an interest rate determined in accordance with ADB’s London
interbank offered rate (LIBOR)-based lending facility, a commitment charge of 0.15% per annum,
and other terms and conditions set forth in the loan and project agreements. The proceeds of the
OCR loan will be re-lent to the executing agencies under subsidiary loan agreements with terms
and conditions acceptable to ADB. The government has provided ADB with the reasons for its
decision to borrow under ADB’s LIBOR-based lending facility on the basis of these terms and
conditions and confirmed the choices were its own decision and not made in reliance on any
communication or advice from ADB.
35. Korea Eximbank is expected to provide a loan of up to $45 million equivalent on a parallel
basis for part A-1 of the project.5
The terms and conditions of the Korea Eximbank loan will be
covered under a separate agreement between Korea Eximbank and the government. Korea
Eximbank will follow ADB safeguard policies and procedures when implementing this component.
36. The government has requested another loan in various currencies in special drawing rights
equivalent to $5 million from ADB’s Special Funds resources (the ADF loan) to finance part D. It
will have a repayment period of 32 years including a grace period of 8 years, an interest charge of
1% during the grace period and 1.5% thereafter, and other terms and conditions set forth in the
loan and project agreements. The ADF loan will be re-lent to executing agencies under subsidiary
loan agreements with terms and conditions acceptable to ADB. The financing plan is in Table 2.
Table 2: Financing Plan
Source
Amount
($ million)
Share of
Total (%)
Asian Development Bank (ordinary capital resources) 261 48
Asian Development Bank (Asian Development Fund) 5 1
Export–Import Bank of Korea 45 8
Government of Bangladesh 231 43
Total 542 100
Source: Asian Development Bank.
37. The government has assured the timely availability of counterpart funds.
F. Implementation Arrangements
1. Project Management
38. The GTCL will be the executing agency of part A, Bangladesh Gas Fields Company
Limited (BGFCL) of part B, the SGCL of part C, and the TGTDCL of part D. Project
implementation will be undertaken and supervised by project management units set up in the
executing agencies. The Bangladesh Oil, Gas, and Mineral Corporation (Petrobangla), the
executing agency for overall coordination, will establish a project coordination unit. These
arrangements are consistent with ADB's policy dialogue with the government, a key feature of
5
Korea Eximbank will undertake its loan appraisal mission in March 2010.
18. 9
which is the independence of gas sector companies. The implementation of each of the four
project components is independent. It is therefore important that primary responsibility for each of
the project components remain with executing agencies, with Petrobangla in a coordinating role
only. Project implementation arrangements are in Supplementary Appendix K.
2. Implementation Period
39. The project will be implemented over 5 years, including procurement and construction. It is
envisaged that implementation will begin on 01 July 2010 and be completed by 31 March 2015.
The implementation schedule is in Appendix 5.
3. Procurement
40. All procurement financed under the ADB loan will be carried out in accordance with ADB’s
Procurement Guidelines (2007, as amended from time to time). International competitive bidding
procedures will be used for all 11 procurement packages financed by ADB (5 turnkey and 6 supply
contracts), of which 7 packages (4 turnkey and 3 supply contracts) will follow the single-stage,
two-envelope procedure; 3 packages (3 supply contracts for gas seepage control and field
appraisal) will follow the single-stage, one-envelope procedure; and the remaining turnkey
contract for procurement of gas turbine compressor stations will follow the two-stage, two-
envelope procedure. The procurement plan is indicated in Appendix 6.
41. The government, Petrobangla, and the executing agencies have requested ADB's
approval for advance contracting for the procurement of works, goods, and services. Retroactive
financing of up to $500,000 has been requested for consulting services to support the BGFCL in
its identification and recommendation of remedial actions regarding gas seepage, drilling wells,
and installing gas processing plants. ADB management has approved advance contracting for
procurement and consulting services, as well as retroactive financing for consulting services for
the BGFCL of up to $500,000, provided that expenditures are in accordance with the ADB's
Procurement Guidelines and Guidelines on the Use of Consultants (2007, as amended from time
to time) and safeguard policies and are incurred during the 12 months before the signing of the
loan agreement. The government, Petrobangla, and the executing agencies have been informed
that approval of advance contracting or retroactive financing does not in any way commit ADB to
finance the project. They have also been informed that ADB will not finance expenditures paid by
the borrower prior to loan effectiveness, even if advance contracting is approved, unless
retroactive financing has been approved by ADB.
4. Consulting Services
42. Two consulting services for part A will be required to help the GTCL implement (i) the
installation of interface metering and regulating stations and the supervisory control and data
acquisition system and (ii) the construction of gas turbine compressor stations. Consulting
services for parts B and D will be required to (i) support the BGFCL in identifying and
recommending remedial actions regarding gas seepage, drilling wells, and installing gas
processing plants and (ii) assist the TGTDCL in project implementation and developing a portfolio
of projects to improve energy efficiency. Four consulting services for international training are
envisaged for capacity development in the GTCL, BGFCL, SGCL, and TGTDCL. Consultants will
be engaged as firms. Seven consulting firms will be engaged for parts A-2, B, C, and D, with part
A-1 financed by Korea Eximbank.
19. 10
43. All consultants except those in Part A-1 will be recruited in accordance with ADB’s
Guidelines on the Use of Consultants. Consultants will be selected and engaged using ADB’s
quality- and cost-based selection procedure, applying the standard quality–cost ratio of 80:20. Full
technical proposals will be required from bidders for all consulting services for parts A and B, while
the others will use biodata technical proposals (Appendix 6). Details of consulting services are in
Supplementary Appendix J.
5. Anticorruption Policy and Governance Measures
44. The government aims to create a corruption-free environment and established the
Anticorruption Commission in 2004. ADB has provided technical assistance to help the
government build capacity and provide support for an integrated anticorruption strategy.6
ADB’s
Anticorruption Policy (1998, as amended to date) was explained to and discussed with the
government and executing agencies. Consistent with its commitment to good governance,
accountability, and transparency, ADB reserves the right to investigate, directly or through its
agents, any alleged corrupt, fraudulent, collusive, or coercive practices relating to the project. To
support these efforts, relevant provisions of ADB’s Anticorruption Policy are included in the grant
regulations and the bidding documents for the project. In particular, all contracts financed by ADB
in connection with the project shall include provisions specifying the right of ADB to audit and
examine the records and accounts of the executing agencies and all contractors, suppliers,
consultants, and other service providers as they relate to the project. Table 3 summarizes major
project-specific governance measures.
