WB gives $59m hard credit for power sector
Bangladesh is set to take a $59 million loan for the power sector from the World Bank at non-concessional terms for the first time.
The rate of interest on the loan would be about 2.85 percent, with the repayment period being 30 years including a nine-year grace period.
"Even though it is a semi-commercial loan, it is more tolerable than the international market rate," said a finance ministry official.
The decision to take the non-concessional debt from the World Bank comes as Bangladesh has a deficiency of resources in comparison to the investment need in the public and private sectors, he added.
The loan will come from the Scale-up Facility (SUF) fund, a scheme formed in March last year to provide additional support to the clients of the International Development Association, the WB Group arm that hands out loans and grants to the world's poorest nations, until June 30.
Only IDA client countries that are at low- or medium-risk of debt distress are eligible to access the SUF, the credit from which is expected to finance projects with strong development impact.
Before this, Bangladesh only got loans from the IDA, which carried a 0.75 percent interest rate and came with a repayment period of 38 years including a six-year grace period. Bangladesh borrows the second highest amount from the Asian Development Bank after the WB.
The ADB provides two types of loans to Bangladesh: one from the Asian Development Fund that carries a 2 percent interest rate and another from the Ordinary Capital Resource, whose interest rate is LIBOR-based.
The rate of interest on OCR loans is up to 3 percent and the highest average repayment period is 20 years.
Among the bilateral donors, Bangladesh is set to take a big amount of loan from China in the near future.
The interest rate on the Chinese loan is 2 percent. In addition, 0.4 percent other charges are applicable and the repayment period is 20 years including five years' grace period.
Taking the SUF credit would be a sound move on the part of the government considering the interest rate and the terms and condition, Sadiq Ahmed, vice-chairman of the Policy Research Institute, earlier told The Daily Star.
"It would be a good opportunity for Bangladesh," he added.
The agreement to take SUF credit was signed yesterday by Kazi Shofiqul Azam, secretary of the Economic Relations Division, and Qimiao Fan, country director of the WB.
In the last five years, Bangladesh has doubled its electricity generation capacity to meet the growing demand. Today, about 78 percent of the population have access to electricity.
With rapid increase in the size of the power system, Bangladesh now faces challenges of ensuring quality and reliability of the electricity supply, Fan said.
Subsequently, the SUF credit will go towards improving the reliability and efficiency of the country's power system such that low-cost power can be provided.
"Reliable and low-cost power supply will make doing business easier and benefit households," Fan said.
Besides, the project will benefit the government with fiscal savings, as a modern power generation system will cut down fuel use.
It will also lower greenhouse gas emissions by reducing the use of carbon-intense fuel in electricity generation.
Furthermore, the project will construct and rehabilitate a 40-km transmission line.
"The government is committed to provide electricity to all," Azam said.
The financing will help remove bottlenecks and optimise the national power system to ensure affordable and round-the-clock electricity, he added.
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