Memorandum submitted by Ms Margaret Cund,
Head of International Financial Institutions Department, Department
for International Development
BANGLADESH POWER SECTOR
1. When the Committee took evidence from
Barrie Ireton, Myles Wickstead and me on 22 July,I undertook to
write about World Bank and Asian Development Bank (AsDB) involvement
in the power sector in Bangladesh, which the Chairman raised both
in the context of the World Bank and, on 22 June, on the Regional
Development Banks. We have sought the views of our Executive Directors
in both institutions, as well as the Head of DFID, Dhaka.
2. Attempts to improve the efficiency of
the Bangladesh power system have been underway for many years.
In the early 1990s, all donors decided that they could not justify
further investments until the Government of Bangladesh (GoB) and
the state corporations concerned demonstrated greater commitment
to undertake structural reforms, and tackle serious weaknesses
in management and governance which lay within their control. In
particular, the sector suffers from very poor financial performance,
due in large part to illegal connections, corruption in billing
and substantial arrears of payments from influential consumers,
including the public sector. There were also wider concerns about
management, the structure of the sector and the need to bring
in private investment if financing needs were to be met.
3. Dialogue continued over the following
years on the conditions for resuming assistance to the sector,
with some movement on structural issues and the role of the private
sector, but little or none on management and governance. In 1996,
the AsDB took the view that there had been sufficient progress
to warrant a resumption of lending, so long as this was linked
to continued reform measures. The World Bank took a tougher line
on what progress needed to be made before resuming lending and
have not agreed new credits. They have, in recent months, offered
a substantial new credit if GoB are prepared to accelerate reform,
but this has not yet been taken up. Meanwhile, progress with reforms
remains very slow, particularly in relation to tackling the vested
interests in continued corruption and weak management in the distribution
system.
4. To date, the two Banks have taken a different
line on the design of some of the reforms, such as restructuring
or unbundling of sector institutions, and on regulatory regimes
for private investment. This was discussed during a visit by the
World Bank to the AsDB earlier this year, and it appears that
their positions may now be moving somewhat closer together. It
is, in any case, welcome that they are having discussions on the
issue. Nevertheless, involvement in the power sector in Bangladesh
will remain a major challenge for both institutions.
Margaret Cund
Head of International Financial Institutions Department,
Department for International Development
July 1999
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