45. The government will ensure that the GTCL, BGFCL, SGCL, TGTDCL, Petrobangla, and
other gas sector entities have operational autonomy and that no organizational changes that
would affect their ability to perform their obligations under the project are carried out.
Table 3: Governance Measures
Area Measure
Procurement (i) Project management units headed by senior officers reporting directly to the managing
directors of the executing agencies
(ii) Bid specifications and packaging to be prepared to ensure maximum competition
under international competitive bidding procedures
(iii) Information on procurement to be disclosed on a project website
(iv) Procurement capacity support at the resident mission for expedited action on
procurement issues
Financial
management
and audit
(i) Measurable financial performance indicators for the executing agencies
(ii) Regular monitoring of expenditures, other financial transactions, and safe custody of
project-financed assets by the accounting and control systems of the executing
agencies
(iii) Scoped internal audit of the executing agencies ensured to include revenue audit and
internal audit reports to the audit committee of the executing agency boards
(iv) Financial statements to be audited by external auditors acceptable to ADB and
regularly published and reported to the shareholders
(v) Executing agencies to provide an accurate accounting of losses
6
ADB. 2003. Technical Assistance to the People’s Republic of Bangladesh for Supporting Good Governance. Manila.
20. 11
Area Measure
Institutional
and corporate
governance
(i) Executing agencies to execute the project components as entities independent from
Petrobangla with separate licenses issued by the BERC and Petrobangla to coordinate
overall project implementation
(ii) Executing agencies except Petrobangla to independently file tariff petitions with the
BERC
(iii) Restructuring plan for Petrobangla for greater transparency and accountability
(iv) Sundarban Gas Company Limited to introduce private sector in operation,
maintenance, metering, and billing
Anticorruption (i) ADB to review and examine any alleged corrupt, fraudulent, collusive, or coercive
practices relating to the project
(ii) Information on the project to be made public through the publication of leaflets made
available in the districts within which the project operates
Grievance
review
(i) A grievance redress mechanism to be established to address issues relating to project
implementation
ADB = Asian Development Bank, BERC = Bangladesh Energy Regulatory Commission, Petrobangla = Bangladesh Oil,
Gas, and Mineral Corporation,
Sources: Asian Development Bank, Bangladesh Gas Field Company Limited, Gas Transmission Company Limited,
Petrobangla, Sundarban Gas Company Limited, Titas Gas Transmission and Distribution Company Limited.
6. Disbursement Arrangements
46. The disbursement of loan funds under the project will be mainly for goods and consulting
services. ADB’s commitment letter and direct payment procedures will be utilized. Disbursement
procedures will be in accordance with ADB’s Loan Disbursement Handbook (2007, as amended
from time to time). Statement of expenditure procedures may be used for reimbursement under all
project components. The statement of expenditure ceiling will be $100,000 for individual payments
applicable to reimbursement procedures.
7. Accounting, Auditing, and Reporting
47. The executing agencies receiving proceeds from the ADB loans will each maintain a
separate account for the project and submit audited financial statements within at least 6 months
after the end of the fiscal year. Annual project accounts and annual financial statements will be
audited by independent auditors acceptable to ADB, providing the auditors’ observations with
respect to the use of loan proceeds and compliance with loan covenants. They will prepare
separate progress reports for their respective components. Petrobangla will consolidate the
reports and submit to ADB quarterly within 1 month of the end of each quarter. Each report will
describe the progress made, any changes to the implementation schedule, problems encountered
and remedial actions taken, the performance of the consultants, and the work to be carried out in
the upcoming period. A project completion report will be submitted to ADB within 3 months of the
completion of the project. The use of statement of expenditure will be part of the annual audit, as
will a separate opinion on the use of statement of expenditure.
8. Project Performance Monitoring and Evaluation
48. A project performance monitoring system will be established to assess the progress and
implementation of the project and to measure impacts and outcomes. A set of indicators for
evaluating project performance in relation to its goals, purposes, outputs, and conditions will be
21. 12
developed. The indicators will include (i) economic development and poverty indicators in the
project areas, (ii) energy indicators for the region and the project areas, (iii) gas tariffs, (iv) the
financial sustainability of the SGCs, (v) access to social services in the project area, (vi) jobs
created in the construction and maintenance of the project, and (vii) environmental and social
indicators including compliance with the national labor laws and equal access for women to
employment opportunities. At the beginning of project implementation, the SGCs will establish
baseline and target values for the indicators. The indicators will be measured at project completion
and 3 years later for comparison with the baseline. A report summarizing the key findings of
monitoring at inception, completion, and 3 years later will be submitted to ADB.
9. Project Review
49. The project will be supervised by ADB through at least two review missions each year.
ADB will monitor the implementation of the project through quarterly progress reports. In addition
to the normal periodic reviews, ADB and the government will undertake a midterm review 2 years
after project implementation begins. The midterm review will include a detailed evaluation of the
project scope, implementation arrangements, resettlement, consultation with affected people,
achievement of scheduled targets, progress on policy reforms, and capacity building.
IV. BENEFITS, IMPACTS, ASSUMPTIONS, AND RISKS
A. Project Financial and Economic Justification
1. Financial Management
50. The financial management assessment, conducted in accordance with ADB’s Financial
Management and Analysis of Projects during project preparation, is in Supplementary Appendix
C. Petrobangla is upgrading its human resource systems to improve procedures and training.7
Accounting and management information systems are satisfactory for the Petrobangla group of
companies. Petrobangla will provide accounting and billing systems and training to the SGCL.
With the assistance of the World Bank, the GTCL is upgrading its accounting and management
information systems to improve management operations. Financial management assessment
found the proposed project financial management arrangements to be satisfactory.
