$100m loan deal signed with ADB

Bangladesh and Asian Development Bank yesterday signed a $100 million loan agreement for a cross border electricity transmission deal between Bangladesh and India under which Dhaka will be able to import up to 500 megawatts of power.
Dhaka signed another $40m loan agreement with the ADB for its Second Crop Diversification Project to develop high value crops in 27 districts in the country's southwest and northwest regions. The crops include vegetables, spices and fruits that will boost earnings of poor farmers and contribute to the nation's food security.
Under the deal for Bangladesh-India Electrical Grid Interconnection Project, a 40-kilometre 400-kilovolt transmission line will be built linking electrical substations at Bahrampur in India and Bheramara in Bangladesh, an ADB press release says.
Besides, Bangladesh will set up a 500-MW high voltage substation at Bheramara and a 230 KV double circuit-in-loop-out interconnection at Bheramara to link with the transmission network in the country, and associated infrastructure.
The ADB also said the interconnection will facilitate an initial power flow of 500 MW into Bangladesh from the Indian grid starting in 2012, with a provision to expand the power flow to 1,000 MW in the future.
M Musharraf Hossain Bhuiyan, secretary of Economic Relations Division (ERD), and Thevakumar Kandiah, country director of ADB's Bangladesh Resident Mission, signed the loan agreements at a ceremony in Dhaka.
Speaking at the ceremony, Thevakumar said the project will herald further power trade agreements resulting in more effective use of existing energy resources in the region.
"Connecting the two grids will demonstrate substantial economic benefits that come from enhanced regional cooperation, and help to address energy gaps across the region,” said Kandiah.
Musharraf said the government stresses enhancing regional cooperation, and different multilateral and bilateral development partners including the World Bank and ADB are assisting in this regard.
The total investment cost of the interconnecting grid project is $156.8 million, and the ADB is providing 63 percent of it and Bangladesh government the rest.
The ADB assessed some risks and solutions regarding the interconnectivity. One such risk is delay or failure to enter into binding power purchase agreements between the two countries or non-extension of the cooperation agreement after January 2015.
The ADB notes that Bangladesh government is aware of this risk and is comfortable with the documented political commitments of both the countries. A long-term contract between the power utilities of the two countries would further mitigate this risk.
Another risk is whether the cost of imported power would be competitive for Bangladesh. Regarding this, the ADB notes that the government has been reviewing its gas pricing policy which is likely to impact the existing bulk and retail power tariffs. Most new power plants will be based on dual-fuel technology, and power produced using imported fuel will be comparatively more expensive than power to be procured from India.
Another concern is inadequate power is available in the eastern region of India. The ADB mentioned that the eastern region is expected to add a significant generation capacity in the next five years and there will be up to 500 MW available for supply to Bangladesh.