Document of The World Bank FOR OFFICIAL USE ONLYdocuments.worldbank.org/curated/en/391061467998485211/pdf/537… · EZs (EZA, BEPZA, BCC, MOF, BOI, etc.) through TA and targeted capacity

Document of The World Bank

FOR OFFICIAL USE ONLY

Report No: 53729-BD

PROJECT APPRAISAL DOCUMENT

ON A

PROPOSED CREDIT

IN THE AMOUNT OF SDR 78 MILLION (US$120 MILLION EQUIVALENT)

TO THE

PEOPLE'S REPUBLIC OF BANGLADESH

FOR A

PRIVATE SECTOR DEVELOPMENT SUPPORT PROJECT

January 25, 2011

PREM, Finance and Private Sector Development Unit South Asia Region

This document is being made publicly available prior to Board consideration. This does not imply a presumed outcome. This document may be updated following Board consideration and the updated document will be made publicly available in accordance with the Bank’s Policy on Access to Information.

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CURRENCY EQUIVALENTS (Exchange Rate Effective December 31, 2010)

Currency Unit = Bangladeshi Taka (BDT) BDT 70.52 = US$1

US$ 1.54 = SDR 1

FISCAL YEAR July 1 – June 30

ABBREVIATIONS AND ACRONYMS

Vice President: Isabel M. Guerrero Country Director: Ellen A. Goldstein

Sector Director: Ernesto May Sector Manager: Ivan Rossignol

Task Team Leader: Michael D. Wong Co-Task team Leader: G. M. Khurshid Alam

List of Abbreviations

BEPZA Bangladesh Export Processing Zones Authority BOI Board of Investment C&AG Comptroller and Auditor General CAS Country Assistance Strategy CCU Central Coordination Unit CCU Central Coordination Unit CEPZ Chittagong DB Doing Business DEPZ Dhaka Export Processing Zone DPP/TPP Development Project Pro Forma/Technical Project Pro Forma EIA Environmental Impact Assessment EMF Environmental Management Framework EMU Environmental and Social Management Unit EPZ Export Processing Zones ERD Economic Relations Division ESMC Environmental and Social Management Cell EZ Economic Zones EZA Economic Zones Authority FM Financial Management GOB Government of Bangladesh HTPA Hi-Tech Park Authority ICA Investment Climate Assessment ICB International Competitive Bidding ICD Internal Container Depot IT/ITES Information Technology/IT Enabled Services KHTP Kaliakoir Hi-Tech Park LDC Less Developed Countries LGED Local Government Engineering Department MOF Ministry of Finance MOSICT Ministry of Science and ICT MSME Medium, Small and Micro Enterprise NCB National Competitive Bidding NS National Shopping PAC Project Advisory Committee PDO Project Development Objective PESC Project Environmental and Social Management Cell PIF Public Investment Facility PIU Project Implementation Unit PIU Project Implementation Unit PPP Public Private Partnership RAP Resettlement Action Plan RMG Ready Made Garments RPF Resettlement Policy Framework SIA Social Impact Assessment TAS Transactions Advisory Service

Bangladesh Private Sector Development Support Project

TABLE OF CONTENTS

I. STRATEGIC CONTEXT AND RATIONALE ...................................................................1

A. Country and sector issues ............................................................................................................... 1

B. Rationale for Bank involvement ..................................................................................................... 5

C. Higher level objectives to which the project contributes ................................................................. 6

II. PROJECT DESCRIPTION .............................................................................................6 A. Lending Instrument ........................................................................................................................ 6

B. Project Development Objective and Key Indicators........................................................................ 6

C. Project Components........................................................................................................................ 7

D. Lessons learned and reflected in the project design ........................................................................ 8

E. Alternatives considered and reasons for rejection ........................................................................... 9

III. IMPLEMENATION ..................................................................................................... 10 A. Partnership Arrangements............................................................................................................. 10

B. Institutional and Implementation Arrangements ........................................................................... 10

C. Monitoring and Evaluation of Outcomes/Results.......................................................................... 11

D. Sustainability ................................................................................................................................ 11

E. Critical Risks and Possible Controversial Aspects ........................................................................ 12

F. Loan/Credit Conditions and Covenants ........................................................................................ 14

IV. APPRAISAL SUMMARY ........................................................................................... 14 A. Economic and financial analyses .................................................................................................. 14

B. Technical ...................................................................................................................................... 14

C. Fiduciary ...................................................................................................................................... 15

D. Social............................................................................................................................................ 16

E. Environment ................................................................................................................................. 18

F. Safeguard Policies ........................................................................................................................ 19

G. Policy Exceptions and Readiness .................................................................................................. 19

Annex 1: Country and Sector or Program Background ............................................................ 20

Annex 2: Major Related Projects Financed by the Bank and/or Other Agencies ....................... 32

Annex 3: Results Framework and Monitoring ......................................................................... 34

Annex 4: Detailed Project Description .................................................................................... 39

Annex 5: Project Costs ........................................................................................................... 43

Annex 6: Implementation Arrangements ................................................................................. 44

Annex 7: Financial Management and Disbursement Arrangements .......................................... 49

Annex 8: Procurement Arrangements ...................................................................................... 59

Annex 9: Economic and Financial Analysis ............................................................................. 67

Annex 10: Safeguard Policy Issues .......................................................................................... 67

Annex 11: Project Preparation and Supervision ........................................................................ 84

Annex 12: Documents in the Project File ................................................................................. 85

Annex 13: Statement of Loans and Credits .............................................................................. 86

Annex 14: Country at a Glance ................................................................................................ 88

Annex 15: Maps ...................................................................................................................... 89

BANGLADESH

BD PRIVATE SECTOR DEVELOPMENT SUPPORT PROJECT

PROJECT APPRAISAL DOCUMENT

SOUTH ASIA

SASFP

Date: January 25, 2011 Team Leader: Michael D. Wong Country Director: Ellen A. Goldstein Sector Manager/Director: Ivan Rossignol

Sectors: Other industry (50%);Micro- and SME finance (20%);Public administration- Industry and trade (10%);Telecommunications (10%);General industry and trade sector (10%) Themes: Infrastructure services for private sector development (70%);Small and medium enterprise support (10%);Land administration and management (10%);Other financial and private sector development (10%)

Project ID: P120843 Environmental category: Full Assessment Lending Instrument: Specific Investment Loan Joint IFC:

Joint Level:

Project Financing Data [ ] Loan [X] Credit [ ] Grant [ ] Guarantee [ ] Other: For Loans/Credits/Others: Total Bank financing (US$m.): 120.00 Proposed terms: Standard IDA terms with maturity of 40 years including 10 years grace period

Financing Plan (US$m) Source Local Foreign Total

BORROWER/RECIPIENT 3.00 0.00 3.00 International Development Association (IDA)

120.00 0.00 120.00

UK: British Department for International Development (DFID)

17.41 0.00 17.41

Total: 140.41 0.00 140.41 Borrower: The Government of Bangladesh Bangladesh Responsible Agency: Ministry of Labor and Employment Bangladesh Bangladesh Export Processing Zones Authority (BEPZA)

House#19/D, Road # 6, Dhanmondi R/A, Dhaka Bangladesh Tel: +8802-8650062 Fax: +8802-8650060 [email protected] www.epzbangladesh.org.bd Bangladesh Economic Zones Authority Bangladesh Bangladesh Export Processing Zones Authority BEPZA Complex, House-19/D, Road-6 Dhaka Bangladesh Tel: 88029670530 Fax: 88028650060 [email protected] www.epzbangladesh.org.bd Bangladesh Computer Council BCC Bhaban, Agargaon Dhaka Bangladesh Estimated disbursements (Bank FY/US$m) FY 11 12 13 14 15 16 Annual 3.10 33.26 50.36 8.17 12.61 12.50 Cumulative 3.10 36.36 86.72 94.89 107.50 120.00 Project implementation period: Start April 15, 2011 End: December 31, 2015 Expected effectiveness date: April 14, 2011 Expected closing date: June 30, 2016

Does the project depart from the CAS in content or other significant respects? Ref. PAD I.C. [ ]Yes [X] No

Does the project require any exceptions from Bank policies? Ref. PAD IV.G. Have these been approved by Bank management?

[ ]Yes [X] No [ ]Yes [X] No

Is approval for any policy exception sought from the Board? [ ]Yes [X] No Does the project include any critical risks rated “substantial” or “high”? Ref. PAD III.E. [X]Yes [ ] No

Does the project meet the Regional criteria for readiness for implementation? Ref. PAD IV.G. [X]Yes [ ] No

Project development objective Ref. PAD II.C., Technical Annex 3 The proposed Project Development Objective is to facilitate investment in growth centers in the emerging manufacturing and services sectors of the economy with the aim of generating employment. Project description [one-sentence summary of each component] Ref. PAD II.D., Technical Annex 4 Component 1: will build the capacity of government institutions involved in the development of

EZs (EZA, BEPZA, BCC, MOF, BOI, etc.) through TA and targeted capacity building. Component 2: will finance off-site, and any necessary onsite, infrastructure (public and common infrastructure) in EZs, starting with the Kaliakoir Hi-Tech Park, the expansion of the Comilla EPZ and other sites to be identified. Component 3: will build better linkages between firms within zones and related suppliers by providing training through institutions (public and private) and by supporting firm collaboration in applied research and improved standards. Which safeguard policies are triggered, if any? Ref. PAD IV.F., Technical Annex 10 Environmental Assessment (OP/BP 4.01) Involuntary Resettlement (OP/BP 4.12) Significant, non-standard conditions, if any, for: Ref. PAD III.F. Board presentation: None. Loan/credit effectiveness: the DFID Trust Fund Grant Agreement has been executed and delivered and all conditions precedent to its effectiveness (other than the effectiveness of the Financing Agreement) have been fulfilled. Covenants applicable to project implementation: General Covenants: 1. Maintain satisfactory financial management systems for the project, including records and accounts, and prepare financial statements satisfactory to the Bank. 2. Maintain an active Project Advisory Council (PAC) and Central Coordinating Unit (CCU) all throughout project implementation. 3. Upon satisfactory review of the capacity of the Bangladesh Economic Zones Authority (BEZA), by IDA and the GoB, the CCU will be transferred to the BEZA latest at midterm review. 4. The financing of the expansion of the Comilla site under the project is subject to as satisfactory to IDA: the Resettlement Action Plan (RAP), Environmental Management Plan (EMP) and land transfer from MoD.

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I. STRATEGIC CONTEXT AND RATIONALE

A. Country and sector issues 1. Bangladesh achieved sustained annual GDP growth of approximately 6.1 percent in the

period FY05-101

, despite the global financial crisis and global food price shocks. Growth was underpinned by stable macroeconomic and prudent monetary policies, rising industry and services output and continued high levels of remittances. Going forward, the Government of Bangladesh’s objective is to develop a growth trajectory that will support an overall increase in real GDP growth to 8 percent per annum and reduce poverty from 40 percent to 15 percent by 2021.

2. Remittances and exports have been the key drivers of growth. A large and industrious labor pool, spread across the Middle East, Europe and the US, ensured a steady increase in remittances, with inflows reaching US$11 billion in FY10. Strong export growth is based on low, but steady FDI of one percent of GDP, with 51 percent in infrastructure, 24 percent in services and 24 percent in manufacturing (most RMG). Although the RMG sector contributed on average 77 percent of the country’s total export earnings, other emerging or nascent sectors exist in Bangladesh’s export profile, including leather goods, chemical products, agricultural production, light engineering and electrical goods, and IT/IT-related services.

3. The sustained growth in Bangladesh’s labor force of nearly 2 million a year is an asset

that nevertheless increases the country’s vulnerability. The Bangladesh labor force is estimated to grow to 58.3 million in 2010-112

. Creating productive employment will largely depend on creating an environment conducive to private sector investment, particularly for labor-intensive manufacturing and services.

4. The Government used tailored infrastructure services and specialized business environment services, in EPZs, to successfully compete as an investment location. The policy has had a high positive impact, in particular in the RGM sector, and still enables Bangladesh to compete with countries such as Vietnam in the same market segment, despite the ending of trade preferences under the Multi Fiber Agreement. The two largest EPZs (Dhaka and Chittagong) in the country are completely occupied, leading the Government to develop new locations.

5. The new locations and enhanced policy framework is intended to transform the nascent

potential in the services and manufacturing sectors. As with the RMG sector, FDI can play an important role in accelerating the transformation of the IT and ITES industry in Bangladesh. In FY2010, the sector reported export earnings of US$35 million from a total of

1 The GOB fiscal year span the period from 1 July – 30 June. 2 Government of Bangladesh (2009). “Steps Towards Change – National Strategy for Accelerated Poverty Reduction II (FY2009-11)”

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400 registered companies, of which 100 companies were classified as exporters. The industry continues to exhibit substantial market growth. Even during the global financial crisis, the world-wide ITES/BPO sector was one of the few sectors that expanded at 30 percent on an annual basis. Software and graphic design service exports amounted to US$ 32.9 million in 2008/09. This was an increase of 32 percent from the previous year despite severe economic recession in most buying countries. Industry operators and experts agree that a major established investor locating in Bangladesh would generate significant spillovers, particularly international market recognition.

6. The team conducted an exploratory demand survey to gauge investment interest in the

sectors identified in Bangladesh’s export profile and current investment trends. A random sample of international companies was selected in five regions and across five sectors.3

The survey results consisted of 332 respondents from 4,500 firms contacted, a response rate of about 7 percent. The results indicate that 6 percent of all firms in the sample are planning to invest in Bangladesh in the next 5 years. The results also show that 36 percent of these investment plans are in Machinery and Equipment, and 21 percent in ICT and Electronics. Reports on investment plans in ready-made garments are disproportionally few. There is indication that demand will come mainly from the region, especially from India and China. The activities pursued will mainly consist of production of primary goods (42 percent), and management/strategic competencies (29 percent). These findings are robust to the sample composition.

CONSTRAINTS TO PRIVATE SECTOR DEVELOPMENT

7. Recent analytical work and policy dialogue point to key binding constraints to growth, including: (i) access to serviced land; (ii) power provision; (iii) access to skilled labor and gender segregation; (iv) cumbersome bureaucracy and burdensome contract enforcement procedures, and (v) access to finance, particularly to MSMEs as well as a lack of long-term finance.

8. The Bangladesh Second Investment Climate Assessment4

(ICA II) identified access to serviced land as a serious constraint to growth. This was also confirmed by targeted focus group discussions undertaken during the project’s preparation. The ICA notes that 47.1 percent of metropolitan firms reported access to land as a major or severe obstacle to business. Cost of land was cited among the top three obstacles by 92.5 percent of firms (99.2 percent of service firms). Also highly ranked are the issues of acquiring land (85.2 percent) and the availability of serviced land (66.6 percent). A series of factors contribute to these constraints. Land development compared to other countries is relatively costly given the topology of Bangladesh - land is either waterlogged or, given the population density, occupied either formally or informally. This is compounded by an inefficient land administration system and deficiencies in urban planning. As a result, the serviced land market is highly informal, non-transparent and highly risky.

3 A list of companies which posed our overall population was bought from a data providing firm. 4 World Bank (2008). “Bangladesh Second Investment Climate Assessment: Harnessing Competitiveness for Stronger Inclusive Growth”.

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9. Access to reliable power is another primary binding constraint to growth. Firms in urban areas reported losing 12 percent of their sales to electricity outages (ICA 2008), more than any other comparator country in the region. Shortcomings in generation capacity, transmission, and distribution of power have resulted in 76.6 percent of all urban firms naming electricity as a major or severe obstacle to their business. Power outages are a source of major expense to firms, as producers attempt to correct the failures of state power provision via small generators servicing each plant.

10. Labor market rigidity and persisting gender segregation contribute to a large informal

sector and persisting underemployment. Bangladesh’s difficulty index of hiring currently stands at 44 (out of 100), difficulty of redundancy is 40, and redundancy costs are 104 weeks’ salary5. Partly as a result of these obstacles, the informal sector accounts for 80 percent of employment (76 percent of workers employed outside agriculture, forestry and fisheries) and temporary workers represent 15 percent of the workforce. Only 16.2 percent of manufacturing establishments in Bangladesh provided their employees with in-service formal training. Women are poorly represented among technical and professional workers and women’s wages are 40 percent lower than their male counterparts (ICA, 2008). In addition, female entrepreneurs are less educated. When asked how they had gained management and technical skills to run their business, more women entrepreneurs in non-metropolitan manufacturing reported being self-taught (70 percent) compared to men (44 percent)6

.

11. A cumbersome bureaucracy and the difficulty in enforcing of contracts are sources of significant delays and costs to businesses. It takes 442 days and 41 procedures to enforce a contract in Bangladesh, which explains the exceptionally high enforcement costs (63.3 percent of the claim) - with a DB 2010 ranking of 180 out of 183. The majority of the delays and costs are related to attorney fees and the enforcement of the judgment as there is no commercial court or any alternative dispute settlement platform in the country.

12. Lack of access to finance in particular to MSMEs is a critical constraint. Nearly half of

metropolitan firms (47.1 percent) and 23 percent of non-metropolitan firms surveyed in the Investment Climate Assessment reported access to and cost of financing to be a major or severe obstacle to doing business. This is particularly affects MSMEs, for whom both mainstream products and traditional micro-finance lending are not appropriate. Moreover, 69 percent of lending has a maturity of less than three years, in metropolitan areas, while approximately half of the loans have maturities of one year. In addition, the banking sector accounts for approximately 90 percent of financial sector assets and bank asset growth is concentrated in consumer, not enterprise, lending. As a result, the availability of a wider variety of loan instruments and terms beyond collateral-based loans (e.g. leasing), is limited.

5 Doing Business 2010. 6 World Bank (2008). “Bangladesh Second Investment Climate Assessment: Harnessing Competitiveness for Stronger Inclusive Growth”.

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ECONOMIC ZONES 13. The Government of Bangladesh has successfully provided tailored infrastructure

services and business environment conditions through Export Processing Zones (EPZs). EPZs were used as a strategic instrument for attracting FDI and dealing with the shortcomings of the overall investment climate, business registration, licensing, etc. The Bangladesh Export Processing Zone Authority (BEPZA) was established in 1980, with the first EPZ built in Chittagong in 1983. The EPZ program was the first systematic initiative to provide fully-serviced land and a better business environment for investors, targeting large scale, export-oriented manufacturing. EPZs have triggered impressive growth in exports, mainly in the RMG sector, at an average annual rate of 23 percent since 1993, reaching nearly US$2.9 billion by FY2010, and employing almost 28,000 people7

.

14. Bangladesh’s current EPZ model has its limits both in terms of cumulative impact and in terms of spillovers to the domestic economy. As an exporting enclave, EPZs have provided little in the way of linkages with the domestic economy, up-stream or down-stream, resulting in low technology and efficiency spillovers which accompany foreign investment. Investments in other sectors beyond the low capital investment RMG segment (the RMG sector is in the lower labor/capital tier if compared across sectors8

), have also not materialized.

15. The Government’s objective is therefore to maximize the potential direct and indirect impacts through a more modern, generalized regime for Economic Zones (EZs). The Government has launched an effort to develop a new EZ paradigm for Bangladesh drawing from numerous successful examples from around the world as well as Bangladesh’s own positive experience with the EPZ model, the expectation is that more spillovers will be harnessed by local firms from foreign direct investment, additional investments will be encouraged within value chains, more local produce will be procured and better linkages established between firms and educational institutions. A faster adaption to international environmental and social practices in the private sector should also be encouraged through the new EZ policy.

16. The new EZ regime provides for a new approach both in management and investment.

The policy allows the Government to develop and pilot an approach that is less reliant on Government fiscal subsidies, while leveraging comparative advantages and private sector capability where possible. By starting with a fully new organization, the Bangladesh Economic Zone Authority (BEZA), the Authority itself can be structured to be efficient and effective by working closely with private sector expertise. A performance based management and a more transparent promotion and selection process should allow it to leverage more private financing. BEZA successfully implemented, would influence and transform the institutional landscape in regard to zones or industrial park management, by establishing a good practice reference point. The broader focus of the EZ policy would also shift the focus

7 BEPZA figures (www. http://www.epzbangladesh.org.bd/index.php) 8 For example: the labour/capital ratio for India over all industries between 1990 and 2003averaged to 0.26. The respective figures for the manufacture of wearing apparel, except fur apparel (NIC98 code 1810) were 0.57 in 2003/04.

5

from fiscal benefits to efficient business environment, infrastructure services and firm level collaboration using public-private partnerships in the financing, development, management and servicing of EZs.

17. The Economic Zone Act was passed in Parliament in August 2010, providing the overall

framework for establishing EZs throughout Bangladesh. Under this Act, the Economic Zone Authority will be established under the Prime Minister’s Office (PMO) and governed by a Board chaired by the Prime Minister. As a result, Board resolutions are deemed as significant as a Cabinet decision. The law provides the legal coverage for attracting and leveraging private investment in the development of zones as zone developers or operators, and in the provision of tailored infrastructure services, such as private provision of power, affluent treatment, etc. selected and contracted on a Public-Private Partnership (PPP) basis. In business environment, public services required by investors, can be provided through a one-stop shop system including commercial and labor dispute resolution.

18. The EZ Authority is not fully operational until the rules and regulations are drafted and approved by the Prime Minister’s Office. The rules and regulations are being drafted in stages first the structure of BEZA will be gazetted to allow for the establishment of the EZ Authority. Other, sections of the rules and regulations concerning, the PPP selection process, the business environment related services, the dispute resolution mechanism etc will be prepared under this project.

B. Rationale for Bank involvement 19. The World Bank Group (WBG) will continue to support GOB’s objective of achieving

annual growth rates of 6 percent or higher. The Bank’s recent Country Assistance Strategy9

aims to build on Bangladesh’s strong track record of growth and development in recent years by supporting inclusive and sustainable growth. Annual growth of around 8 percent will be needed for the country to achieve its ambitious aspirations of reaching middle-income status and reducing poverty from 40 percent to 15 percent by 2021. This will require accelerated, sustainable and inclusive growth, underpinned by stronger governance at central and local levels. To achieve that, massive infrastructure investment is needed, along with a more conducive business environment.

20. The proposed PSDSP directly addresses the CAS’ strategic objective, namely to increase transformative investments and enhance the business environment. It also contributes to improved investment climate for private sector investment, by developing economic zones with tailored infrastructure services and piloting reforms such as a moveable asset registry and dispute resolution mechanism. In close collaboration with IFC, the proposed project will support the development of a modern Economic Zone regime in order to accelerate export-led growth. The project will also contribute to increased infrastructure services efficiency by enabling private provision of infrastructure services within the zones.

9 World Bank (2010) -“Country Assistance Strategy: FY2011-14”

6

C. Higher level objectives to which the project contributes 21. The PSDSP will support transformative investments beyond already established

sectors. A key outcome is a contribution towards zoned industrialization, which will enable Bangladesh to maximize the growth benefits of agglomeration and ease the increasing urban congestion. More importantly, the project will enable new sources of growth, where investor interest have already been noted, including but not limited to pharmaceuticals, IT/IT related services, ceramics, processed and frozen food, and ship building.

22. The proposed project fully supports the Government roadmap for inclusive economic growth as laid out in its strategy 10

. This includes promoting sector growth, focusing on underserved segments, and improving the business environment. Strategic priorities include promoting EZs, enhancing productivity and efficiency through science and technology (Digital Bangladesh), and initiating sector-level policies for higher employment, productivity, and real wages.

II. PROJECT DESCRIPTION

A. Lending Instrument 23. The proposed lending instrument is a Specific Investment Loan (SIL).

B. Project Development Objective and Key Indicators 24. The proposed Project Development Objective (PDO) is to facilitate investment in growth

centers in the emerging manufacturing and services sectors of the economy with the aim of generating employment.

25. The development objectives and implementation results will be monitored through several indicators, including:

Investment indicators

(i) Increase direct private investment in the creation of new zones; (ii) Increase private firm level investment in new zones; (iii)Increase number of firms in new zones; and (iv) Increase non-RMG investment in new zones.

Employment indicators

(i) Increase direct employment in new zones (% female); and (ii) Increase indirect employment through firms supplying to the new zones (% female).