2. Past Financial Performance and Future Projections
51. Gas Transmission Company Limited. Mainly because of increases in transmission
volume, revenues from gas transmission resulted in an increase in net profit from Tk424 million in
FY2004 to Tk2,614 million in FY2008. The rate of return (ROR) on net fixed assets increased
steadily over the period to reach 15.1% in FY2008, half again the covenanted ROR of 10.0%, and
the debt service ratio (DSR) exceeded 1.2 times. Accounts receivable have exceeded 3 months of
sales since FY2001. However, they do not translate into bad debts, as the GTCL is paid by
Petrobangla once payment is received from distribution companies.
52. Forecasts of gas transferred by the GTCL are based on Petrobangla’s August 2008
demand–supply projections. The financial projections assume that the GTCL wheeling charge
increases so that the ROR covenant of 10% is met. Accordingly the wheeling charge needs to
increase to Tk0.64 per cubic meter by the beginning of FY2012. This also allows the DSR of 1.2 to
be met over the forecast period to FY2020.
7
ADB. 2005. Financial Management and Analysis of Projects. Manila.
22. 13
53. Bangladesh Gas Fields Company Limited. Revenues from gas production at the
prescribed production margin have steadily increased, with net profit reaching Tk1,055 million in
FY2004 and declining to Tk993 million in FY2005 and Tk865 million in FY2006, before recovering
to Tk999 million in FY2007. It declined to Tk794 million in FY2008 because of higher maintenance
costs. The ROR reached 26.7% in FY2005 but declined to 16.7% in FY2008. The DSR is well in
excess of 1.2 times debt obligations.
54. Forecast gas and condensate volumes are based on Petrobangla’s August 2008 supply–
demand projections. The BGFCL derives its revenue from the production of gas, for which it
receives a wellhead margin of Tk0.225 per cubic meter, and the sale of gas condensate and
refined products based on international petroleum prices. On this basis, the projections
demonstrate that a DSR of 1.2 and the historic ROR in excess of 12% will be achieved through
2020.
55. Sundarban Gas Company Limited. SGCL is a new company formed to distribute gas in
the Khulna area and towns adjacent to the new transmission pipeline to Khulna. SGCL gas sales
projections for 2012–2020 (phase 1) are based on Petrobangla forecasts and in particular the
supply of gas to an existing 360 megawatt (MW) power plant in Khulna and a proposed 360 MW
plant at Bheramara. Operating costs for the distribution company are based on October 2008
estimates made in the DPP prepared by the Dakhshin Paschimanchal Gas Bitoran Prokalpa
Bastabayan Unit of Petrobangla and the operating costs of the Pashchimanchal Gas Company
Limited (another newly formed company), which operates in the western part of the country. The
projections show that the SGCL would maintain a DSR exceeding 1.2 in all years through 2020.
56. Titas Gas Transmission and Distribution Company Limited. The TGTDCL is the oldest
gas distribution and marketing company of the country, with a franchise area extending over the
area east of the Jamuna–Padma river system, excluding Sylhet and Chittagong divisions but
including Brahmanbari. Its revenues from gas sales have been increasing by approximately 20%
per annum, and the net profit in FY2008 reached Tk4,218 million. That year, the ROR on net fixed
assets reached 37.3%, and the DSR exceeded 1.2 times debt obligations. Forecast gas sales are
based on the Petrobangla's supply–demand projections. The TGTDCL derives its revenue mainly
from its gas sales and wheeling charges. On this basis the projections demonstrate that a DSR of
1.2 and the historic ROR in excess of 12% will be achieved through 2020.
57. The past and projected financial performance of the executing agencies is detailed in
Supplementary Appendix B.
3. Financial Viability
58. The financial evaluation of the project was carried out in accordance with the Guidelines
for the Financial Governance and Management of Investment Projects Financed by ADB.8
The
analysis was carried out for (i) pipeline extensions, (ii) existing system reinforcement, and (iii) the
overall system including expansions and extensions. For the field appraisal and development
component, no financial internal rate of return (FIRR) was calculated, as the investment is meant
to more clearly delineate gas structures to determine possible increases in reserves that have
future economic benefit. Financial analysis was undertaken in real terms using 2009 prices. The
without-project and with-project scenarios were compared. Without the project, gas shortages in
8
ADB. 2002. Guidelines for the Financial Governance and Management of Investment Projects Financed by ADB.
Manila.
23. 14
Bangladesh would continue. With the project, gas from northeast Bangladesh would be available
to meet shortages in the existing gas supply area and supply new market areas in the southwest.
59. The transmission component has an FIRR of 9.6% after taxes, and the distribution
component 5.5%. These compare favorably with the weighted average cost of capital of 2.7% for
the transmission component and 1.8% for the distribution component. Sensitivity analysis was
conducted for 10% increases in capital and operating and maintenance costs, a 10% reduction in
project benefits, and a combination of these factors together with project delays. Sensitivity and
risk analyses show that the FIRR is robust under adverse conditions and the project is financially
viable. A summary of the project’s financial evaluation is in Appendix 7. Considering the nature of
project activities, such as arresting natural gas seepage from problematic wells and energy
efficiency improvements, there can be opportunities for financial benefits under the Clean
Development Mechanism of the Kyoto Protocol. The government and the executing agencies will
pursue such opportunities to further strengthen financial viability.
4. Economic Viability
60. Demand analysis. Future gas demand was analyzed for the area covered by the existing
pipeline system. Forecast gas sales for the existing network area provided the basis for estimating
increased volumes and benefits from network reinforcement. The analysis assumed that the
present network would not be adequate to meet demand beyond 2013 level and that higher gas
sales would be owing entirely to investment in the network.
61. Least-cost analysis. The network analysis has been validated for the entire system, and
changing any one element may affect the entire system. However, between any two points,
compressors or looping alternatives can be compared. The planned investment program is based
on numerous simulations to identify the locations of bottlenecks as throughput increases and to
remove those bottlenecks with compressors or looping. For all compressor locations identified as
bottlenecks, costs of the pipeline looping alternative were estimated.
