Energy Bangla - ADB to Help Bangladesh Boost Natural Gas Supply

The Asian Development Bank (ADB) and the Government of Bangladesh today signed an agreement for $266 million in loans to help Bangladesh address natural gas supply constraints in a bid to spur economic growth and cut poverty.

M Musharraf Hossain Bhuiyan, Secretary, Economic Relations Division (ERD) and Thevakumar Kandiah, Country Director for ADB’s Bangladesh Resident Mission, signed the loan agreement on behalf of the Government and ADB respectively, at a ceremony at ERD, Sher-e-Bangla Nagar, Dhaka.

The assistance under Bangladesh Natural Gas Access Improvement Project, will be used to build new gas transmission and distribution pipelines to meet growing demand, and to expand coverage to less developed areas in the southwest. The project will install compressors and metering systems to boost reliability, improve safety, and strengthen the management of gas supply and demand. An investment program to promote energy-efficient gas use will be drawn up, and training and support will be given to sector agencies. The project will also help improve supply efficiency by developing four new wells and installing gas processing plants in Titas gas Fields to increase gas production by 120 million cubic feet per day (mmcfd).

Around 200,000 new households in the southwest, along with 1,400 industrial and commercial establishments, will receive gas as a result of the expanded distribution network. This will boost business, generate jobs, and improve the health of vulnerable groups, such as women and the poor, who are currently exposed to harmful air pollution from burning wood and other biomass fuels indoors.

“This project will address supply and network constraints to ensure sustained growth in the gas sector that is critical to the country’s economic development,” said Country Director Thevakumar Kandiah. "When the gas production will improve within a few years, the transmission and distribution network to be improved under the project will be extremely beneficial for supplying gas to consumers," said Mr Kandiah.

The government, along with ADB, is committed to increasing private sector participation in the gas sector. As part of the project, Sundarban Gas Co Ltd - a newly formed distribution affiliate of state-owned Petrobangla - will enter into contracts with private firms for the operation, maintenance, metering and billing of gas supplied to consumers in the southwest from 2012. Under the project, regulatory reforms will be expedited to encourage more private investment in the gas industry.

Natural gas provides around 70% of Bangladesh's total primary energy supply, and fuel 85% of its power generation. The country has made impressive strides in attracting investment for gas exploration and the development of new fields, but its transmission and distribution infrastructure has not kept pace with the growing needs of business and households. The government has drawn up a comprehensive gas sector reform road map and the project is an urgent necessity.

The state-owned Petrobangla, Gas Transmission Company Ltd, Bangladesh Gas Fields Company Ltd, Sundarban Distribution Company Ltd, and Titas Gas Transmission and Distribution Company Ltd. are the executing agencies for the project, which is due for completion in March 2015.

Besides ADB assistance, Korea Eximbank will provide a loan of $45 million for the transmission expansion component, while the Government of Bangladesh will provide $231 million equivalent in equity and loans, for a total project cost of $542 million. Of the total $266 million ADB loans, $261 million comes from its ordinary capital resources, which has a 25-year term, including a grace period of five years, and interest determined in accordance with its LIBOR-based lending facility. The rest of the assistance package, $5 million equivalent will be channeled from its concessional Asian Development Fund, which has a 32-year tenor, including a grace period of 8 years, with interest set at 1% during the grace period and 1.5% for the rest of the term.

ADB, based in Manila, is dedicated to reducing poverty in Asia and the Pacific through inclusive economic growth, environmentally sustainable growth, and regional integration. Established in 1966, it is owned by 67 members – 48 from the region. In 2009, it approved a total of $16.1 billion in financing operations through loans, grants, guarantees, a trade finance facilitation program, equity investments, and technical assistance projects. ADB also mobilized cofinancing amounting to $3.2 billion.