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Document of

The World Bank

FOR OFFICIAL USE ONLY

Report No: PAD1668

INTERNATIONAL DEVELOPMENT ASSOCIATION

PROJECT PAPER

ON A

PROPOSED PROJECT RESTRUCTURING AND

ADDITIONAL CREDIT

IN THE AMOUNT OF SDR 94.2 MILLION

(US$130 MILLION EQUIVALENT)

TO THE

PEOPLE’S REPUBLIC OF BANGLADESH

FOR A

PRIVATE SECTOR DEVELOPMENT SUPPORT PROJECT

FEBRUARY 25, 2016

Trade & Competitiveness Global Practice

South Asia Region

This document has a restricted distribution and may be used by recipients only in the performance of

their official duties. Its contents may not otherwise be disclosed without World Bank authorization.

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CURRENCY EQUIVALENTS

(Exchange Rate Effective January 31, 2016)

Currency Unit = SDR

SDR 0.72437527 = US$1

US$ 1.38050000 = SDR 1

FISCAL YEAR

July 1 – June 30

ABBREVIATIONS AND ACRONYMS

AF Additional Financing

BEZA Bangladesh Economic Zones Authority

BEPZA Bangladesh Export Processing Zones Authority

BHTPA Bangladesh Hi Tech Park Authority

CCU Central Coordination Unit

DFID U.K. Department for International Development

EIA Environmental Impact Assessment

EMF Environmental Management Framework

EPZ Export Processing Zone

ERD Economic Relations Division

EZ Economic Zone

FDI Foreign Direct Investment

FM Financial Management

GDP Gross Domestic Product

GoB Government of Bangladesh

GRS Grievance Redress Service

IA Implementing Agency

IDA International Development Association

IFC International Finance Corporation

ISO International Organization for Standardization

KHTP Kaliakoir Hi Tech Park

PDO Project Development Objective

PIF Public Investment Facility

PPP Public-Private Partnership

PSDSP Private Sector Development Support Project

RAP Resettlement Action Plan

RMG Readymade Garments

RPF Resettlement Policy Framework

RSMF Resettlement and Social Management Framework

SECF Small Ethnic Communities Framework

SECP Small Ethnic Communities Plan

SEZ Special Economic Zone

SIA Social Impact Assessment

SMF Social Management Framework

TA Technical Assistance

TPF Tribal Peoples Framework

TPP Tribal Peoples Plans

Vice President : Annette Dixon

Country Director : Martin G. Rama

Senior Global Practice Director

Practice Manager/Manager

:

:

Anabel Gonzalez

Esperanza Lasagabaster

Task Team Leaders : Manju Haththotuwa

Michael O Engman

BANGLADESH

PRIVATE SECTOR DEVELOPMENT SUPPORT PROJECT

CONTENTS

ADDITIONAL FINANCING DATA SHEET ............................................................................. i

Introduction .......................................................................................................................... 1

Background & Rationale for Additional Financing .......................................................... 1

Proposed Changes ............................................................................................................. 5

Appraisal Summary ......................................................................................................... 13

World Bank Grievance Redress ...................................................................................... 16

Annex 1: Results Framework ..................................................................................................... 18

Annex 2: List of Licensed Zones under the Original Project ..................................................... 26

Annex 3: Results Chain .............................................................................................................. 27

Annex 4: List of Zones Likely to be Supported by the AF ........................................................ 28

Annex 5: PSDSP - Additional Financing Readiness of Implementing Agencies for

Procurement of Works ............................................................................................................... 30

Annex 6: Economic and Financial Analysis .............................................................................. 32

Annex 7: Revised Project Cost Estimates .................................................................................. 39

ADDITIONAL FINANCING DATA SHEET

Bangladesh

Private Sector Development Support Project Additional Financing (P156242)

SOUTH ASIA

GTC06 .

Basic Information – Parent

Parent Project ID: P120843 Original EA Category: A - Full Assessment

Current Closing Date: 30-Jun-2016

Basic Information – Additional Financing (AF)

Project ID: P156242 Additional Financing

Type (from AUS): Scale Up

Regional Vice President: Annette Dixon Proposed EA Category: A

Country Director: Martin G. Rama Expected Effectiveness

Date: 16-May-2016

Senior Global Practice

Director: Anabel Gonzalez Expected Closing Date: 28-Feb-2021

Practice

Manager/Manager: Esperanza Lasagabaster Report No: PAD1668

Team Leader(s):

Bharatha Manju S.

Haththotuwa,Michael

Olavi Engman

Borrower

Organization Name Contact Title Telephone Email

Economic Relations

Division, Government of

Bangladesh

Kazi Shofiqul

Azam

Additional

Secretary 01550150616 [email protected]

Project Financing Data - Parent ( BD Private Sector Development-P120843 ) (in USD

Million)

Key Dates

Project Ln/Cr/TF Status Approval

Date Signing Date

Effectiveness

Date

Original

Closing Date

Revised

Closing Date

P120843 IDA-48660 Effective 01-Mar-2011 22-May-2011 03-Aug-2011 30-Jun-2016 30-Jun-2016

P120843 TF-99730 Effective 08-Jul-2011 08-Jul-2011 08-Jul-2011 31-Dec-2014 30-Jun-2016

ii

Disbursements

Project Ln/Cr/TF Status Currency Original Revised Cancelled Disburse

d

Undisbu

rsed

%

Disburse

d

P120843 IDA-48660 Effective USD 120.00 42.79 77.21 32.26 6.55 75.39

P120843 TF-99730 Effective USD 17.41 17.41 0.00 12.03 5.38 69.10

Project Financing Data - Additional Financing Private Sector Development Support Project

Additional Financing ( P156242 )(in USD Million)

[ ] Loan [ ] Grant [ ] IDA Grant

[X] Credit [ ] Guarantee [ ] Other

Total Project Cost: 137.00 Total Bank Financing: 130.00

Financing Gap: 0.00

Financing Source – Additional Financing (AF) Amount

BORROWER/RECIPIENT 7.00

International Development Association (IDA) 130.00

Total 137.00

Policy Waivers

Does the project depart from the CAS in content or in other significant

respects? No

Explanation

Does the project require any policy waiver(s)? No

Explanation

Team Composition

Bank Staff

Name Role Title Specialization Unit

Bharatha Manju S.

Haththotuwa

Team Leader

(ADM

Responsible)

Senior Private Sector

Development

Specialist

GTC06

Michael Olavi

Engman

Team Leader Senior Economist GTC06

Tanvir Hossain Procurement

Specialist (ADM

Responsible)

Senior Procurement

Specialist

GGO06

iii

Mohammed

Atikuzzaman

Financial

Management

Specialist

Financial

Management

Specialist

GGO24

A.K.M. Abdullah Team Member Senior Financial

Sector Specialist

GTC06

Chinam Kali Veeresh Team Member Consultant GTCDR

Farah Dib Team Member Young Professional GTC06

Harinath Sesha

Appalarajugari

Safeguards

Specialist

Senior

Environmental

Specialist

GEN06

Jorge Luis Alva-

Luperdi

Counsel Senior Counsel LEGES

Iqbal Ahmed Safeguards

Specialist

E T Consultant GEN06

Martin Maxwell

Norman

Team Member Senior Private Sector

Development

Specialist

GTC07

Mehrin A. Mahbub Team Member Communications

Officer

SAREC

Nusrat Mehzabeen Team Member Temporary SACBD

Sabah Moyeen Safeguards

Specialist

Senior Social

Development

Specialist

GSU06

Satish Kumar

Shivakumar

Team Member Finance Officer WFALN

Sharlin Hossain Team Member Consultant GFM02

Sherif Muhtaseb Team Member Senior Operations

Officer

GTCSA

Teen Kari Barua Safeguards

Specialist

Consultant GSU06

Toni Kristian Eliasz Team Member Projects Officer GTCID

Extended Team

Name Title Location

Masarrat Quader Private Sector Adviser, DFID Dhaka, Bangladesh

Shahnila Azhar Private Sector Adviser, DFID Dhaka, Bangladesh

Locations

Country First Administrative

Division

Location Planned Actual Comments

Bangladesh Gazipur District

iv

Bangladesh Chittagong

Bangladesh Kaliakoir Hi-Tech

Park (KHTP)

Institutional Data

Parent ( BD Private Sector Development-P120843 )

Practice Area (Lead)

Trade & Competitiveness

Contributing Practice Areas

Cross Cutting Topics

[ ] Climate Change

[ ] Fragile, Conflict & Violence

[ ] Gender

[X] Jobs

[ ] Public Private Partnership

Sectors / Climate Change

Sector (Maximum 5 and total % must equal 100)

Major Sector Sector % Adaptation

Co-benefits %

Mitigation Co-

benefits %

Industry and trade General industry and

trade sector

47

Water, sanitation and flood protection General water,

sanitation and flood

protection sector

19

Transportation General transportation

sector

19

Information and communications Telecommunications 11

Public Administration, Law, and

Justice

Public administration-

Industry and trade

4

Total 100

Themes

Theme (Maximum 5 and total % must equal 100)

Major theme Theme %

v

Financial and private sector

development

Other Private Sector Development 33

Trade and integration Export development and competitiveness 30


development

Infrastructure services for private sector

development

29


development

Micro, Small and Medium Enterprise

support

8

Total 100

Additional Financing Private Sector Development Support Project Additional Financing ( P156242 )

Practice Area (Lead)

Trade & Competitiveness

Contributing Practice Areas

Environment & Natural Resources

Cross Cutting Topics

[ ] Climate Change

[ ] Fragile, Conflict & Violence

[X] Gender

[X] Jobs

[X] Public Private Partnership

Sectors / Climate Change

Sector (Maximum 5 and total % must equal 100)

Major Sector Sector % Adaptation

Co-benefits %

Mitigation Co-

benefits %

Industry and trade Other industry 100

I certify that there is no Adaptation and Mitigation Climate Change Co-benefits information applicable

to this project.

Themes

Theme (Maximum 5 and total % must equal 100)

Major theme Theme %


development

Other Private Sector Development 100

Total 100

vi

Consultants (Will be disclosed in the Monthly Operational Summary)

Consultants Required ?Consultants will be required

1

Introduction

1. This project paper seeks the approval of the Executive Directors to provide an additional financing

(AF) in the amount of US$130 million to the People’s Republic of Bangladesh for the Private Sector

Development Support Project (PSDSP - P120843). The Government of Bangladesh (GoB) will contribute

US$7 million toward the project. The project paper also seeks the approval for a restructuring of the

original project that among other things would slightly revise the project development objective (PDO)

and associated results framework to strengthen focus and facilitate evaluation.