62. Economic rate of return. The economic internal rate of return (EIRR) was calculated for
the project, considering capital costs and operation and maintenance costs. Conversion factors
were used to convert financial values into economic values. Values are expressed in mid-2009
prices. The main economic benefits of the project is the value of future imported petroleum fuels
and other energy sources displaced by gas and growth in demand from new and existing
customers. The EIRR computed for the entire project is 32%, assuming annual average gas
supply of 80% of the maximum daily demand (Appendix 8). Sensitivity and risk analyses on
adverse scenarios showed the project EIRR to be stable and robust. More details are in
Supplementary Appendix D.
B. Social Assessment and Resettlement
1. Poverty Assessment
63. The social, poverty, and development impacts of the project have been analyzed. The
expansion of the gas transmission network to consumption centers and the construction of the
distribution network in the southwest will bring significant benefits to people. The project’s impacts
can be classified as production, income, employment, habitat, health and safety, quality of life,
society and organization, poverty, gender, environment, and pricing.
24. 15
64. The project employed participatory preparation, and stakeholder consultation will continue
during implementation. As the initial poverty and social assessment did not identify any
communities of indigenous people that would be affected, no indigenous peoples development
plan is needed.
65. The project will reduce poverty in the project areas. The poverty analysis carried out during
project preparation found income likely to increase with new opportunities that are expected to
open up and increased employment arising from economic diversification. Income growth for the
poor will come from (i) expanded off-farm economic activities; (ii) growth in agricultural income
mainly from cheaper fertilizer and irrigation; (iii) expanded markets and institutions with wider
availability of gas and electricity; (iv) time saved that can be devoted to other income-earning
pursuits, particularly by women; and (v) the low cost of natural gas compared with other sources
of energy. Non-income poverty can be reduced by (i) controlling the depletion of forest resources
and reducing health risks, (ii) empowering women through new income opportunities, and (iii)
establishing social infrastructure that will provide better services. The project will create 3,000
person-months of unskilled employment. A summary of the poverty and social strategy is in
Appendix 9.
2. Resettlement
66. Under part A, implementation will require the acquisition and requisition of land on the
right-of-way of the gas transmission pipeline. The central 8 meters will be permanently acquired,
while the remaining 15 meters will be requisitioned for the duration of the civil works. In full
consultation with affected people and communities, a full resettlement plan was prepared to
mitigate impacts. The GTCL has undertaken efforts to minimize adverse impacts. The corridor
was chosen to pass through agricultural land to avoid settlements and homesteads. The GTCL
will ensure that civil works are completed during the dry season to avoid disrupting crops on the
temporarily acquired land. The survey indicates that the construction and installation of the 61 km
of gas pipeline will require the permanent acquisition of 50.65 hectares (ha) and the temporary
acquisition of 105.76 ha. A total of 1,992 households will be affected by permanent acquisition,
and 2,185 households will be affected by the temporary acquisition, for a total of 10,956 affected
people.
67. Under part B, implementation will require the acquisition of 7.086 ha of mostly agricultural
land, affecting 178 households. Of these, 113 households will permanently lose 6.26 ha of land, 3
households will lose residential property, and 4 households will lose 175 trees. The remaining
58 households are currently affected by gas seepage that costs them access to 1.51 ha. These
affected people will benefit from the implementation of the project, as they will regain access to
their land, but they have been added to the resettlement plan as they will be compensated for
income lost to seepage. In full consultation with affected people and communities, a full
resettlement plan was prepared to provide appropriate mitigation.
68. Under part C, the project sites were selected and the components were designed to
minimize impacts by avoiding involuntary land acquisition and displacement and by confining the
project to land already available to the government or the GTCL. Although no titled landholders
will be affected, nine households (five in Khulna and four in Jessore) comprising 52 people (mainly
squatters) will be temporarily affected for a maximum of 1 week and will therefore require
compensation. A detailed survey of 100% of the affected people was conducted in June 2009.
Nine informal commercial structures will be temporarily affected. In full consultation with affected
people and communities, a short resettlement plan was prepared to assist the nine affected
households.
25. 16
69. The executing agencies continue to disclose resettlement plan information to affected
people through various means including pamphlets, brochures, and newspapers in the local
language. All resettlement plans were submitted to ADB in July 2009. The government assured
the ADB mission that compensation to all affected people will be paid according to the ADB
Involuntary Resettlement Policy (1995) and the Acquisition and Requisition of Immovable Property
Ordinance of 1982 and subsequent amendments to it—and that full compensation will be awarded
prior to the physical takeover of land acquired temporarily or permanently. In addition, temporarily
acquired land will be restored to at least its pre-acquisition condition. Summary resettlement plans
are in Appendix 10. The full resettlement plans are in Supplementary Appendixes H and I.
70. As 100% of the affected people were surveyed and no indigenous households will be
affected by the project, the project was classified category C, and no indigenous peoples
development plan is required.
C. Environmental Analysis
71. The executing agencies have prepared initial environmental examinations (IEEs) for all
components following ADB’s Environment Policy (2002) and the government’s environmental
impact assessment guidelines for industries, as well as national policies and legislation. They
identify the potential impacts and their severity and duration. The IEEs provide mitigating
measures for the impacts and a monitoring plan. The IEEs show that the proposed project
infrastructure will traverse farmland, rural areas, peri-urban areas, and secondary cities. It will not
pass through any socially, archeologically, or ecologically sensitive areas. In addition, most
impacts will be temporary and have no lasting effect if mitigating measures outlined in the
environmental management plan are followed. The summary IEE (SIEE) for the project in
Supplementary Appendix E highlights the findings of the IEEs. and additional information and
activities included during the ADB review process. The IEEs will be updated and approved to be
in line with the SIEE. The project is environment category B, so a full environmental impact
assessment is not required. Before the commencement of construction, the environmental
management plans for each subprojects will be detailed in the project-specific context and
included in construction contracts.
D. Expected Benefits
72. The project will expand access to gas in less-developed areas of the country to achieve
balanced regional development and augment transmission capacity in southern industrial areas.