10 Government of Bangladesh (2009) “Steps Towards Change – National Strategy for Accelerated Poverty Reduction II (FY2009-11)”

7

C. Project Components Component 1: TA and Capacity Building

Sub-component 1.1 - Capacity building for zone related institutions

26. This sub-component will provide TA and capacity building to those institutions crucial to establishing and operating EZs in Bangladesh. These will include the EZ Authority, BEPZA, the PPP unit in the PMO, Board of Investment (BOI), the Department of Environment (DOE), as well as specialized institutions such as the Hi-Tech Park Authority (HTPA) and the Bangladesh Computer Council (BCC). The capacity building will focus on developing and applying economic and infrastructure criteria in the selection of zone locations; conducting environmental and social assessments, and developing the necessary background and marketing material for attracting developers and investors to the EZs; developing master plans for selected sites, including environmental and social infrastructure, zoning, pricing; monitoring the performance of the zone or park developer under the concession agreement and ensuring compliance with all other legal and regulatory requirements.

Sub-component 1.2 – Creating a conducive business environment within Economic Zones

27. This sub-component will provide TA to develop a business-friendly environment that will also act as a pilot for wider business environment reforms. The component will provide technical assistance and capacity building to develop a one- stop shop system within the EZ Authority to deal with registration, export and import licensing, customs clearance, and other required regulations. This business environment component will also include TA and capacity building to develop a secured lending regime for movable property within the EZs. The component will also provide TA and capacity building to develop a special commercial court as a sub-division of the appeals court to settle commercial disputes of zone-registered companies or between EZ companies and suppliers, as provided for under the EZ law. The TA will cover legal and institutional reviews, systems development and capacity building to establish these services from within the zone.

Component 2: Public Investment Facility (PIF) 28. This component will invest in developing off-site infrastructure (last-mile infrastructure), as

well as internal infrastructure of a public-good nature, for targeted EZs, staring with the Kaliakoir Hi-Tech Park. These investments may include land preparation and development, access roads, sewerage systems, power distribution and rail connections and landings. The PIF can also fund some on-site investment, such as internal road networks, water and drainage systems, and supporting private investment in common user facilities, such as effluent treatment plants. The project will also provide compensation – i.e. resettlement costs - for affected households in the development of the zones, if needed.

29. Given the availability of public land, the project will start first with the proposed site at

Kaliakoir, which will be developed as a Hi-Tech Park. Preliminary development has already been completed – 232 acres of land for the Park has been earmarked and enclosed by a

8

boundary wall and some infrastructure has also been provided, including an administrative building, basic internal road structure and optical fiber network.

30. In the case of other location where land acquisition may be required, GOB will be

responsible for funding land acquisition costs. The project will provide all associated resettlement costs such as compensation at replacement value for losses (houses, standing crops, shops, etc) to affected people including squatters, livelihood restoration, resettlement sites (where possible), in compliance with the regulations of World Bank policies and procedures. In terms of the cost of land specifically, GOB will be responsible for acquiring the land as per their own procedures and at their own expense; however the project will be responsible for paying the difference between the acquisition price and the market price if the latter is found to be higher (top-up). Compensation for all losses must be according to market rates (replacement cost as per WB policies.

Component 3: Business Linkages and Product/Process Improvement 31. This component will support better linkages between firms located in the zones and local

suppliers. The component will provide technical assistance to firms in zones for training of staff, improvement social and environmental standards and improvement of standards for local suppliers. The TA will also support suppliers’ compliance with international labor and environmental standards. It will also provide TA to training and research institutions working with groups of firms within the EZs and suppliers to firms in located the EZ.

32. The TA categorized as follows:

i. Sourcingii.

: TA will be provided to firms in the zones to assist with local sourcing; Training Institutions

iii.

: The component will support training institutions to develop continuous technical training courses firms and suppliers; Social and Environment Audits

iv.

: TA will be provided to EZ firms to conduct social and environmental management audits (labor, energy, water, processing, waste, etc.), and Process development

D. Lessons learned and reflected in the project design

: The component will support research institutions in working with EZ firms and suppliers to develop new products or processes.

33. The project reflects lessons learned from EZ development globally. In its most general

sense, an EZ is a serviced area with a special business environment, compared to other parts of the respective economy, with relatively better infrastructure and fiscal benefits provided mostly to foreign investors. More recent EZ concepts are sector-focused i.e. electronics, IT or food processing, and zone management mostly private sector run and open to both foreign and local investors (first movers). While some fiscal benefits are also provided, the focus is on agglomeration-related industries, including research and training institutions such as science and IT parks.

34. EZs need to provide adequate access to infrastructure. They need to be located close to

transportation nodes, especially ports, and infrastructure facilities. For instance, the Subic

9

Bay Freeport in the Philippines, a Bank-funded project, includes a deep-water port, an international airport and air cargo hub, and a nature preserve. In 2006, the Shenzen SEZ in China was home to more than four million residents, and had attracted both tourism and industrial investment. It is equipped with a port, an airport, 130 hotels and several smaller industrial zones.

35. Economic zones may put best practice on display to the benefit of wider investment

climate reform. EZs can highlight good practices. An example of successful spillovers of good practices of policies outside of zones is the Shannon Free Zone in Ireland, which acted as a catalyst for the region and contributed to the shift of the industrial composition towards higher value industries. Similarly, Shenzhen is another example where China experimented with market reforms in the eighties and subsequently rolled these out into the rest of the surrounding province.

36. Zones must not be operated as ‘economic enclaves’, but need backward and forward

linkages with the local economy. Examples of bad backward linkages include zones in the Dominican Republic, which purchased only 0.001% of material inputs from the domestic market because of tariff and non-tariff barriers to trade. Another extreme example is that of Morocco, where the zone administration and zone companies were found to be importing basic office supplies from Spain because zone procedures made it very difficult to purchase these items locally. These policies also hamper knowledge spillovers to domestic firms.

37. Operational requirements must be realistic. Many zones impose unrealistic conditions on

investors thus hampering requirements on firms. These may include minimum employment, stringent export requirements or investment performance; e.g. firms in EZs in Senegal had to employ at least 150 people, and were also subject to employment generation and minimum investments requirements.

38. Zones must be designed with consideration to environmental sustainability. Most EZs

are manufacturing sites that produce waste and sewage, and thus may have a severe impact on the local environment. In order to counteract such problems, an operationally sustainable monitoring system, based on environmental risks and liabilities, should be embedded in the zone design. This system should entail incentives to drive improved environmental performance by enterprises (e.g. through learning platforms), and also prohibit harmful procedures. Such a remedy is currently being developed by the IFC in collaboration with DFID and the EU.

E. Alternatives considered and reasons for rejection 39. The PSDSP aims to focus on the constraints that can be addressed adequately and

reduce complexity sustainably. The project design is therefore selective and does not attempt to address all constraints, such as land administration reform, access to finance and large logistical infrastructure investment. As cited above, availability and ease of acquiring serviced land is a major obstacle to growth for the private sector. However, in order to systemically address this constraint, the project would need to overhaul the property registration system, support systems for data-driven analyses of the land market, and provide assistance in implementing a nation-wide zoning and urban planning strategy. This is

10

beyond the scope of the project. A second alternative component that was not included in the design of the project is increased access to finance. This is an obstacle that cannot be efficiently resolved through zone intervention as it involves rigidities in the financial sector and needs to be addressed, and would overlap, with a more targeted financial sector program aimed at modernizing the financial sector as a whole. Moreover, constraints in transport and external large-scale infrastructure, such as the building of a new port or railway, should be covered in a comprehensive transport program as the project does not have the resources to support such an initiative.

III. IMPLEMENATION

A. Partnership Arrangements 40. The main partner agencies are the UK Department for International Development (DFID and

IFC-Bangladesh Investment Climate Fund (IFC-BICF). DFID will be the major partner throughout project implementation and will support implementation and technical supervision. DFID will enable the project to build the capacity of relevant institutions upfront and accelerate implementation. The funding will allow the capacity building to start immediately following negotiations. The project will also be implemented in close collaboration with IFC-BICF, which is focused on the overall investment climate. The project will work closely with BICF in developing the EZ business environment, including the dispute resolution and secured lending rules and systems. The project will also continue working with EZ pillar of BICF, in related institutions, i.e BEPZA. Annex 2 summarizes past and current programs in Bangladesh relevant to this Project.

B. Institutional and Implementation Arrangements 41. The project, in a first phase, will be coordinated by the Ministry of Finance, Economic

Relation Division (ERD), over the first years of the project. The Economic Relations Division (ERD) will set up a unit which will function as the Central Coordinating Unit (CCU) for the Project. The ERD will perform the CCU function until the newly formed Bangladesh Economic Zones Authority (BEZA) has the capacity and ability to undertake this task. The capacity of BEZA will be reviewed during the MTR of the project and the transfer will be authorized, if BEZA’s capacity is satisfactory to the GOB and IDA. Project implementation will be supervised by a Project Advisory Committee (PAC) and the project will be implemented by the Project Implementation Units (PIUs) in the government agencies responsible for each EZ implemented under the project.

42. Project Advisory Committee (PAC): The overall governance and advisory of project

implementation will be carried out by a Project Advisory Committee. The PAC will be chaired by the ERD Secretary and will consist of all institutions associated with the successful implementation of zones. As required, other relevant government institutions will be invited into the PAC, such as the local government body where a zone may be established. The core members will be representatives from the Ministry of Finance, Ministry of Commerce, Ministry of Justice, Ministry of Science and ICT, Ministry of Land, Prime Minister’s Office, Board of Investment, BEPZA, Bangladesh Computer Council, National

11

Board of Revenue, Department of Environment, Registrar of Joint Stock Companies, and relevant private sector associations. The PAC will be convened by the ERD and meetings will be held semi-annually.

43. Central Coordination Unit (CCU): The CCU will consist of a Project Coordinator not

below the rank of Joint Secretary or Joint Chief, Deputy Project Coordinator and a Financial and Procurement Advisor. The CCU will manage the Designated Account (DA) and ensure flow of funds to Operating Accounts (OAs) of implementing agencies, based on a six-month estimated expenditure and work plan. The CCU will receive the quarterly financial monitoring reports (FMRs) and progress reports from the implementing agencies and act as the single point conduit to the World Bank.

44. Project Implementation Units (PIU): A Project Implementation Unit will be established in

the Government agency responsible for an Economic Zone under the project. For the Kaliakoir Hi-Tech Park the current responsible agency is BCC, for the Comilla expansion the responsible agency is BEPZA. A PIU will consist of a Project Director, Deputy Project Director, Financial Management Specialist, Procurement Specialist and specialized consultants. The main objective of the PIU is to manage investments and build the relevant capacity in the respective supervising environment. The PIU will be fully embedded in the respective Government agency, therefore all work plans, procurement plans, contracts, reports, etc. will be approved by the Governance structure of the respective agency. The CCU will issue an official letter to the Government agencies stipulating the detailed arrangements and the reporting requirements.

C. Monitoring and Evaluation of Outcomes/Results 45. The World Bank will evaluate progress on the proposed indicators through regular

reporting by the CCU, the PIUs and through implementation support missions. The CCU will submit periodic reports, including financial management reports, based on progress reports from the individual PIUs. The project will also monitor core sector indicators of project beneficiaries (employment and training). The data will come from reports provided by the PIUs. Although the scope of reporting will be significant, the indicators are expected to be effectively monitored through capacity building of the relevant institutions. Further details on the Results and Monitoring Framework are provided in Annex 3.

D. Sustainability 46. The GOB is committed to a private sector strategy that includes the development of EZs as a

key priority. The Government has clearly indicated its strategy of moving beyond EPZs and learning from its experiences to EZs. The proposed project’s sustainability is evidenced by the Government’s passing of the EZ Act. Additionally, it has promoted the establishment of the Kaliakoir Hi-Tech Park as critical to the diversified growth of the economy. It has also been supporting efforts in collaboration with the Bank and other donors in investment climate and business environment reforms (Annex 2).

47. To ensure the sustainability of the project’s objectives, given the lessons learned from similar

projects and EZ experiences globally, the project has structured its components to guarantee

12

(a) sufficient capacity within zone institutions in the implementation of their tasks beyond the project timeline (Component One); (b) private participation and demand in zone development and management (Component One and Two) and in skills development (Component Three), and (c) creation and strengthening of linkages with local suppliers and the local labor pool to ensure knowledge and technology spillovers to the economy (Component Three).

E. Critical Risks and Possible Controversial Aspects

Risk Mitigating Measures Level Generic Risk (to PDO) Macroeconomic framework The Bangladesh economy relies on a steady flow of remittances. In the first quarter of 2010, remittances exhibited a (3-4%) reduction, if continued this could result in a negative effect on current balance of payments.

The IMF and the Bank are monitoring the balance of payments positions and working closely with the GoB to address this risk.

Moderate

Key infrastructure constraints Major transport links; including the port, airports and roads, and unresolved power generation constraints are key bottlenecks that cannot be addressed in the short-term and could deter private investment.

Given the longer term and multidimensional aspect of these constraints, long-term challenges beyond the scope of PSDSP will be planned and addressed through the Bank’s relevant sector dialogues with the GoB.

High

Project specific (to components) Implementation Arrangements The project will be implemented by and require the collaboration of different Government agencies. Lack of coordination or collaboration could lead to slow progress in implementation

The team will set up a Project Advisory Council which will provide coordination across agencies at a very senior level.

High

Social safeguards The project will require a well-sequenced and fully-documented assessment, identification, consultation and resettlement, where necessary. Inadequate, incomplete or delayed actions could result in high costs.

The project aims to mitigate this risk by deploying the necessary technical assistance (community specialists, legal, engineers and media consultants) to ensure high quality implementation.

High

Environmental infrastructure and compliance

The project requires development of adequate environmental infrastructure and its maintenance during the operation phase.

The project proposes to mitigate such risks by integrating the provision of environmental infrastructure in the master plan of

High

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Absence or inadequate operation of this infrastructure could lead to non-compliance with accepted international standards and GOB regulations.

the zones and also carrying out detailed environmental assessments, including management plans, for each sub-project.

Capacity The implementing agencies do not have a track record of large-scale PPPs. This poses a threat to timely project implementation.

The project aims to start as early as possible with Component One by dedicating funds for technical assistance and capacity building to zone related institutions.

Moderate

Private sector participation Private sector participation is crucial to ensuring leverage and technical know-how in operation of zones. A poor take-up resulting from inadequate marketing or poor on- and off-site facilities may limit this participation.

The project attempts to address these constraints through Component One by conducting road shows and adapting investments accordingly. The design risk will also be addressed by providing for a private management function without private investment.

Moderate

Other risks Land speculation Investors may attempt to acquire lease under pretence and promise of investment, but are interested only in flipping lease agreements to genuine investors.

To mitigate speculation with zone plots, performance-based lease agreements will be implemented that contain automatic triggers allowing the termination of leases if investment is not conducted to an agreed time plan or an attempt to sub-lease is made.

Moderate

Procurement and fiduciary Though BEPZA has some experience in Bank-funded projects for similar types of tasks, BCC has limited capacity to manage procurement.

In addition to adequate staffing for procurement needs, emphasis will also be laid on areas of internal control, documentation, information dissemination, administration of contracts, including delivery follow-up, payments and handling complaints.

High

No linkage to local economy Investors in zones may not be in a position to source from internal markets because of lack of available supply of inputs

Component Three is geared towards working with investors located in the zones to help them source from local enterprises. TA in collaboration with buyers will be made to suppliers.

Moderate

Overall Risk Moderate

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F. Loan/Credit Conditions and Covenants Negotiation Conditions: None. Board Conditions: None. Effectiveness Conditions: the DFID Trust Fund Grant Agreement has been executed and delivered and all conditions precedent to its effectiveness (other than the effectiveness of the Financing Agreement) have been fulfilled. Disbursement Conditions

: None.

General Covenants• Maintain satisfactory financial management systems for the project, including records

and accounts, and prepare financial statements satisfactory to the Bank.

:

• Maintain an active Project Advisory Council (PAC) and Central Coordinating Unit (CCU) at all throughout project implementation.

• Upon satisfactory review of the capacity of the Bangladesh Economic Zones Authority (BEZA), by IDA and the GoB, the CCU will be transferred to the BEZA latest at midterm review.

• The financing of the expansion of the Comilla site under the project is subject to a satisfactory to IDA: the Resettlement Action Plan (RAP), Environmental Management Plan (EMP) and land transfer from MoD.

IV. APPRAISAL SUMMARY

A. Economic and financial analyses 48. Economic and financial analysis: The economic and financial analysis estimates project

related benefits and costs for the development of Kaliakoir Park as well as those costs/benefits arising from the investments in Comilla and Chittagong. The bulk of this investment is to go into the Public Investment Facility (PIF), under the projects second component, which will fund investments in developing infrastructure that is not to be funded by the private sector. The results of the analysis for the base case scenario show that the project is expected to generate US$ 117.378 million - based on a discount rate of 10%, with an economic rate of return of 23.85 percent.

49. The methodology used in assessing the economic and financial feasibility of the projects was a cost-benefit analysis, a technique used for assessing the viability of new investments or expenditure programs. The analysis considers the land as an equity contribution and is assumed to earn a fixed annual revenue stream through land and office space rentals as well as other income from the provision of utilities and support services (financial flows). In addition, the analysis projects increases in both employment and income generated by firms operating within and outside the Park. The analysis is predicated on the following main base case assumptions:

i) a 20 year project time horizon; ii) a staggered occupancy of the zone; iii) revenues are based on revenue rates in existing zones; and iii) employment, salary and income generation based on a benchmarking of IT sector driven zones and existing zones in Bangladesh.

15

50. A sensitivity analysis was conducted for the Kaliakoir Park only

B. Technical

by changing the values of critical assumptions from the base case scenario - 28.89 percent for Kaliakoir alone. As Comilla and Chittagong are still in the early stages of development assumptions for costs and benefits cannot be gauged accurately. This was primarily to test the assumptions for rental rates and the level of private investment. Two critical factors when seeking private participation and developing the master plan for the zone. The first scenario assumes a higher rental rate for land and buildings, based on a benchmarking of zones in other countries with similar zone programs and results in a return of 31 percent. The second scenario assumed the same rental rates as the base case; however, the development costs were estimated based on a less conservative estimate of private contribution and returns a rate of 59 percent. Consequently, the GoB only earns land rental revenue on land occupied by buildings constructed through private investment. The third scenario assumes a combination of the first and second scenario and has the highest return of 62 percent.

51. The Project’s support to GOB in implementing its EZ strategy is designed to ensure

international best practice in zone development and management. As mentioned before, it builds on lessons learned from the region and globally in stressing private participation, piloting reforms, and strengthening linkages. The EZ Act has already been passed and the Government is in the process of drafting the rules and regulations. The first site has been already identified and fenced with Government resources. The necessary project implementation arrangements have been agreed and confirmed in writing with the World Bank. Assessments, design work and other plans have been drafted, but will be adjusted following a road show to seek private participation. Following the PPP process, the documentation will be finalized and procurement will commence.

C. Fiduciary11

Procurement 52. Procurement Capacity and Risk Assessment: The procurement capacity assessment was

carried out in BCC and BEPZA with the web-based Procurement Risk Assessment Management System (P-RAMS). BEPZA has some experience in Bank-funded projects for similar types of tasks and BCC’s procurement capacity will be built to manage procurements under this project, also in international competitive bidding (ICB) for works. Both agencies have limited knowledge in PPP procurement. Furthermore, BCC and BEPZA need more training and experience in international competitive bidding (ICB) following Bank guidelines. Like any other Ministry or government agency, the BCC and BEPZA also are not immune to systemic issues affecting procurement efficiency and performance. In addition to adequate staffing for procurement needs, emphasis also needs to be laid on areas of internal control, documentation, information dissemination, administration of contract including delivery follow up, payments, handling complaints etc. The project is rated as

11 It is expected that the Bangladesh Economic Zones Authority (BEZA) will be established during the project lifetime, at which time it will be included as the third implementing agency. In its absence, the Government will mandate an existing agency to act on its behalf. Similar fiduciary mitigation measures will be undertaken for the third agency.

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“High-Risk” from a procurement operation and contract administration viewpoint. Several measures need to be introduced to minimize the risk during the implementation of the project.

53. Measures for Improving Governance in Procurement: In order to minimize procurement-

associated risks, the following measures have been agreed with the Government: (i) Identifying Procurement Focal Points (PFP) of BCC and BEPZA; (ii) Service of an experienced procurement consultant; (iii)Enhancing a webpage of BCC and BEPZA with procurement related information

accessible to the public; (iv) Establishing a system for handling complaints and a database for recording,

monitoring and follow-up of all the procurement activities under the project, and (v) Introducing a procurement risk mitigation plan (PRMP) through reports submitted

to IDA on a periodic (semi-annual or quarterly) basis. The detailed arrangements specific to this project are described in Annex 8.

Financial Management 54. The financial management assessment was conducted by the Bank and actions to strengthen

financial management capacity agreed upon with the project executing agencies and the Ministry of Finance ERD. The availability of staff in all the executing agencies at project start up is a critical issue for successful implementation of the project. A clear understanding among the key executing agencies with regard to staffing, fund flow arrangements including reporting and coordination mechanism is important for effective project financial management. Preparation of accurate financial reports, which is the basis for disbursement of project funds, an annual audit by an independent auditor under TOR agreed with IDA including timely follow up of audit issues will require consistent monitoring by project executing agencies. The assessment has concluded that with the implementation of the agreed actions, the proposed financial management arrangements will be satisfactory to the Bank’s minimum requirements under OP/BP10.02. Taking into account the risk mitigation measures proposed, overall, the financial management risk for this financing is assessed as “Substantial”, both before and after mitigation. Annex 7 provides additional information on agreed project financial management arrangements including risk mitigation measures.

D. Social 55. The project is classified as a Category A project. For the first project site in Kaliakoir,

consultations were held with affected people, local residents and other stakeholders during the preparation of the RAP and the EMF. Furthermore, the BCC has disclosed the RAP and EMF through its website and the local government office for comments and feedback from the local communities. All safeguard documents have been disclosed in the Bank’s InfoShop in April 2010. A similar process will be followed when conducting EA and SIA studies and RAPs for all future sub-projects.

56. The social impacts of the proposed project are mainly attributed to the second component of

the project and will vary according to the scope and design of its interventions. Land will be required for carrying out most of the proposed project activities under component 2. The

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following options for using land for the project will be considered (listed by order of preference):

• Use of publicly owned land • Land procured by government agencies on willing buyer –willing seller terms • Land acquisition by the Government (as a last resort where absolutely essential)

57. Where land acquisition is required, GOB will be responsible for funding land acquisition

costs. The project will provide all associated resettlement costs such as compensation at replacement value for losses (houses, standing crops, shops, etc) to affected people including squatters, livelihood restoration, resettlement sites (where possible), in compliance with the regulations of World Bank policies and procedures. In terms of the cost of land specifically, GOB will be responsible for acquiring the land as per the Government’s own procedures and at their own expense.

58. Compensation: Under the GOB process, registered land prices at the District Commissioner’s

(DC) office are averaged over a 12 month period to arrive at the compensation value for land. However, these prices are often a fraction of the true market value, as owners register at very low values in order to avoid taxes. GOB recognizes this issue and has mandated the payment of a 50% premium added to the compensation value. Despite this, the price remains significantly below market value. According to the Bank’s Involuntary Resettlement Policy, compensation for all losses must be according to market rates (replacement cost). Therefore the client agency must conduct an independent market survey as part of the preparation of the RAP.

59. Calculation of the mark up: In areas where active land markets exist, consultants approach

real-estate developers, banks from where people take loans in order to buy land, the DC's office where, even though the actual registered price is a fraction of the real market value, the union land officer or registry, usually know the real transaction price. Where active markets do not exist, land use and quality are assessed and people in the vicinity who may have bought and/or sold land within the year are consulted, as well as the DC's office. The entire process including the consultations are documented and presented in the RAP. The project will be responsible for paying the difference between the acquisition price and the market price if the latter is found to be higher (top-up). This has been usual practice for Bank-funded projects in Bangladesh, e.g. the Jamuna Bridge Project (P009509) and the Siddhirganj Peaking Power Project (P095965).

60. The potential impacts of land acquisition could include: (i) permanent/temporary

displacement due to loss of physical assets and/or economic activity; (ii) loss/disruption of livelihood sources; (iii) increased vulnerability of the poor, women headed households, elderly and squatter populations; (iv) resettlement sites may require further acquisition and negative impacts on host populations may occur, and (v) loss of public property and community resources. Other project impacts could include conflicts between local communities and non-local workers, spread of diseases, etc.