2. First, the AF will scale up support for recently licensed and new economic zones (EZs) and expand

successful project interventions to strengthen impact and development outcomes. The second phase of

PSDSP (FY17–21) will build upon the achievements and lessons learned of the first phase (FY12–16) and

support the GoB in realizing its ambitious development agenda through EZ development. The AF would

address constraints to private investment and job creation by turning secure, private and government

owned and controlled land into serviced industrial land for greenfield and expansion projects. Specifically,

the AF will (a) strengthen capacity to identify, plan, license, and negotiate Public-Private Partnership

(PPP) concessions for EZ development and facilitate private EZ development; (b) construct last-mile

offsite infrastructure and shared onsite facilities; and (c) strengthen demand-driven skills formation and

encourage good social and environmental practices within EZs.

3. Second, the proposed restructuring of the original project will (a) revise the PDO to “facilitate

private investment and job creation and promote compliance with international quality standards, building

codes, and good social and environmental practices in the economic zones (EZs) supported by PSDSP”

to stress the spatial focus (that is, EZs) and compliance with higher standards;1 (b) revise the results

framework to align the indicators with the revised PDO and components; (c) revise Component 1 to add

the cost of third-party transaction advisors and include the budget for project management that was

previously in Component 4 of the original credit; (d) revise Component 3 to focus on compliance with

quality, environmental, and social standards and gender-specific activities in addition to business linkages

and processes; (e) trigger OP 4.10 - Indigenous Peoples and revise the safeguards documents; and (vi)

extend the closing date of the original credit (IDA Credit No. 4866) by nine months to allow for the

completion of civil works and technical assistance (TA), with a related change in the disbursement

estimates.

Background & Rationale for Additional Financing

Sector Background

4. The creation of more, better, and inclusive jobs is a top policy priority in Bangladesh. Nine out of

ten workers operate in the informal sector and 2.1 million youth will enter the labor force every year in

the next decade. Addressing binding constraints to inclusive job creation will be instrumental in achieving

the twin goals of ending extreme poverty and in promoting shared prosperity. While Bangladesh has

become a major supplier of readymade garments (RMG) to international markets, its record of attracting

foreign direct investment (FDI) beside RMG could be greatly improved. In the last decade, annual net

inflows of FDI were on average 1.0 percent of gross domestic product (GDP). Foreign investors—as well

1 The original PDO was “to facilitate investment in growth centers in the emerging manufacturing and services sectors of the

economy with the aim of generating employment.”

2

as local firms—face a severe shortage of accessible land, inadequate electricity supply, an inadequately

trained workforce, and weak governance in the public administration.2 In particular, manufacturing firms

are facing severe challenges to access land for green field investments.

5. Record high population density coupled with an inadequate road network and large tracts of land

inappropriate for industrial use due to frequent flooding has led the GoB to rely on special economic zones

(SEZs) for the development of the manufacturing sector. The RMG sector is hosted in and around eight

export processing zones (EPZs) controlled by the Bangladesh Export Processing Zone Authority

(BEPZA). The zones have little spare capacity to host new factories despite high demand from investors.

A new legal and regulatory framework stipulates that the Bangladesh Economic Zone Authority (BEZA)

has replaced BEPZA in the role of providing new serviced land for the manufacturing sector. BEZA is

tasked to encourage the establishment of 100 new SEZs on roughly 30,000 ha of land in the next 15 years.

The objective is to boost exports by US$40 billion and employment by ten million. BEZA has so far

identified 22 potential SEZs for which it has conducted site assessments. The Bangladesh High-Tech Park

Authority (BHTPA) is another new institution that is specializing in the establishment of high-tech parks.

BHTPA is seeking to address the same binding constraints as BEZA but for knowledge-intensive

industries.

6. The establishment of SEZs and high-tech parks is considered critical to achieve the GoB’s poverty

alleviation goals. The Sixth Five Year Plan for 2011–15 states that the establishment of SEZs is a

cornerstone of the country’s strategy to strengthen the manufacturing sector and promote efficient use of

skilled labor, land, infrastructure, energy, and other resources.3 The SEZ policy is an explicit attempt to

address regional disparities, relocating pollution-prone and manufacturing enterprises from metropolitan

areas, and attracting a significant inflow of foreign and domestic investment needed to create decent jobs.4

In addition, the Seventh Five Year Plan for 2016–20, which is currently under preparation, will continue

to stress the importance of SEZ development to crowd in private investment in productive sectors.5

7. Finally, building and occupational safety has more recently become a high policy priority due to a

series of factory disasters involving fires and building collapses that resulted in the deaths of more than

one thousand workers. There is an urgent need for stronger mechanisms to promote socially and

environmentally responsible industrial growth in Bangladesh. The existing EPZs in Bangladesh have

provided companies, especially in the garment and textile sectors, with land in areas known for excellence

with building code and labor compliance; areas in which the PSDSP provided TA. The provision of safe

buildings and work environments, including for women, and ensuring compliance with existing labor laws

and environmental norms will dictate the future for the RMG and other export-oriented sectors.

Project Background

8. PSDSP was approved in March 2011 with an IDA credit in the amount of US$120 million (and a

U.K. Department for International Development [DFID] grant of US$17.41 million) to support the

development of SEZs and attract private investment for job creation. The project faced significant

challenges in FY12–14 due to institutional capacity constraints and political economy reasons and was

therefore restructured and the IDA credit rightsized to US$42.79 million in June 2013. By FY15, following

2 World Bank Bangladesh Enterprise Survey 2013. 3 Sixth Five Year Plan FY2011–15, Part 2, pages 69 and 74. 4 Sixth Five Year Plan FY2011–15, Part 1, pages 184–185, and Part 2, page 74. 5 www.plancomm.gov.bd/7th-five-year-plan/

3

critical improvements in management, disbursement had picked up considerably. BEZA freed up and

secured significant areas of land. The GoB, with the support of the project, has been successful at

incentivizing a new era of privately led zone development through improvements in the investment

climate and facilitated access to industrial land. Implementation progress as well as progress toward

achieving the original PDO are both rated Satisfactory. The project has achieved and surpassed most

results indicator targets, and it is expected to achieve all PDO indicators by the end of FY16. As can be

seen in Annex 2, eleven zones have already been licensed under PSDSP, three of which are operational,

and four of which are already under construction. The task team has been collaborating closely with the

International Finance Corporation (IFC) through the Investment Climate and PPP advisory groups as well

as with DFID. Going forward, IFC Global Value Chain experts will also be contributing. DFID will

continue to support the project with supplementary budget as a Bank-executed trust fund of around US$2.5

million.

9. Figure 1 presents the structure of the project design and Annex 3 illustrates the results chain.

PSDSP results to-date are as follows: private investment in new zones exceeds US$20 million at this early

stage and the number of jobs created is 2,823; of which 28 percent are women. Eleven firms have received

a license to develop an economic zone and seven site assessments, master plans, Environmental Impact

Assessments (EIAs), and Social Impact Assessments (SIAs) for new zones have been prepared. The time

to register a business in a zone has been cut by 82 percent. Thirteen thousand five hundred and thirty nine

people have received industry-specific training or certification. Twenty-one firms located in zones now

comply with relevant environmental standards (ISO 14000 or equivalent) and 52 firms comply with

international quality standards (ISO 9000 or equivalent). Most of these firms are large and employ large

numbers of workers for export-oriented production. Given the long development cycle and the

nonlinear/S-shaped development curve even for the most successful of zones, these results are realistic

and consistent with this point in time.

Rationale for Additional Financing

10. The need for serviced land continues to be a critical binding constraint for private sector

development in Bangladesh—in particular for manufacturing—and the new SEZs should over time help

ease this constraint. The GoB is seeking to build on the momentum of the original credit and maintain

continuity with the implementation arrangements and teams under the AF. The implementing agencies

(IAs) are now accustomed to Bank procedures and they are performing in a satisfactory manner. Their

disbursement capacity has improved and there is very strong ownership and commitment within the

central government to scale up the development effectiveness of the project. In addition, the development

of an EZ is by nature a long-term endeavor. The AF will help the GoB realize its long-term EZ agenda.

Eleven sites have already been identified as likely to be supported under the AF and for which site

assessments and/or feasibility studies have been conducted (see Annex 4). In addition, an estimated

US$55.5 million worth of works contracts for these sites will be ready for procurement by project

effectiveness. Additionally, BEZA has already proposed a new organigram of 154 personnel including

seven engineers, up from a current staff of 72, to be financed by the GoB, to handle the increased volume

of targeted zones. The Bank will also contract an expert organizational assessment study to gage the

necessary additional capacity.

4

Figure 1. Project Structure

11. The original project and the AF are well aligned with the Country Assistance Strategy (CAS)

2011–14 (Report 54615-BD) discussed by the Executive Directors on July 8, 2010 that stresses ‘vibrant

economic zones’ as direct contributors to Outcome 1.2 “Improved environment for private sector

investment” and instrumental in increasing private investment. The overarching goal of the new Country

Partnership Framework (CPF) FY16–20—yet to be finalized—is to support Bangladesh in accelerating

job creation as a driver for poverty reduction and shared prosperity. The CPF’s focus on removing

impediments to growth and job creation is fully consistent with the AF’s PDO of increasing private

investment and employment in targeted EZs. The improvement in livelihoods and working conditions will

have a direct impact on labor productivity and poverty.

12. The SEZs will be financed and developed largely by private investors that obtain licenses from

BEZA and BHTPA. Although the EZ Act allows for government-developed and operated SEZs, the

emphasis of the project will continue to be the issuing of licenses to private developers and operators,

either those who own their own land or those developing government land under a PPP. The project will

finance transaction advisors and the preparation of pre-feasibility studies and master plans to demonstrate

potential profitability of SEZ projects to private developers. It will also finance capacity building for IA

staff on evaluating the quality and content of site assessments, feasibility studies, and master plans. Social

and environmental practices are generally better within EZs than outside EZs and the project will finance

activities that further strengthen this trend. It will also finance activities that increase the compliance with

building codes and standards as well as empower women working within the EZs. These activities will

have demonstration effects among firms located outside the EZs as well.

