Bangladesh has received $256.5 million from the global Green Climate Fund to promote private sector investment through large scale adoption of energy-efficient technologies in the textile and garment sectors.
This is the first concessional credit line for Bangladesh, and the first private sector financing from the GCF in the country, the Infrastructure Development Company Ltd (Idcol) said yesterday.
The fund was approved at the board meeting of the GCF on November 13.
The GCF is a fund established within the framework of the United Nations Framework Convention on Climate Change as an operating entity of the financial mechanism to assist developing countries in adaptation and mitigation practices to counter climate change.
The Idcol, as the direct access entity (DAE) of the GCF, received the approval of the funding proposal for the programme titled "Promoting private sector investment through large scale adoption of energy-saving technologies and equipment for Textile and Readymade Garment sectors of Bangladesh".
It is the largest approved funding proposal for any DAE of the GCF accredited globally, the Idcol said in a press release.
Under the programme, Idcol will get $250 million concessional loan for a tenure of 20 years with a grace period of five years for financing energy-efficient equipment.
Another $6.5 million will come as technical assistance (grant) to develop enabling environment by covering areas such as capacity building, awareness, support in loan disbursal and monitoring and evaluation of the programme parameters.
Out of $250 million loan, $100 million will be utilised to finance textile sector energy efficiency projects, while $150 million will be channeled to four local financial institutions for financing energy efficiency projects in the RMG sector.
The total programme size will be $423.50 million, including co-financing from Idcol, local financiers and the project sponsors, Idcol said.
"This programme is a remarkable success for Idcol in terms of accessing climate change fund to pave the path for the country to achieve its Sustainable Development Goals (SDGs)."
It is a massive achievement for the country, and Idcol as a lot of requirements have to meet, and due diligences have to be carried out to get the fund from the GCF, said Mahmood Malik, executive director of Idcol.
The fund for the garment sector would be distributed through three banks and one non-bank financial institution, he said.
Lenders would get the fund at a flat rate of 1.75 per cent for 20 years. Industries would get the loans at 4.75 per cent, Malik said.
The Sustainable & Renewable Energy Development Authority is also implementing a component of the programme to strengthen the regulatory and institutional framework at the national level to overcome the operational constraints related to implementing energy efficiency and conservation in the country.
Presently, the industrial sector in Bangladesh accounts for 47.8 per cent of commercial energy consumption. Textile and RMG account for approximately 38 per cent of the total energy consumption in the industrial sector.
The readymade garment sector is the largest industrial contributor in CO2 emissions at 15.4 per cent, followed by the textile sector at 12.4 per cent, according to the GCF website.
"These sectors are not operating efficiently because of continuous usage of old and badly maintained machines coupled with poor energy management."
If the current industrial energy intensity persists, along with the economic growth outlook in the medium to long term, Bangladesh will face severe difficulties in managing rising energy demands and achieving its GHG emission reduction targets under the Paris Agreement, the GCF said.
Textile and garment manufacturers face several barriers to investing in energy efficiency including inadequate financial incentives, lack of technical expertise and the lack of an enabling environment.
The sectors must overcome these barriers so that Bangladesh can meet its nationally determined contributions target of 15 per cent GHG emission reduction compared to a business-as-usual scenario by 2030, the Fund said.
The programme provides an integrated package of concessional financing for textile and RMG manufacturers, and technical assistance to create an enabling environment and ultimately to reduce 14.5 million tonnes of carbon dioxide equivalent in emissions.
Set up in 1997, Idcol is a government-owned non-bank financial institution working to catalyse private sector investment in the areas such as renewable energy and infrastructure.