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LESSONS:

Bangladesh: Meghnaghat Power Project [Loan 1793]

sector: Energy | country: Bangladesh

ADB’s approach in promoting energy sector master plans and assistance to project design have underpinned the success of the Meghnaghat Power Project. To get the trust of international investors, a project should be designed and implemented in a transparent and foreseeable way. The design of a public-private partnership (PPP) project requires higher skills of project management from a perspective broader than that for traditional procurement. The failure to replicate the project shows the importance of ADB’s intervention from an early stage to shape project implementation. A PPP has a wide spectrum of structures and specific features of each project can be designed in line with project objectives reflecting fiscal positions of governments. The experience of the project shows that there are opportunities for scaling up the level of ADB’s advisory capacity to improve the quality of PPP designs prior to committing ADB funding. In addition, institutionalizing the experience of PPP implementation through the support of capacity development is important to maintain the PPP as a viable procurement option to the government.

It is suggested that ADB consider undertaking a value for money (VFM) assessment as a PPP operation procedure that forms part of project appraisals. The justification of PPP projects should be reviewed from a perspective of enhanced efficiency of infrastructure procurement as well as of improved access to private finance. As PPP takes on a larger share in infrastructure development, the greater the impacts of PPP projects are on the government fiscal management. One of the features of PPP procurement is its long-term contract and hence the impact of the procurement decision lasts for a long period of time. VFM assessment is a device to assess if PPP is a better option than traditional procurement from a taxpayer’s perspective in terms of a whole-of-life cost of a project.

Development impacts as well as risk mitigation should be regarded as an equally important factor in private sector operations as in sovereign operations. Under Strategy 2020, ADB will promote a larger role for the private sector in financing infrastructure. With the emphasis on PPP and private sector engagement, the development impacts of ADB operations should be strengthened. During the screening process for nonsovereign operations, the development impacts should be considered as important as risk mitigation or profitability of the project. In doing so, the economic appraisal of a project should take the full economic costs of the project in the analysis.

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