Component 1 Component 2 Component 3

Strengthening the Enabling Environment for EZ Development

Public Investment Facility for EZ Development

Strengthening Skills Formation, Building Safety, and Sustainable

Social and Environmental Standards

Facilitate private investment

Facilitate job creationPromote compliance with quality standards, safety codes, and good social and environmental practices

Building GOB capacity - EZ licensing- Concession agreement

negotiation and enforcement- Project management

Hiring transaction advisors- Zone development process

streamlining- Off-site infrastructure design- Construction supervision- Online one-stop services portal

design- Site assessments and pre-

feasibility studies- Developer/operator targeting

Building off-site last mile infrastructure and shared on-site

facilities

Training workforce and local firms

Hiring Environmental and Social Counselors

- Good social and environmental practices adoption

- Environmental standards compliance

- Gender-sensitive program and policy promotion

Enforcing building safety code compliance

5

Proposed Changes

Summary of Proposed Changes

The main changes proposed in the AF and restructuring include a revision of the PDO and associated

results framework, the introduction of activities that promote good social and environmental practices, and

the merger of two components. The AF also triggers safeguard policy 4.10 - Indigenous Peoples and

extends the local closing date for the original project.

Change in Implementing Agency Yes [ ] No [ X ]

Change in Project's Development Objectives Yes [ X ] No [ ]

Change in Results Framework Yes [ X ] No [ ]

Change in Safeguard Policies Triggered Yes [ X ] No [ ]

Change of EA category Yes [ ] No [ X ]

Other Changes to Safeguards Yes [ X ] No [ ]

Change in Legal Covenants Yes [ X ] No [ ]

Change in Loan Closing Date(s) Yes [ X ] No [ ]

Cancellations Proposed Yes [ ] No [ X ]

Change in Disbursement Arrangements Yes [ ] No [ X ]

Reallocation between Disbursement Categories Yes [ ] No [ X ]

Change in Disbursement Estimates Yes [ X ] No [ ]

Change to Components and Cost Yes [ X ] No [ ]

Change in Institutional Arrangements Yes [ ] No [ X ]

Change in Financial Management Yes [ X ] No [ ]

Change in Procurement Yes [ X ] No [ ]

Change in Implementation Schedule Yes [ X ] No [ ]

Other Change(s) Yes [ ] No [ X ]

Development Objective/Results PHHHDO

Project’s Development Objectives

Original PDO

The PDO is to facilitate investment in growth centers in the emerging manufacturing and services sectors

of the economy with the aim of generating employment.

Change in Project's Development Objectives PHHCPDO

Explanation:

The revised PDO offers a more precise geographical scope by focusing on ‘EZs’ supported by the project

rather than the much more loosely defined ‘growth centers’. The revised PDO also removes the reference

to ‘emerging manufacturing and services sectors’ as this may be too restrictive and may not capture other

6

well-established sectors. Finally, the revised PDO emphasizes activities under Component 3 that aim to

promote compliance with standards and codes in response to growing concerns mainly around building

and occupational safety and to increased awareness of international quality standards as well as good

social and environmental practices.

The description of the parent project in the Financing Agreement has been amended accordingly to reflect

the revisions to the PDO, namely the emphasis on Component 3 activities.

Proposed New PDO - Additional Financing (AF)

Facilitate private investment and job creation and promote compliance with international quality standards,

building codes, and good social and environmental practices in economic zones supported by PSDSP.

Change in Results Framework PHHCRF

Explanation:

The Results Framework is revised due to changes to the PDO and some new activities financed under the

AF—in particular related to compliance with domestic and international standards and the focus on

women at work. Some indicators were revised or replaced, and others were added (see Annex 1).

Compliance

Change in Safeguard

Policies Triggered

PHHCSPT

Explanation:

Project activities may take place in areas where there are tribal people (more specifically referred to as

small ethnic communities). OP 4.10 - Indigenous Peoples is therefore triggered for the project.

Current and Proposed Safeguard Policies

Triggered:

Current (from

Current Parent

ISDS)

Proposed (from Additional

Financing ISDS)

Environmental Assessment (OP) (BP 4.01) Yes Yes

Natural Habitats (OP) (BP 4.04) No No

Forests (OP) (BP 4.36) No No

Pest Management (OP 4.09) No No

Physical Cultural Resources (OP) (BP 4.11) No No

Indigenous Peoples (OP) (BP 4.10) No Yes

Involuntary Resettlement (OP) (BP 4.12) Yes Yes

Safety of Dams (OP) (BP 4.37) No No

Projects on International Waterways (OP) (BP

7.50)

No No

Projects in Disputed Areas (OP) (BP 7.60) No No

Other Changes to Safeguards PHHOCS

Explanation:

7

The Environmental Management Framework (EMF) and Resettlement and Social Management

Framework (RSMF) now cover both the original PSDSP and the AF and have been updated to reflect (a)

the new IAs (namely BEZA and BHTPA); (b) updated GoB regulations; and (c) lessons learned from

PSDSP. The EMF and RSMF include the following mitigation measures for safeguard policies triggered:

As agreed as part of the EMF and as being followed in the ongoing PSDSP, GoB, and the EZ development

agencies (BEZA and BHTPA), will adopt a structured approach (site assessment, feasibility study, and

zone development) in the finalization of the zones. The objective is to ensure limited or no environmental

and social impacts on the project area/communities due to the development of EZs.

A RSMF has been prepared by the client and approved by the Bank. The RSMF contains a Resettlement

Policy Framework (RPF), a Tribal Peoples Framework (TPF) (more specifically referred to as a Small

Ethnic Communities Framework or SECF) and guidance on Gender Integration. Site-specific screenings

will be carried out to determine the scope of site-specific SIAs, and the necessity for Resettlement Action

Plans (RAPs), Tribal Peoples Plans (TPPs) (more specifically referred to as Small Ethnic Communities

Plan or SECP) and Gender Action Plans. All the latter safeguards documents will be prepared by the client

as per the guidance incorporated in the RSMF as and when required. In line with Bank policy, the

Regional Vice President (RVP) has authorized IDA to fund resettlement costs.

The RSMF and EMF were disclosed in-country on October 25, 2015 and November 25, 2015,

respectively, and were published at the World Bank Infoshop on December 4, 2015.

The project has also set up the following:

A Project Environment and Social Cell (PESC) at the IAs (BHTPA/BEPZA/BEZA) to ensure

adequate implementation of environmental and social management measures as designated in the

EMF and RSMF for each economic zone in a coordinated and harmonized manner across the

different agencies;

The program of capacity building for the IAs (BHTPA /BEPZA/BEZA) and other key stake

holders (site developers, contractors, and so on), will also be continued so as to strengthen

safeguard management capacity, including for coordination and harmonization among the

agencies.

Covenants - Additional Financing ( Private Sector Development Support Project Additional

Financing - P156242 )

Sourc

e of

Fund

s

Finance

Agreement

Reference

Description of Covenants Date

Due

Recurre

nt

Frequ

ency Action

IDA

Implementat

ion

Arrangement

s

The recipient shall maintain, until

completion of the project, a central

coordination unit (CCU), with

functions and resources satisfactory to

the Association, and with staff in

adequate numbers and with

qualifications, experience, and terms of

reference satisfactory to the

Association

CONT

INUO

US

New

8

IDA

Implementat

ion

Arrangement

s


completion of the project, a project

advisory committee, headed by the

Economic Relations Division (ERD)

Secretary, with a composition and

function acceptable to the Association.

CONT

INUO

US

New

IDA

Implementat

ion

Arrangement

s


completion of the project, independent

project implementation units for

BEZA, BEPZA, and BHTPA under the

project, all with functions and resources

satisfactory to the Association, and

with staff in adequate numbers and

with qualifications, experience, and

terms of reference satisfactory to the

Association.

CONT

INUO

US

New

IDA Safeguards

The recipient shall ensure that the

project is carried out in accordance

with the provisions of the EIA, EMF,

SIA, RSMF (including the RPF),

SECP, and the relevant safeguard

assessments and plans.

CONT

INUO

US

New

Covenants - Parent ( BD Private Sector Development - P120843 )

Ln/Cr

/TF

Finance

Agreement

Reference

Description of Covenants Date

Due Status

Recurre

nt

Frequ

ency Action

IDA-

48660

Article IV

Effectivenes

s

Finance Agreement :;

Description :That 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|

Due Date :01-Sep-2011

Compl

ied

with

Marked for

Deletion

Conditions

PHCondTbl

Source Of Fund Name Type

Description of Condition

9

Risk PHHHRISKS

Risk Category Rating (H, S, M, L)

1. Political and Governance Substantial

2. Macroeconomic Moderate

3. Sector Strategies and Policies Moderate

4. Technical Design of Project or Program Moderate

5. Institutional Capacity for Implementation and Sustainability Substantial

6. Fiduciary Substantial

7. Environment and Social Substantial

8. Stakeholders Moderate

9. Other

OVERALL Substantial

Finance

Loan Closing Date - Additional Financing ( Private Sector Development Support

Project Additional Financing - P156242 )

Source of Funds Proposed Additional Financing Loan Closing

Date

International Development Association (IDA) 28-Feb-2021

Loan Closing Date(s) - Parent ( BD Private Sector Development - P120843 ) PHHCLCD

Explanation:

The Loan Closing Date of the IDA loan under the parent project will be extended by nine months to ensure

that all civil works are completed.

Ln/C

r/TF

Status Original Closing Date Current

Closing

Date

Proposed Closing Date Previous

Closing Date(s)

IDA-

48660 Effective 30-Jun-2016 30-Jun-2016 31-Mar-2017 30-Jun-2016

TF-

99730 Effective 31-Dec-2014 30-Jun-2016

30-Jun-2016

31-Dec-2014

Change in Disbursement Estimates (IDA) PHHCDE

Explanation:

The IDA disbursement estimates have been updated to take into account the loan closing date extension

for the parent project and the new disbursements under the Additional Financing closing in FY21.

Expected Disbursements (in USD Million) (IDA)

Fiscal

Year

2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

Annual 0.53 3.32 10.06 11.64 17.23 14.00 19.00 29.00 39.00 29.00

10

Cumulativ

e

0.53 3.86 13.92 25.56 42.78 56.78 75.78 104.78 143.78 172.78

Allocations - Additional Financing ( Private Sector Development Support Project

Additional Financing - P156242 )

Source

of Fund

Curre

ncy Category of Expenditure

Allocation Disbursement %(Type

Total)

Proposed Proposed

IDA SDR

Works, non-consulting services and

consultants’ services, training, and

operating costs for the project

93,530,000.00 100.00

IDA SDR Resettlement 670,000.00 100.00

Total: 94,200,000.00 100

Components

Change to Components and Cost PHHCCC

Explanation:

The support activities that will be financed in the AF are similar to the original credit. While the original

credit supported TA, pre-feasibility studies, and some last mile infrastructure for newly licensed zones, the

AF will be used to scale up and complete these support activities as well as finance similar activities in the

newly expanded portfolio of prospective zones. The following outline highlights areas where the AF is

scaling up, scaling down, dropping or introducing new activities (these changes apply to the new credit

only):

Component 1: Strengthening the Enabling Environment for EZ Development

This component will finance TA, capacity building, training, small equipment, and operational

expenditures. The financing will cover the hiring of third-party transaction advisors to facilitate and

accelerate the development process, including the development of detailed offsite infrastructure design,

supervise construction, design of an online portal for one-stop services, conduct site assessments and pre-

feasibility studies, and target zone developers/operators and anchor investors. This component now

includes project management capacity building within the IAs. Training and operating costs exclude

salaries of consultants and honorarium of any other nature and allowances and honorarium of officials of

the recipient’s civil service. These changes apply to the original credit as well.