This will save foreign exchange spent on fuel imports and positively affect the environment and
health, particularly of women and the poor, who are most vulnerable to smoke from cooking fires.
An estimated 200,000 additional households will have access to new gas connections in the
southwest.
73. An additional 1,400 industrial and commercial establishments and 35 compressed natural
gas filling stations will have access to gas because of part C of the project. The industries will
include small fertilizer plants, jute mills, ceramic factories, dyeing and finishing factories, textile
weaving factories, and small cottage industries. Commercial entities will include hotels,
restaurants, and bakeries. These industrial and commercial installations will generate significant
employment. A poverty analysis showed that incomes are likely to increase with new
opportunities, including those resulting from economic diversification. Project implementation will
directly create 3,000 person-months of unskilled employment.
26. 17
74. All technical studies indicate that Bangladesh has adequate gas reserves to meet its
requirements. Network analysis demonstrates constraints in the existing gas supply network. The
least-cost analysis shows that overcoming those network constraints will require installing
compressors at selected transmission points and looping transmission lines. To address these
network constraints, the project will install compression facilities at Ashuganj and Muchai. 9
Together they will augment throughput by 1,500 MMCFD by 2015 with adequate supplies from
gas fields. The compressor facility at Ashuganj under the project will also increase supplies to the
central regions. An additional loop-line and compressor at Elenga will be installed to allow
adequate supply to the western region. These improvements will enable the project design to
serve for the natural gas system for over 25 years.
E. Risks and Safeguards
75. Policy reforms. The main potential policy risk is failure or delay in introducing the required
reforms and restructuring. ADB will maintain policy dialogue with the government on these issues.
This risk has been mitigated by introducing assurances to promote the acceleration of reforms, the
quality of the reform content, and the sustainability of implementation. It addresses this risk by
approaching difficult issues incrementally.
76. Cofinancing. Korea Eximbank cofinancing is expected for part A-1 of the project under
parallel, tied financing. In the unlikely event that Korea Eximbank financing is not forthcoming, part
A-1 will likely be excluded from the project scope. This would not affect the viability or
implementation of the remaining components, as each is independent.
77. Implementation risks. The project is subject to risks common to projects of such size and
complexity. The project has been designed to mitigate policy and institutional risks. The
subprojects are not subject to any unusual technical and commercial risks. They involve financially
sound SGCs and technically and commercially proven technologies. Cost overruns and delays in
implementation are major potential risks. The economic impacts of the subprojects are less
sensitive to cost overruns and more sensitive to delays in implementation, but the basic economic
returns remain sound. The potential risks in project implementation include front-end delays.
Measures have been incorporated in the project design to reduce these risks.
78. Good governance. The project’s design includes measures to promote good governance
and mitigate the risk of corruption. These include disclosing project and procurement-related
information on a project website and preparing bid specifications and packaging to ensure
maximum competition under international competitive bidding. The executing agencies will benefit
from the presence of a procurement specialist stationed at the resident mission to identify and
proactively address procurement issues at an early stage. The procurement specialist will support
capacity enhancement among executing agency staff through regular meetings and customized
training sessions on ADB procurement processes.
79. Project readiness. Delays in project implementation in the gas sector have been a major
concern, frequently caused by lack of project readiness. Considering this, the government and the
executing agencies have taken mitigation measures. These include advanced preparation and
approval of the DPPs, as well as environmental and social safeguard documents. The preparation
of bidding documents for goods and services has been undertaken before loan approval.
9
Supply constraint will be partly addressed by the installation of gas compressors at Muchai by the private sector, to be
operated in the public sector after cost recovery.
27. 18
Measures have been incorporated in the project design to reduce delays by allowing advance
procurement, retroactive financing, and advisory support for implementation.
V. ASSURANCES
A. Specific Assurances
80. In addition to the standard assurances, the government has given the following
assurances, which are incorporated in the legal documents.
1. Policy and Regulatory Environment
81. The government will continue implementing the GSRR to ensure optimal development of
the gas sector.
82. The government will formulate and approve the revised gas pricing policy by 31 December
2010. The EMRD will adopt a formula in the revised pricing policy for determining upstream gas
prices for the state gas companies based on the cost of future supply taking into account the price
of international gas supplies and possible alternative fuels.
83. Gas sector companies will directly lodge separate tariff applications annually with the
BERC from 31 December 2010.
84. The EMRD will approve the policy framework for private sector participation in the
operation, maintenance, marketing, and billing processes of gas distribution companies, by 30
June 2011.
2. Efficiency Improvement
85. Gas distribution companies will start accounting for energy losses based on actual
metered consumption instead of losses based on billed consumption by 30 June 2011, and the
companies will continue to maintain system losses below 2%.
3. Financial Performance and Governance
86. From the commencement of its operations, the SGCL shall install consumer meters for all
household connections and introduce metering for all industrial consumers within its franchise
area and bill its consumers exclusively on the basis of metered consumption.
87. Petrobangla shall develop a human resources strategy for the entire Petrobangla group
that encourages recruitment through transparent and competitive procedures and that links
promotions and salary increases to market benchmarks and individual performance. Petrobangla
shall ensure that the implementation of the revised strategy commences from 1 January 2011.
88. With immediate effect, the SCGL shall recruit permanent staff to assist in the
implementation of part C and later to operate the project facilities thus established upon their
completion.
89. The GTCL and the TGTDCL shall continue to recruit their management including at least
managing director, director (finance), and director (operations) on a competitive and a transparent
basis through open advertisements in the press, and fill any vacancies within six months after they
occur. Further, the existing vacancies shall be filled expeditiously.
28. 19
90. In consultation with ADB, EMRD will prepare a time-bound action plan by 30 June 2011 to
redefine Petrobangla's role and restructure Petrobangla to promote sustainable development of
the gas sector.
91. The government will cause to be ensured that (i) the GTCL and the BGFCL will continue to
have a debt service coverage ratio of 1.2 and (ii) the SGCL will have ratio of 1.2 from 2012.