18

61. The first phase of the project will comprise of the development of the Kaliakoir Hi-Tech Park. The site is owned by the MOSICT and no acquisition will be required for the construction of the Park. The land is free of all legal encumbrances and encroachments and is clearly demarcated by a brick boundary wall enclosure. The project will, however, result in the loss of a 15-feet wide paved approach road owned by the Local Government Engineering Department (LGED). Due to this, rickshaw pullers and small businesses on the route may face decreased income levels and road connectivity problems and temporary users of the site for agricultural purposes within the project footprint may incur adverse impacts on livelihood. It would also affect access of families to their social relations, places of work, healthcare and educational institutions. A 360 feet deep tube-well will also be removed.

E. Environment 62. This project is classified as a Category A project. Depending on site conditions and nature of

Economic Zone (EZ), the activities of component 2 of PSDSP could lead to significant environmental impacts such as (i) impacts on water quality (ii) health impacts due to air emissions (iii) impacts due to the disposal of solid and hazardous wastes and (iv) hazards due to storage, handling and use of chemicals/hazardous materials.

63. An initial assessment of Kaliakoir Hi-Tech Park (the first economic zone to be set up)

indicates that a major portion of the site is an undulating land and marked by small streams and water bodies, draining into Bangshi River. These aspects will be analyzed and necessary measures will be integrated in the engineering design of the sub-project, through a detailed environmental assessment as per the agreed EMF, prior to commencing construction tender process for the project.

64. Environmental Management Framework (EMF): An environmental management framework

has been developed to integrate environmental aspects in EZ planning, design, construction and operation phases. The framework sets out procedures to (i) identify, predict, and evaluate environmental impacts of project activities; and (ii) set up suitable institutional arrangements to implement the environmental management measures. The EMF has been disclosed locally and at Bank’s Info Shop in March 2010 and will be applied for all the sub-projects supported by PSDSP.

65. The project implementing agencies, BCC, BEPZA and the forthcoming EZ Authority have

limited safeguards management capacity. These agencies also have limited experience in implementing the Bank’s safeguard policies. In view of the above, the project will:

• Hire Environment Expert at the Central Coordinating Unit (CCU) to monitor

environmental and social due diligence of the project; • Recruit Environment Specialist at the PIUs to supervise the implementation of

EMF and the EMP, and • Establish Environment and Social Management Unit (EMU) at each zone to

enable implement EMP and other environment regulation during construction and operation phase.

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66. A program of capacity building for the implementing agencies and other key stakeholders (site developers, contractors, etc.) will also be implemented to strengthen safeguard management capacity, through component 1 of the project.

F. Safeguard Policies 67. Considering the anticipated impacts of the potential sub-projects, the project is classified as

‘Category A’, as per OP 4.01. The project also triggers OP 4.12 on Involuntary Resettlement. A more detailed description of safeguard management issues and proposed measures are provided in Annex 10.

Safeguard Policies Triggered by the Project Yes No Environmental Assessment (OP/BP 4.01) [ X] [ ] Natural Habitats (OP/BP 4.04) [ ] [X ] Pest Management (OP 4.09) [ ] [ X] Physical Cultural Resources (OP/BP 4.11) [ ] [ X] Involuntary Resettlement (OP/BP 4.12) [X ] [ ] Indigenous Peoples (OP/BP 4.10) [ ] [ X] Forests (OP/BP 4.36) [ ] [X ] Safety of Dams (OP/BP 4.37) [ ] [ X] Projects in Disputed Areas (OP/BP 7.60)12 [ ] [X ] Projects on International Waterways (OP/BP 7.50) [ ] [ X]

G. Policy Exceptions and Readiness 68. The project will need to comply with all applicable World Bank policies. There will be no

specific policy exception.

12 By supporting the proposed project, the Bank does not intend to prejudice the final determination of the parties' claims on the disputed areas.

http://www.worldbank.org/environmentalassessment�

http://intranet.worldbank.org/WBSITE/INTRANET/OPSMANUAL/0,,contentMDK:20064724~pagePK:60001255~piPK:60000911~theSitePK:210385,00.html�


















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Annex 1: Country and Sector or Program Background

BANGLADESH: Private Sector Development Support Project

COUNTRY BACKGROUND 1. Bangladesh achieved sustained annual GDP growth of approximately 6.1 percent in the

period FY05-1013

, despite the global financial crisis and global food price shocks. Growth was underpinned by stable macroeconomic and prudent monetary policies, rising industry and services output and continued high levels of remittances. Going forward, the Government of Bangladesh’s objective is to develop a growth trajectory that will support an overall increase in real GDP growth to 8 percent per annum and reduce poverty from 40 percent to 15 percent by 2021.

2. Remittances and exports have been the key drivers of growth. A large and industrious labor pool, spread across the Middle East, Europe and the US, ensured a steady increase in remittances, with inflows reaching US$11 billion in FY10. Strong export growth is based on low, but steady FDI of one percent of GDP, with 51 percent in infrastructure, 24 percent in services and 24 percent in manufacturing (mostly RMG). Although the RMG sector contributes on average 77 percent of the country’s total export earnings, other emerging or nascent sectors exist in Bangladesh’s export profile, including leather goods, chemical products, agricultural production, light engineering and electrical goods, and IT/IT-related services.

3. FDI inflows are concentrated in capital-intensive infrastructure and ready-made-

garments. Between 1998 and 2007, incoming FDI amounted to US$5.5 billion, of which the capital-intensive infrastructure sector accounted for 51 percent, manufacturing industries 25 percent, and services 24 percent. Within manufacturing, the bulk was assigned to textile industries. The figure below gives a more recent picture of FDI by sector.

Figure 1.1 Industry Breakdown FDI Jan-Dec 2009

Source: Bangladesh Bank

13 The GOB fiscal year span over the period 1 July to 30 June.

21

4. Stronger growth in emerging sectors should generate jobs for new entrants. The

demographic trends show that the working age population has been expanding even more rapidly than the total population, growing at rates of 2.5 percent to 2.8 percent into the 2000s. While this can be an asset for income generation and growth, it poses a major challenge for the labor market to absorb a large wave of new entrants every year. The “bulge” among the 2005 cohort of the age group of 5 to 14 indicates that the working age population will expand rapidly over the next decade. The UN population projections show that the annual growth rate of the working age population will remain over 2 percent until 2015, even as the annual population growth rate slows down to approximately 1.5 percent. This will add an estimated 22 million to the working age population between 2005 and 201514

.

5. The service and manufacturing sectors appear to be the major sources of growth for Bangladesh. All sectors – agriculture, industry, and services – are expanding and contributing to overall growth. However, over the longer term, several trends are evident - in the period 1980-2005, the share of the agricultural sector gradually shrunk, while that of industry grew. By 2009, the services sector grew to 52.8 percent of GDP and industry to 28.6 percent of GDP while agriculture made up approximately 18.6 percent.

6. Exports and overall growth is primarily driven by the labor intensive Ready-Made

Garment (RMG) industry. In the period from FY05-FY10, the RMG industry contributed on average 77 percent of the country’s total export earnings. The figure below shows the breakdown of exports by categories for FY10. Woven garments and knitwear alone comprise approximately 77 percent of total exports. The category “others” includes raw jute, tea, leather, chemical products, agricultural products, engineering and electronic goods and handicrafts. Engineering and electronic goods only account for 2 percent of total exports. This breakdown has not changed significantly in the past few years.

Source: Bangladesh Bank

14 World Bank (2008). “Poverty Assessment for Bangladesh - Creating Opportunities and Bridging the East-West Divide”.

22

Growth potential at the sector level

7. However several sectors other than RMG have growth potential. The Ministry of Commerce highlighted a set of industries that bear potential for export diversification in 2009 (MoC et al, 2009). Industries other than cotton textiles or garments to which growth potential was assigned are jute, food processing, pharmaceutical products, light engineering (machinery and equipment), electric and electronic products, and computer software. These roughly correspond to the product groups in the current export profile and industries identified through focus group discussions with private sector representatives.

8. The jute industry is benefiting from a diversification of jute usage, and growing

environmental consciousness in developed countries. Jute has begun to draw attention as a substitute for synthetic fibers, which are generally regarded as hazardous to the environment. It is also possible that jute plantation will be treated as a commodity for the emission trading system in conformity with the Kyoto Protocol, because jute has the ability to absorb large amounts of CO2. Raw jute is available in Bangladesh at high qualities, and the country faces few international competitors. In 2004, 95 percent of the global jute production came from Bangladesh, India, Myanmar, Thailand and Vietnam. According to WITS data, Bangladesh increased its jute exports15

between 2001 and 2007 by more than 360 percent.

9. Light manufacturing is a crucial input to many manufacturing sectors. There are an estimated 7,000 companies, providing employment for about 800,000 people, in the production of car parts, train engines, railway parts, bicycles, machines for textile/chemical/sugar industries, machine tools, ship parts, and industrial tools. Total industry revenues amounted to approximately US$160 million in 2005. The industry, however, is driven by imports, as the trade specialization index, defined as export minus imports as a share of exports and imports, was strongly negative at -0.91 (MoC et al, 2009).

10. Crustaceans and mollusks (fresh, chilled or frozen, salted, dried) account for 4.7 percent of

total exports in Bangladesh, and constitute the largest fraction of processed food exports. In the period from 2000 to 200716, Bangladesh increased its global export market share from 2.1 percent to 2.9 percent. This corresponds to an increase in market share by 37 percent. In the same period, global exports for processed crustaceans increased by 27 percent (WITS data)17

.

11. In FY2010, the IT and IT enabled services (ITES) sector reported export earnings of US$35 million from a total of 400 registered companies, of which 100 companies were classified as exporters. The industry continues to exhibit substantial market growth. Even during the global financial crisis, the world-wide ITES/BPO sector was one of the few sectors that expanded at 30 percent on an annual basis. Software and graphic design service exports amounted to US$ 32.9 million in 2008/09. This was an increase of 32 percent from the previous year despite severe economic recession in most buying countries. In Bangladesh, the industry employs over 12,000 people. Moreover, most registered companies began operations within the last two to three years. Industry operators and experts agree that a

15 SITC1, product code 264 16 More recent data is not available for this comparison. 17 SITC1, product code 313

23

major established investor locating in Bangladesh would generate significant spillovers, particularly international market recognition.

12. Electronics/hardware exports from Bangladesh have been growing fast and domestic demand

is also expected to increase. Export of electrical machinery, apparatus, and parts amounted to US$108 million in 2007 (WITS data).18

A more narrowly defined definition of the hardware sector by the MoC (2009) sees Bangladesh’s production mainly intended for domestic demand. In 2006, their data shows that the industry produced goods worth US$112 million, of which cables (29 percent), televisions (17 percent), fans (15 percent) and dry cell batteries (14 percent) accounted for the largest shares of product groups. Currently, approximately 5-10 percent of the production value is exported (MoC, 2009).

13. The team conducted an exploratory demand survey to gauge investment interest in the sectors identified in Bangladesh’s export profile and current investment trends. A random sample of international companies was selected in five regions and across five sectors.19 The selection criteria was based on available FDI data; sectors to which policy makers assign potential, and characteristics of firms that conduct FDI (e.g. international activity such as exports, subsidiaries, regional headquarters; a certain minimum size of at least 50 employees). The economies where firms were surveyed were North America (USA, Canada); Western Europe (Germany, UK); China (including Hong Kong SAR, China) and Taiwan, China; India, Cambodia and Vietnam; and Japan, Singapore and South Korea. The targeted industries targeted were textiles, garments, and leather; ICT services and electronics; chemicals, rubber and plastics; machinery and equipment, and primary and fabricated metal, stone and clay.20

The survey results consist of 332 respondents from 4,500 firms contacted, a response rate of about 7 percent. Of all responding firms, 86 percent reported not having investment in Bangladesh, 8 percent have investments in Bangladesh, and 6 percent used to have operations but failed.

Economy Percent Sector Percent

USA, Canada 7.83 RMG, textiles and

leather 12.05 Germany, UK 20.18 ICT & Electronics 26.8

China; Taiwan, China; HK SAR,

China 26.2 Chemicals and Plastics 16.27 India, Vietnam,

Cambodia 18.07 Machinery and

Equipment 25.6 Japan, Singapore,

South Korea 27.71 Primary and fabricated metal, stone and clay 19.28

18 Most recent data available. SITC1, product code 72 19 A list of companies which posed our overall population was bought from a data providing firm. 20 The industries (SIC codes) were Textile Mill Products (22), Apparel and other textile products (23), Chemicals and allied products (28), Rubber and misc. plastic products (30), Leather and leather products (31), Stone, clay and glass products (32), Primary metal industries (33), Fabricated Metal Products (34), Industrial Machinery and Equipment (35), Electronic and other electric equipment (36), Instruments and related products (38), Computer Programming, Data Processing, And Other Computer Related Services (737) Miscellaneous Equipment Rental And Leasing (735).

24

14. The results indicate that FDI demand for Bangladesh mainly comes from India and

China, and predominantly in machinery and equipment, ICT and electronics. 6 percent of all firms in the sample are planning to invest in Bangladesh in the next 5 years. The results also show that 36 percent of these investment plans are in Machinery and Equipment, and 21 percent in ICT and Electronics. Reports on investment plans in ready-made garments are disproportionally few. There is indication that demand will come mainly from the region, especially from India and China. The activities pursued will mainly consist of production of primary goods (42 percent), and management/strategic competencies (29 percent). These findings are robust to the sample composition.

15. China, India, Vietnam and Indonesia compete with Bangladesh as investment locations.

Activities pursued in the region are mainly assembly, and the production of primary goods. The results indicate that competing investment locations in the region are primarily China and India, and to a smaller extent Vietnam and Indonesia. 36 percent of the planned activities of investments in the region are assembly, and a further 26 percent report plans to produce primary goods. These figures are based on a subsample of 42 percent of all firms that do not have investments in Bangladesh, and intend to invest somewhere else.

16. Firms planning FDI elsewhere perceive the market in Bangladesh as too small, or the

expected rate of return as too low. The main reason not to invest is because it is not in line with the company’s business strategy. The reasons for not investing in Bangladesh differ according to whether firms have plans to conduct FDI or not. Thirty five percent of the subsample of firms with investment plans elsewhere refrains from investing due to the perceived insufficient size of the local market and 30 percent because the expected rate of return is assumed to be too low. Forty four percent of the subsample of firms with no investment plans abroad focuses on their home market. The main reason not to invest for these firms is because it is not in line with the business strategy of the firm.

No investment in Bangladesh

- FDI plans in another location

No investment in Bangladesh -

No FDI plans Not in line with business strategy (63 percent) Not in line with business strategy (71 percent) Expected rate of return (30 percent) Focus on the market of the origin country (44

percent) Access to a large local market (35 percent) Expected rate of return (32 percent) Focus on the market of the origin country (27 percent)

Access to new assets and technology (31 percent)

17. Six percent of the total sample report failed investments in Bangladesh. The reasons for

failure were mainly due to improper market assessment, but also to access to assets and technologies. Withdrawal has mainly been due to improper market assessment, which is reflected in 89 percent of the firms in this subsample. These firms reported that costs were too high, rate of return too low, and the potential market was smaller than expected. 83 percent report unexpected difficulties in obtaining assets and technologies, and 78 percent reported access to finance as a reason for withdrawal.

25

Sector Specific Issues

18. In the recent ‘Doing Business 2011’ report Bangladesh’s ranking is a mid-range of competing countries in the region. It is ranked 107 out of 183 economies in the Ease of Doing Business (DB) global ranking for 2011, gaining four places from 2009. This improvement is mainly due to progress in starting a business, closing a business, and registering property. Bangladesh ranks higher than India (134), Cambodia (147), Nepal (116), Bhutan (142), and Afghanistan (167); but ranks lower than Vietnam (78), Sri Lanka (102) and China (79). The country’s mainly struggles with the issues of enforcing contracts, where it ranks 179, and – despite recent improvements in the ranking - registering properties (172). Notably, the country ranks in the 20th position in the category of protecting investors - the highest in the region.

19. Bureaucratic delays are a significant challenge in Bangladesh, resulting in significant

delays and costs in the enforcement of contracts, registering property, and dealing with construction permits. According to DB 2011, to obtain a construction permit there are 14 procedures which take up 231 days and cost 645.1 percent of income per capita. Major delays are caused by four procedures: a) obtaining zoning clearance (45 days); b) environmental clearance, the capital city development agency (30 days); c) project clearance and building permits (105 days); and d) obtaining an electricity connection (40 days), which is also the most expensive of these procedures. Bangladesh also takes 1,442 days and 41 procedures to enforce a contract, which explains the exceptionally high enforcement costs (63.3 percent of the claim). The majority of the delays and costs are related to attorney fees and the enforcement of the judgment as there is no commercial court or any alternative dispute settlement platform in the country. Moreover, it takes 8 procedures, 245 days, and 6.6 percent of property value to register property in Bangladesh.

20. Access to serviced land is a major constraint. Bangladesh is an increasingly densely

populated country – in 2008 roughly 160 million people lived on approximately 144,000 square kilometers. Correspondingly, 47.1 percent of metropolitan firms reported access to land as a major or severe obstacle to business, according to the second Bangladesh ICA of 2008. The cost of land was cited among the top three obstacles by 92.5 percent of firms (99.2 percent of service firms). Also highly ranked are the issues of procuring land (85.2 percent) and the availability of serviced land (66.6 percent).

21. Land prices are rising fast and pose a significant constraint to private sector growth.

This disproportionately impacts small firms that aim to locate close to urban centers. Between 2000 and 2010, land prices in Dhaka grew by 470 percent on average, a 17 percent annual increase. Land price inflation in the previous decade averaged 12 percent annually (data provided by Sheltech, a property developer). Price increases outside of Dhaka for industrial land averaged 11 percent between 2000 and 2005 (FIAS and SEDF, 2006), according to a Review of the market for Industrial Land in Bangladesh (2006).

22. Lack of an urban planning strategy leads to improper zoning implementation. There are

official land use regulations in both urban and rural areas (‘zoning’, or city planning in

26

Dhaka). Yet, these are no strictly followed, as many buildings are built on land without a legal land title. This renders the implementation of public planning policies unfeasible.

23. Electricity shortages remain a critical barrier to private sector growth. Electricity supply

has struggled to keep up with demand spurred by solid economic growth. The total annual incidence of power outages was 1,443 hours in 2008 according to DB 2008. Firms in urban areas lose 12 percent of their sales to electricity outages, more than any other comparator country in the region. As a result, dealing with power outages are a source of major expense to firms, as producers rely on small generators to meet their electricity needs. These shortcomings in generation capacity, transmission, and distribution of power have resulted in 76.6 percent of all urban firms naming electricity as a major or severe obstacle to their business.

24. Labor skill shortages threaten to hamper industrial growth and small firms are

particularly affected. Formal on-the-job training is very limited. A quarter of metropolitan firms perceive an acute shortage of labor skills (ICA, 2008). This is a jump from 2002 when only 14.2 percent of all firms reported this as an obstacle. Moreover, approximately 30 percent of small urban manufacturing firms report that their workforce has no education. The equivalent for large firms is only 4 percent. In addition, only 16.2 percent of manufacturing establishments in Bangladesh provided their employees with in-service formal training. This is in line with concerns raised by industry associations regarding skills development in their industries.

25. There are indications that gender segregation persists in the labor market. Women are

poorly represented among technical and professional workers and women’s wages are 40 percent lower than their male counterparts (ICA, 2008). Rates of female entrepreneurship in metropolitan firms in Bangladesh are comparable to those in other South Asian countries, but are lower among rural non-farm enterprises. Non-metropolitan enterprises owned by women are smaller, younger, more likely to be informal and home-based (ICA, 2008).

26. Long term financing of SMEs is not meeting current demand. Half of metropolitan firms

(47.1 percent) and 23 percent of non-metropolitan firms reported access to and cost of financing to be a major or severe obstacle to doing business in the ICA of 2008. In addition, 69 percent of lending has a maturity of less than three years, in metropolitan areas, while approximately half of the loans have maturities of one year. As a result, long term financing is typically procured through accumulated earnings, and firms tend to under-invest. For non-metropolitan firms, new investments are also predominantly financed from own savings. Modernized lending and a wider choice of loan instruments and terms beyond collateral-based loans are needed. The vast majority of bank clients either cannot qualify or they need different lending products than those currently on offer by the banking system. This is especially true for SMEs, for whom both mainstream products and traditional microfinance lending are not appropriate.

PERFORMANCE OF EXPORT PROCESSING ZONES

27. Export Processing Zones (EPZs) were used as a strategic instrument for attracting FDI in dealing with the shortcomings of the overall investment climate. The Bangladesh

27

Export Processing Zone Authority (BEPZA) was established in 1980, with the first EPZ built in Chittagong in 1983. The EPZ program was the first systematic initiative to provide fully-serviced land and a better business environment for investors (e.g. business registration, licensing), targeting large scale, export-oriented manufacturing.

28. EPZs were a key factor triggering the growth of ready-made garments, which is today a

key industry of the economy. Of the active companies operating in the EPZs, nearly two-thirds are in RMG. Benefitting from the Multi Fiber Arrangement, the EPZs allowed the industry to expand at an average annual rate of 23 percent since 1993. RMG exports of EPZs reached nearly US$2.9 billion by FY2010, 20 percent of the country’s RMG exports. The industry employs approximately 28,000 people in the zones21

.

Operating enterprises in the EPZs by sector (2009) Sector Number of enterprises Percent

Textile and apparel (RMG) 189 65 Electrical and electronics 15 5 Footwear and leather 13 4 Metal products 12 4 Plastic products 12 4 Food and beverages 8 3 Other manufacturing 31 13 Services 3 1

Source: BEPZA

29. EPZs in strategic locations of Chittagong and Dhaka have attracted the most investment and boast the highest occupancy rates. Chittagong EPZ and Dhaka EPZ account for more than 80 percent of the companies operating in the EPZs and 90 percent of the jobs and exports (PRMTR, 2009). The location and infrastructure advantages these zones share offer a much higher value proposition to investors, namely proximity to a port and the Dhaka metropolitan area, which provides access to critical institutional support (e.g. customs authority) and proximity to infrastructure services.

30. EPZs in remote areas have been selected without a proper assessment of investor

demand. Like many other EPZ programs around the world, Bangladesh has attempted to use EPZs as a tool for development of remote regions and like most of those programs, this strategy has not been successful. BEPZA operates three zones in the north (Uttara EPZ) and western parts of the country (Ishwardi and Mongla EPZs), which are almost empty. Investors willing to consider locating in these regions are offered incentives additional to those already available in the EPZ program. This includes a 50 percent subsidy on the already below-market land lease and factory rental rates, and a 30 percent direct transfer for investing in agricultural-based industries.22

21 BEPZA figures (www. http://www.epzbangladesh.org.bd/index.php)

However, many of these zones lack linkages to suppliers as they are located more than 600 kilometers from the international port and hundreds of kilometers from Dhaka. Reliable power and gas supplies are also not available. There has

22 FIAS (2006)

28

also been reluctance to assess radical changes to the strategy in these zones, for example allowing them to sell to the local market or even liquidating the assets and selling the zones.

31. EPZs face challenges in developing lack backward linkages to the local economy.

Bangladeshi EPZs are not only physically secluded from the rest of the economy, but they have been mostly operating as enclaves without any links to the rest of the economy. A number of regulatory, administrative and general market factors place significant barriers in the way of backward linkages. Local producers selling into the EPZs can obtain duty drawback on imported inputs (as an indirect exporter), putting them on a level playing field with foreign suppliers to the EPZs. However, for a small producer of garments accessories or a dying and washing unit servicing larger units inside EPZs, this is extremely difficult in practice. The Duty Exemptions and Drawback Office (DEDO) is severely understaffed, the system of drawbacks is heavily bureaucratic, and the process suffers from lack of trust between the service receiver and provider. Small, indirect exporters often complain that they cannot claim drawback since there are unable to attach the original bill of export with their claims with the DEDO. As a result, duty drawback is rarely claimed by smaller suppliers (PRMTR, 2009). Moreover, concerns over security and leakages of EPZ products into the local market have resulted in BEPZA restricting entry of local trucks – for example, trucks are prohibited from coming in and out of the zone outside of designated hours. Furthermore, according to many RMG companies inside the EPZs, local supplies are generally not of sufficient quality to meet the standards of international buyers. As a result, the large majority of fabric is sourced from China. According to interviews with EPZ companies and BEPZA officials, there are no formal programs in place to try to improve linkages between EPZ companies and local suppliers (PRMTR, 2009).