Scale up: Transaction advisory services, domain and technical expertise, environmental and social

counsellors embedded in EZs, roadshows and investment promotion.

Scale down: Generic capacity building in IAs, TA for legal and regulatory reform, and study tours.

Component 2: Public Investment Facility for EZ Development

The nature of this component remains unchanged and it will mainly finance works and equipment to scale

up and accelerate development of licensed EZs by putting in place last-mile infrastructure and equipment

which is critical within EZs to ensure building security, adhere to high social and environmental standards,

and crowd in innovative solutions to basic services within the zones.

Scale up: Last-mile infrastructure (for example, land preparation and development, access roads, sewerage

systems, power distribution lines, water supply lines, buildings, and rail landings) and EZ-specific

11

equipment and works (for example, perimeter walls, central effluent treatment, power supply, water

purification, access roads).

The AF will also dedicate US$0.9 million toward resettlement costs.

Component 3: Strengthening Skills Formation, Building Safety, and Sustainable Social and Environmental

Standards

This component will continue to finance TA, capacity building, and training but focus more on training

and the promotion of compliance with standards and codes and of good environmental and social practices

with an explicit focus on gender-sensitive programs. It will continue with activities promoting business

linkages and process improvement.

Scale up: Support to (a) training and placement, (b) women at work, (c) complying with quality standards

and obtaining certification, (d) building safety and codes compliance, and (e) promoting environmental

and social standards.

(a) Training and placement: Continue to support and enhance demand-driven skills of the workforce

in key sectors of the economy, especially focusing on women. Training at workforce level will incentivize

training providers as well as the employers to ‘train & place’ trainees. The skills program will also support

the following categories:

(i) Skills enhancement for those already employed;

(ii) Mid-level management training with a special program for women in management; and

(iii) C-level training, with a special program for women entrepreneurs.

(b) Women at work: Interventions will help encourage, support, retain, and promote women in the

workplace. Interventions will include:

(i) Opportunities to obtain the necessary skills for placement and promotion being designed to suit

women (timing, content, and delivery channels);

(ii) Zone with childcare facilities to help women with young children to go to work; and

(iii) Social counselors in each zone given special training to be able to support women’s issues in the

workplace (for example, harassment, discrimination, and so on).

Given the special focus on gender initiatives under the AF, the project will ensure appropriate monitoring

of female employment by sector within EZs and will measure baselines and set targets.

(c) International quality standards for local companies: The ongoing interventions will be expanded

for local companies outside the zones to become more quality conscious and obtain ISO 9000 or 20000 or

other international quality certification, thus better positioning them to supply products and services to the

zone companies or even export.

(d) Building safety and codes compliance within zones: All buildings being constructed newly in the

zones by the master developer or tenant firms have to comply with all relevant local building codes. The

intention would be to have semi-annual audits of all facilities by a third party who will report on

compliance to relevant ISO, British, or local standards and codes of practice on construction, fire safety,

storage, and disposal of hazardous waste material.

(e) Environmental and social standards: The ongoing interventions with BEPZA to facilitate tenant

firms’ compliance with ISO 14000 environmental standards will be expanded to BEZA and BHTPA

zones/parks as these come to fruition under the AF. In addition the social/labor and environmental

counselors program has proven to be in great demand and will be expanded to include the BEZA and

12

BHTPA zones as these get tenant firms and workers. The environmental counselors provide strategic

advice to tenant firms on their production processes, green manufacturing (lower carbon footprint),

effluent/waste treatment and disposal, and so on. The social/labor counselors on the other hand have

supported staff and management in resolving issues amicably and expeditiously. BEPZA’s good track

record of good labor relations with its work force across eight zones is a testimony to the effectiveness of

the program.

Changes to the Original Project: Project management (operational expenditures) is being moved from

Component 4 to Component 1 (Strengthening the Enabling Environment for EZ development).

Descriptions of other components in the original project are being modified to reflect the areas being

scaled-up or scaled-down noted above.

Citizen engagement: The AF is scaling up financing for social and environmental counselors who are

embedded at the local level within the supported zones. Their mandate, among others, is to reach out on a

regular basis to the communities of the beneficiaries—low-income workers and families that work in

zones. They (a) ensure that workers and communities understand what the project is about and the benefits

and opportunities that they can avail themselves of (such as training); (b) act as feedback providers to the

GoB and the IAs on prospective concerns and potential adjustments that can, or should, be made going

forward; and (c) play an important mediation role in the case of conflict. This support framework has been

lauded by the stakeholders in Bangladesh, including by bilateral donors and other organizations.

In addition to this investment in nearly one hundred counselors, the IAs have organized a large number of

workshops (both BHTPA and BEZA) engaging with students, recent graduates, freelance workers,

industry associations, training institutions, academia, entrepreneurs, multinational companies, and zone

developers.

The project will monitor the percentage of grievances received from workers in the zones supported by

PSDSP and responded to and/or resolved within one week. This is a new intermediate result indicator in

the Results Framework (see Annex 1).

Current

Component

Name

Proposed Component Name

Curren

t Cost

(US$M)

Proposed Cost

(US$M) Action

Technical

Assistance and

Capacity

Building

Strengthening the Enabling Environment

for EZ Development 12.70 31.20 Revised

Public

Investment

Facility (PIF)

Public Investment Facility for EZ

Development 29.50 135.50 Revised

Business

Linkages and

Product/Process

Improvement

Strengthening Skills Formation, Building

Safety, and Sustainable Social and

Environmental Standards

9.99 22.49 Revised

Total: 52.19 189.19

Other Change(s) PHImplemeDel

Implementing Agency Name Type Action

13

Change in Financial

Management PHHCFM

Explanation:

The present accounting system seems inadequate to capture and store all financial management (FM)

information on a real time basis. The current system of accounting will be enhanced during AF

implementation by a web-based integrated financial management information system within two quarters

of effectiveness with adequate e-audit trail to facilitate easy and timely access to financial information and

its consolidation for all accounting centers on a real time basis. Web-based automated FM information

systems will also be used as an effective tool to address reconciliation and real time accounting of the

project.

The original credit and the AF will have separate budgets, separate books of accounts, and separate sets of

activities to be financed as per each IA’s revised Development Project Proposals and Technical Assistance

Project Proposals for each source of financing.

Change in

Procurement

Explanation:

The AF will have the same procurement arrangement as the ongoing project with the difference that the

applicable procurement guidelines will be that of January 2011 (revised July 2014). The Procurement Plan

for the first 18 months of the project has been prepared and agreed. As part of advance procurement action,

BEZA has identified a few packages and will initiate the procurement process. There will be a cooling-off

period of one year for consultants engaged by the GoB before they are eligible to bid on service provider

contracts under the project. Any land acquisition will also be financed using counterpart funding.

The Governance and Accountability Action Plan as well as the Procurement Risk Mitigation Plan

introduced in the 2013 Restructuring Paper will continue to apply. The target dates for actions not yet

completed were updated as of February 2, 2016.

Change in Implementation Schedule

Explanation:

All contracts under the original credit have been awarded. Civil works for these contracts are expected to

be completed by March 2017, hence the nine month closing date extension of the original credit.

Appraisal Summary

Economic and Financial Analysis PHHASEFA

Explanation:

A new economic and financial analysis was conducted to reflect the EZs that will be developed using funds

from the AF. It assumes that there will be eight PPP zones licensed under BEZA and three PPP zones

licensed under BHTPA within the first two years of the AF. The GoB leases public land to private

developers in return for annual land lease payments in these cases. The GoB also gets a share of the

developers’ net profits after tax in exchange for offering tax and duty incentives and for financing some

last-mile infrastructure. Moreover, the AF is also expected to support private zones that will be developed

on private land. These EZs do not yield direct government revenue but they enjoy the same incentive

14

mechanisms as EZs developed on leased public land. In aggregate, the GoB’s Internal Rate of Return (IRR)

from the project is estimated at 9.21 percent (see Annex 6).

In addition to financial returns, the project will yield economic benefits in the form of wages from

employment and fiscal revenue from corporate income tax and value added tax (VAT). As a result of these

benefits, the project Economic Rate of Return (ERR) over a 20-year time horizon is estimated at 32 percent

for a Net Present Value (NPV) of US$548 million at a 10 percent discount rate. Wages from employment

depend on direct job creation in the zones as well as indirect job creation through spillover effects. Fiscal

revenue is generated by corporate income taxes paid by developers and tenants to the GoB. VAT is applied

to the purchase of construction materials for zone infrastructure. In addition to direct project costs, the

analysis calculates the costs from foregone fiscal revenue due to corporate income tax exemptions and

import duty exemptions (given that some firms in the zones would have set up factories anyway and not

been subject to the exemptions).

A sensitivity analysis on a few critical parameters reveals that the project NPV is fairly robust and most

sensitive to the land development and occupancy rates, the percentage of tenant companies that would have

set up factories in Bangladesh irrespective of the project, and the additional wages generated from job

creation. While the analysis assumes a conservative land development rate and effect from additional

wages, slowing down the land occupancy rate or assuming a higher share of firms that would have set up

factories anyway still yields positive and attractive NPVs.

Technical Analysis PHHASTA

Explanation:

The rationale for the technical design remains strong. Land scarcity in the world’s most densely populated

(non-city) state remains strategic and closely in line with the country’s development objectives as it seeks

to address a major binding constraint to greenfield investments and job creation in the industrial sector.

BEPZA’s EPZs have been very successful and there is strong demand for secure and serviced land for

productive investment. The GoB has left the EPZ approach behind and moved toward an SEZ approach

which is more in line with best practice for zone development. It has a long-term vision of developing a

large number of new, privately financed EZs that will create more, better (formal) and inclusive jobs. The

AF will support the GoB in this process and in particular strengthen governance and investment promotion;

introduce higher standards and compliance related to building codes, health and safety; and scale up labor

and gender-sensitive support mechanisms. Relying on private capital to develop the EZ sector will reduce

the need for GoB capital investments, and thereby lower its risk exposure, as well as ensure that the EZ

development process is demand driven.