4. Private Sector Participation
92. The SGCL will have entered into contractual arrangements with private entities for
operation, maintenance, marketing, and billing for gas distribution upon commencement of its
operations.
93. The EMRD will closely monitor progress in the installation of gas compressor station at
Muchai and its successful operation by the private sector to ensure augmenting gas supply to the
transmission network. The EMRD will keep ADB regularly informed of developments in this
regard.
5. Land Acquisition, Resettlement, and Social Issues
94. The government and the executing agencies will ensure that the resettlement plans,
including compensation and entitlements for affected households and persons, are implemented
in conformity with all applicable laws and regulations of the government,and the entitlement
benefits as listed in the applicable laws and ADB’s Involuntary Resettlement Policy (1995).
95. Prior to land acquisition and any resettlement for the project, the resettlement plans,
including any updates based on consensus of the affected persons, must be disclosed with all
necessary information made available to persons affected by the project and confirm that it be
uploaded onto the ADB website.
96. Within 6 months of the effective date, the borrower and the executing agencies shall
develop and agree upon an HIV/AIDS and human trafficking prevention and sensitization program
acceptable to ADB. The executing agencies shall cause contractors to implement the program
among the contractors' employees for the duration of the contract. The borrower, through the
project management units, shall monitor the HIV/AIDS and human trafficking prevention and
sensitization program.
97. The bidding documents for the civil works contracts must include specific provisions to
ensure that the contractors (a) comply with applicable core labor standards, labor laws and
incorporate applicable workplace occupational safety norms; (b) do not differentiate payment
between men and women or between people from different castes for work of equal value (c) do
not employ child labor; (d) eliminate forced or compulsory labor; (e) eliminate discrimination in
respect of employment; and (f) to the extent possible, maximize employment of local poor and
disadvantaged persons for construction purposes, provided that the requirements for efficiency
are adequately met.
6. Environmental Issues
98. The government, through the executing agencies, will ensure that the design, construction,
and operation of all project facilities comply with the environmental laws and regulations of
29. 20
Bangladesh and ADB’s environmental policies and regulations, specifically ADB’s Environment
Policy (2002) and environmental mitigating measures and the environmental management plans
described in the IEEs and in the summary IEE conducted for the project.
B. Conditions
99. In addition to the standard loan effectiveness conditions, for the loan to be effective, (i) the
BERC gas transmission and gas distribution tariff regulations shall have entered into force;,and (ii)
the subsidiary loan agreements between the government and the executing agencies, in form and
substance satisfactory to ADB, shall have become effective and binding on the government and
the executing agencies in accordance with their terms.
100. The government shall ensure that the EAs will not award any works contracts financed
under the loans until they have updated the IEEs in line with the SIEE and the resulting
amendments have been approved by the government, the EAs and ADB
VI. RECOMMENDATION
101. I am satisfied that the proposed loans would comply with the Articles of Agreement of the
Asian Development Bank (ADB) and recommend that the Board approve
(i) the loan of $261,000,000 to the People’s Republic of Bangladesh for the Natural
Gas Access Improvement Project from ADB’s ordinary capital resources, with
interest to be determined in accordance with ADB’s London interbank offered rate
(LIBOR)-based lending facility; a term of 25 years, including a grace period of
5 years; and such other terms and conditions as are substantially in accordance
with those set forth in the draft loan and project agreements presented to the
Board; and
(ii) the loan in various currencies equivalent to SDR 3,249,000 to the People’s
Republic of Bangladesh for the Natural Gas Access Improvement Project from
ADB’s Special Funds resources with an interest charge at the rate of 1.0% per
annum during the grace period and 1.5% per annum thereafter; a term of 32 years,
including a grace period of 8 years; and such other terms and conditions as are
substantially in accordance with those set forth in the draft loan and project
agreements presented to the Board.
Haruhiko Kuroda
President
26 February 2010
30. Appendix 1 21
DESIGN AND MONITORING FRAMEWORK
Design Summary
Performance
Targets/Indicators
Data
Sources/Reporting
Mechanisms Assumptions and Risks
Impact Assumptions
Increased and more
reliable access to natural
gas for sustained
economic growth
Gas consumption in the industrial
sector to grow from 800 MMCFD
to 1,400 MMCFD
Population using natural gas as
primary energy source to
increase from 5% in 2008 to 10%
by 2015
Government economic
statistics and reports
National statistics on gas
supply and utilization
Project completion
reports
Political and socioeconomic
conditions remain stable
Stable economic growth in the
region
Outcome Assumptions
Expanded capacity and
improved efficiency in
natural gas production,
transmission, and
distribution systems
Gas sector losses in non-bulk
consumption reduced from 2.8%
in 2009 to 2.0% by 2011
Natural gas transmission and
delivery capacity expanded from
2,000 MMCFD in 2008 to 3,500
MMCFD by 2015
20% increase in average cost
recovery per unit of gas used in
households supplied under the
project compared with the
national average by 2015
Annual reports of
Petrobangla and SGCs
National statistics on gas
supply and utilization
Gas supply and
utilization data from the
hydrocarbon unit of the
Ministry of Power,
Energy, and Mineral
Resources
Continued government focus on
reforming the gas sector and
developing gas infrastructure
Availability of sufficient
recoverable gas reserves
Adequate production from the
gas fields
Continued expansion of natural
gas use
Risk
Continued underpricing of gas
Outputs Assumptions
1. Ashuganj–Bakhrabad
gas transmission loop-
line of about 61 km
2. Gas compressors at
Ashuganj and Elenga
3. Controlled gas seepage
in the Titas gas field
and four wells
developed
4. 845 km of pipelines in
the southwestern gas
distribution network
Expansion of transmission
capacity by 400 MMCFD by 2014
Throughput at Ashuganj to
increase to 1,500 MMCFD and at
Elenga to 500 MMCFD by 2014
Identification of the causes of
gas seepages in Titas gas field
by mid-2010
Completion of remedial works in