32. Regulations preclude the creation of forward linkages to the domestic economy. Outside

the RMG sector, local sales are restricted to 10 percent of production, while in the RMG sector, they are completely prohibited. Furthermore, all outgoing consignments from a factory in EPZs to another EPZ or some other bonded facility are considered as exports from the bonded warehouse and are subject to customs clearance. These procedures can often be administratively inefficient. While it is the international norm to require clearance and duty payment on local market sales, in some other EPZ programs, sales between EPZ companies are not subject to clearance (PRMTR, 2009).

BUSINESS ENVIRONMENT WITHIN THE ZONES 33. Firms which are located in EPZs perceive the business climate to be better within the

zones than outside of the zones. BEPZA offers its tenants several services, including access to serviced land, provision of utilities and faster permitting and licensing. As a result, companies perceive the business environment within the zones to be better than that outside the zones.

Provision of administrative services 34. Starting a company is slightly faster in EPZs because BEPZA carries out many business

registration processes. Licensing and permitting procedures have been largely centralized within the zones, to provide a more streamlined investment environment. According to the

29

Citizen Charter of BEPZA, after the approval of the Executive Chairman, the processes of project and documentation scrutiny take two days and the issuance of the sanction and allotment letter takes one day. However, applications with incomplete documents are often delayed, and according to BEPZA, a large number of applications are incomplete and require careful scrutiny. This can result in significant delays as the average start up process takes approximately 55 days (the median was 30 days); the sample size is 148 firms and the range was high (PRMTR 2009).

35. Governance is better within EPZs but remains an obstacle to firms. According to ICA

data, 27 percent of the companies in EPZs reported having made informal payments to officials. This figure is significantly lower than then the 58 percent of firms outside EPZs. The mean of respondents agreeing that informal payments are common is slightly higher in the zones than outside (3.1 versus 2.8 on a 1-4 scale).

Provision of serviced land

36. BEPZA’s provides serviced land below market rates. Rental rates are based on the

decision to position Bangladesh as the cheapest EPZ provider in the region.23

In a country where land titling issues are a major constraint to investment and the industrial land market is severely constrained, BEPZA’s provision of land and factory shells is one of their most critical roles in attracting investments. Based on an international benchmarking study commissioned by the IFC in its financial appraisal of EPZs, Bangladesh has the lowest rental rates in the region. The rates charged are highly subsidized given the market valuation of land.

Provision of utility services 37. Zone firms also identify electricity as the single biggest problem to operations. Firms in

the zones face frequent power interruptions and report power as the most serious obstacle to their operations (ICA, 2008). This is confirmed by the focus group discussions with zone firms. BEPZA purchases utilities from independent service providers and charges a 10 percent surcharge to its tenants. Several power generation projects are planned within zones, based public private partnership arrangements, and are expected to be operational soon.

Working conditions 38. Working conditions in Bangladesh need to be improved but are generally better inside

the EPZs than outside. The EPZs operating under BEPZA have created substantial employment opportunities for low-skilled workers, and have had a particularly important impact on poor families through the creation of wage earning opportunities for females. However, low skill RMG workers in EPZs receive among the lowest wages worldwide, with starting wages around US$48 per month. Wages in the zones, however, are on average 20-30 percent higher than wages paid for the comparable jobs outside the EPZs. Moreover, EPZs offer benefits (transport, meals, access to health clinics, holidays) and mandatory annual wage rises.

23 Financial Appraisal of the Export Processing Zones in Bangladesh, IFC-BICF, 2009.

30

39. Worker protection in EPZs is stronger than outside the zones, while some EPZ

regulations offer weaker protection. BEPZA’s role in labor regulations is guided by a suggested set of instructions as well as the EPZ Workers Association and Industrial Relations Act 2010. Under these regulations BEPZA is responsible for monitoring and enforcing appropriate and timely payment of wages and non-fiscal benefits, as well as ensuring good working conditions. The de facto situation in most firms in the EPZs is relatively good; the de jure situation, as per Instructions 1 and 2, exhibits, in some cases, weaker protection of workers’ rights or lower benefits to what is available under national labor regulations. Moreover, up until July 2005, social management within EPZs was mainly controlled by 3-5 staff members of the Industrial Relations (IR) Department in different Zones and there was limited capacity to implement laws and handle grievances.

40. The degree of collective representation is greater inside EPZs than in firms outside.

According to PRMTR data (2009), approximately 60 percent of the workforce in EPZs is on average associated with labor organizations; the median participation of 90 percent is even higher. To complement BEPZA’s Industrial Relations Departments in the Zones, a World Bank funded project appointed 60 Counselors in EPZs in July 2005. Counselors were appointed to supervise and monitor the implementation of the EPZ Workers Association and Industrial Relations Act 2004 in addition to the earlier BEPZA regulations, i.e. Instructions 1 & 2. The BEPZA counselors monitor social compliance through regular factory visits and monthly compliance reports, facilitated labor dispute conciliation, mediation activities, and conducted awareness-raising programs. While there is scope for improvement, the counselors remain at the core of BEPZA’s social management system and are now sustained through funding by the Bangladesh Investment Climate Fund (BICF).

Gender issues 41. Upward mobility of female workers is lacking. Upward mobility for female workers into

management remains a challenge. Females account for 64 percent of all EPZ workers in Bangladesh. Yet, they account for only 14 percent of locally-held managerial positions. This is amongst the lowest rates of any EPZ program internationally. Indeed, up-skilling among both female and male workers in the EPZs has been poor.

Environmental issues

42. Water pollution remains a significant issue despite recent efforts by the zone management to install treatment systems. Pollution emanating from the most active EPZs (Dhaka, Chittagong, and Comilla) has had negative environmental impacts on surrounding rivers and communities, flora, and fauna. Until recently, existing EPZs did not provide for any central effluent treatment facilities. While tenants are required to conduct pretreatment prior to discharge, the lack of adequate monitoring and enforcement has led to untreated effluent being discharged into nearby waterways. Few companies have attained ISO 1400 series certification. In recent years however BEPZA has called in tenders under a PPP arrangement for a number of central effluent treatment plants and a draft Environmental Management System has been discussed.

31

32

Annex 2: Major Related Projects Financed by the Bank and/or Other Agencies


List of recent relevant sector specific Bank projects (ongoing and completed): Product ID

Project Amt (US$ m)

IP DO Sector Specific Issues addressed

Ongoing P089382 Investment Promotion

and Financing Facility (IPFF)

307 S S Partial debt financing through private financial intermediaries for eligible, government-endorsed infrastructure projects and developed by the private sector.

P075346 Road Sector Reform Project

Sustainable delivery of a safe and efficient major road network system.

P040712 Water Management Improvement Project

94.2 MU MS Improve national water resources management by involving local communities and enhancing institutional performance of principal water institutions, BWDB and WARPO.

P103999 Chittagong Water Supply Improvement and Sanitation Project

170 NA NA Support the establishment of a longer term water supply, sanitation and drainage capital development and operational management program in Chittagong.

P078707 Power Sector Development TA Project

15.5 S S Create effective capacity within the MoPEMR to put in place power sector policies, industry structures, and a gas supply strategy as well as prepare and finance two power projects.

P095965 Siddhirganj Peaking Power Project

350 MS S Support investments in peaking power supply capability in Bangladesh.

P081969 Enterprise Growth & Bank Modernization

250 MS MS Employment generation through private sector enterprise growth and modernization of the banking system.

P106216 Higher Education Quality Enhancement Project

81 MS S Improve the quality and relevance of the teaching and research environment in higher education institutions.

P090807 Skills and Training Enhancement Project

79 NA NA Improve governance of the TEVT sector, and strengthen selected public and private training institutions.

P118701 Bangladesh Employment Generation Program

150 NA NA Support the GOB's EGPP which aims to reduce poverty, reduce vulnerability of the poor to shocks, and reduce gender and rural/urban disparities in employment.

Completed P044810 Legal and Judicial

Capacity Building Project

30.6 MS MS Improving the efficiency, effectiveness, and accountability of the civil justice delivery system.

P081849 Telecom TA Project S S Improve the performance of the telecommunications sector. IP= Implementation progress, DO=Development Objective, S= Satisfactory, MS=Moderately Satisfactory, NR = Not Rated, NA – Not Applicable

33

List of recent relevant sector-specific donor projects (ongoing and completed):

Name of Donor/Project

Project Description Sector Specific Issues addressed/or would be addressed

Amount

Ongoing Project BICF Regulatory Reform Program

The Land Ministry completed the review of the first draft of a Development Project Proposal (DPP) prepared under BICF assistance for a land administration digitization project.

Modernization of land administration

BICF Regulatory Reform Program & SEDF Access to Finance Program

The first mission to conduct a feasibility study of the Secured Transactions and Collateral Registry System in Bangladesh was held on March 2010 supported by the BICF and SEDF teams. The mission has formed the basis of developing a roadmap to improve the existing legal and regulatory framework for the effective use of all types of moveable property as collateral.

Secured transactions and collateral registry

BICF Regulatory Reform Program

BOI formally launched the BOI e-Registry of Rules, Regulations and Licenses at the 'Digital Public Innovation Fair 2010' in March.

Enhanced regulatory transparency through website and online access to all regulations

BICF Economic Zones Program

EZ Program A more modern, competitive regulatory framework for economic zones


EZ Program Facilitating PPPs for economic zone development and infrastructure


EZ Program Portfolio of economic zone projects


EZ Program Commercially managed economic zones


EZ Program Capacity Building for the institutions that regulate economic zones in Bangladesh

34

Annex 3: Results Framework and Monitoring


PDO Project Outcome Indicators Use of Outcome information The project objective is to facilitate investment in growth centers in the emerging manufacturing and services sectors of the economy with the aim of generating employment.

Investment: Increase direct private investment in the creation of new zones Increase private firm level investment in new zones Increase number of firms in new zones Increase non-RMG investment in new zones Employment: Increase direct employment in new zones (% female) Increase indirect employment through firms supplying to the new zones (% female)

Yr1-Yr3:

to determine whether the capacity is in place to leverage sufficient private investment in infrastructure within the zones to attract investment

Yr3-Yr5:

increasing private investment into new zones would provide the required knowledge spillovers for emerging sectors to expand

Yr3-5:

to gauge whether private investment and business environment reforms lead to firms locating in the zones

Yr3-5:

to gauge investment response to new areas in the zones

Yr3-Yr4:

if employment increases as projected this would indicate that new zones have the required infrastructure and business environment to attract high growth firms

Yr5-Yr6: to determine whether component 3 (business linkages) is designed to properly enhance local supply linkages to the zones

35

Intermediate Outcomes Intermediate Outcome Indicators Use of Intermediate Results Monitoring Component 1: TA & Capacity Building 1.1 Capacity Building: 1. Implementing agencies have the

capacity to attract and manage Private Participation.

2. Zone site selection and design is

based on sound infrastructure and social/environmental assessment

1.2 Improving the BE: 1. Commercial and labor dispute

resolution available firms within zones

2. Access to public business related processes available to firms within zones

3. Access to a moveable asset

registry available to firms within zones

1.1 Capacity Building: 1. Private participation in the

development and management of new zones

2. Firm interest (occupancy at 60% by

midterm) in locating in zones.

1.2 Improving the BE: 1. Decrease the average number of

days to resolve disputes within new zones when compared to the overall BE.

2. Decrease in processing time for:

registration, licensing, etc. for firms in new zones compared to the overall BE.

3. Access to finance for firms within zones is less of a constraint in comparison to firms in the overall BE.

1.1 Capacity Building: 1. Yr1-Yr3:

increased private participation in new zones would reflect zone potential capacity of management

2. Yr1-Yr2:

ensures proper zone planning and development is responsive to private sector demand, while maintaining social and environmental standards.

1.2 Improving the BE: 1. Yr2-Yr5:

testing the design and effectiveness of addressing commercial disputes adequately in Bangladesh

2. Yr2-Yr5:

as a pilot reform, this would demonstrate the effects new designed government-business services.

3. Yr3-Yr5: to determine whether the ability to

register moveable assets promotes increased access to finance for firms.

Component 2: PIF 1. Access to industrial serviced land

1. Establishment of new economic

zones (minimum one)

1. Yr2-Yr4:

to guarantee the provision of suitable industrial serviced land to attract the investment needed

36

Intermediate Outcomes Intermediate Outcome Indicators Use of Intermediate Results Monitoring 2. Provision of improved

infrastructure services (i.e. power, sewage/effluent treatment, etc.) in zones

2. a) Decrease total power outage time (hours) per month in new zones compared to general BE b) Increase percentage of effluent/sewage treated by CETPs/STPs in new zones

2. Yr3-Yr5:

ensures sufficient infrastructure service provision for firms in new zones in an environmentally sustainable manner

Component 3: Business Linkages 1. Knowledge of and competitively

priced products available to firms in zones.

2. Skilled labor readily available to firms locating in zones.

3. Firm level compliance with

social and environmental standards within zones

1. Increase proportion of local

sourcing of inputs for firms within the zones

2. Increase number of trainees receiving certification and

employment under the TA given to universities/training institutions

3. Increase number of firms to implement environmental and social audits under the component

1. Yr4-Yr5:

to gauge whether firms outside the zones can meet the required standards of those within.

2. Yr3-Yr5:

ensure industry demand for training provided under the component

3. Yr3-Yr5: to determine the increase in the

degree of firm compliance with international labor and environmental standards

37

24 This estimate is based on a conservative measurement of employment as the KHTP is not expected to be fully occupied before the 15th year of implementation and the remaining two zones will not be fully operational until after the 5th year.

Target Values Data Collection & Reporting

Outcome Indicators Baseline Y1 Y2 Y3 Y4 Y5 Frequency & Reports

Data Collection Instruments

Responsibility for Collection

Increase direct private investment in new zones - Kaliakoir (US$ million cumulative)

0 13 21 29 37 45 Annual Report by PIU BCC

Increase firm level investment in new zones - share of investment in new zones of total annual investment (%)

0 - - 5 10 15 Annual Report Survey of registered companies

BCC, BEPZA, BEZA

Increase number of firms in new zones 0 - - 15 30 40 Ongoing Tracking Records by PIUs BCCC, BEZA Increase non-RMG investment in new zones (% of firms that are non-RMG)

0 - - 50% 60% 70% Annual Report Survey of registered companies

BCC, BEPZA, BEZA

Increase direct employment in new zones (% female) 0 - 1,200 2,300 3,500 4,60024

(50%)

Biennial for each zone

Survey of firms BCC, BEPZA, BEZA

Indirect employment through suppliers to new zones - multiplier (% female)

0 - 1.5 2 2.5 3 (50%)

Biennial for each zone

Survey of firms BCC, BEPZA, BEZA

Component 1 - Technical Assistance & Capacity Building Private participation in the development and management of new zones

No - - Yes Yes Yes Ongoing Tracking Records by PIUs BCC, BEPZA, BEZA

Completed master plans, EIAs & SIAs in new zones – cumulative

- 1 2 3 3 3 Ongoing Tracking Records by PIUs BCC, BEPZA, BEZA

Decrease the average number of days to enforce contracts using ADRM in new zones

1,442 (DB 2011)

- - 1,000 800 500 Annual report by PIUs

Sample of disputes settled with ADRM

BCC, BEPZA, BEZA

Decrease the time it takes for firms in new zones to by fully operational under the new system (days)

60 (PRMTR 2009)

- 30 25 22 20 Annual Report Ongoing tracking by PIUs

BCC, BEPZA, BEZA

Number of loans based on collateral through registry - assessing appropriate target values

Component 2 - Public Investment Facility Establishment of new economic zone (minimum one) – cumulative

0 - 1 1 1 2 Ongoing Tracking

Increase percentage of effluent/sewage treated by new CETPs & STPs in the zones (%)

0 50 60 80 90 100 Annual Reports by Zone Env. Off.

Reports to CCU BCC/BEPZA/EZ Authority

Decrease total power outage time (hours) per month in new zones

6.5 (PRMTR 2009)

- - 4 2 0 Annual Report Survey of firms Private Survey Company

Decrease time to closest transport hub for new zones - assessing appropriate target values

38

Component 3 – Business Linkages and Product/Process Improvement Increase proportion of local sourcing of inputs for firms within the zones (%)

17.5 (PRMTR 2009)

- - - 25 35 Annual Report Survey of firms Private Survey Company

Number of trainees receiving certification and - employment under TA to training institutions

- - 300 400 500 Annual Report Report by CCU CCU

Increase number of firms to implement environmental and social audits under the component

- - 7 10 13 20 Annual Report Report by CCU CCU

39

Annex 4: Detailed Project Description


1. The proposed PDO is to increase employment through the facilitation of investment in selected emerging growth centers in the manufacturing and services sectors of the economy. To achieve this objective, the project will finance off-site, and any necessary onsite, infrastructure (public and common infrastructure) in EZs, starting with the Kaliakoir Hi-Tech Park, the expansion of the Comilla EPZ and other sites to be identified (Component Two). The project will build the capacity of government institutions involved in the development of EZs (EZA, BEPZA, BCC, MOF, BOI, etc.) through TA and targeted capacity building (Component One). Finally, under Component Three, the project will build better linkages between firms within zones and related suppliers by providing training through institutions (public and private) and by supporting firm collaboration in applied research and improved standards. Targeted end-beneficiaries will include firms operating within the zones, their suppliers, and those employed by both (zone firms and suppliers).

PROJECT COMPONENTS

Component One: Technical Assistance and Capacity Building Sub-component 1.1: Capacity building for zone-related institutions 2. This sub-component will provide TA and capacity building to those institutions crucial to

establishing and operating EZs in Bangladesh. These will include the EZ Authority, BEPZA, the PPP unit in the PMO, Board of Investment (BOI), the Department of Environment (DOE), as well as specialized institutions such as the Hi-Tech Park Authority (HTPA) and the Bangladesh Computer Council (BCC). The capacity building will focus on developing and applying economic and infrastructure criteria in the selection of zone locations; conducting environmental and social assessments, and developing the necessary background and marketing material for attracting developers and investors to the EZs.

3. The sub-component will provide technical assistance to undertake and develop capacity to

suppliers, as provided for under the EZ law. The TA will cover legal and institutional reviews, systems development and capacity building to establish these services from within the zone. (i) Conduct full feasibility studies and demand surveys, including financial, economic,

technical, legal, social and environmental assessments. This will include some preliminary market testing and feedback;

(ii) Develop an Information Memorandum (IM) to seek private participation, including developing master plans for selected sites, including environmental and social infrastructure, zoning, pricing;

(iii)Develop operational guidelines to monitor the performance of the zone or park developer under the concession agreement and ensure compliance with all other legal and regulatory requirements, and

(iv) Develop a dispute resolution mechanism to monitor disagreements, changes or other adverse circumstances that might threaten the concession.

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Sub-component 1.2: Creating a conducive business environment within EZs

4. This sub-component will provide TA to develop a business-friendly environment that will

also act as a pilot for wider business environment reforms. The component will provide technical assistance and capacity building to develop a one- stop shop system within the EZ Authority to deal with registration, export and import licensing, customs clearance, and other required regulations. This business environment component will also include TA and capacity building to develop a secured lending regime for movable property within the EZs. The component will also provide TA and capacity building to develop commercial dispute mechanism to settle disputes for zone-registered companies or between EZ companies and suppliers.

Component Two: Public Investment Facility 5. This component will invest in developing off-site infrastructure (last-mile infrastructure), as

well as internal infrastructure of a public-good nature, for targeted EZs, staring with the Kaliakoir Hi-Tech Park. These investments may include land preparation and development, access roads, sewerage systems, power distribution and rail connections and landings. The PIF can also fund some on-site investment, such as internal road networks, water and drainage systems, and supporting private investment in common user facilities, such as effluent treatment plants. The project will also provide compensation – i.e. resettlement - for affected households in the development of the zones.

6. Given the availability of public land, the project will start first with the proposed site at Kaliakoir, which will be developed as a Hi-Tech Park. Preliminary development has already been completed – 232 acres of land for the Park has been earmarked and enclosed by a boundary wall and some infrastructure has also been provided, including an administrative building, basic internal road structure and optical fiber network. Full site surveys and feasibility assessments have also been conducted through UK-DFID funding for both Kaliakoir and Comilla EPZ. An update of the master plan and social and environment management plans developed for Kaliakoir and Comilla EPZ will be carried out before implementation, following private sector feedback received from the road shows.

7. The project will start first with the proposed site at Kaliakoir, which will be developed as a Hi-Tech Park. An update of the master plan and social and environment management plans developed for Kaliakoir and Comilla EPZ will be carried out before implementation, following private sector feedback received from the road shows.

8. The phases of implementation are as follows: (i) Implementation of Kaliakoir Hi-Tech Park: The first project zone comprising 232 acres,

where the GOB wishes to launch a Hi-Tech Park. The preferred route for development of KHTP is through a PPP, whereby the Government will seek private participation, i.e. a Park Developer, through a concession agreement. A site assessment, detailed costing for infrastructure investments, and social assessment and RAP were completed. The project

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will revise and update these documents following the completion of a “road show” to seeking feedback on the design of the site from interested private investors. This will also clarify the scope of public investment that will be required for the Park. Transaction advisory services will be procured to carry out the full range of work necessary to help BCC secure an internationally reputed Park Developer. The site is fenced however some households adjacent to the site use the land for feed. The project will provide resettlement to the users and also seek to make employment opportunities available. The project will also finance an access road to allow residents around the Park access to the main road. The project will also work with Bangladesh Railway and establish commuter transport to and from the zone by rail. The project will fund the acquisition of specialized wagons and the building of a dedicated landing station. The project will also fund a main road network within the zone, the sewerage, drainage and water systems.

(ii) Preparation of Comilla Expansion

: The site of an existing 272-acre EPZ, which BEPZA wishes to expand on to adjacent 245 acres of vacant land due to high investor demand. This will be largely a public-sector led development; although there is scope for component PPPs within the zone, i.e. power provision, water treatment plant, etc.

A social assessment has revealed a large portion of publicly-owned land (belonging to Ministry of Defense as a defunct air base) and a few large landowners as well as smaller land users. The project therefore proposes to limit the expansion of the EPZ to the publicly-owned land and only a minimum of land affecting small holders. The project will enable or facilitate the private sale of land between voluntary sellers and buyers, by providing technical assistance for assessments (land surveys), consultation and livelihood compensation. A social action plan and RAP satisfactory to IDA will be developed prior to the expansion of infrastructure services, for the small land owners and to clearly demarcate the project scope. The project will fund a road extension, drainage, water systems, etc only on the publicly owned land.

(iii)Identification and preparation of other sites

Component Three: Business Linkages and Product/Process Improvements

: Other sites on fully publicly-owned land have been identified. For example in Chittagong – approximately 2500 acres of land, located by the sea, in proximity to two other thriving EPZs (Chittagong and Karnaphuli), a sea port, airport and railway. The project will conduct environmental and social assessments for the site. The project will also fund the fencing and protection of the site, based on satisfactory environmental and social assessments. The project will also provide for resettlement for land users of publicly-owned land following a social assessment and RAP satisfactory to IDA.

9. This component will support better linkages between firms located in the zones and local

suppliers. Firms located in Zones or wishing to locate in zones are often interested in purchasing more locally or providing more employment. There is however often a mismatch in what is supplied and what is needed, in terms of quality. This can be referred to as a

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market information constraint or a coordination constraint. Solving this constraint will allow firms in Zones to purchase more locally and employ more professionals from the national market. The project is aimed at solving this information and coordination issues by providing a “business linkages” services (BLS) at the EZ zone authority. The will develop a data base of local firms offering different services and local training and research institutions. Firms located in zones will be able to provide information specifications and standards required. Training and research institutions will be able to review what is demanded and post their curriculum and training programs. Firms and institutions can have access to training and technical assistance if: a) they have been preselected to provide a training or product by a firm located in a Zone; b) selected to provide training to groups that will be employed; c) advisory services to a firm with an existing order; d) to a research institution for an applied research project for a group of firms included a firm from the Zone. The component will provide information between these firms, improving supplier product standards, and ensuring compliance with international labor and environmental standards. It will also provide TA to firms through training and research institutions working with groups of firms. The TA will be provided as follows:

• Sourcing

•

: TA will be provided to firms in zones to assist with local sourcing. Standards and specifications will be made publicly available to suppliers, through training workshops, websites, and other sources in collaboration with procuring firms. Identified suppliers will have access to TA funds to meet the standards as agreed with buyers. Training Institutions

•

: The component will support training institutions to develop continuous technical training courses. This component will assist training institutions to develop a curriculum based on market demand, and will require collaboration with firms. The TA will be provided contingent on the commitment by firms to hire a minimum of 75 percent of the graduates of the program. Social and Environmental Audits

•

: TA will be provided to firms to conduct social and environmental management audits (labor, energy, water, processing, waste, etc.). Process Development: The component will support research institutions in working with firms to develop new products or processes. The projects will be chosen on a first come first service basis, and reviewed by a select committee consisting of academia and private industry representatives. The selected projects require co-funding of at least 50 percent of total budget.