Social Analysis PHHASSA

Explanation:

The project will continue to be rated as Category A. An RSMF was prepared by the client and approved by

the Bank in August 2015. It has been translated to Bangla and disclosed. The RSMF contains an RPF, a

TPF (more specifically referred to as SECP) and guidance on Gender Integration. Site-specific screenings

will be carried out to determine the scope of site specific SIAs, and the necessity for RAPs, TPPs (more

specifically referred to as SECP) and Gender Action Plans. All the latter safeguards documents will be

prepared by the client as per the guidance incorporated in the RSMF as and when required.

The original project conducted social screenings and feasibility for all projects considered under its

funding. An abbreviated RAP was prepared and implemented for the KHTP. An SIA and abbreviated RAP

has also been prepared for the Mongla EZ, and assessments are ongoing for several other sites. As

mentioned above a detailed SMF was approved and it will be applicable to all projects and activities

15

currently financed by the original credit and by the AF. The RSMF was prepared on the basis of extensive

consultations with clients, the private sector, communities identified during field visits for ongoing

subprojects and some projected sites, and other relevant stakeholders. Findings and lessons learned were

incorporated in the RSMF. The RSMF provides coverage with regard to social safeguards for all

anticipated activities under the scope of the AF. The updated EMF and RSMF have been disclosed on the

websites of the GoB, BHTPA, and BEZA.

The social impact of the AF will vary according to the location, scope and design of the interventions. The

potential impact of land acquisition could include (a) permanent/temporary displacement due to loss of

physical assets and/or economic activity; (b) loss/disruption of livelihood sources; (c) increased

vulnerability of the poor, women-headed households, elderly, and squatter populations; (d) resettlement

sites may require further acquisition; negative impacts on host populations may occur; and (e) loss of

public property and community resources. However, given the government’s efforts to use unencumbered

public lands, and the findings from the original project, no land acquisition, large-scale displacement of

people, or irreversible impacts took place under the original project. The AF may involve land acquisition

and hence long-term impacts on people, for the implementation of the proposed zones. Where land

acquisition is required site-specific RAPs will be prepared to design, on a participatory basis, appropriate

and adequate mitigation measures. All compensation will be based on replacement value and realistic

current market values. The RAP will be fully implemented before the commencement of any civil works at

the relevant site. Where tribal people (more specifically referred to as small ethnic communities) are

present, site-specific assessments and TPPs (more specifically referred to as SECP) will be prepared to

ensure culturally appropriate and gender-sensitive consultation and communication, and participatory

design of mitigation measures as well as feedback for enhancing benefits to the community. The TPP (more

specifically referred to as the SECP) will be implemented keeping in mind the cultural sensitivities, norms

and local practices (including institutional) of the affected community.

Environmental Analysis

Explanation:

The project continues to be rated as Category A. The EMF and the SMF will remain relevant. The EMF

was developed in accordance with OP 4.01 considering the nature and scale of the project activities as well

as the complexity of environmental issues associated with the activities (mainly in EZs and high-tech

parks). The environmental management procedures outlined in the EMF are followed in the

implementation of the subprojects under the original credit. Three individual environment specialists are

working in the three implementing agencies. The required site-specific environmental assessments for

construction activities (mainly for EZs and high-tech parks) are prepared and approved by the Department

of Environment. The management plan with budget are incorporated in the respective bid documents of

contractors. The construction sites are monitored at regular intervals to ensure the implementation of

EMPs. BEPZA has recruited thirty environmental counsellors and set up an environment laboratory to

protect the environment of the enterprises in the EPZs.

The AF does not envisage major changes to project design or current implementation arrangements. The

main environmental impact of the project continues to be water and air pollution due to disposal of

untreated domestic wastewater, industrial effluents, air emissions from stack and other industrial

operations, handling and disposal of solid and hazardous wastes, e-waste generation, as well as the impact

on the environment during construction. Most of the impact will be minimized, avoided, or compensated

with a careful design and implementation of the environmental management plan. ‘Green-zone’ techniques

and procedures will be included in the plan for proposed EZs. These techniques can include energy

efficiency, co-generation, renewable energy use, water treatment plant, and effluent treatment plant,

efficient water management, and alternative transportation options, and so on. In addition, the proposed

enterprises will comply with national or international environmental standards (ISO 14001:2004,

16

Environmental Management Standard) and Occupational Health and Safety Management 18001:2007,

Occupational Health Safety Standard certification). In the light of the AF, the EMF was updated based on

the experience gained during the implementation of the original credit to strengthen implementation of

environment management measures.

A climate and disaster risk screening was completed for the AF, which found low current risk and moderate

future risk to the project outcome from weather events such as extreme temperatures and extreme

precipitation and flooding. The initial screening may be supplemented with a more detailed risk

assessment, if required, based on ongoing recommendations from environmental specialists. Given the

focus in the AF on promoting good environmental practices, including through environmental counselors

and training on environmental standards certification, environmental risks will be mitigated.

Risk

Explanation:

Overall risk is rated Substantial. The Political and Governance risk is rated Substantial because actions

during periods of political turbulence, including quite recently, have paralyzed the public administration.

The Macroeconomic risk is rated Moderate. The legal and regulatory environment governing EZs is now

well established in Bangladesh and Sector Strategies and Policies are therefore rated Moderate rather than

High in the 2013 project restructuring paper. This is a significant improvement compared to when the

project was originally designed. Any threats of changes to the incentive framework would have a negative

impact on the willingness of operators to invest over the long-term in physical infrastructure and services.

The presence of three zone authorities (BEPZA, BEZA, BHTPA) gives rise to a situation of potential inter-

agency competition which over time could be both beneficial (for example, if it enhances the quality of

services) or costly (for example, if it leads to pressure on further fiscal incentives or dumping of public land

lease rates). Technical Design is streamlined and rather straight forward with few technical challenges and

the rating is Moderate compared to Substantial in 2013. The Environmental and Social risk rating is

increased from Moderate to Substantial, however, as another OP is triggered and there is a significant

scale-up of activities.

The Institutional Capacity for Implementation and Sustainability risk is rated Substantial compared to High

in 2013 whereas the Fiduciary rating is Substantial based on previous experience in the World Bank Group

portfolio. The Fiduciary risk is partly mitigated by the exclusion of any salaries, allowances and

honorarium of officials in the civil service in the Financing Agreement. The IA capacity rating downgrade

is motivated by the fact that there has been significant improvement in IA performance over the last three

years. The IAs are currently performing and disbursing largely according to plan. The IDA budget in the

AF is scaled up compared to the original credit and there is therefore little scope for delays and churn of

key staff in particular at BEZA. There is proven private sector interest in several zones although the GoB’s

policy of licensing at least 100 zones by 2030 could lead to significant saturation. Finally, the Stakeholder

risk is also reduced from Substantial to Moderate as the new EZ concept is well understood, well

supported, and fairly successful in Bangladesh. Labor unrest could potentially affect new EZ development

but this situation is not very different from the national context.

World Bank Grievance Redress

13. Communities and individuals who believe that they are adversely affected by a World Bank (WB)

supported project may submit complaints to existing project-level grievance redress mechanisms or the

WB’s Grievance Redress Service (GRS). The GRS ensures that complaints received are promptly

reviewed in order to address project-related concerns. Project affected communities and individuals may

submit their complaint to the WB’s independent Inspection Panel which determines whether harm

17

occurred, or could occur, as a result of WB non-compliance with its policies and procedures. Complaints

may be submitted at any time after concerns have been brought directly to the World Bank's attention, and

Bank Management has been given an opportunity to respond. For information on how to submit

complaints to the World Bank’s corporate Grievance Redress Service (GRS), please visit

www.worldbank.org/grs. For information on how to submit complaints to the World Bank Inspection

Panel, please visit www.inspectionpanel.org.

18

Annex 1: Results Framework

Project

Name:

Private Sector Development Support Project Additional

Financing (P156242)

Project

Stage: Additional Financing Status: DRAFT

Team

Leader(s):

Bharatha Manju S.

Haththotuwa

Requesting

Unit: SACBN Created by: Farah Dib on 19-Oct-2015

Product

Line: IBRD/IDA

Responsible

Unit: GTC06 Modified by: Farah Dib on 11-Feb-2016

Country: Bangladesh Approval FY: 2016

Region: SOUTH ASIA Lending

Instrument: Investment Project Financing

Parent

Project ID: P120843

Parent Project

Name: BD Private Sector Development (P120843)

.

Project Development Objectives

Original Project Development Objective - Parent:

The 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.

Proposed Project Development Objective - Additional Financing (AF):

Facilitate private investment and job creation and promote compliance with international quality standards, building codes, and good social and

environmental practices in economic zones supported by PSDSP.

Results

Core sector indicators are considered: Yes Results reporting level: Project Level

.

Project Development Objective Indicators

Status Indicator Name Core Unit of Measure Baseline Actual(Current) End Target

Revised Cumulative direct total private

investment in EZs

Amount (US$

million)

Value 15.00 125.00

19

Date January 31, 2016 28-Feb-2021

Comment The indicator is

revised to include

investments by

developers, tenant

companies, and last-

mile infrastructure

provided. The

baseline was revised

accordingly.

Marked for

Deletion

Number of jobs created (No.) &

of which female employment (%)

Percentage Value 0.00 2823.00 2000.00

Date 03-Aug-2011 10-Sep-2015 30-Jun-2016

Comment

New Cumulative number of jobs

facilitated by PSDSP

Number Value 0.00 3252 15500.00

Date 03-Aug-2010 31 January

2016

28-Feb-2021

Comment

New Cumulative number of jobs

facilitated by PSDSP of which are

female


Sub Type

Supplemental

New Share of tenant firms in EZs

complying with quality standards

(ISO 9000 or equivalent)


Date 03-Aug-2011 January 31,

2016

28-Feb-2021

Comment

Marked for

Deletion

Direct private investment by zone

tenant companies located within

new zones

Amount (US$

million)

Value 0.00 5.00 10.00

Date 03-Aug-2011 10-Sep-2015 30-Jun-2016

Comment

New Percentage Value 0.00 100.00

20

Share of tenant firms in EZs

complying with building codes


Comment

New Share of tenant firms in EZs

complying with environmental

standards (ISO 14000 or

equivalent)

Percentage Value 0.00 20.00


Comment

Intermediate Results Indicators

Status Indicator Name Core Unit of Measure Baseline Actual(Current) End Target

Revised Cumulative number of sites with

completed assessments, feasibility

studies or master plans for new

EZs

Number Value 1.00 25.00 59.00


2016

28-Feb-2021

Comment

Revised Cumulative number of developers

receiving a license to develop an

EZ

Number Value 0.00 11.00 35.00


2016

28-Feb-2021

Comment

New Cumulative public investment in

last mile off-site infrastructure

and on-site facilities

Amount (US$

million)

Value 33.00 139.00


Comment

Marked for

Deletion

Time (days) to process business

registration in a zone.