existing problematic wells by
2012
Increased gas production in Titas
gas field by 120 MMCFD
200,000 household gas supply
connections in the southwest by
2015
National statistics on gas
supply and utilization
Annual reports of
Petrobangla and SGCs
Quarterly progress
reports
Review mission reports
Project completion
report
Counterpart funds made
available in time for construction,
operation, and maintenance
Timely implementation of projects
Appointment of competent
contractors for implementation
31. 22 Appendix 1
Design Summary
Performance
Targets/Indicators
Data
Sources/Reporting
Mechanisms Assumptions and Risks
5. Introduction of prepaid
meters for domestic
consumers and remote
meters for industrial
consumers
6. Feasibility studies for
energy efficiency
improvements
7. Capacity building in
BGFCL, GTCL, SGCL
and TGDCL
7,500 prepaid meters installed in
households and 600 remote
meters installed in large
consumers
A feasibility study on energy
efficiency improvement in the
large industrial and commercial
consumers developed by the end
of 2011
A minimum of 100 gas sector
personnel trained by 2015
Activities with Milestones
1. Physical Investments
1.1 Completion of bidding documents for physical investments by December 2010
1.2 Contract award for physical investments of part A-2 by June 2010
1.3 Contract award for physical investments of other parts by December 2010
1.4 Completion of construction of physical investments of all components by December
2014
2. Consulting Support
2.1 Engagement of implementation consultants for all parts by June 2010
2.2 Completion of consulting service to develop a feasibility study on energy efficiency in
part D by December 2011
2.3Completion of implementation consulting services by December 2014
Inputs
Financing
ADB (OCR): $261 million
ADB (ADF): $5 million
Korea Eximbank: $45 million
Government: $231 million
Implementation consulting
services
Part A: 40 person-months
Part B: 55 person-months
Part C: None
Part D: 26 person-months
ADB = Asian Development Bank, ADF = Asian Development Fund, BGFCL = Bangladesh Gas Fields Company Limited, GTCL =
Gas Transmission Company Limited, km = kilometer, OCR = ordinary capital resources, SGC = state gas company, SGCL =
Sundarban Gas Company Limited, TGDCL = Titas Gas Transmission and Distribution Company Limited.
32. Appendix 2 23
GAS SECTOR ASSESSMENT AND REFORM ROAD MAP
1. The Bangladesh Oil, Gas, and Mineral Corporation (Petrobangla) coordinates the gas
sector in Bangladesh, while the Energy and Mineral Resources Division (EMRD) of the Ministry
of Power, Energy, and Mineral Resources provides policy direction. Petrobangla carries out its
gas business through nine operating companies: Bangladesh Petroleum Exploration and
Production Company Limited, engaged in exploration and production; Bangladesh Gas Fields
Company Limited (BGFCL) and Sylhet Gas Fields Limited, both involved in gas field
development and production; Gas Transmission Company Limited (GTCL), involved in
transmission; Titas Gas Transmission and Distribution Company Limited (TGTDCL), Bakhrabad
Gas Systems Limited (BGSL), Jalalabad Gas Transmission and Distribution System Limited,
and Pashchimanchal Gas Company Limited, all involved in transmission and/or distribution; and
Rupantarita Prakritik Gas Company Limited, involved in liquefied petroleum gas production and
compressed natural gas marketing. The TGTDCL, the oldest and largest, operates in the
franchise area of Dhaka Division (excluding greater Faridpur District) and Brahmanbaria District.
The BGSL serves the market in Chittagong Division excluding Brahmanbaria District. Jalalabad
Gas Transmission and Distribution System Limited serves the market in Sylhet Division, while
Pashchimanchal Gas Company Limited operates in the franchise area in Rajshahi Division. A
new company, Sundarban Gas Company Limited (SGCL), is being established to distribute gas
in the southwest. These state gas companies (SGCs) have been incorporated as public limited
companies under the Companies Act, 1913 (amended in 1994). The organization chart of
Petrobangla is in Supplementary Appendix A. The upstream gas sector is regulated by the
government. The Bangladesh Energy Regulatory Commission (BERC), established in 2004, is
the regulator for downstream activities in the gas sector, including gas tariff determination.
2. Natural gas can provide most of the current and future energy requirements in
Bangladesh, and the gas market needs to be expanded to optimize the use of natural gas
resources and support economic development. Although Bangladesh has produced natural gas
for over 3 decades, all of its major fields are underdeveloped and have not been properly
delineated. There are widely varying assessments of the country’s natural gas reserves. The
discovered reserves are those that have been confirmed by drilling and reliable geological
mapping. Undiscovered reserves are yet to be confirmed by drilling and therefore have
uncertainty and risk attached to them, depending on the assumed recovery factor that reflects
the probability of the resources becoming at least equal to the estimated level.1
3. The opening up of natural gas exploration and production to international oil companies
(IOCs) in the 1990s through production-sharing contracts has contributed to improved gas
supply in recent years. Total proven recoverable gas reserves in Bangladesh from 23 fields (19
in the public sector and 4 in the private sector) are estimated at 20.60 trillion cubic feet (TCF), of
which 7.68 TCF has so far been consumed. The current net recoverable reserve stands at
12.95 TCF. Out of 23 gas fields, 17 have so far been brought under production and 14 are
currently under production.2
Production from the remaining three fields was suspended for
technical reasons. However, these three fields (Chhatak, Kamta, and Feni) appear to have the
potential to produce further with added efforts, and IOCs are participating in redeveloping two of
them. The total of proved and probably recoverable reserves not now in production amounts to
more than 4.00 TCF, of which 3.00 TCF was discovered in post production-sharing contract
areas. The largest field is Bibiyana, with estimated recoverable reserves of more than 2.40 TCF.
1
When using probabilistic methods in resource estimation, the terms proven, probable, and possible are used.
Proved (1P) means 90% probability; proved and probable (2P) means 50% probability; and proved, probable, and
possible (3P) means 10% probability.
2
Bangladesh Petroleum Exploration and Production Company Limited recently discovered a gas field at Srikail,
which is under investigation.
33. Appendix 224
A study by the hydrocarbon unit estimates that there is a 90% probability that undiscovered
resources will be at least 19.00 TCF (1P) and could go up to 42.00 TCF at 50% probability (2P).