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Annex 5: Project Costs


Project Cost By Component and/or Activity

WB US$ % of Component

DFID US$ % of Component

Total US$

COMPONENT 1 – TA & Capacity Building 4,150,000 29.15 10,084,930 70.85 14,234,930

1.1 Capacity Building for Zone Related Institutions

2,000,000 17.43 9,474,930 82.57 11,474,930

1.2 Creating a Conducive Business Environment within Zones

2,150,000 77.90 610,000 22.10 2,760,000

COMPONENT 2 - PIF 110,335,000 95.66 5,000,000 4.34 115,335,000 Kaliakoir Park Investment 53,762,976 91.49 5,000,000 8.51 58,762,976 Comilla Investment 15,838,744 100 - - 15,838,744 New Zone (Chittagong Investment) 13,233,280 100 - - 13,233,280 Resettlement Compensation (Resettlement)25

27,500,000 100 - - 27,500,000

COMPONENT 3 – Business Linkages & Product/Process Improvement 5,015,000 79.10 1,325,000 20.90 6,340,000

TA to Firms 4,640,000 79.45 1,200,000 20.55 5,840,000 TA to Training Institutions

375,000 75.00 125,000 25.00 500,000

OPERATING COSTS 500,000 33.33 1,000,000 66.67 1,500,000 Sub Total 120,000,000 87.33 17,409,930 12.67 137,409,930

Government Contribution26 3,000,000 GRAND TOTAL PROJECT COST 140,409,930

25 The project will provide all associated resettlement costs such as compensation at replacement value for losses (houses, standing crops, shops, etc) to affected people including squatters, livelihood restoration, resettlement sites (where possible), in compliance with the regulations of World Bank policies and procedures. In terms of the cost of land specifically, GOB will be responsible for acquiring the land as per their own procedures and at their own expense; however the project will be responsible for paying the difference between the acquisition price and the market price if the latter is found to be higher (top-up). Compensation for all losses must be according to market rates (replacement cost as per WB policies. 26 IDA financing will be inclusive of taxes. DFID’s financing will be net of taxes. Taxes for the DFID financed activities will be covered by the Government’s contribution.

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Annex 6: Implementation Arrangements


1. The main partner agencies are the UK Department for International Development (DFID and IFC-Bangladesh Investment Climate Fund (IFC-BICF). DFID will be the major partner throughout project implementation and will support implementation and the technical supervision. DFID will enable the project build the capacity of relevant institutions upfront and accelerate implementation. The funding will allow the capacity building to start immediately following negotiations. The project will also be implemented in close collaboration with IFC-BICF, which is focused on the overall investment climate.

2. The project will be coordinated by the Ministry of Finance, Economic Relation Division (ERD), in the first years of the project. The Economic Relations Division (ERD) will set up a unit which will function as the Central Coordinating Unit (CCU) for the Project. The ERD will perform the CCU function until the newly formed Bangladesh Economic Zones Authority (BEZA) has the capacity and ability to undertake this task. The capacity of BEZA will be reviewed during the MTR of the project and the transfer will be authorized, if BEZA’s capacity is satisfactory to the GOB and IDA. Project implementation will be supervised by a Project Advisory Committee (PAC) and the project will be implemented by the Project Implementation Units (PIUs) in the government agencies responsible for each EZ implemented under the project.

3. Project Advisory Committee (PAC): The overall governance and advisory of project

implementation will be carried out by a Project Advisory Committee. The PAC will be chaired by the ERD Secretary and will consist of all institutions associated with the successful implementation of zones. As required, other relevant government institutions will be invited into the PAC, such as the local government body where a zone may be established. The core members will be representatives from the Ministry of Finance, Ministry of Commerce, Ministry of Law, Justice and Parliamentary Affairs, Ministry of Science and ICT, Ministry of Land, Prime Minister’s Office, Board of Investment, BEPZA, Bangladesh Computer Council, National Board of Revenue, Department of Environment, Registrar of Joint Stock Companies, and relevant private sector associations. The PAC will be convened by the ERD and meetings will be held semi-annually.

4. The primary responsibility of the PAC is to a. Ensure that respective government agencies are informed and their policies

incorporated during project implementation; b. Encourage respective government agencies to provide the necessary inputs and

contribute to project implementation; c. Assist in the resolution of constraints that cannot be resolved at a technical level

by the Central Coordination Unit, and d. Discuss and resolve any project complaints, in the first instance, from

stakeholders or beneficiaries.

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5. Central Coordination Unit (CCU): The CCU will be established within the ERD and

will a. Serve as the secretariat to the PAC; b. Facilitate and assist the EZ Authority and zone agencies in inter-departmental and

inter-ministerial coordination, i.e. business environment procedures; c. Assemble an annual work plan and an annual procurement plan, based on the

plans submitted by the implementing agencies; d. Be the single point delivery mechanism of progress reports to the Bank, as well as

monitoring fund flows and utilization, coordinating audit work and submitting withdrawal applications to the Bank;

e. Assist external auditor and ensure timely response to audits; f. Provide procurement and financial management advice, including convening

training on project procurement and FM; g. Convene training on PPPs, and h. Be responsible for communicating the overall project strategy and preparing any

project documents, as required, for external stakeholder briefings, i.e. Parliament, media, etc.

The CCU will consist of a Project Coordinator not below the level of a Joint Secretary or Joint Chief, Deputy Project Coordinator and a Financial and Procurement Advisor.

6. The CCU will manage the Designated Account (DA) and ensure flow of funds to

Operating Accounts (OAs) of implementing agencies, based on a six-month estimated expenditure and work plan. The CCU will receive the quarterly financial monitoring reports (FMRs) and progress reports from the implementing agencies and act as the single point conduit to the World Bank. The CCU, however, will have no clearance or approval authority over the activities to be implemented by BCC/BEPZA/other implementing agencies.

7. Project Implementation Units (PIU): A Project Implementation Unit will be established to implement each zone investment. A PIU will be set up for the Kaliakoir Hi-Tech Park and be housed in BCC, one for any public-zone expansion in BEPZA and one for any new zone development in the EZ Authority. The PIU will consist of a Project Director not below the rank of a Joint Secretary/Joint Chief, Deputy Project Director, Financial Management Specialist, Procurement Specialist and specialized consultants. The main objective of the PIU is to manage investments and build the relevant capacity in the respective supervising environment. The PIUs will prepare a Project Implementation Manual (PIM), documenting the details of the implementation mechanism, including the steps for initiation and management of the potential PPP transactions in the zones, and required clearances and approvals, as well as details of the compliance mechanism.

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8. The PIUs will be responsible for a. Managing the Operating Accounts; b. Preparing work plans, procurement plans and financial forecasts, to be approved

by the Executive Director, in the case of BCC and the Executive Chairman, in the case of BEPZA;

c. Preparing quarterly progress reports, financial reports and forecasts, based on a six-month estimated expenditure and approved work plan;

d. Implementing all project activities, including convening necessary committees and obtaining all approvals, and

e. Preparing background documents, project briefings, media briefings, etc. and being responsible for ensuring information to all stakeholders.

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Figure A.4.1: PSDSP Implementation Arrangements – Organizational Chart

The World Bank

Pr

ojec

t Adv

isor

y C

omm

ittee

Central Coordination

Unit

HTPA/BCC Project

Implementation Unit

BEPZA Project

Implementation Unit

BEZA Project

Implementation Unit

Financial and Physical Progress reporting

Consolidated Financial and Physical Progress reporting

Secretariat to PAC

Steer overall project direction and resolve inter-

ministerial/ institutional

issues

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o Periodic consolidated financial reports

o Withdrawal applications o Audit reports

Figure A.4.2: PSDSP Implementation Arrangements – Funds Flow Chart

The World

Bank & UK-DFID

Central Coordination

Unit

HTPA/BCC Project

Implementation Unit

BEPZA Project

Implementation Unit

BEZA Project

Implementation Unit

Operating Account

Operating Account

Operating Account

Designated

Account

o Fund requisition based on six months’ estimated expenditure approved work plan o Monthly, quarterly and annual financial reporting o Advising CCU to make any foreign currency or direct payments to third parties

Foreign currency or direct payments to vendors

Payments for eligible project expenditure in local currency

Replenishment of OA based on six months’ estimated expenditure

approved work plan

Replenishment based on WA

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Annex 7: Financial Management and Disbursement Arrangements


1. The Private Sector Development Support Project (PSDSP) aims to increase employment through the facilitation of investment in manufacturing and services sectors of the country by establishing Economic Zones in identified locations in Bangladesh. This project currently involves two agencies – BEPZA and BCC27

. BEPZA is a specialized organization having prior experience in similar activities, particularly in attracting manufacturing-based industries. BCC does not have any experience in establishing EZs, but it plays a pivotal role in ICT sector in Bangladesh. From a financial management point of view, the two implementing agencies, BCC and BEPZA, are placed on opposite poles of the continuum. BEPZA has developed a strong in-house financial management system, following accrual basis accounting system with experienced finance professionals.

Country Issues 2. In recent years, GOB has made considerable progress in improving public financial

management (PFM). Despite this progress, however, government departments and its various agencies have not been equipped with the same level of knowledge and capacity to implement and manage the PFM system effectively and efficiently. The system remains highly regulated and bureaucratic, as well as input and process oriented rather than results focused. Access to information is restricted, capacity to act timely is practically non-existent and a credible sanction, when exception occurs, is particularly weak. Because of this weakness the main thrust has been given by GOB with the support of development partners is to improve public expenditure management and financial accountability with more transparency, sound internal control at all levels. The on-going strengthening Public Expenditure Management Program (SPEMP) of the government therefore, aims at building sound financial management capacity across government and ministries, strengthening financial accountability through improved external audit and improving legislative oversight on the use of public funds.

Risk Analysis and Mitigation 3. Considering multiple agency involvement in project implementation, a Central Coordination

Unit (CCU) will be located in Economic Relations Division (ERD). This new set up needs to be well equipped for appropriate coordination with the PIUs of other executing agencies. The PIUs which will be established in each responsible executing agency also need to have appropriate financial arrangements at project start up. From this perspective, the preliminary project FM risk rating is “Substantial”; however, planned mitigating measures bring the risk down to a “Moderate” risk rating, as summarized in the table below:

27 It is expected that the Bangladesh Economic Zones Authority (BEZA) and the Hi-Tech Park Authority (HTPA) will be established during the project lifetime. Both agencies’ capacity will be reviewed and transferred from ERD to BEZA and BCC to HTPA will be authorized, if the new authorities’ capacity is satisfactory to the GOB and IDA.

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Risk Initial

FM Risk

Rating

Mitigation Measures FM Risk after

Mitigation

Condition

Inherent Risk Country Risk: PFM institutions and system lack capacity for detecting financial irregularities in a timely manner, including taking corrective actions

H A three-tier FM arrangement clearly defining the role and responsibilities at coordination and implementation level led by a core team in CCU as well as PIU. The project team will be guided and monitored by a high powered Project Steering Committee (PSC). Capacity of executing agencies through the provision of project TA.

H

Institutional/Entity Risk: CCU, being a new set up for the project, may not be able to coordinate activities in a timely manner due to lack of FM staff and necessary arrangements which might severely disrupt FM activities. PIUs: BCC/BEPZA PIUs may not be able to recruit experience staff to deal with FM issues at project start up. BCC does not have competent FM staff and overall capacity remains weak.

S ERD: The CCU will recruit a qualified FMS for the project operation and financial coordination. The TOR of the FMS will be reviewed by and agreed upon with the Bank. Another Accounts-cum-Administration Officer will be appointed to assist the FMS. BCC: BCC will initially identify officials from its organization to perform FM functions and will confirm the same to the Bank by project effectiveness. In parallel, BCC will recruit a qualified FMS for the project operation and financial coordination with the TOR agreed by the Bank. Another Accounts-cum-Administration Officer will be recruited or designated from the agency to assist the FMS. BEPZA: BEPZA will nominate existing staff to deal with financial management activities of the project. A list of project staff will be confirmed to the CCU and the Bank within one month of project effectiveness.

M Minutes of Negotiations, Includes provision for FM staff during project implementation

Control risk Accounting: Delay in having appropriate FM staff in place and absence of the computerized accounting system in the PIU might affect the accuracy and timeliness of project financial information.

S FMS along with PD will take initiative to procure locally available accounting software and implement within six month from effective date of the project.

M

Financial reporting: With S Executing agencies and Bank M

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multiple agencies involved, project reports might be incomplete and delayed.

agreed on a customized report format. PIUs will submit IUFRs to CCU both monthly and quarterly basis to CCU and forward on a quarterly basis to the Bank within 45 days after the end of the quarter.

Auditing: The audit report may not capture accountability and corruption issues adequately and delay and inadequate response from the implementing agencies will reduce the impact of the audit.

H A Statement of Audit Needs (SAN) will be agreed with the C&AG with audit focus on testing controls preventing corruption and detecting transactions with corrupt practices. The auditor will submit the report together with Management Letter’ to the Bank. Periodic meeting with PIUs and FAPAD will be arranged by CCU to ensure appropriate follow up of audit issues.

S

Strengths 4. The project would have the following strengths in the area of financial management; (i)

BCC as an executing agency under MOSICT has had the exposure to the World Bank’s financial management policies and procedures under the closed Economic Management TA Project and largely complied with the agreed project procedures.

5. BEPZA as an executing agency under PMO has also the exposure to World Bank’s financial

management policies and procedures under Enterprise Growth and Bank Modernization Project. It has its own financial management team consisting of professional accountants holding various positions and maintains accrual basis of accounting system. Its operation is subject to audit by government audit (C&AG) and statutory audit by private audit firm.

Weaknesses and Action Plan 6. Although BCC has exposure to TA program of the World Bank it does not have efficient

FM system and professional financial management staff to deal with the complex project issues such as PPP. Staffs that will be performing project work in both agencies are yet to be identified and trained, although BEPZA has less of an issue with FM capacity. Therefore identifying finance personnel at each level of the project operation and providing them training on the financial management procedures will be a key challenge.

7. The need for staff training at the three tiers of the project has been discussed. It has been

agreed that a detailed action plan to ensure appropriate capacity from the beginning of the project will be developed during project appraisal.

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Implementation Arrangements The basis for project financial management will be fully aligned with following implementation arrangements:

8. Central Coordination Unit (CCU): Economic Relations Divisions (ERD) will be the coordination unit for the project. The CCU will be headed by a Project Coordinator who will be a senior level official of the ERD. The CCU will not have approval or clearance authority over the activities to be implemented by the BEPZA and BCC. It will act on financial matters on the advice of BEPZA and BCC.

9. PIUs in BEPZA and BCC under the PMO and MOSICT will be the key implementing

agencies and will be responsible for dealing with flow of funds, procurement, monitoring and reporting. The PIUs will be headed by a Project Director who will be appointed as full time for the entire duration of the project. Existing financial management policies and procedures of these agencies, except on areas agreed otherwise, will be applicable for the project.

Agreed Actions

10. The following actions have been agreed upon with the executing agencies:

a. ERD: The CCU will recruit a qualified FMS for the project operation and financial coordination. The TOR of the FMS will be reviewed by and agreed upon with the Bank. Another Accounts-cum-Administration Officer will be appointed to assist the FMS.

b. BCC: BCC will initially identify officials from its organization to perform FM functions and will confirm the same to the Bank by project effectiveness. In parallel, BCC will recruit a qualified FMS for the project operation and financial coordination with the TOR agreed by the Bank. Another Accounts-cum-Administration Officer will be recruited or designated from the agency to assist the FMS.

c. BEPZA: BEPZA will nominate existing staff to deal with financial management activities of the project. A list of project staff will be confirmed to the CCU and the Bank within one month of project effectiveness.

d. The two FMSs are expected to be on board 3 months after approval.

Fund Flow Arrangements

11. GOB contributions would be channeled through PMO and MOSICT as per two separate Development Project Proposals (DPP). Implementing agencies will ensure that the cost of the approved programs is included in their respective ministries’ budgets.

12. For utilization of eligible project expenditure, the CCU will maintain one designated account

(DA) where IDA funds will flow under agreed terms and conditions. The designated PC of CCU and, in his/her absence, the Deputy, will be the authorized persons for operating the DA. To facilitate project implementation, the PIUs will maintain separate operating accounts (OAs) where fund will flow from the DA. CCU will be responsible for transferring IDA fund to the operating accounts on the basis of six-month estimated expenditure and approved work

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plans of these implementing agencies. The PIU PDs and their Deputies will be authorized persons for utilizing funds in the operating accounts.

13. CCU will show the transfer as Advances from Designated Account to the Operating Account,

which will need to be accounted for, preferably within 30 days but in no case beyond 90 days. PIUs will send monthly Statement of Expenditure (SOE) in an agreed format to CCU. No second advance or additional fund requisition will be allowed unless the previous advance is adjusted or SOE is submitted. CCU will submit withdrawal application to the Bank for replenishment of DA on the basis of actual project expenditure.

14. An amount of six months’ estimated project expenditure will be deposited into the

Designated Account (in BDT) to be maintained with the Commercial Banks. Operating accounts will be utilized only for local expenditure. Foreign currency payment will be made out of the DA, based on the payment instruction of PIUs, or through direct payment from IDA’s Disbursement Office, which CCU will be responsible to process within five working days.

15. For transferring fund from DA to operating account or to make foreign currency payment,

CCU will review whether the request is supported by appropriate documents, although it will not have approval or clearance authority over the project transactions to be carried out by PIUs.

16. The coordination role of the CCU will include (i) submitting withdrawal application to the

Bank (ii) compiling annual work plans and transfer of funds to operating accounts (ii) collating fund utilization status on the basis of SOEs received from PIUs, adjust advance and monitor fund status (iii) make direct payments in case of foreign currency payments.

17. To facilitate speedy fund transfer as per agreed service standards and corresponding

accounting, reporting and compiling of financial information, a detail procedures outlining roles and responsibility of CCU and PIUs are shown in the following table.

Summary of Fund Flow Procedures:

PIUs CCU 1. Open Operating Accounts Receive confirmation including name of

signatory (ies) from PIUs 2. Submit advance request for six

months of expected expenditure based on realistic and approved work plans/contracts to CCU

Transfer advances in local currency from DA to operating accounts of PIUs

3. Advance request to CCU only for local expenditure

Maintain records/books for advance given to PIUs

4. Request CCU for foreign currency payment directly from DA or claim direct payment from the Bank through CCU

Verifies claim not the expenditures, process payment from DA or forward direct payment request to the Bank. CCU signs off Withdrawal application

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5. Account for expenditure made out of advances within 30 days

Make adjustment/ reconciliation in its books. Monitor utilization of advance through receiving the monthly SOEs. Advance should not be shown in its book for more than 90 days as unutilized for any PIUs. CCU withholds transfer of funds, direct payment and other disbursement in case advance remained unadjusted for more than 90 days.

6. Submit monthly SOEs including direct payment details in an agreed format to CCU along with bank reconciliation

Monitor the SOEs and status of the advance and verify with the further fund request.

7. Cannot request for subsequent /additional advances unless SOE of previous advance is provided to PC and justification of additional advance is given.

CCU will not provide any additional advance if previous advance remains totally unadjusted/ SOE submission remains pending.

Accounting Flow and Reconciliation

18. The accounting policies and procedures of the project would be governed by the existing

system outlined in the Project Accounting Manual of the Ministry of Finance. The PIUs will have the primary responsibility to provide accurate and timely information regarding resources and expenditure made by the executing agencies to the CCU and copied to the Bank. The CCU will provide periodic consolidated reports to the Bank and Government on the overall financial and physical project performance.

19. The key project accounting functions for which CCU would be responsible are as follows: (i)

payments for eligible project expenditure related to its own implementation and payment in foreign currency to third parties; (ii) disbursement of project funds to PIUs as per approved work plan; (iii) maintenance of books and bank accounts for its own expenditures and fund flow; (iv) cash flow management; (v) receiving of monthly SOEs and quarterly financial monitoring reports (FMR) from PIUs; (vi) prepare consolidate FMR for whole projects following a standard format as agreed by the Bank and submission to GOB, World Bank and other stakeholders; (vii) preparation of Withdrawal Application to claim funds from the Bank and (viii) assistance to external auditor and ensuring appropriate coordination with PIUs for audit follow up.

20. The key accounting function for which PIUs would be responsible are as follows: (i) fund

requisition to CCU on the basis of six months estimated expenditure and approved work plan; (ii) payment for eligible project expenditure for which the relevant executing agencies are responsible (iii) advising CCU to make direct payment to third parties (iv) preparation of monthly SOE, quarterly FMR in standard reporting format as agreed by the Bank and up to

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that bank reconciliation; (v) submission of FMR to CCU with copy to the Bank; and (vi) assistance to external audit and timely response to audit.

Staffing and Capacity Building 21. The CCU is the top tier of the project which will be disbursing funds to PIUs and making

direct payments to third parties, monitoring fund flow and utilization, consolidating financial information, preparing consolidating reports, coordinating audit work and submitting withdrawal application to the Bank. It has been agreed that CCU would be staffed by a Financial Management Specialist (FMS) to perform FM functions. In order to assist the FMS, an officer for accounts and administration will also be recruited or designated from the entity. The TOR of the FMS will be reviewed and agreed by the Bank.

22. PIUs - BCC and BEPZA: PIUs are second tier of the project which will be directly

responsible for overall project implementation. It has been agreed that BCC will initially identify officials from its respective department to perform FM functions and will confirm the same to the Bank by project effectiveness. In parallel, BCC will initiate the recruitment of a Financial Management Specialist (FMS) with a TOR to be reviewed and agreed by the Bank. In order to assist the FMS an officer for accounts and administration will also be recruited or designated from the entity. In case of BEPZA, it has been agreed that it would nominate existing staff to deal with financial management activities of the project. A list of project staff of the executing agencies will be confirmed and communicated to the CCU/ERD and the Bank within one month of project effectiveness.

23. The FM staff will have adequate authority and responsibility to carry out the financial

management responsibility under the project, directly reporting to PDs and Coordinator. FM staff will be trained properly to carry out FM functions efficiently and will be supported through the TA of the project.

Financial Reporting and Monitoring 24. CCU will receive the financial information with bank reconciliation from PIUs on a monthly

basis within 15 (fifteen) working days after the end of the month. CCU will verify the information to adjust and account for advances, and will ensure that the reports have been prepared in the standard formats as agreed by the PIUs. CCU will send a consolidated report to the Bank.

25. Computerized accounting software will be used by the implementing agencies, including

CCU, within one year of credit effectiveness. Until the accounting software is in place, the books of accounts, bank and cash book and registers for the fixed assets will be maintained manually. Chart of Account will be developed following GoB code of accounts and project components.

26. All PIUs will prepare financial monitoring reporting (FMR) for each calendar quarter and

submit it to the CCU within 30 days after the end of the quarter with a copy to the Bank. The Bank and PIUs will agree a format of the FMR showing receipts, uses and balances of funds

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of IDA fund and other sources (if any) and status of the procurement activities including contract wise status of payment against the contract value. Actual expenditures of the PIUs will compared with the budget of each quarter, budget variances and their rationale will be discussed in the FMR. The CCU will consolidate the FMRs of the PIUs and submit it to the Bank in the form of interim unaudited financial statements (IUFRS) within 45 days after the end of the quarter.

27. The PIUs and CCU will also prepare the annual financial statements within 31st August after

the end of each fiscal year for submission it to its auditors. The annual financial statements of the project or the entity as the case may be will follow the accounting and reporting standards of the country as applicable by the rules and regulation of the country.