Number Value 44.00 8.00 9.00

Date 03-Aug-2011 10-Sep-2015 30-Jun-2016

Comment

New Cumulative number of new

operational EZs

Number Value 4.00 15.00


Comment

New Percentage Value 0.00 100.00

21

Share of new operational zones

with childcare facilities

Sub Type

Supplemental

Marked for

Deletion

Development of new economic

zones or tech parks (in progress)

Number Value 0.00 5.00 3.00

Date 03-Aug-2011 10-Sep-2015 30-Jun-2016

Comment

Marked for

Deletion

Cumulative number of firms

located in economic zones

complying with relevant

environmental standards (ISO

14000 or equivalent)

Number Value 0.00 21.00 15.00

Date 03-Aug-2011 10-Sep-2015 30-Jun-2016

Comment

New Cumulative number of tenant

firms



Comment

Marked for

Deletion

Cumulative number of firms

complying with Quality standards

(ISO 9001 or equivalent)

Number Value 19.00 52.00 30.00

Date 03-Aug-2011 10-Sep-2015 30-Jun-2016

Comment

Revised Cumulative number of persons

benefitting from demand-driven

training or certification

Number Value 0.00 13539.00 23800.00


2016

28-Feb-2021

Comment

New Share of persons benefitting from

demand-driven training or

certification of which are female

Percentage Value 0.00 30.00

Sub Type

Supplemental

New Cumulative number of

environmental or social

counselors maintained at EZs



Comment

New Number Value 77.00 140.00

22

Cumulative number of local non-

tenant firms supported by PSDSP

that have received quality or

environmental certification


Comment

New Increase in percentage of

grievances received from workers

in the EZs supported by PSDSP

and responded to and/or resolved

within one week

Percentage Value 93% 97%


Comment

.

Reasons for deleting indicators under parent project:

1. Number of jobs created (No.) and of which female employment (%): This was simply replaced by an indicator on the

number of jobs created and a sub-indicator on the percentage of women, as this was inaccurately captured in the original

Results Framework (the unit of measure was given as percentage yet the values were numbers and the female percentage

was not captured separately).

2. Direct private investment by zone tenant companies located within new zones: This was replaced by an aggregate indicator

on private investment which includes investment by tenant companies in addition to that by developers and last-mile

infrastructure providers.

3. Time (days) to process business registration in a zone: The target was already exceeded and cut by 82 percent. This indicator

is no longer monitored under the AF as it is not a direct output of any of the activities under the revised components. The

Results Framework reflects results attributable to the project.

4. Development of new economic zones or tech parks (in progress): This was replaced by the number of new operational zones

to emphasize the importance of having the zones occupied with at least one tenant company.

5. Cumulative number of firms located in economic zones complying with relevant environmental standards (ISO 14000 or

equivalent): The target has already been reached. The indicator was deleted as an intermediate result and moved to the PDO

indicators, since the revised PDO aims to promote compliance with standards. It is now expressed as a percentage of firms

in new zones that are in compliance.

23

6. Cumulative number of firms complying with quality standards (ISO 9001 or equivalent): The target has already been

reached. The indicator was deleted as an intermediate result and moved to the PDO indicators, since the revised PDO aims

to promote compliance with standards. It is now expressed as a percentage of firms in new zones that are in compliance.

24

Revised Results Framework for PSDSP (includes Original Project and Additional Financing)

Results Indicator Unit of

Measure

Baseline

(Jan 31,

2016

unless

otherwise

indicated)

Cumulative Target Values

Frequency Data source

Responsibility

for data

collection

Actual

(Jan 31,

2016) FY17 FY18 FY19 FY20 FY21

Project Development Objective Indicators

Direct total private investment in EZs US$,

million 15 35 45 65 90 125 Annual

Quarterly

progress

reports of

PSDSP AF

CCU

Number of jobs facilitated by PSDSP Number 0 (FY11) 3,252 4,500 6,000 8,000 11,000 15,500

Annual Same as

above CCU

o/w female % 0 (FY11) 28 28 28 28 30 30

Share of tenant firms in EZs complying with standards and codes

Compliance with quality standards (ISO

9000 or equivalent) % 0 5 8 10 15 20

Annual Same as

above CCU Compliance with building codes % 0 100 100 100 100 100

Compliance with environmental

standards (ISO 14000 or equivalent) % 0 5 8 10 15 20

25

Results Indicator Unit of

Measure

Baseline

(Jan 31,

2016 unless

otherwise

indicated)

Cumulative Target Values

Frequency Data source

Responsibility

for data

collection

Actual

(Jan 31,

2016)

FY17 FY18 FY19 FY20 FY21

Intermediate Result (Component 1): Strengthening the Enabling Environment for EZ Development

Number of sites with completed

assessments, feasibility studies or master plans for new EZs

Number 1 (FY11) 25 53 59 59 59 59

Annual Same as

above CCU

Number of developers receiving a license

to develop an EZ Number 0 (FY11) 11 18 22 27 33 35

Intermediate Result (Component 2): Public Investment Facility for EZ Development

Public investment in last-mile offsite

infrastructure and onsite facilities

US$,

million 33 43 58 82 114 139

Annual Same as

above CCU Number of new operational EZs Number 4 6 7 8 12 15

Of which % with childcare facilities % 0 33 43 62 75 100

Number of tenant firms Number 4 10 15 25 35 48

Intermediate Result (Component 3): Strengthening Skills Formation, Building Safety, and Sustainable Social and Environmental Standards

Number of persons benefitting from

demand-driven training or certification Number 0 (FY11) 13,539 15,500 18,000 21,000 22,800 23,800

Annual Same as

above CCU

Of which female % 26 26 27 28 29 30

Number of environmental or social

counselors maintained at EZs Number 85 85 85 90 92 95

Number of local non-tenant firms

supported by PSDSP that have received quality or environmental certification

Number 77 93 100 121 130 140

Increase in percentage of grievances

received from workers in the EZs

supported by PSDSP and responded to and/or resolved within one week

% 93 93 94 95 96 97

26

Annex 2: List of Licensed Zones under the Original Project

S No Name of the

EZ

PPP or Private

EZ/STP

Licensed

(Yes/No).

If Yes

Year/Month

License

issued.

License

issuing

Agency

In construction

Yes/No/Completed

(If “Yes”,

expected month of

completion)

In

operation

Yes/No

If yes,

number of

tenant

companies

present

Developer

1. KHTP

Blocks 2 & 5

PPP-EZ

(Hi-Tech Park) Yes

November

2014 BHTPA No No

Summit Technopolis Ltd

(Summit and Infinity-India JV)

2. KHTP

Block 3

PPP-EZ

(Hi-Tech Park) Yes June 2015 BHTPA

Yes

Jan 2017 No

Bangladesh Technosity Ltd

(Fibre@Home with 3 Malaysian

companies IRIS Corporation,

MSC Technology Centre and

Alpha Technologies JV)

3. Mongla EZ PPP-EZ

(Multi-product) Yes

September

2015 BEZA No No PowerPac

4. AK Khan EZ Private EZ Yes November

2014 BEZA

Yes

June 2018 No AK Khan Group

5. Abdul Monem

EZ Private EZ Yes March 2015 BEZA

Yes

June 2016 No Abdul Monem Group

6. Meghna EZ Private EZ Yes May 2015 BEZA Yes

June 2016 No Meghna Group of Industries

7. Meghna

Industrial EZ Private EZ Yes May 2015 BEZA No No Meghna Group of Industries

8. Accenture

Private STP

(Private

software

Technology

Park)

Yes April 2015 BHTPA Completed Yes Accenture

(Captive IT/BPO Centre)

9. Augmedix Private STP Yes August 2015 BHTPA Completed Yes Augmedix


10. BJIT Private STP Yes November

2015 BHTPA Completed Yes

Bangladesh Japan IT


11. Digicon Private STP Yes November

2015 BHTPA Completed Yes

Digicon


27

Annex 3: Results Chain

Entrepreneurial, managerial, technical, and IT skills of workforce improved

Firms receiving certification (including local firms)

Co

mp

on

ent

3C

om

po

nen

t 2

Co

mp

on

ent

1

Capacity of Implementing Agencies strengthened (licensing, negotiation, contract enforcement, project management)

OutputsIntermediate

outcomesProject outcomes

Long-term outcomes and spillovers

Site assessments/pre-feasibility studies/master plans completed

Zone development licenses issued

Tenant firms occupying new EZs

Works completed for off-site infrastructure and on-site shared facilities

Workforce and local firms trained

Environmental and Social counselors maintained

Firms trained on certifications (quality, codes, environmental)

Land serviced

New EZs operational

Childcare facilities set up

Facilitating private investment from

developers, tenant companies, and last-mile infrastructure providers

Facilitating job creation

Promoting compliance with international quality

standards, building codes, and good social and

environmental practices

Reducing poverty

Promoting shared prosperity

Jobs created in zones not directly

supported by the Public Investment

Facility

Jobs created outside the zones

Local firms supplying to the zones

Compliance with standards, codes, and best practices in firms

outsize the zones

28

Annex 4: List of Zones Likely to be Supported by the AF

S No Name of the Zone

Site

Pre-feasibility

Studies to be

Undertaken (✕)

Industry Sectors Offsite Infrastructure

1. Mireshorai-1 – 1. Light

Engineering

2. Food Processing

3. Pharmaceuticals

4. Electronics

5. RMG

6. Tourism

7. Leather

Products

8. Toys

Water supply

Electricity supply

2. Mireshorai-2A – Land development

Onsite utility infrastructure

and factory

Bridge/culvert/embankment

Boundary wall

3. Mireshorai-2B – Land development

Access road

Water supply

Electricity supply

Bridge/culvert/embankment

Boundary wall

4. Anwara-2 – Access road (10.50 meter

carriage way)

Water supply

Electricity supply

5. Sherpur – Land development

Boundary wall

Administration building

Water supply

Electricity supply

6. Dhaka Dohar ✕ Boundary wall

Admin building

Approach road

Water supply

Electricity supply

Site filling

7. Sabrang Tourism

EZ

– Admin building

Land development

Bridge/culvert

Boundary wall

Water supply

Electricity supply

Diaphragm wall

8. Habiganj EZ ✕ Site filling

Compound wall

Gas

Admin building

Electrical (external

connectivity - 2.5 km with

MRSS)

Water supply

9. Chittagong Hi-

Tech Park

– 1. IT/ITES

services Sewerage line

Sewerage treatment plant

Street light

Internal road

29

2. High technology

(Non-polluting)

products

Boundary wall

Customs building with

service center

10. Rajshahi IT Park – Sewerage line

Sewerage treatment plant

Street Light

Internal Road

Boundary wall

11. Khulna

Incubation Centre ✕ Incubation Building

30

Annex 5: PSDSP - Additional Financing Readiness of Implementing Agencies for Procurement of Works

A. BEZA

Name of Site Land Area Name of Works

Estimated

Cost (US$,

million)

Design-BOQ Bid Preparation

including EIA/SIA Period

From….. to….

