(EnergyAsia, November 29 2012, Thursday) — The Asian Development Bank (ADB) said it is providing Bangladesh a US$700 million loan to enhance the country’s power supply system and help reduce outages and shortages that are crippling the economy.

The ADB said the programme will boost the efficiency of several generating facilities to increase capacity by up to 700 megawatts. The program will also fund hundreds of kilometers of new transmission and distribution lines and improve supply equipment.

The first US$185-million tranche loan will be used to convert a gas-fired power plant in Khulna, the third largest city in the country, into a more efficient, cleaner-burning combined cycle plant.

Power system and financial management training will be given to staff in sector institutions, and a pilot project with around 200 solar energy-driven irrigation pumps will be established, benefitting around 4,000 poor farming families.

According to the bank, 450,000 households will receive new power connections through the multitranche facility’s financing of an expansion and upgrade of generation, transmission and distribution facilities. Carbon emissions will also be reduced by almost 2.5 million tons per year.

The investments are part of a broader government plan to reform and strengthen the power sector, tapping private sector financing. The goal is to raise Bangladesh’s generating capacity to more than 12,500 megawatts and the rate of electrification to 68% by 2025.

While investment over the last 15 years has substantially improved the country’s power supply network, the bank said more than half the population still has no access to electricity. Outages are frequent, especially in peak periods. Demand is rising, and is already nearly double the current generating capacity. The cost of supply interruptions to the economy is estimated at around 0.5% of annual gross domestic product.

“Supply shortages are putting a severe strain on businesses and undermining people’s quality of life, with poor communities suffering the most. Providing more electricity more reliably is absolutely critical for Bangladesh’s growth and development,” said Herath Gunatilake, the lead energy economist in the bank’s South Asia Department.

Costing a total of US$1.6 billion, the overall programme, includes cofinancing from the Agence Française de Développement, the European Investment Bank (EIB), and the Islamic Development Bank, as well as a government contribution of $222 million. ADB said it will also administer a US$7 million capacity building grant from EIB.