Audit Arrangements

28. Operational Audit: In view of the involvement of multiple agencies in the implementation of

the project and decentralized operation it is recommended that the project would undergo periodic review such as operational/performance audit twice during the life of the project. The audit coverage shall essentially include Financial Management, Procurement and Operational aspects of the project. One of the audits can be carried out before the mid-term review and the other one a year prior to the credit closing. CCU will coordinate and appoint the private audit firm with the TOR and the selection process acceptable to the Bank. This will be finalized by appraisal.

29. External Audit: Each implementing agency will prepare annual financial statements

reflecting the project resources received and used on the part of the project it implemented and submit it to the CCU. The CCU will prepare consolidated annual financial statements for the entire project showing appropriate break down by parts of the project implemented by each agency and make it available to the auditor by September 15, each year. Such financial statements would be audited by the Foreign Aided Project Audit Directorate of the Comptroller and Auditor General (C&AG). A Statement of Audit Needs (SAN) will be prepared by the CCU and agreed with the C&AG. The CCU will submit the consolidated audited financial statements for the entire project not later than December 31 each year. Such audited consolidated financial statements will be submitted to the Chair, Steering Committee with copies to the Secretary of each implementing ministry with management letters addressed to head of each implementing agency. The SAN will include an audit focus on testing efficacy of internal control arrangements at various agencies and transaction testing for detection of misuse of project fund. Currently, the implementing agencies for this proposed project, i.e. ERD/BCC/BEZA are not implementing any Bank financed projects. The following audit reports will be monitored in the Audit Report Compliance System:

Coordinating Agency

Audit Type Auditor Deadline

ERD Audit of Project’s Consolidated Annual Financial Statements

Foreign Aided Project Audit Directorate under Comptroller & Auditor General

December 31

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Disbursement Arrangements 30. Disbursement Arrangements: The project would be financed by an IDA credit of US$120

million, DFID funding of US$17.41 million and government contributions of US$ 3.0 million. IDA and DFID financing in each category is detailed in the table below. IDA financing will be inclusive of taxes, while DFID financing will be exclusive of taxes, i.e. taxes for the DFID financed activities will be covered by the Government's contributions. The funds will be disbursed on the basis of project financial reports (IUFRs).

31. Applications for requesting: direct payment and reimbursement shall, when required, be supported by records of such expenditure and/or evidence of payments made by executing agencies.

32. All documentation showing expenditure shall be retained by the executing agencies and shall

be made available to auditors for audit and to the Bank, if requested. 33. The following table shows the IDA financing under different categories:

Allocation of IDA Credit Proceeds

Project Cost By Component WB US$

% of Component

Expenditures to be

financed

DFID US$

% of Component

Expenditures to be

financed

Total US$

COMPONENT 1 – TA & Capacity Building 4,150,000 29.15 10,084,930 70.85 14,234,930

COMPONENT 2 - PIF 110,335,000 95.66 5,000,000 4.34 115,335,000 COMPONENT 3 – Business Linkages & Product/Process Improvement

5,015,000 79.10 1,325,000 20.90 6,340,000

Operating Costs 500,000 33.33 1,000,000 66.67 1,500,000

Sub Total 120,000,000 87.33 17,409,930 12.67 137,409,930

Government Contribution28 3,000,000

GRAND TOTAL PROJECT COST 140,409,930

28 IDA financing will be inclusive of taxes. DFID’s financing will be net of taxes. Taxes for the DFID financed activities will be covered by the Government’s contribution.

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Project Cost By Category WB US$

% of Category

Expenditures to be

financed

DFID US$

% of Category

Expenditures to be

financed

Total US$

Works 76,835,000 93.89 5,000,000 6.11 81,835,000 Goods 10,150,000 - 100 - 10,150,000 Category I Sub-total 86,985,000 94.56 5,000,000 5.44 91,985,000 Consulting Services 5,015,000 30.53 11,409,930 69.47 16,424,930 Operating Costs 500,000 33.33 1,000,000 66.67 1,500,000 Category II Sub-total 5,515,000 30.77 12,409,930 69.23 17,924,930 Category III - Compensation for Livelihood Restoration 27,500,000 100 - - 27,500,000

Sub Total 120,000,000 87.33 17,409,930 12.67 137,409,930

Government Contribution29 3,000,000

GRAND TOTAL PROJECT COST 140,409,930 34. Supervision Plan: Financial management supervision will be carried out by the World Bank

Financial Management Specialist (FMS) once a year in line with the moderate risk rating. The Bank FMS will also review: (i) quarterly IUFRs; (ii) monthly SOEs; (iii) Audit Reports and Management Letters from; and (iv) Report of Operational Audit and follow-up material accountability issues by engaging with the TTL, Client, and/or Auditors.


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Annex 8: Procurement Arrangements

BANGLADESH: Private Sector Development Support Project A. General 1. Overview. Total value of the project is US$137.4 million; IDA Credit will finance US$120

million, UK-DFID will finance US$17.4 million and the Government will finance its staff cost. The total procurement under IDA share in this project worth approximately US$120 million will largely involve works of around US$77 million, followed by consultancy services of around US$5 million and goods of around US$10 million.

2. Procurements for the proposed project would be carried out in accordance with the World Bank’s "Guidelines: Procurement Under IBRD Loans and IDA Credits" dated May 2004, Revised October 2006 and May 2010 (Procurement Guidelines); and "Guidelines: Selection and Employment of Consultants by World Bank Borrowers" dated May 2004, Revised October 2006 and May 2010 (Consultant Guidelines)) and the provisions stipulated in the Financing Agreement. For Procurement of Goods and works having estimated value less than the ceiling stipulated in the Procurement Plan may follow National Competitive Bidding (NCB). NCB would be carried out under Bank Procurement Guidelines following procedures for Open Tendering Method (OTM) of the Peoples Republic of Bangladesh (Public Procurement Act 2006 - PPA, 1st amendment to PPA (2009) and The Public Procurement Rules 2008, as amended in August 2009) with the modifications outlined in paragraph 3 below and using standard bidding documents satisfactory to the Bank.

3. For the purpose of National Competitive Bidding (goods and works), the following shall apply: (a) post bidding negotiations shall not be allowed with the lowest evaluated or any other bidder; (b) bids should be submitted and opened in public in one location immediately after the deadline for submission; (c) rebidding shall not be carried out, except with the Association’s prior agreement; (d) lottery in award of contracts shall not be allowed; (e) bidders’ qualification / experience requirement shall be mandatory; (f) bids shall not be invited on the basis of percentage above or below the estimated cost and contract award shall be based on the lowest evaluated bid price of compliant bid from eligible and qualified bidder; and (g) single stage two envelope procurement system shall not be allowed.

4. Procurement Components and Responsibility. This project is composed of three major procurement components: (i) Component 1- TA & Capacity Building, (ii) Component 2: Offsite Infrastructure Development, and (iii) Skills & Technology Development. Procurements under all these 3 components will be carried out by Bangladesh Computer Council (BCC), Bangladesh Export Processing Zones Authority (BEPZA) and new zones authority, Bangladesh Economic Zones Authority (BEZA), to be formed by the Government of Bangladesh in near future. After formation of BEZA, a detail procurement capacity assessment will be done and corresponding procurement risk mitigation plan will be finalized. Economic Relations Division (ERD) of the Ministry of Planning will act as the Central Coordination Unit (CCU) for this project and will have a minimal amount of goods and services procurement.

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5. General Procurement Notice. All expected major procurement of goods, works and consultants’ services has been announced in the General Procurement Notice (GPN), published in the dgMarket and United Nations Development Business (UNDB).

6. Procurement under BOO/BOT/BOOT, concessions and similar private sector arrangements: The selection of the zone or park developers will be a key procurement in this project. The developers may be selected following international competitive bidding acceptable to the Bank and in accordance with the provisions of paragraphs 3.13(a), 3.14 and 3.15 of the Guidelines for Procurement under IBRD Loans and Credits issued by the Bank in May 2004 revised October 2006 and May 2010.

7. Procurement of Works. The project includes both on-site infrastructure and off-site infrastructure. Procurements involving on-site infrastructure will be conducted under either public private partnership or only private sector arrangements.

8. The on-site infrastructure involves selection of zone or park developers (master developers) that are critical to the project. If the on-site infrastructure is developed only by private sector arrangement, then Bank Procurement Guidelines (paragraph 1.5) need to be satisfied.

9. Off-site infrastructure under the project includes procurement of works with Bank financing. Major works include roads, utilities, rail-lines, boundary walls, etc. The procurement of works will be conducted using the Bank’s standard bidding document (SBD) for all ICB, followed by NCB and national shopping for small value contracts.

(i) International Competitive Bidding (ICB). Civil works contracts estimated to cost

equal to or more than the ceiling established in the procurement plan may be procured using ICB.

(ii) National Competitive Bidding - NCB: Civil works contracts estimated to cost less than the ceiling established in the procurement plan may be procured using NCB.

(iii)National Shopping (NS). Small works (i.e. estimated to cost US$30,000 or less), may be procured through Shopping. The “Request for Quotation” document based on PPA is acceptable to IDA for shopping.

10. Procurement of Goods: The procurement of goods will be conducted using the Bank’s

standard bidding document (SBD) for all ICB, followed by NCB and national shopping for small value contracts.

(i) ICB: Goods and equipment contracts estimated to cost equivalent or more than the ceiling established in the procurement plan will be procured using ICB.

(ii) NCB: Goods and equipment contracts estimated to cost less than the ceiling established in the procurement plan may be procured using NCB. This method will cover the contracts for vehicles, computers, office equipments, air conditioners and others.

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(iii)Shopping - S: Goods with very small value contracts (i.e. estimated to cost US$20,000 or less), may be procured through Shopping. The “Request for Quotation” document based on PPA is acceptable to IDA for shopping.

(iv) Direct Contracting – DC: Computer software, books, journals and training materials with individual contract costing less than US$2,000 equivalent may be procured following DC with prior approval of the Bank

11. Procurement of non-consulting services: Procurement of non-consulting services is not

foreseen at this stage for the project. However if at a later stage non-consulting services become apparent for project execution, depending on the nature of procurement, BCC and/or BEPZA will carry out such procurement using procedures acceptable to the Bank in conformity with the Bank Guidelines and as agreed in the Procurement Plan.

12. Selection of Consultants: Selection of consultants will follow the Consultant Guidelines. For services, short lists of consultants may be composed entirely of national consultants, in which case provisions of paragraph 2.7 of the Consultant Guidelines will apply. For the selection of these national consultants, the request for proposal prepared on the basis of PPA and acceptable to the Bank may be used. For the purpose of the project, Quality and Cost Based Selection (QCBS) Quality Based Selection (QBS), Fixed Budget Selection (FBS), Consultants’ Qualification (CQ), Single Source Selection (SSS), Least Cost Selection (LCS) and Individual Consultant Selection (ICS) will be used. The Procurement Plan shall specify the circumstances and threshold under which specific methods will be applicable.

13. Operating Costs: These costs will include incremental operating costs for resettlement costs, office utilities, office supplies and stationeries, souvenirs, events, bank charges, advertising costs, and salaries and contractual allowances of contracted staff but excluding salaries of Government officials.

B. Assessment of the Agency’s Capacity to Implement Procurement 14. Procurement Environment: The Country Procurement Assessment Report (CPAR) broadly

accepted by the Government in February 2001 identified inadequate public procurement practices as major impediments to project implementation. The procurement deficiencies include: absence of a sound legal framework; protracted bureaucratic procedures allowing multi-point rent seeking; lack of critical mass of professionals to manage public procurement; inordinate delays in completing the procurement process; ineffective contract administration; and absence of mechanisms for ensuring transparency and accountability in public procurement.

15. Procurement Reform Actions: To carry out the procurement reform that followed the CPAR recommendations, the Government has implemented a Bank-supported Public Procurement Reform Project (PPRP) which closed in September 2007. As part of the reform under PPRP, the Government has established the Central Procurement Technical Unit (CPTU) within the Implementation Monitoring and Evaluation Division (IMED) of the Ministry of Planning with staffing funded from own resources. The Government has approved and issued Public Procurement Act (PPA) 2006, and has also issued Public

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Procurement Rules (PPR) 2008 with associated implementation procedures, including streamlined procurement approval process, delegation of financial powers, and standard set of documents for procurement of goods, works and services. The PPA and the PPR have been made effective from January 31, 2008. The PPA and the PPR contain most of good international practices including: (i) non-discrimination of bidders; (ii) open competition; (iii) transparency; (iv) accountability; (v) public opening of bids in one place; (vi) disclosure of award of all contracts above specified threshold in the CPTU’s website; (vii) clear accountability for delegation and decision making; (viii) annual post procurement audit (review); (ix) sanctions for fraudulent and corrupt practice; and (x) review mechanism for handling bidders protests. In order to build procurement management capacity, CPTU, in collaboration with ILO and local institutes, has developed a critical mass of 25 national trainers and provided training to about 1800 staff of different public sector agencies up to September, 2007.

16. The procurement regulations are being implemented by all public sector entities with varying degrees and all the public sector entities are required to follow the new rules. Public procurement has been reshaped in the last several years due to the procurement reform that include harmonized procedures. The new rules have also increased awareness among the stakeholders (such as the procuring entities, bidding community) by building confidence. However, there are still potential challenges concerning the implementation of the Act/rules including: inadequate enforcement of rules and delegated financial powers; inadequate adherence to the provision of streamlined procurement approval process; delays in contract award for large value contracts; ineffective contract administration; allegations of fraud and corruption; and political interference. To sustain the reform, the Government launched a follow-on project, Public Procurement Reform Project II (PPRP II) in September, 2007 that, among others, focuses largely on implementation and monitoring at key sector agencies, capacity development, monitoring, and management of procurement reforms, introduction of electronic government procurement (e-GP), and behavioral change and social accountability. Up to September 2010, under PPRP-II about 1000 government officials received three-week training on procurement.

17. Procurement Capacity and Risk Assessment: The procurement capacity assessment was carried out in BCC and BEPZA with the web-based Procurement Risk Assessment Management System (P-RAMS). BCC will require adequate procurement staff to manage procurements under this project. Furthermore, BCC and BEPZA need more training and experience in international competitive bidding (ICB) following Bank guidelines. Both the agencies have limited knowledge in PPP procurement. BCC will require adequate procurement staff to manage procurements under this project. Furthermore, BCC and BEPZA need more training and experience in international competitive bidding (ICB) following Bank guidelines. Like any other Ministry or government agency, the BCC and BEPZA also are not immune to systemic issues affecting procurement efficiency and performance. In addition to adequate staffing for procurement needs, emphasis also needs to be laid on areas of internal control, documentation, information dissemination, administration of contract including delivery follow up, payments, handling complaints etc. The project is rated as “High-Risk” from procurement operation and contract administration viewpoint.

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Several measures need to be introduced to minimize the risk during the implementation of the project.

18. Measures for Improving Governance in Procurement. In order to minimize procurement-associated risks, the following measures have been agreed with the Government, part of which are already in place while the remaining will be implemented as the project preparation moves forward and the project is implemented.

(i) Identifying procurement focal points (PFP) of BCC and BEPZA; (ii) Service of an experienced procurement consultant; (iii) Enhancing the functions of the current webpage of BCC and BEPZA with procurement

related information accessible to public; (iv) Establish a system for handling complaints and a database for recording, monitoring

and follow up all the procurement activities under the project; and (v) Introducing a procurement risk mitigation plan (PRMP) through reports submitted to

IDA on a periodic (semi-annual) basis. 19. Identify procurement focal points. Both BCC and BEPZA have nominated a procurement

focal point for this project. These two focal points will take necessary training on Bank Procurement Guidelines. The focal persons will help the respective agencies in day-to-day procurement follow-up and preparation of periodic procurement reporting.

20. Service of Procurement Consultant. BCC will hire the services of an experienced procurement consultant for the duration of the project. This consultant will also provide services to BEPZA as and when required. The procurement consultant will assist both BCC and BEPZA to prepare invitations for bids, requests for expressions of interest, bidding documents, requests for proposals, evaluation reports, contracts, and other documents concerning procurement of goods, works, and consulting and non-consulting services.

21. Enhance functions of the current webpage. All information pertaining to bidding and procurement will be published in BCC and BEPZA’s website. The information, among others, will include: invitation to bid, bid documents and RFPs ( wherever applicable); latest information on procurement plan/contracts; status of evaluation once completed; contract award information including adequate details; and information covering the poor performance of contractors, suppliers and consultants, including list of debarred firms. The website would be accessible to all bidders and interested persons equally and free of charge.

22. Establish a system for handling complaints: A credible system for handling complaints will be put in place in BCC and BEPZA. The database of BCC and BEPZA should also record, monitor and follow up the procurement activities under this project. The salient features of the system will be an oversight of a complaint database, a standard protocol with appropriate triggers for carrying out investigations, and actions taken against involved parties. The system will be developed and managed by the implementing agencies. It will be supported by a database containing information about all procurement steps such as, official estimates (global unit prices), all bidders (individuals, companies, joint ventures, owners information, etc.), and all bids.

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23. Other Procurement Safeguard Measures: The PRMP periodic report will capture the status of the following actions, undertaken by BEPZA and BCC for the project:

A. Alert bidders in pre-bid meeting. Procuring entities will alert bidders during pre-bid

meeting or through a notification on the consequences of corrupt practices (fraud and corruption, collusion, coercion, etc.);

B. Alert internal officers/staff. Procuring entities in reference to the legal agreement to be signed with IDA, will issue alert letters notifying about the fraud and corruption indicators and the possible consequences of corrupt and similar behavior in procurement practices and actions to be taken against the official staff if they get involved in such practices;

C. Bid Opening Minutes (BOM). During the same day of bid opening, photocopies of the Bid Opening Minutes (BOM) with readout bid prices of participating bidders will be submitted by the entities for circulation to all concerned;

D. Low competition among bidders and high price of bids. Any case of low competition (not solely based on number of bidders) in ICB and NCB cases coupled with high priced bids will be inquired by the procuring entity;

E. Appropriate contract packaging. The packaging of NCB contracts will be based on the procuring entity’s best judgment of capacity of local contractors and slicing of such packages will be done on a case by case basis and shall not be used for lowering the level of contract approving authority;

F. Measures to reduce coercive practices. Upon receiving allegations of coercive practices resulting in low competition, the procuring entity will look into the matter and take appropriate counter measures;

G. Rebidding. In case of re-bidding, the procuring entity will enquire into the matter, record and highlight the grounds of re-bidding (i.e. corruption or similar, high bid prices etc.) along with recommended actions to be taken, and pursuant to provisions of the project’s financing agreement;

H. Filing and record-keeping. Procuring entities will preserve records and all documents regarding their public procurement in accordance with provisions of the PPA; and these records will be made readily available on request for audit/investigation/review by BCC and BEPZA;

I. Publication of Award of contract in websites. As soon as an award is completed, procuring entities will publish in its own and CPTU’s websites the following information: identity of contract package, date of advertisement, number of bids sold, number of submitted bids, number of responsive bids, brief reasons for rejection of bids, name of the winning bidder and the price it offered, date of notification of award, date of contract signing, proposed completion date of contract as well as brief description of the contract awarded. For contracts following International Competitive Bidding (ICB) procedures, procuring entities shall publish notice of award of such contracts in UNDB Online and Development Gateway Market (dgMarket) in accordance with the provisions of IDA Guidelines.

24. The overall project risk for procurement is “High”. With the above arrangements, the procurement under the project is likely to be effective and transparent resulting in smooth implementation of the project leading to achievement of the project development objectives.

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Procurement capacity assessment for BCC and BEPZA was done by the team and under current assessment residual risk related to procurement is assessed as “Substantial”.

C. Procurement Plan 25. A draft procurement plan covering the first eighteen months of the project implementation

will be prepared which provides the basis for the procurement methods. This plan will be agreed between the Borrower and the Project Team prior to negotiations. It will also be available in the project’s database and in IDA’S external website for this project. The Procurement Plan will be updated in agreement with BCC and BEPZA semi-annually or as required to reflect the actual project implementation needs and improvements in institutional capacity.

D. Review by IDA of Procurement Decisions 26. Procurement Review: The review by IDA of procurement decisions and selection of

consultants will be governed by Appendix 1 of the Bank’s Guidelines. For each contract to be financed by the Credit, threshold for prior review requirements and post review contracts will be identified in the Procurement Plan. During the first 18 months of the project, IDA will carry out Prior Review of the following contracts: (i) For BOO/BOT/BOOT, concessions and similar private sector arrangements:

(ii)

All ICB contracts if IDA financing is involved. For Goods

(iii)

: All the ICB contracts and Direct Contracts irrespective of estimated cost. The NCB Contracts estimated cost equivalent or more than US$ 300,000. For Works

(iv)

: All the ICB contracts and Direct Contract irrespective of estimated cost. The NCB Contracts estimated cost equivalent or more than US$ 500,000 and the first NCB contract irrespective of value. For Consultant’s Services

The above threshold for prior review will be updated after 18 months of credit effectiveness based on performance of BCC and BEPZA as reflected in the early post review carried out by the Bank or Bank appointed firm.

: Prior review will be required for consultants’ services contracts estimated to cost US$ 200,000 equivalent or more for firms and US$ 50,000 equivalent or more for individuals. All single-source contracts will be subject to prior review by and in agreement with IDA. All Terms of references of the consultants are subject to the IDA’s prior review.

E. Frequency of Procurement Supervision 27. In addition to the prior review supervision to be carried out by IDA, the capacity assessment

of the Implementing Agency has recommended semi-annual supervision missions to visit the field to carry out post review of procurement actions. A customized review process will be developed for reviewing procurement at the community level.

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F. Overall Procurement Arrangement General Procurement Arrangements (US$ Millions)

Category ICB NCB Other2/ Total Works 41.282 40.553 - 81.835 Goods 8.000 2.150 - 10.150 1. Sub-total (Goods + Works) 49.282 42.703 - 91.985

Consulting Services 16.425 - - 16.425 Operating Costs - - 1.500 1.500 2. Sub-total (Consulting + Operating Costs) 16.425 1.500 17.925

3. Compensation for Livelihood Restoration - - 27.500 27.500 SUB TOTAL 65.707 42.703 29.000 137.410

4. Government Contribution30 3.000 GRAND TOTAL 140.410


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Annex 9: Economic and Financial Analysis


Introduction 1. The proposed sector investment loan for the Government of Bangladesh is aimed at

facilitating investment in growth centers in the emerging manufacturing and services sectors of the economy. The project is expected to generate firm level investment beyond the already established RMG sector and a key outcome is the generation of jobs and household income for an increasingly densely populated Bangladesh. The project will build on Bangladesh’s experience in the application of export processing zones, and will support the establishment of special economic zones. Through its second component the project will address key constraints identified in the ICA, access to industrial land and infrastructure services, as well as establishing a better business environment within the zones. Other components under the project will contribute to better firm level linkages and increase value addition.

2. The main focus of the project, and the majority of the investment, will provide for

investments in developing infrastructure that will not be funded by the private sector. The funding for these infrastructure investments will be provided under the second component and is referred to as the Public Investment Facility (PIF), and will be available for both PPP type investments like Kaliakoir and also public investments like the expansion of Comilla EPZ. Preliminary assessment of the amount of funding required from the Public Investment Facility will be provided during the feasibility study, and will thereafter be refined until the bid process. The project will start first with the proposed site at Kaliakoir which the Government wishes to launch as a Tech or IT park. Two sites have also been identified as potential sites to be developed partially under the project. These are the expansion of Comilla EPZ and a site in Chittagong. Initial development of these sites is expected and some offsite infrastructure has been budgeted for under the project. These are the major investments that will be financed by the project and for which the design and detailed costing are available through an extensive assessment through UK-DFID funding for Kaliakoir and partially for Comilla.

3. The diagram below indicates the balance between public and private inputs. It shows the Public sector providing basic design for the EZ, land provision and preparation, oversight of management and assistance during operation (for example utility access or permitting). However, its objective will be to maximize private investment and management and minimize the public’s scare resources.