Bid Period including Evaluation

From….. to….

Ready for

Award

Estimated

Date

A. Mirsorai EZ

550 acres Administrative building 0.88 January 1, 2015 to March 30, 2016 March 31, 2016 to June 30, 2016 July 10, 2016

B. Mirsorai-2A EZ

500 acres Land development 3.54 January 1, 2015 to March 30, 2016 March 31, 2016 to June 30, 2016 July 10, 2016

Four-lane access road 2.13 January 1, 2015 to March 30, 2016 March 31, 2016 to June 30, 2016 July 10, 2016

Bridge/culvert 0.63 January 1, 2015 to March 30, 2016 March 31, 2016 to June 30, 2016 July 10, 2016

Embankment 2.50 January 1, 2015 to March 30, 2016 March 31, 2016 to June 30, 2016 July 10, 2016

C. Mirsorai-2B EZ


Access road 2.25 January 1, 2015 to March 30, 2016 March 31, 2016 to June 30, 2016 July 10, 2016


Embankment 2.50 January 1, 2015 to March 30, 2016 March 31, 2016 to June 30, 2016 July 10, 2016

D. Sherpur

(Sreehatta) EZ


Administrative building 0.70 January 1, 2015 to March 30, 2016 March 31, 2016 to June 30, 2016 July 10, 2016

Boundary wall 0.99 January 1, 2015 to March 30, 2016 March 31, 2016 to June 30, 2016 July 10, 2016

E. Sabrang Tourism

Park

882.26

acres

Land development 5.00 January 1, 2015 to March 30, 2016 March 31, 2016 to June 30, 2016 July 10, 2016


Diaphragm wall 2.25 January 1, 2015 to March 30, 2016 March 31, 2016 to June 30, 2016 July 10, 2016

F. Hobigonj EZ

511.83

acres

Land development 1.25 January 1, 2015 to March 30, 2016 March 31, 2016 to June 30, 2016 July 10, 2016

Administrative building 0.74 January 1, 2015 to March 30, 2016 March 31, 2016 to June 30, 2016 July 10, 2016

G. Dohar EZ

219.9 acres Land development 7.25 January 1, 2015 to March 30, 2016 March 31, 2016 to June 30, 2016 July 10, 2016

Access road 3.75 January 1, 2015 to March 30, 2016 March 31, 2016 to June 30, 2016 July 10, 2016


Total BEZA 46.63

31

B. BHTPA

Name of Site Land

Area Name of Works

Estimated

Cost

(US$,

million)

Design-BOQ Bid Preparation

including EIA/SIA

Period From….. to….

Bid Period including Evaluation

From….. to….

Ready for

Award

Estimated Date

H. Chittagong 20 acres

Sewerage line 0.25 January 1, 2015 to March 30, 2016 March 31, 2016 to June 30, 2016 July 10, 2016

Street light 0.25 January 1, 2015 to March 30, 2016 March 31, 2016 to June 30, 2016 July 10, 2016

Internal road 1.56 January 1, 2015 to March 30, 2016 March 31, 2016 to June 30, 2016 July 10, 2016

Boundary wall 0.81 January 1, 2015 to March 30, 2016 March 31, 2016 to June 30, 2016 July 10, 2016

Customs building with

service center

0.94 January 1, 2015 to March 30, 2016 March 31, 2016 to June 30, 2016 July 10, 2016

I. Rajshahi 2 acres Solar panel 0.06 January 1, 2015 to March 30, 2016 March 31, 2016 to June 30, 2016 July 10, 2016


Six-storied incubation and

training center and others

facilities (lift, internal

electrification, firefighting

systems, generators 500

kvA, air conditioning

systems)



Boundary wall with gate 0.25 January 1, 2015 to March 30, 2016 March 31, 2016 to June 30, 2016 July 10, 2016

Sewerage line 0.25 January 1, 2015 to March 30, 2016 March 31, 2016 to June 30, 2016 July 10, 2016

J. Khulna 2 acres of

land under

DC - to be

transferred

to BHTPA

Solar panel 0.06 January 1, 2015 to March 30, 2016 March 31, 2016 to June 30, 2016 July 10, 2016


Six-storied incubation and

training center and others

facilities (lift, internal

electrification, firefighting

systems, generators 500

kvA, air conditioning

systems)



Boundary wall with gate 0.25 January 1, 2015 to March 30, 2016 March 31, 2016 to June 30, 2016 July 10, 2016

Total BHTPA 8.87 – – –

Note: Grand total ready for award of contracts for works by the commencement of AF for PSDSP Works:

I U$46.63 million (BEZA) + II US$8.87 million (BHTPA) = US$55.50 million.

32

Annex 6: Economic and Financial Analysis

1. The economic and financial analysis is a cost-benefit analysis which considers the main

revenue streams to the government generated by new zones supported by the project. It also

accounts for the economic benefits generated through the new zones relative to a ‘without project’

case (namely additional wages and fiscal revenues) and compares these to the total project costs.

Taking a 10 percent discount rate over a 20-year time horizon (typical of large-scale zone

development projects), the analysis indicates that the project ERR is 32 percent with an NPV

of US$ 548 million which is a fairly high return.

Financial Revenues and Costs from Zones

2. Given that the bulk of the project cost goes toward the PIF (US$106 million from IDA)

which will finance offsite and last-mile onsite infrastructure for the new zones, the analysis looks

at the financial revenues and costs from the development and management of the zones. These are

associated with the zones developed under BHTPA as well as the PPP zones developed under

BEZA. For these zones, the government will lease public land to the developers and share the

profits generated by the zones. In the case of private zones developed on privately owned land, the

government will invest in some offsite infrastructure but will not share any profits.

Table 6.1. EZ Characteristics

PPP zones Private zones

Number licensed 11 (3 BHTPA and 8 BEZA) 4

Total acres 4,202 800

Land Lease from GoB Private land

Profit-sharing Gives % of profit to GoB None

Incentives Tax holidays Tax holidays

3. Revenue estimates include:6

Government’s share of the zone developers’ net profits after tax: 20 percent

Land lease annual payments: US$0.16 per m2 per year, increases by 2 percent per year

4. Cost estimates include:

o Infrastructure costs: US$106 million financed through the PIF

5. The government’s income from the new zones will therefore depend on the developers’

profits, which in turn depend on the demand from tenant companies, rental rates, construction

costs, and corporate taxes. The following parameters are used to calculate developers’ profits:

6 BHTPA and BEZA may charge the developers annual licensing fees which are ignored in this analysis as they

would be minimal. Government share of net profits after tax and lease payments are based on an already-licensed

zone.

33

Total area to be developed as PPP zones: 4,202 acres (24 acres under BHTPA and

4,178 acres under BEZA for a total of 10 zones)

Land development rate7: It is assumed that 5 percent of the total acres will be

developed by Year 5 of the AF, 25 percent by Year 10, 55 percent by Year 15, and 75

percent by Year 20

Building-to-land coverage ratio: 50 percent

Number of floors per building: 1

Speed to full capacity: It is assumed that the buildings being developed will start to

host tenants in the second year of the AF. Additionally, 50 percent of the building

space will host tenants by Year 5, gradually increasing to reach 100 percent by Year

20 (see chart below for land development and occupancy rates)

Annual land rental rate8: US$13 per m2

Monthly building rental rate: US$8 per m2 for BHTPA and US$5 per m2 for BEZA

Ratio of other income to rental income: 10 percent

Building construction costs9: US$25 per sqft for BHTPA zones and US$20 per sqft

for BEZA zones and assuming 50 percent of tenant companies will build their own

structures

Development and Administrative costs10: 7 percent of revenues

Corporate tax rate11: 30 percent

7 Estimates on land development and occupancy rates are more conservative than in the analysis done for the parent

project to reflect the realities on the ground, which led to project restructuring in 2013. 8 Estimates of rental rates and non-rental income are revised from the analysis done for the parent project to reflect

more realistic figures based on the experience of the project in the last few years. 9 Figures were collected via phone call in Bangladesh. 10 This estimate is revised from the analysis done for the parent project to reflect a more realistic figure based on the

experience of the project in the last few years. 11 Average of 25 percent for publicly listed companies and 35 percent for private limited companies as per 2015–16

GoB budget.

34

Figure 6.1. Land Development and Occupancy Rates (% of total 4,202 PPP acres + 800 private acres)

6. Given these parameters, GoB’s IRR from the PPP zones developed under BHTPA and

BEZA amounts to 9.21 percent. The graph below shows the forecasted revenues and costs per

year.

Figure 6.2. Returns to GOB from PPP Zone Investments

Economic Benefits and Costs from Zones

7. The economic benefits from public investment in zones include wages from employment,

corporate income tax revenues from the developers and tenant companies, and VAT revenues from

0%

10%

20%

30%

40%

50%

60%

70%

80%

Land development rate Land occupancy rate

(30)

(25)

(20)

(15)

(10)

(5)

-

5

10

15

20

25

30

35

40

Year

1

Year

3

Year

5

Year

7

Year

9

Year

11

Year

13

Year

15

Year

17

Year

19U

S$ m

illio

n

PIF Land lease payments Share of zone net profits after tax

35

the purchase of construction materials (by both the government and the developers/tenants).12 It is

assumed that some 30 percent of the tenant companies would have set up factories/offices in

Bangladesh even in the absence of the zones. The economic benefits result from both PPP zones

and private zones. The economic costs include the project costs as well as foregone fiscal revenues

from corporate income taxes and import duties that firms that would have set up factories anyway

would have paid had it not been for the zones.