Taking the discovered and undiscovered reserves together, there is a 90% probability that
Bangladesh’s gas reserves exceed 30.00 TCF.
4. Though IOC production has already reached 50% of the national total, Petrobangla
predicts that over the next 12 years, IOC production will comprise 30%–45% of supply, with the
balance from SGCs. SGCs will drill 43 wells in the next 12 years at a cost of $266 million and
require an additional $84 million for gas treatment plants. The IOCs will be required to invest
$275 million. Definitive contractual gas supply and investment commitments have been made,
and international financial resources are sufficient to fulfill these commitments.
5. Petrobangla recently revised its forecast of gas demand and supply through 2020. Gas
consumption rose from 365 billion cubic feet (BCF) in fiscal year (FY) 2001 to 690 BCF in
FY2009, for a compound average annual growth rate of 7.3%. The highest consumption growth
rate was in the non-bulk category, with an average growth rate over the period of 23%. The non-
bulk category comprises industry, commerce, households, tea, brick field (seasonal), and
compressed natural gas (CNG). In FY2006, industrial consumers accounted for 49% of the non-
bulk category and households 40%. Between FY1999 and FY2007, average annual growth
rates in consumption were 12.4% for industry and 16.3% for households. The high rate of
growth in domestic consumption can be attributed to rapid construction growth and rural–urban
migration and scarcity of alternative cheaper fuel for domestic use. CNG recorded phenomenal
growth during FY2003–FY2008 going from 0.003 BCF in FY2003 to 24.2 BCF in FY2008.
Government initiatives to arrest air pollution by encouraging the use of indigenous natural gas,
increasing the prices of alternative fuels for automobiles, increasing the number of CNG-
powered vehicles, and expanding multiple uses of indigenous natural gas have been major
contributors to the rapid increase in CNG consumption. Growth in gas consumption to produce
electricity was 1.5% over the period, and for fertilizer –6.5%.
6. The gas demand forecast revised by Petrobangla reflects supply constraints. The overall
growth rate assumed in the forecast is 7.3%, the same as the historic growth rate for 2002–
2008. Even at the current level of consumption, remaining recoverable reserves will be
exhausted in 20 years; with a 6% growth rate, the remaining recoverable reserves will last about
13 years. Given the current reserve status and anticipated shortfall in meeting growing demand,
great care must be taken in committing new gas usage in less-productive sectors.
7. To meet growing demand and overcome production and transmission deficiencies,
large-scale investments in exploration, field development, and transmission and distribution
have to be made. Petrobangla estimates that average gas demand will rise to 4,115 million
cubic feet per day (MMCFD) in FY2020. Probable gas production from existing gas fields is
expected to peak at 2,655 MMCFD in FY2017 and then gradually decline to 2,468 MMCFD in
FY2020. Petrobangla projects production by IOCs to peak at 1,550 MMCFD in FY2017 with new
discoveries both onshore and offshore. Overall peak production by SGCs and IOCs is estimated
to reach 3,555 MMCFD in FY2017.
8. To augment gas production, Petrobangla has drawn up a program for further
exploration, renovating wells in producing gas fields, and drilling new wells in producing and
non-producing gas fields with self and government financing. Petrobangla estimates production
enhancement rising to 400 MMCFD by FY2012, which appears to be optimistic. Production
augmentation is likely to be around 250–300 MMCFD.
34. Appendix 2 25
9. The recently concluded ADB sector assistance program evaluation for the Bangladesh
energy sector highlights the main findings related to the gas sector: (i) overdependency on
natural gas as a primary energy source, which threatens the energy security of the country;
(ii) underpricing of gas resources, encouraging suboptimal allocation and inefficient use; and
(iii) the need to diversify energy sources and place greater emphasis on regional cooperation.
These are the main lessons from ADB operations relevant to the gas sector: (i) Programmed
lending for investments linked to an agreed medium-term road map for sector reforms can
achieve development impacts even in difficult environments. (ii) Improved corporate
governance, managerial autonomy, and performance-based incentives can significantly change
institutional performance even if there is no change in ownership and personnel. (iii) And the
domestic private sector is capable of investing in relatively capital-intensive energy industries if
appropriate incentives and policy regimes are established. Many of these findings are
addressed in the recently approved gas sector reform road map given in Table A2.
Table A2: Updated Gas Sector Reform Road Map
Reform
Area/Objective Agenda
Time
Frame
Expected
Benefits or
Impacts
Monitoring
Instrument
Status
(December 2009)
A. Policy Framework
Rationalization of
the gas sector
Announce an updated
road map on gas
sector reforms
covering 3 years, and
outline the
government’s vision
on gas sector
restructuring,
ownership, private
sector participation,
regulation, and related
matters
2009 Improvement of
the technical
and financial
performance of
the gas sector
that would
enhance
institutional
capability to
provide energy
resources
Revised road
map
Revised road map
approved in
January 2009
Energy policy to
provide broad
framework for
energy sector
development
Finalize and submit to
cabinet for approval
the revised energy
policy
2009 Promote energy
sector
development
Revised
energy policy
statement
Revised draft
under stakeholder
consultation
Policy formulation
capabilities
Finalize and submit
the proposed gas act
for approval
2009 Effective natural
gas resource
management
and promotion
of
competitiveness
.
Approved gas
act
Cabinet approved
the draft gas act in
October 2009 and
submitted it to
Parliament
Strengthening of
policy-making
capability in EMRD
2011 Better quality
and
management of
policy decisions
for sustainable
development
Specific
capacity
building
programs for
EMRD
Institutional
development
component of
GTDP is currently
assisting capacity
building
Streamlining
technical
capabilities of
EMRD
The
hydrocarbon
unit functions
as permanent
part of EMRD
Notification making
the hydrocarbon
unit a permanent
unit of EMRD
issued in June
2008
Prepare long-term gas
demand–supply
projections
Ongoing
process
Implementation
of an optimal
investment
Gas demand–
supply
projections
Most recent
projections
prepared in