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4. The analysis focuses on the financial and economic feasibility of the Kaliakoir IT/Hi-Tech

Park to be supported by the PSDSP as well as those costs/benefits arising from the investments in Comilla and Chittagong. As mentioned above the proposed project will attempt to maximize private investment. The government will make the land available as an equity contribution and will ensure a fixed annual revenue stream through land and office space rentals as well as other income from the provision of utilities and support services. The financial analysis for the KHTP and Comilla considers the projects cash inflows and outflows stemming from the development and management of the zones. Four different scenario analyses are considered based on the level of private sector engagement and sensitivity to rental prices only for the KHTP

as the Comilla expansion has not been sufficiently designed for this analysis. The analysis is predicated on the general assumption that the Kaliakoir Park will be primarily an IT Sector driven zone per the GoB’s expressed intent. Consequently, any changes in direction will affect the assumptions and impact the Economic and Financial viability of the project based on the composition of industries within the Park. The economic analysis considers: i) the employment and income affects on the economy as a whole for the Kaliakoir Park; ii) the initial development costs for the Comilla expansion, the cost for resettlement and livelihood restoration and the benefits accruing from value addition to the land (i.e. the difference in price of serviced land and undeveloped land in the site); iii) the initial development costs for Chittagong, the cost for resettlement and livelihood restoration and the benefits accruing from value addition to the land (i.e. the difference in price of serviced land and undeveloped land in the site);

Modern fitted out office (warm shell) & utilitiesStand by powerData centerConference facilitiesInternal roads & street lightingIncubatorLeisure facilitiesStandard Factor Building (SFB)Water Treatment Plant (WTP)Food court & retail

PRIVATE INVESTMENT

A

Land acquisition & resettlementRoad & rail accessFlood control measuresUtilities to site parameterSocial InfrastructureUniversityInitial master planningHelipadTraining centerEngineering, environmental & other guidelinesSchool for EPZ workers Large scale IPP & Sewage Treatment Plant (STP) with concession to supply services outside the EPZ

PUBLIC INVESTMENT

FACILITYB

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II. Cost and Benefit Analysis 5. The financial analysis considers the expected government income generated from the KHTP

and Comilla as financial benefits and the expected public expenditures during the course of the development and management of the zones as financial costs. The Chittagong site has not been developed or assessed sufficiently to obtain an assessment of direct financial benefits for a full financial analysis (e.g. the type of firms, the level of private engagement, etc.). The economic analysis includes, in addition to the financial benefits and costs of the KHTP & Comilla, the net value-added generated by the three zones.

Methodology and Assumptions:

6. The methodology used in assessing this project was a cost-benefit analysis which is a technique used for assessing the viability of new investments or expenditure programs; it can be narrow in scope (i.e. limited to direct project results) and/or it could include indirect impacts such as indirect environmental effects. It is based on a summary of measures of performance; Economic Rate of Return (ERR) and Net Present Value (NPV), calculated on the incremental benefits and costs to the project as a whole. Presented below are the main benefits and costs, underlying assumptions made, and a sensitivity analysis.

7. Financial Benefits: (i) rental of the land; (ii) rental of the ready-made building structures;

and (iii) service income from the provision of utilities and ancillary services. Financial Costs: (i) development of support infrastructure as described in the diagram above; and (ii) administrative costs for the management of the Park. Economic Benefits: (i) employment generation inside the KHTP; (ii) employment generation through linkages outside the KHTP; (iii) direct increase in firms’ surplus for KHTP; (iv) indirect increase in firms’ surplus through linkages for KHTP; and (v) value addition form land development.

8.

The following assumptions have been used to analyze the base case scenario:

• Constant Prices: All the financial projections are based on constant prices. The impact of inflation has not been taken into consideration in the projections;

• Time Horizon: The analysis has been conducted over a period of 20 years which is a typical time horizon for large-scale zone development. The first two years are assumed to be a development period with no income generation while 18 years are assumed for operations.

• Discount Rate: The discount rate has been set at 10 percent, which is the interest rate at which the Government of Bangladesh can borrow at through its 20-year government bonds issued by Bangladesh Bank.

• Government Dividend: While the government provides the land for the IT Park as an equity contribution it does not intend to request a dividend on this equity, therefore a dividend is not included.

• Speed to Full Capacity: The zones are not expected to attain full capacity utilization until the fifteenth year of implementation, the thirteenth of operation. This is due to the relatively nascent positioning of the IT sector, the lag in the development of the two other zones, and experience with the other zones within Bangladesh. Occupancy is expected at 10 percent in

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the first year of operation then increases to 40 percent in the fifth year and continues increasing in increments of 30 percent every 6 years.

• Tax Revenues: It is assumed that no tax revenues are generated through the park, as this is the expressed intent of the GoB as one of the main incentives is to provide a tax holiday for private investors to increase their investment in the industry.31

• Other Revenues: It is assumed in the base case of the financial analysis that rental rates within the zone will follow the same structure as current rates in use with the fully operation zones in Bangladesh. Namely, this is a land rental rate of US$ 2.2/m2, a building rental rate of US$ 33/m2, and a 111 percent ratio of other income to rental income.

• Development & Administrative Costs: It is assumed in the base case that all costs for the development of the zones are undertaken by the GoB. It is also assumed that the GoB manages the zones with an estimate of administrative expenses, based on an analysis of zones operating within Bangladesh, at 19.2 percent of total income.

• Development of Land: it assumed that the economic benefits of the two potential zones will be derived from the appreciation of land value once it is developed and serviced. Estimates for these values were obtained through figures provided in consultation with local sellers and developers to obtain market values.

Financial Analysis KHTP • Direct Employment Generation: An area of approximately 900 thousand square meters is to

be developed for buildings in addition to an area of approximately 121 thousand square meters in total for ready-made structures. It is assumed that an average of 37 employees per hectare will operate within the zone based on an analysis of the zones operating within Bangladesh, which excludes the extreme outliers of labor-intensive and barely operational zones. This is a very conservative estimate that will vary based on the type of IT companies to locate within the zones.

• Indirect Employment Generation: An empirical study on the ITES/BPO industry in India estimates that for each direct job the industry has created there are approximately 4 jobs created in the rest of the economy.32

• Salary: Salary Benchmarking data from 2009 gives an estimate of an average annual salary of 11,880 in the Indian IT sector.

It is assumed that 3 jobs are created for each direct job in this analysis. This is because although the project plans on increasing linkages within the local economy, it is not expected to reach the level of that experienced in the Indian economy due to differences in the market.

33 In order to control for cross country wage differentials, we multiply this salary by the ratio of the minimum wage inside the zones in Bangladesh to that of India.34 Indirect employee wages are measured by the average annual wage of salaried employees in Bangladesh, based on a World Bank study in 2005.35

• Production per Employee: According to a study of the Indian IT sector in 2002, at its nascent stage, revenue generation per seat in the IT/BPO services sector was estimated at

This compares very closely to estimates provided by ITES firms operating within Bangladesh.

31 This can be adjusted if adjustments are made in the design of the concession in the PPP contract. 32 NASSCOM-MicKinsey Report (2005). 33 ZDNet Asia IT Salary Benchmark 2009. 34 Financial Appraisal of the EPZs in Bangladesh, IFC-BICF. 35 Bangladesh Development Series Paper No. 26 (World Bank 2005).

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between US$ 17,000-US$ 24,000.36 Consequently, revenue generation the Kaliakoir Park is assumed to be the lower limit of US$17,000. The EBIT margin is estimated at 15 percent based on a sectoral analysis of 17 Indian mid-cap IT companies, using the 5 year average.37

Base Case Results - Financial Analysis:

Table A.9.1 Financial Benefits and Costs - KHTP & Comilla (US$ ‘000)

Development Operation Total

Y1 Y2 Y3-Y8 Y9-Y14 Y15-Y20 Benefits Land Rental Building Rental Other Revenue

- - -

- - -

4,595 5,990

11,817

16,640 16,770 37,297

24,361 23,958 53,941

45,596 46,718

103,054 Sub-total - - 22,401 70,706 102,260 195,367

Costs Land Dev & Boundary Road Works & Utilities Admin & Social Amenities Buildings Sustainability Infrastructure Admin Expenses Comp. for Livelihood

1,298 1,682 735

5,080 52 -

4,000

1,298 1,682 735

5,080 52 -

4,000

10,231 18,792

735 29,870

285 4,308

12,000

- - - - -

13,597 -

- - - - -

19,665 -

12,826 22,156 2,206

40,029 388

37,570 20,000

Sub-total 12,846 12,846 76,221 13,597 19,665 135,174 Net Financial Cash Flow (12,846) (12,846) (53,819) 57,109 82,595 60,193

Financial IRR 4.85% Financial NPV US$ (25,250)

9. The result from these calculations for the financial flows of the project is summarized above

in Table A.9.1. The analysis concludes that at a discount rate of 10 percent, using the base case scenario described above, the Financial NPV of the project will be approximately a negative US$ 25.250 million with a Financial IRR of 4.85 percent.

36 NASSCOM-MicKinsey Report (2002). 37 “Mid-Caps the Untold Story”, Sector Report - IT Industry, Avendus

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Table A.9.2 Economic Analysis (US$ Thousand)

Development Operation Total

Y1 Y2 Y3-Y8 Y9-Y14 Y15-Y20 Economic Benefits Financial Benefits - KHTP & Comilla Employment Generation (direct) - KHTP Employment Generation (indirect) - KHTP Increase in Firms’ Surplus (direct) - KHTP Increase in Firms’ Surplus (indirect) - KHTP Value Addition in Land Development - Comilla & Chittagong

- - - - - -

- - - - - -

22,401 18,386 10,543 14,024 3,217

33,017

70,706 51,481 29,522 39,266 9,007

64,954

102,260 73,544 42,174 56,094 12,867 64,954

195,367 143,412 82,238

109,384 25,091

162,925

Sub-total - - 101,588 264,935 351,893 718,416 Financial Costs (all project) 12,846 12,846 95,984 13,597 19,665 154,938

Net Economic Cash Flow (12,846) (12,845) 5,604 251,338 332,228 563,479

Economic IRR 23.85 percent Economic NPV 117,378

10. The result from these calculations for the overall project is summarized above in Table A.9.2.

The analysis concludes that at a discount rate of 10 percent, using the base case scenario described above, the NPV of the project will be approximately US$ 117.378 million (for both economic and financial flows) with an economic rate of return of 23.85 percent.

Sensitivity Analysis - KHTP: 11. Three sensitivity analyses were conducted by changing the values of critical assumptions for

the financial analysis of the KHTP as the details of the design for the two potential sites have not been defined. The results are presented in table A.9.3 below.

12. The first scenario assumes a higher rental rate for land and buildings, based on a

benchmarking of zones that are similar to those in Bangladesh internationally; namely in India, Pakistan and Egypt. Consequently, rental rates in this scenario stand at US$ 4.1 for land and US$ 34.6. The effect of this change on the project was that Economic NPV increased to US$ 106.46 million and the ERR from 29 percent to 31 percent.

13. The second scenario assumed the same rental rates as the base case, however, the

development costs were estimated based on the breakdown in the Public Investment Facility in the diagram above. Consequently, the GoB only earns land rental revenue on land occupied by buildings constructed through private investment. In this case, NPV increases, from the base case, to US$ 101.54 million and the ERR from 29 percent to 59 percent. This drastic increase in ERR in comparison to NPV is due to the accelerated payback in the second scenario

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Table A.9.3. Sensitivity Analysis Summary Variable NPV (US$ mil) ERR

(percent) Base Case KHTP Higher Rental Rates PIF Higher Rental Rates & PIF

95.17 106.46 101.54 109.88

29 percent 31 percent 59 percent 62 percent

14. The third scenario assumes a combination of the first and second scenario, whereby rental

rates increase and development costs are limited to the Public Investment Facility. The NPV and ERR both increase to US$ 109.88 million and 62 percent respectively.

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Annex 10: Safeguard Policy Issues


A. Introduction

1. The project will support the planning, project structuring and bid process management for appointing private developers and public financing of EZs to be developed by several agencies. The main activities proposed under the project will include the following. EZ (RMG, IT or others) development by BCC/BEPZA/new EZ Authority; Site Development and offsite infrastructure development, such as rail and road links Public financed common infrastructure in EZ offices, training centers, research

centers and other facilities. Investment in power generation, water supply and distribution, sewerage and

drainage, industrial and common effluent treatment and hazardous waste disposal facilities.

Ancillary facilities to be developed through a PPP structure Other development costs such as land preparation and resettlement.

2. The potential environmental impacts of the project are mainly attributed to Component 2

of the project and will depend on the nature of the proposed Economic Zone and specific site characteristics. These could include: (i) impacts on water resources due to disposal of untreated industrial effluents; (ii) health impacts due to air emissions from stack and other industrial operations; (iii) impacts due to disposal of solid and hazardous wastes, including waste sludge; (iv) hazards due to storage, handling and use of chemicals/hazardous materials; (v) impacts due to ground/surface water extraction; (vi) impacts due to disposal of untreated domestic wastewater; and (vii) indirect impacts due to land use changes, increased traffic and other developments.

B. Overview of EZ Site Development

3. The site for the first sub project, the Hi-Tech Park at Kaliakoir consists of 232.63 acres of

Government land in Gazipur district which is 30 minutes from central Dhaka (about 20 kms north of the airport). The site is mainly undulating with sections of agricultural land, few inhabitants and trees. The site is also marked by small water bodies, which eventually connect to the Bangshi, a tributary of river Turag. A number of LT lines and a 33 kV overhead transmission line at two locations, a village road and a railway track, criss-cross the site. The land has already been acquired by Government and a compound wall protecting the site has already been established. The project will consider some more zones, as the project develops further.

C. The Kaliakoir Initial EIA and Abbreviated RAP

4. An initial environmental assessment and abbreviated RAP along with detailed feasibility

studies (completed in April 2009) has been carried out for Kaliakoir and Comilla EPZs,

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through DFID technical assistance to the project. These assessments summarize the environmental impacts and compensation issues associated with the development of these EPZs and were carried out as per the environmental assessment requirements of the WB Safeguard Policies (OP 4.01) and the Environment Conservation Rules (ECR), 1997 under the Environment Conservation ACT, (ECA) 1995 of Government of Bangladesh. The assessment, categorizes the project at Kaliakoir as “Category A” in line with OP 4.01 and as “Category Red” as per GOB regulations. Under both classifications, an EIA is mandatory.

5. The initial EIA study included Collection and review of relevant documents, site

reconnaissance, interaction with the design consultants, stakeholder consultations, collection of base line environment data collection and analysis, identification, prediction and evaluation of significant/potential impacts and formulation of environmental management and monitoring plan.

6. The RAP addresses key compensation issues in Kaliakoir: (1) loss of income: due to loss

of road access for rickshaw pullers; small businesses might also face decreased income due to road connectivity problems and temporary users of agricultural land within the project foot print will incur impacts to their livelihood; (2) loss of public property: loss of access to roads connecting to villages such as Pirer Teki, Janerchela, and Kalampur that would affect access of families to their social relations, places of work, health care and educational institutions in addition to facilitating access to 5 tea stall owners and rickshaw pullers who have their tea stall and rickshaw stand outside the project area; and (3) loss of community resource property: loss of a 360 feet deep tube-well.

7. While the assessments provide an understanding of environmental and social issues

associated with the project, these need to be updated, as the master plan will be updated following private sector feedback given during the road shows, planned as part of the PSDSP.

D. Project Environmental and Social Management

8. Considering the nature of potential environmental impacts of the project, the project is categorized a ‘Category A’, as per the safeguard policies of the Bank. Accordingly, two Bank safeguard policies are triggered: OP/BP 4.01 Environmental Assessment and OP/BP 4.12 Involuntary Resettlement.

9. Since the location and design of Economic Zones to be supported by the project is not

finalized, the safeguard management strategy for the project included development of Environmental and Social Management Framework (ESMF) to comply with the World Bank safeguard requirements and Bangladesh environmental regulations. The ESMF establishes policies and procedures to systematically identify, predict, and evaluate beneficial and adverse environmental and social impacts associated with site specific development activities. The framework also provides for opportunities in designing enhancement measures for beneficial impacts and implementing mitigation measures for adverse impacts. These activities will be carried out through Specific Environmental

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Impact Assessment (EIA) and Environmental Management Plan (EMP) for each Economic Zone supported by the project. The PSDSP ESMF was reviewed, cleared and disclosed in March 2010. Table 1 describes the steps in the environmental and social assessment process at different stages for each EZ.

10. The Involuntary Resettlement Policy (OP/BP 4.12) will be triggered by the proposed project because project activities such as construction of water treatment plants can result in temporary or permanent loss of land, crops, and other means of income generation. As the exact location of project site(s) is not known at this stage, the project has prepared a Land Acquisition and Resettlement Policy Framework (RPF) laying out the key principles of the World Bank’s OP 4.12 and a strategy to fulfill the policy’s requirements that are mutually agreed upon. The Resettlement Policy Framework (RPF) submitted and cleared by the Bank includes procedures for potential loss of income, livelihoods and property (if any), associated with the project activities. Specific Social Impact Assessments (SIA) and Resettlement Action Plans (RAP) if needed will be prepared during project implementation for each zone site.

Table 1: Steps in the Environmental and Social Assessment Process Project Identification & Pre-Feasibility Studies (Pre-Construction) Phase

1. Environmental and Social screening. 2. Social performance frameworks for projects not requiring specific resettlement

and land acquisition studies. Project Design Phase

3. Initial Environmental Examination (IEE): assess environmental impacts to determine if EIA is required; its recommendations are incorporated into the project design.

4. Scoping: identify significant potential impacts and project alternatives, and propose terms of reference for the EIA and SIA.

5. Baseline Data Collection: identify current environmental and socio-economic conditions without the project and update it during the project in accordance with project design.

6. Public consultation and participation of stakeholders of different level at various stages in the assessment process to ensure quality, comprehensiveness and effectiveness, and those stakeholders’ views are adequately addressed.

7. Prepare EIA Report and SIA Report: summarize all information obtained, analyzed and interpreted in a report form; should contain a non-technical summary including methods used, results, interpretations and conclusions. The report should also include recommendations for mitigation of negative impacts, enhanced opportunities and relevant policy and regulatory actions. The report should be shared with stakeholders participating in the consultation process and affected by the recommendations and time for feedback should be allowed.

8. Prepare Environmental and Social Management Plans of the project to determine specific actions to be taken during the designing of the project that includes plans for land acquisition, engineering design and construction stages to minimize or mitigate adverse environmental and social impacts.

9. Preparation of Resettlement Action Plan (RAP), if necessary, on the basis of SIA

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and update those in accordance with changes in the project requiring land acquisition.

10. Design mitigation measures: to avoid, reduce and minimize adverse environmental and social impacts and enhance beneficial impacts.

Project Appraisal/ Approval Phase 11. Review and Approval of EIA and SIA Report: review report to assess if all

issues have been adequately addressed and to facilitate the decision-making process; decide if project should proceed, or if further alternatives must be examined.

Construction Phase 12. Implementation of Environmental and Social Management Plan (ESMP) and

RAP to address adverse environmental and social impacts and update it in accordance with changes in the project.

13. Environmental and Social Monitoring: (following the EMP and RAP) determines compliance with ESMP.

14. Mid-term independent evaluation to assess the continued relevance of the mitigation plans and need for any alterations based on actual developments during the construction phase.

Post-Construction Phase 15. Environmental and Social Audit: As per the recommendations of EIA and SIA

study. 16. Regular monitoring arrangements to record and evaluate progress against initial

plans and potential new challenges and opportunities.

11. The current practice of managing environmental safeguards in existing EZs involves securing the necessary Environmental Clearance Certificate (ECC) for setting up respective EPZs and individual industrial units of the EPZ as per the requirements of the Environment Conservation Rules of Bangladesh. The Department of Environment in the Ministry of Environment and Forest (MOEF) enforces industry compliance to all the environmental regulations during the operational phase.

12. BEPZA, through the Bangladesh Investment Climate Fund (BICF) project, has recently developed a series of integrated environmental management and monitoring tools for use in their EPZs. These same tools will be used to drive environmental performance improvements on behalf of EZ enterprises, and monitor and evaluate the environmental operating conditions in any zone. These tools include: BEPZA Environmental Monitoring and Enforcement Plan Guidelines Environmental Best Management Practice Manual; Environmental Audit of EPZ Enterprises; BEPZA Environmental Enforcement Strategy; Environmental Inspection Forms and Modules for Inspectors; BEPZA Evaluation and Rating Criteria for EPZ Enterprises;

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E. Resettlement Policy Framework

13. Project activities under Component 2 will require the provision of land; hence a Resettlement Policy Framework (RPF) has been prepared, approved and disclosed. The following options are considered for the project as stated in the RPF:

• Use of publicly owned land • Land procured by government agencies on willing buyer –willing seller terms • Land acquisition by the Government (as a last resort where absolutely essential)

14. Where land acquisition is required, GOB will be responsible for funding land acquisition

costs. The project will provide all associated resettlement costs such as compensation at replacement value for losses (houses, standing crops, shops, etc) to affected people including squatters, livelihood restoration, resettlement sites (where possible), in compliance with the regulations of World Bank policies and procedures. In terms of the cost of land specifically, GOB will be responsible for acquiring the land as per the Government’s own procedures and at their own expense.

15. Compensation: Under the GOB process, registered land prices at the District Commissioner’s (DC) office are averaged over a 12 month period to arrive at the compensation value for land. However, these prices are often a fraction of the true market value, as owners register at very low values in order to avoid taxes. GOB recognizes this issue and has mandated the payment of a 50% premium added to the compensation value. Despite this, the price remains significantly below market value. According to the Bank’s Involuntary Resettlement Policy, compensation for all losses must be according to market rates (replacement cost). Therefore the client agency must conduct an independent market survey as part of the preparation of the RAP.

16. Calculation of the mark up: In areas where active land markets exist, consultants approach real-estate developers, banks from where people take loans in order to buy land, the DC's office where, even though the actual registered price is a fraction of the real market value, the "tehsildaars" (registrars) usually know the real transaction price. Where active markets do not exist, land use and quality are assessed and people in the vicinity who may have bought and/or sold land within the year are consulted, as well as the DC's office. The entire process including the consultations are documented and presented in the RAP. The project will be responsible for paying the difference between the acquisition price and the market price if the latter is found to be higher (top-up). This has been usual practice for Bank-funded projects in Bangladesh, e.g. the Jamuna Bridge Project (P009509) and the Siddhirganj Peaking Power Project (P095965).

F. Public Consultation and Information Disclosure

17. For the first project site in Kaliakoir, consultations were held with affected people, local

residents and other stakeholders during the preparation of RAP and EMF. Furthermore, the BCC has disclosed the RAP and EMF through its website and the local government office for comments and feedback from the local communities. All safeguard documents

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have been disclosed in the Bank’s Info Shop in March 2010. A similar process will be followed when conducting EA and SIA studies and RAPs for all future sub-projects.

G. Monitoring and Supervision

18. The ESMF/RPF procedures will be applied for sub-project throughout the entire project.

Therefore, the screening, drafting, implementation and monitoring of the EMP will be conducted project implementing agencies. In addition, the project will support environment capacity building of the project stake holders agencies(EZ Authority, Hi-Tech Park Authority, BEPZA, BCC), so that they are better equipped for monitoring and supervision of the subprojects. Reporting formats will be developed for keeping records and reporting to the World Bank in compliance with ESMF and EMP. The project will also carry out an annual audit of implementation of safeguard activities, and implement suitable remedial measures (if required).

H. Implementation Arrangements for Environmental and Social Management

19. The implementation arrangements for safeguard management for the project will

comprise the following.

Environmental and Social Management Experts (one each) at the Central Coordination Unit (CCU) to monitor environmental and social activities of the project

Full time Environmental and Social Specialists (one each) at each PIU (BCC/BEPZA/New EZ Authority) to supervise the implementation of environmental and social management measures as detailed out in the ESMF and the EMP, for respective economic zone;

Environment Management Unit (EMU) at each EZ, by the park or zone developer to implement EMP and other regulatory requirements during the construction and operation phase of each economic zone.

20. The project will also suitably modify and adopt tools such as environmental monitoring

and enforcement plan guidelines, environmental best management practice manual, environmental audit of EZ Enterprises, environmental enforcement strategy, environmental inspection forms and modules for inspectors, evaluation and rating criteria for EZ enterprises, environmental awareness and training program, and draft tenant lease conditions related to environmental requirements, all developed by the BICF project, for integrated environmental management and monitoring for use in EZs. The Environmental and Social Management specialists at PIUs will be primarily responsible for the overall management of environmental and social aspects during the design, construction and operation phases of the project. In other words, these specialists are the primary linkage between the relevant monitoring agency and implementing agency with regards to the implementation of environmental and social safeguards.