Wages from New Employment

8. Wages from new employment depend on (a) the number of jobs created by the zones and

(b) the wage differential between new jobs and jobs outside the zones. The estimation assumes

that new jobs are filled by workers who would otherwise be underemployed and earning low wages

in the ‘without project’ case. Low wages are taken here as the average income of the bottom 50

percent of earners for BHTPA zones and the bottom 20 percent for BEZA zones. The estimation

includes jobs created directly in the zones and indirectly through spillover effects and linkages.13

9. These assumptions would yield over 600,000 new direct jobs by Year 2014 and generate

wages over and above the income for the bottom 50 percent or 20 percent of earners in Bangladesh.

10. Additionally, it is assumed that for each job created in a zone, two jobs will be created

outside the zones. Jobs outside the zones are assumed to be paid at 80 percent of the wages in the

zones mainly due to the fact that employees in the zones will be receiving training and gaining

additional skills. This assumption is also used to calculate additional income from employment in

firms that would have set up factories in Bangladesh in the ‘without project’ case.

Table 6.2. Assumptions to Calculate Wages from New Employment

Assumptions: BHTPA BEZA

Square feet per employee 60

Average monthly salary (US$) 20015 11016

Average monthly income of bottom 50% (BHTPA) and 20% (BEZA) earners (BDT)17 10,245 6,576

Jobs outside the zones per job created in the zones 218

Salaries outside the zones (% of salaries inside the zones) 80%

12 VAT and import duties may also be applied on the purchases by developers and tenants of goods not directly

related to the development and construction of the zones but this is ignored in this analysis. It would represent

additional benefits. 13 The analysis neither includes jobs created temporarily during construction nor jobs created by the developers,

which could enhance the benefits from the project. 14 These figures only cover results from the zones the project will support. The GoB will be licensing other zones

which will result in additional job creation for Bangladesh. 15 “ICT sector study Bangladesh” www.basis.org.bd/resource/ICT%20Sector%20Study%20Bangladesh.pdf 16 Survey of manufacturing industries 2012 (compensation for production workers):

www.bbs.gov.bd/WebTestApplication/userfiles/Image/LatestReports/SMI-%202012.pdf 17 Report of the Household Income and Expenditure Survey 2010:

www.bbs.gov.bd/WebTestApplication/userfiles/Image/LatestReports/HIES-10.pdf 18 This is lower than the 3-to-1 ratio used in the analysis for the parent project which focused only on the

Information Technology sector. Under the AF, most zones will include industries other than Information

Technology.

36

Fiscal Revenues from Corporate Income Taxes

11. Developers and tenants will benefit from tax holidays, but the exemption rates will decline

over time, resulting in revenues from corporate income taxes for GoB. In the case of developers,

the tax exemption is 100 percent the first 10 years, which drops to 70 percent in Year 11, 30 percent

in Year 12, and 0 percent from Year 13 onward. In the case of tenants, the tax exemption is 100

percent the first three years, 80 percent in Year 4, 70 percent in Year 5, 60 percent in Year 6, 50

percent in Year 7, 40 percent in Year 8, 30 percent in Year 9, 20 percent in Year 10, and 0 percent

from Year 11 onward.

12. The corporate tax rate and the tax exemptions were applied to the operating profits of

developers and tenant companies. In the case of developers, operating profits were calculated in

the context of the financial analysis (see above under ‘Financial Revenues from Zones’). In the

case of tenant companies, the assumptions below were made to calculate operating profits.

Table 6.3. Assumptions to Calculate Operating Profits

Assumptions BHTPA BEZA

Ratio of production-to-income per employee 319 1020

Average company gross margin (%) 20 1521

Fiscal Revenues from VAT

13. Finally, the project will generate VAT revenue on construction materials purchased for

zone development by both the GoB and private developers and tenants (in the case of BEZA zones

only). It is assumed that 60 percent of total construction costs come from construction materials

and that 10 percent of total construction costs for developers and tenants come from materials that

are purchased in Bangladesh and are thus not VAT exempt according to the BEZA incentive

package.22 A VAT rate of 15 percent is applied to the analysis.

14. Although a portion of goods manufactured in the zones might be sold for home

consumption, this will not be exempt from taxes and duties according to the BEZA incentive

package23 and will likely crowd out the consumption of goods manufactured outside the zones.

For these reasons the effect of these sales is not considered as either a benefit or a cost in this

analysis.

19 “Bangladesh Software and IT Service Industry” BASIS report:

www.basis.org.bd/resource/About%20Bangladesh%20IT%20Industry.pdf 20 Survey of manufacturing industries 2012:

www.bbs.gov.bd/WebTestApplication/userfiles/Image/LatestReports/SMI-%202012.pdf 21 Survey of manufacturing industries 2012:

www.bbs.gov.bd/WebTestApplication/userfiles/Image/LatestReports/SMI-%202012.pdf 22 According to the BEZA incentive package: exemption benefit shall not be applicable for import of easily available

construction materials , such as M.S. rod/ bar, cement, pre-fabricated building, iron/ steel sheet. 23 According to the BEZA incentive package: In the case of sale or transfer of the product manufactured by an

Industrial Unit outside the EZ for home consumption, it shall be treated to be the import and all the applicable duties

and taxes shall be imposed on such product: provided that 100 percent export-oriented Industrial Unit shall not sale

any product for home consumption in excess to the quantity as prescribed by the National Board of Revenue.

37

Foregone Fiscal Revenues

15. Given that in the ‘without project’ case, some firms in the zones may have set up factories

in Bangladesh anyway, these firms will now be paying lower corporate income taxes, as they will

benefit from tax holidays.

16. Additionally, these firms will now be exempt from import duties which they may have

previously been paying on the import of inputs for manufacturing. It is assumed that costs of

imported inputs represent 30 percent of the total costs for these firms and that the import tariff is

15 percent.

17. The analysis subtracts the foregone fiscal revenues (both corporate income taxes and

import duties) from the total benefits from the project to calculate the ERR and NPV.

18. Finally, the value of land is not expected to be noticeably affected by the support activities

under the project. Unlike in some other zone development projects, the GoB leases its public land

in a competitive process using market prices. Market distortions have been a concern in countries

where for example a government has handed out land for free to prospective investors, which may

have led to speculation in land and land hoarding in opaque and uncompetitive allocation

processes.

19. The graph below summarizes the total benefits and costs from this project.

Figure 6.3. Project Economic Benefits and Costs

-80

-60

-40

-20

0

20

40

60

80

100

Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10US$

mill

ion

s

Income from employment Fiscal revenues from corporate taxes Revenues from zones

Fiscal revenues from VAT Project cost Foregone fiscal revenues

GOB contribution

38

Sensitivity Analysis

20. A sensitivity analysis was conducted to test the effect on the project NPV from changing

some key parameters. As can be seen from the table below, the NPV is fairly robust and is most

sensitive to the land development and occupancy rates, the percentage of tenant companies that

would have set up factories in Bangladesh regardless of the project, and the additional wages from

jobs creation.

21. Assuming an even more conservative land development rate, only reaching 60 percent of

the total acreage by Year 20, the NPV would decrease by US$231 million, remaining positive with

an ERR of 26 percent.

22. Similarly, the analysis assumes conservatively that all new jobs created both directly and

indirectly are filled by people who previously earned low wages and who have moved to better

jobs as a result of the project. Relaxing this assumption even just for half of the jobs created would

increase the NPV and ERR significantly.

23. Given the long time it takes to develop zones from scratch, a slower speed to full tenancy

of the buildings in the zones may be likely. This would bring the NPV down although it would

still remain positive even when assuming a 0 percent tenancy rate for the first three years of the

project.

24. Assuming that half the tenant companies would have set up factories in Bangladesh

irrespective of the project implies a lower wage effect, a lower fiscal revenue effect, and additional

foregone fiscal revenues. This would bring the NPV down by US$355 million, but it would remain

positive with an ERR of 20 percent.

Table 6.4. Sensitivity Analysis

Parameter Changed Effect on NPV (US$,

millions) New ERR (%)

Slower land development rate (reaching 60% by Year

20) -231 26

Slower speed to full tenancy (first tenants in Year 4,

50% occupancy by Year 10, 70% by Year 15, and

90% by Year 20) -190 26

Lower GoB share of zone net profits after tax (10%) -23 31

Lower job spillover effects (cut in half) -50 30

50% of new jobs created are filled by employees who

did not earn anything previously +1,907 67

Lower proportion of tenant companies that would not

have set up factories in Bangladesh without the zones

(50%) -355 20

Lower wages in the zones (US$170 per month for

BHTPA and US$107 per month for BEZA) -120 28

39

Annex 7: Revised Project Cost Estimates

Table 7.1. IDA Annual Disbursements

Fiscal Year IDA Original (US$

million) IDA AF (US$, million)

Cumulative (US$,

million)*

FY16 17.23 – 42.8

FY17 – 14 56.8

FY18 – 19 75.8

FY19 – 29 104.8

FY20 – 39 143.8

FY21 – 29 172.8

Total 17.23 130 172.8

Note: *Includes original IDA credit of US$42.8 million

Table 7.2. Additional Financing Disbursement Categories

US$, million IDA GOB TOTAL

Works, non-consulting services and consultants’ services, training and

operating costs24 for the project

129.1 – 129.1

Resettlement 0.9 – 0.9

Pay and allowances for GoB Staff – 2.5 2.5

Goods – 4.5 4.5

TOTAL 130 7.0 137

Table 7.3. Additional Financing Component and Implementing Agency IDA Allocation

IDA US$, million Component 1 Component 2 Component 3 TOTAL

BEZA 9.82 93.73 3.46 107.01

BHTPA 3.95 11.37 2.11 17.43

BEPZA 1.03 – 2.43 3.46

ERD-CCU 1.2 – – 1.2

Resettlement – 0.9 – 0.9

TOTAL 16 106 8 130

Table 7.4. Additional Financing Component and Implementing Agency GoB Contribution

IDA US$, million Component 1 Component 2 Component 3 TOTAL

BEZA 2.25 – 1.2 3.45

BHTPA 0.25 – 3.3 3.55

BEPZA – – – –

ERD-CCU – – – –

TOTAL 2.5 - 4.5 7.0

24 Training and operating costs exclude salaries of consultants and honorarium of any other nature and allowances

and honorarium of officials of the recipient’s civil service and/or other honorarium of any other nature, respectively.

These changes apply to the original credit as well.

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