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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
Financial and private sector
development
Infrastructure services for private sector
development
29
Financial and private sector
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 %
Financial and private sector
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
The recipient shall maintain, until
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
The recipient shall maintain, until
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
Percentage Value 0.00 28.00 30.00
Sub Type
Supplemental
New Share of tenant firms in EZs
complying with quality standards
(ISO 9000 or equivalent)
Percentage Value 0.00 0.00 20.00
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
Date January 31, 2016 28-Feb-2021
Comment
New Share of tenant firms in EZs
complying with environmental
standards (ISO 14000 or
equivalent)
Percentage Value 0.00 20.00
Date January 31, 2016 28-Feb-2021
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
Date 03-Aug-2010 31 January
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
Date 03-Aug-2010 31 January
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
Date January 31, 2016 28-Feb-2021
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
Date January 31, 2016 28-Feb-2021
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
Number Value 4.00 48.00
Date January 31, 2016 28-Feb-2021
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
Date 03-Aug-2010 31 January
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
Number Value 85.00 95.00
Date January 31, 2016 28-Feb-2021
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
Date January 31, 2016 28-Feb-2021
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%
Date January 31, 2016 28-Feb-2021
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
(Captive IT/BPO Centre)
10. BJIT Private STP Yes November
2015 BHTPA Completed Yes
Bangladesh Japan IT
(Captive IT/BPO Centre)
11. Digicon Private STP Yes November
2015 BHTPA Completed Yes
Digicon
(Captive IT/BPO Centre)
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
500 acres Land development 3.54 January 1, 2015 to March 30, 2016 March 31, 2016 to June 30, 2016 July 10, 2016
Access road 2.25 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
D. Sherpur
(Sreehatta) EZ
240 acres Land development 1.88 January 1, 2015 to March 30, 2016 March 31, 2016 to June 30, 2016 July 10, 2016
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
Bridge/culvert 2.34 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
Bridge/culvert 1.88 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
Street light 0.03 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)
1.19 January 1, 2015 to March 30, 2016 March 31, 2016 to June 30, 2016 July 10, 2016
Internal road 1.40 January 1, 2015 to March 30, 2016 March 31, 2016 to June 30, 2016 July 10, 2016
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
Street light 0.03 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)
1.36 January 1, 2015 to March 30, 2016 March 31, 2016 to June 30, 2016 July 10, 2016
Internal road 0.19 January 1, 2015 to March 30, 2016 March 31, 2016 to June 30, 2016 July 10, 2016
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.