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I. Enhancing Cleaner Production and Other Social Conditions

21. One strategy proposed within the EZs is to offer opportunities for operators and supply chain producers to apply sustainable environmental management techniques. In today’s global marketplace, markets are driving forces for adherence to green and sustainable production as well as fair trade and working conditions. The project is adapting guidance developed for the EZs to ensure compliance with all national and World Bank environmental and social regulations and policies. These sustainability and good business practices have a two tiered approach; one for the master design and construction of each EZ (covering site infrastructure development such as waste management, water service, energy supply, road access, storm water management, etc.) and a second at the individual facility.

22. At each level, in addition to applying permitting requirements, the project will provide a value added service to develop a collection of sustainable production options that include cleaner production, energy efficiency, improved water use, waste minimization and greener construction practices. Additionally, a comprehensive Environmental Management System (EMS) approach along the lines of ISO 14001 will be explored as a basic investor model that follows international good practice.

23. To help increase social and environmental sustainability and clean production, a technical assistance grants to firms will be implemented. The premise is to develop terms of reference for audit firms that meet qualification criteria. This process will entail a grant letter of intent for an environmental audit (energy, water, processing, and waste) through an agreed environmental audit with specified environmental targets and an investment plan to meet these projected targets.

24. A TA grant of 100 percent for environmental management audits (maximum US$ 2k per audit) as part of the feasibility phase for firms within the EZ will be made available to EZ firms and suppliers to the EZ. In the EZ the grants are for implementing sustainable technologies within the EZ and will be performance based on successful achievement via two installments. For Suppliers to the EZ, matching grants for environmental and social diagnostics and then an agreed environmental audit with environmental targets will be funded as a quality and performance improvement grant.

J. Partnership arrangements

25. The World Bank and several development partners have a number of projects and

programs aimed to improve pollution control and address social and worker conditions across industries within Bangladesh. The PSDSP will build upon these initiatives by incorporating early lessons and good practice on a meaningful scale.

Cleaner Production

26. The ongoing World Bank Clean Air and Sustainable Environment (CASE) project focuses on improving energy efficiency and reducing emissions, starting with

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demonstration projects in the brick making industry. This includes a revision of emission standards for key polluting industries as part of strengthening the legal and regulatory framework for emissions management.

27. The World Bank Dhaka Environment and Water (DEW) Project will improve the quality of industrial effluent discharge in selected areas using a technically and financially sustainable pollution prevention and abatement model. This demonstration program will target mostly washing, drying, and finishing (WDF) factories located in 3 industrial clusters which have been identified as pollution hot-spots with the establishment of industry cluster associations, cleaner production and pre-treatment measures. The industry demonstration program will gather basic information on the cluster factories including geo-referencing, factory type, and wastewater characteristics. Factory environmental audits will identify cleaner production options throughout the factory’s production line. Technical support will then be provided through matching grants to selected industries to implement low cost changes. Participating factories will also be equipped with basic pre-treatment and wastewater flow measuring devices to track wastewater reduction from the implementation of cleaner production processes. Several of these activities will be implemented in close partnership with both IFC-SEDF and the Natural Resources Defense Council (NRDC). The IFC-SEDF’s environmental compliance TA cleaner production pilot in 20 factories will provide lessons learned regarding successful methodology and implementation.

28. The World Bank’s proposed Bangladesh Responsible Sourcing TA with the NRDC will also provide lessons learned from NRDC’s experience in developing a cleaner production model in China. This experience will be used to implement these procedures in 5 Dhaka factories.

29. GTZ is undertaking a cleaner production pilot in 4 textile factories in Narayanganj

focused on the reduction of chemical inputs into production processes.

Environmental Management Capacity Building

30. The CASE project is also supporting the newly established Air Quality Cell (AQC) at DOE to improve air quality monitoring, data analysis and reporting; and improve standards, enforcement and control for emissions reduction. The newly established AQC is envisaged as the key authority to implement all air pollution abatement activities in Bangladesh.

31. The DEW project will establish a DOE unit to monitor industrial pollution and enforce pollution control regulations, including the development of clear implementation guidelines for the management and enforcement of effluent emissions for tackling both point and non-point sources of pollution; the identification of measures to implement the Polluter Pays Principle, including the formulation of economic tools and incentives for Bangladeshi industries. In addition the DEW project will establish an integrated environmental management information system at DOE for water quality monitoring based on the collection, analysis and dissemination of a range of pollution data.

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Improved Working Conditions and Social Programs

32. Under preparation, The World Bank NARI -- Northern Areas Reduction-of-Poverty

Initiative will address social and employment opportunities in the garment sector for poor and vulnerable women from the poorest regions of Bangladesh, by providing young women with information, technical and life skills training, transportation, housing and other support to adjust to urban life and employment.

K. Capacity Building

33. The institutional need for implementing ESMF process includes a review of the

capabilities of key responsible institutions and their capacity to manage and monitor ESMF implementation. The capacity building assessment and plan will include an analysis of the following.

Institutional structure and its authorities at all relevant levels, to address

environmental management issues; Number and qualifications of staff to carry out their ESMF responsibilities; Resources to support staff in their work; and Knowledge and experience relevant to carrying out environmental analyses and

designing mitigation measures.

34. A program of capacity building for Hi-Tech Park Authority, BCC,BEPZA, BEZA, EZ Park developers, contractors and the other stakeholders will be put in place to ensure that capacity to conduct due diligence on social and environmental aspects of infrastructure projects is developed. The training program will include the following: Basic practices: to understand and appreciate the ESMF requirements including,

preparing and reviewing the IEE/ EIA, the EMP/ SMP, and the RAP); and monitoring the implementation of the specific ESMPs and annual reviews and audits.

Environment: site selection and project design to minimize environmental impacts and social disruption; restoration of drainage patterns, land use etc, including mitigation measures in contracts; management of impacts during construction; monitoring of effectiveness of measures;

Monitoring and grievance redress: transparency and public administration in planning, reporting and supervision responsibilities and formats during implementation, documenting land transactions, complaint response record keeping and procedures.

35. These training activities and capacity building measures will be facilitated by the CCU

through its environmental and social experts. The training program should also equip the members of the environmental and social specialists at the PIA, who will be directly involved in the planning, design and implementation of the project, to understand and appreciate the ESMF requirements, to review the IEE/EIA, SIA and ESMPs, and to supervise the implementation of the sub-project specific ESMPs.

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36. All the relevant officials will be provided formal training in the management of

environmental and social issues. These include the project co-coordinator at CCU, project directors and project managers of implementing agencies, construction managers (developers), and implementation agency staff associated with design, construction, and supervision.

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Annex 11: Project Preparation and Supervision

BANGLADESH: Private Sector Development Support Project Planned Actual PCN review 01/12/2010 01/12/2010 Initial PID to PIC 03/31/2010 05/04/2010 Initial ISDS to PIC 03/31/2010 11/30/2010 Appraisal 12/16/2010 12/16/2010 Negotiations 01/05/2011 01/16/2011 Board/RVP approval 03/01/2011 Planned date of effectiveness 04/14/2011 Planned date of mid-term review 09/15/2013 Planned closing date 06/30/2016 Key institutions responsible for preparation of the project

• Economic Relations Division, Ministry of Finance :

• Bangladesh Computer Council, Ministry of Science and ICT • BEPZA, Prime Minister’s Office

Bank staff and consultants who worked on the project includeName

d: Title Unit

Michael D. Wong Sr. Private Sector Development Specialist (Task Leader) SASFP G.M. Khurshid Alam Sr. Private Sector Development Specialist SASFP Aneeka Rahman Operations Analyst SASFP Manju Haththotuwa Sr. ICT & PSD Specialist SASFP Sara Al Rowais Operations Analyst SASFP Luiz Henrique Alcoforado Consultant LEGEN Peter Kyle Consultant CBIPS Jeffrey John Delmon Sr. Infrastructure Specialist FEUFG Klaus Sylvester Friesenbichler Jr. Professional Officer SASFP A.S. Harinath Sabah Moyen Fabio Pittaluga

Environmental Development Specialist Social Development Specialist Sr. Social Development Specialist

SASDI SASDS SASDS

Tanvir Hossain Procurement Specialist SARPS Md. Mahbubur Rahman Sr. Financial Management Specialist SARFM Bridget Rosalind Rosario Program Assistant SASFP Aza Rashid Program Assistant SASFP Bank funds expended to date on project preparation1. Bank resources: 483,739.82

:

2. Trust funds: 0 Estimated Approval and Supervision Costs1. Remaining costs to approval: 20,000

:

2. Estimated annual supervision cost: 150,000

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Annex 12: Documents in the Project File

BANGLADESH: Private Sector Development Support Project 1. Project Formulation Study for the Establishment of Hi-Tech Park at Kaliakoir,

Gazipur, Final Report (July 2002), BRTC & BUET 2. Steps Toward Change" National Strategy for Accelerated Poverty Reduction II FY

2009-2011, December 2009, General Economics Division, Planning Commission, GoB

3. Doing Business 2010 4. Second Bangladesh ICA (2007/08) 5. Bangladesh Country Assistance Evaluation, June 2009, IEG, WB 6. BD CAS 2006 Completion Report 7. BD CAS FY10-FY14 (Draft) 8. Case Studies of SEZs, December 2009, Thomas Farole, PRMTR, WBG 9. Sector Report : IT Industry Mid-Caps: The Untold Story, February 2006, Avendus 10. NASSCOM Strategic Review 2010 11. NASSCOM-Mckinsey Report 2005 12. Productivity of India’s Offshore Outsourcing Sector: Business-based Evidence, Feb 2010, Suman Modwel & Tawfik Jelassi 13. Financial Appraisal of the EPZs in BD, Nov 2009, ACE 14. FIAS, SEDF, 'Review of the Market for Industrial Land in Bangladesh', May, 2006. 15. FIAS, Special Economic Zones, Performance, Lessons learned and implication for

zone Development, 2008. 16. 'Bangladesh: Piloting Reform through the Development and Management of

Economic Zones', Bangladesh Development Series Paper No: 16, May 2007 17. BOI , ‘FDI in Bangladesh during 2004’, 2005. 18. Aitken, B., Hanson,G.H, Harrison, A.E., "Spillovers, Foreign Investment, and

Export Behaviour", Journal of International Economics, 43, 103-132, 1998. 19. Iletzki et al., "How big are fiscal multipliers", CEPR, Policy Insight No 39, 2009. 20. Hossain, M.A., ‘Impact of Foreign Direct Investment on Bangladesh’s Balance of

Payments: Some Policy Implications’, Bangladesh Bank, 2008. 21. Dunn, J., “THE READY-MADE GARMENT INDUSTRY IN BANGLADESH: AN

UPDATE”, IMF, 2007. 22. Roberton et al, ‘Globalization, Wages, and the Quality of Jobs’’, The World Bank,

2009. 23. Belli et al, ‘HANDBOOK ON ECONOMIC ANALYSIS OF INVESTMENT OPERATIONS’, Operational Core Services Network Learning and Leadership Center , 1998.

86

Annex 13: Statement of Loans and Credits


Original Amount in US$ Millions Difference between expected and

actual disbursements

Project ID FY Purpose IBRD IDA SF GEF Cancel. Undisb. Orig. Frm. Rev’d

P106161 2009 Secondary Education Quality & Access Enhancement

0.00 130.70 0.00 0.00 0.00 91.43 -15.14 0.00

P106216 2009 Higher Education Quality Improvement 0.00 81.00 0.00 0.00 0.00 81.66 -0.79 0.00

P106332 2009 Disability and Children at Risk 0.00 35.00 0.00 0.00 0.00 31.38 2.64 0.00 P098151 2009 Clean Air and Sustainable Environment 0.00 62.20 0.00 0.00 0.00 62.59 -4.37 0.00 P095965 2009 Siddhirganj Peaking Power Project 0.00 350.00 0.00 0.00 0.00 340.20 62.65 0.00

P093988 2009 Dhaka Water Sup &San. Project 0.00 149.00 0.00 0.00 0.00 141.82 6.71 0.00 P111272 2009 Emergency 2007 Cyclone Recovery &Rest

Pr 0.00 109.00 0.00 0.00 0.00 98.09 7.16 0.00

P098146 2008 Public Procurement Reform Project II 0.00 23.60 0.00 0.00 0.00 17.43 3.31 0.00 P084078 2008 National Agricultural Technology Project 0.00 62.60 0.00 0.00 0.00 50.02 3.19 0.00 P040712 2008 Water Management Improvement Project 0.00 102.26 0.00 0.00 8.08 87.33 5.55 3.82

P102305 2007 Avian Flu Preparedness 0.00 16.00 0.00 0.00 3.83 10.73 0.27 0.00 P098273 2006 Local Governance Support Project 0.00 111.50 0.00 0.00 19.96 62.51 14.08 0.00

P089382 2006 Investment Promotion Financing Facility 0.00 50.00 0.00 0.00 0.00 4.87 -17.42 0.00 P074841 2005 HNP Sector Program 0.00 300.00 0.00 0.00 0.00 72.37 23.95 0.00 P086791 2004 Reaching Out of School Children Project 0.00 51.00 0.00 0.00 0.00 10.69 5.21 0.00

P086661 2004 BD - Water Supply Program Project 0.00 40.00 0.00 0.00 25.03 8.11 27.81 5.75 P081969 2004 Enterprise Growth & Bank Modernization 0.00 250.00 0.00 0.00 0.00 62.53 51.57 0.00

P078707 2004 Power Sector Development TA 0.00 15.50 0.00 0.00 0.00 7.43 6.51 0.00 P074966 2004 Primary Education Development Program

II 0.00 150.00 0.00 0.00 0.13 34.18 19.58 0.00

P071435 2003 Rural Transport Improvement Project 0.00 210.00 0.00 0.00 0.00 54.83 14.23 -3.17

P053578 2003 Social Investment Program Project 0.00 101.24 0.00 0.00 0.00 62.10 -18.85 19.00 P062916 2003 Central Bank Strengthening Project 0.00 37.00 0.00 0.00 0.00 30.93 26.62 0.00

P071794 2002 Rural Elect. Renewable Energy Dev. 0.00 320.98 0.00 0.00 0.04 94.27 -73.35 -73.35 P041887 1999 Municipal Services 0.00 163.60 0.00 0.00 1.39 4.07 -23.31 -23.96

Total: 0.00 2,922.18 0.00 0.00 58.46 1,521.57 127.81 - 71.91

87

BANGLADESH STATEMENT OF IFC’s Held and Disbursed Portfolio

In Millions of US Dollars

Committed Disbursed

IFC IFC

FY Approval Company Loan Equity Quasi Partic. Loan Equity Quasi Partic.

2001 BRAC Bank 0.00 1.63 0.00 0.00 0.00 1.60 0.00 0.00

1997 DBH 1.91 0.65 0.00 0.00 1.91 0.65 0.00 0.00 1991 Dynamic Textile 0.00 0.00 0.00 1.48 0.00 0.00 0.00 1.48

GTFP Dhaka Bank 5.00 0.00 0.00 0.00 5.00 0.00 0.00 0.00 GTFP Eastern Bnk 2.59 0.00 0.00 0.00 2.59 0.00 0.00 0.00 2004 GrameenPhone Ltd 24.00 0.00 0.00 0.00 24.00 0.00 0.00 0.00

2006 GrameenPhone Ltd 59.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1998 IPDC 3.13 0.00 0.00 0.00 3.13 0.00 0.00 0.00

1998 Khulna 10.40 0.00 0.00 11.99 10.40 0.00 0.00 11.99 1998 Lafarge/Surma 35.00 10.00 0.00 0.00 35.00 10.00 0.00 0.00 2000 Lafarge/Surma 0.00 0.00 0.00 15.00 0.00 0.00 0.00 15.00

2003 RAK Ceramics 7.20 0.00 0.00 0.00 7.20 0.00 0.00 0.00 2000 United Leasing 2.57 0.00 0.00 0.00 2.57 0.00 0.00 0.00

Total portfolio: 150.80 12.28 0.00 28.47 91.80 12.25 0.00 28.47

Approvals Pending Commitment

FY Approval Company Loan Equity Quasi Partic.

2000 USPCL 0.00 0.00 0.00 0.00 1998 Khulna 0.00 0.00 0.00 0.00

Total pending commitment: 0.00 0.00 0.00 0.00

Annex 14: Country at a Glance


R A J S H A H IR A J S H A H I

D H A K AD H A K A

S Y L H E TS Y L H E T

K H U L N AK H U L N A

B A R I S A LB A R I S A L

C H I T T A G O N GC H I T T A G O N G

PANCHAGARPANCHAGAR

THAKURGAONTHAKURGAONNILPHAMARINILPHAMARI

LALMONIRHAT

LALMONIRHAT

DINAJPURDINAJPUR

RANGPURRANGPURKURIGRAMKURIGRAM

GAIBANDHAGAIBANDHA

JOYPURHATJOYPURHAT

NAOGAONNAOGAON

NOWABGANJNOWABGANJ

RAJSHAHIRAJSHAHI

NATORENATORE

BOGRABOGRA

JAMALPURJAMALPUR

SERPURSERPUR

NETROKONANETROKONA

MYMENSINGHMYMENSINGH

TANGAILTANGAILSERAJGANJSERAJGANJ

PABNAPABNA

KUSHTIAKUSHTIA

MEHERPURMEHERPUR

CHUADANGACHUADANGA

JHENAIDAHJHENAIDAH MAGURAMAGURA

RAJBARIRAJBARI

FARIDPURFARIDPUR

MANIKGANJMANIKGANJ

DHAKADHAKA

GAZIPURGAZIPUR

KISHORGANJKISHORGANJHABIGANJHABIGANJ

SUNAMGANJSUNAMGANJ

SYLHETSYLHET

MOULVI BAZARMOULVI BAZAR

BRAHMANBRAHMANBARIABARIA

NARSINGDINARSINGDI

NARAYNGANJNARAYNGANJ

MUNSHIGANJMUNSHIGANJ

SARIATPURSARIATPUR CHANDPURCHANDPUR

COMILLACOMILLA

MADARIPURMADARIPURGOPALGANJGOPALGANJ

NARAILNARAILJESSOREJESSORE

SATKHIRASATKHIRA

KHULNAKHULNA

BAGERHATBAGERHAT

PEROJPURPEROJPUR

BARISALBARISAL

JHALUKATHIJHALUKATHI

PATUAKHALIPATUAKHALIBHOLABHOLA

BARGUNABARGUNA

LUXMIPURLUXMIPUR

NOAKHALINOAKHALI FENIFENI

KHA

GRA

CH

HA

RI

KHA

GRA

CH

HA

RI

RANGAMATIRANGAMATI

CHITTAGONGCHITTAGONG

BANDARBANBANDARBAN

COX’SCOX’SBAZARBAZAR

RangpurRangpur

GaibandhaGaibandha

DinajpurDinajpur

BograBogra

SerajganjSerajganjNatoreNatore

JoypurhatJoypurhat

NaogaonNaogaon

NowabganjNowabganj

JamalpurJamalpurSerpurSerpur

NetrokonaNetrokona

SunamganjSunamganj

PabnaPabna

KushtiaKushtia

RajbariRajbariMeherpurMeherpur

ChuadangaChuadanga

JhenaidahJhenaidahMaguraMagura

NarailNarail

SatkhiraSatkhira

BagerhatBagerhat

PerojpurPerojpur

JhalukathiJhalukathi

GopalganjGopalganj

MadaripurMadaripurSariatpurSariatpur

FaridpurFaridpur

JessoreJessore

NoakhaliNoakhali

KhagrachhariKhagrachhari

PatuakhaliPatuakhali

BholaBhola

BargunaBarguna

ComillaComilla

Moulvi BazarMoulvi Bazar

MymensinghMymensingh

TangailTangail

ManikanjManikanj

RangamatiRangamati

BandarbanBandarban

Cox's BazarCox's Bazar

ThakurgaonThakurgaon

NilphamariNilphamari LalmonirhatLalmonirhat

KurigramKurigram

PanchagarPanchagar

FeniFeni

GazipurGazipurNarsingdiNarsingdi

NaraynganjNaraynganj

MunshiganjMunshiganj

ChandpurChandpur

LuxmipurLuxmipur

BrahmanbariaBrahmanbaria

HabiganjHabiganj

KishorganjKishorganj

RajshahiRajshahi

KhulnaKhulna

SylhetSylhet

BarisalBarisal

ChittagongChittagong

DHAKADHAKA

JJaammuunnaa

GGaannggeess

GGaannggeess

MMeegg

hhnnaa

Kaptai KaptaiLakeLake

GG aa nn gg ee ss DD ee ll tt aa

SS uu nn dd aa rr bb aa nn ss

R A J S H A H I

D H A K A

S Y L H E T

K H U L N A

B A R I S A L

C H I T T A G O N G

PANCHAGAR

THAKURGAONNILPHAMARI

LALMONIRHAT

DINAJPUR

RANGPURKURIGRAM

GAIBANDHA

JOYPURHAT

NAOGAON

NOWABGANJ

RAJSHAHI

NATORE

BOGRA

JAMALPUR

SERPUR

NETROKONA

MYMENSINGH

TANGAILSERAJGANJ

PABNA

KUSHTIA

MEHERPUR

CHUADANGA

JHENAIDAH MAGURA

RAJBARI

FARIDPUR

MANIKGANJ

DHAKA

GAZIPUR

KISHORGANJHABIGANJ

SUNAMGANJ

SYLHET

MOULVI BAZAR

BRAHMANBARIA

NARSINGDI

NARAYNGANJ

MUNSHIGANJ

SARIATPUR CHANDPUR

COMILLA

MADARIPURGOPALGANJ

NARAILJESSORE

SATKHIRA

KHULNA

BAGERHAT

PEROJPUR

BARISAL

JHALUKATHI

PATUAKHALIBHOLA

BARGUNA

LUXMIPUR

NOAKHALI FENI

KHA

GRA

CH

HA

RI

RANGAMATI

CHITTAGONG

BANDARBAN

COX’SBAZAR

Rangpur

Gaibandha

Dinajpur

Bogra

SerajganjNatore

Joypurhat

Naogaon

Nowabganj

JamalpurSerpur

Netrokona

Sunamganj

Pabna

Kushtia

RajbariMeherpur

Chuadanga

JhenaidahMagura

Narail

Satkhira

Bagerhat

Perojpur

Jhalukathi

Gopalganj

MadaripurSariatpur

Faridpur

Jessore

Noakhali

Khagrachhari

Patuakhali

Bhola

Barguna

Comilla

Moulvi Bazar

Mymensingh

Tangail

Manikanj

Rangamati

Bandarban

Cox's Bazar

Thakurgaon

Nilphamari Lalmonirhat

Kurigram

Panchagar

Feni

GazipurNarsingdi

Naraynganj

Munshiganj

Chandpur

Luxmipur

Brahmanbaria

Habiganj

Kishorganj

Rajshahi

Khulna

Sylhet

Barisal

Chittagong

DHAKA

I N D I A

I N D I A

I N D I A

MYANMAR

BHUTAN

Jamuna

Ganges

Ganges

Meg

hna

KaptaiLake

B a y o f B e n g a l

M o u t h s o f t h e G a n g e s

To Dispur

To Dispur

To Dispur

To Silchar

To Goalpara

To Patna

To Katihar

To Katihar

To Gangtok

To Sittwe

To Calcutta

To Calcutta

G a n g e s D e l t a

S u n d a r b a n s Mt. Mowdok(957 m)

26ºN

25ºN

24ºN

23ºN

22ºN

21ºN

25ºN

24ºN

23ºN

22ºN

21ºN

88ºE 89ºE 90ºE 91ºE

89ºE 90ºE 91ºE 92ºE

92ºE

BANGLADESH

This map was produced by the Map Design Unit of The World Bank. The boundaries, colors, denominations and any other informationshown on this map do not imply, on the part of The World BankGroup, any judgment on the legal status of any territory, or anyendorsement or acceptance of such boundaries.

0 10 20 30 40

0 10 20 30 40 50 Miles

50 Kilometers

IBRD 33368R

MARCH 2008

BANGLADESHDISTRICT CAPITALS

DIVISION CAPITALS

NATIONAL CAPITAL

RIVERS

MAIN ROADS

RAILROADS

DISTRICT BOUNDARIES

DIVISION BOUNDARIES

INTERNATIONAL BOUNDARIES