FOR OFFICIAL USE ONLY Report No: PPIAF000091 INTERNATIONAL DEVELOPMENT ASSOCIATION PROJECT PAPER ON A PROPOSED ADDITIONAL CREDIT IN THE AMOUNT OF SDR22.9 MILLION (US$30 MILLION EQUIVALENT) TO THE PEOPLE'S REPUBLIC OF BANGLADESH FOR THE ENHANCEMENT AND STRENGTHENING OF POWER TRANSMISSION NETWORK IN EASTERN REGION February 12, 2025 Energy & Extractives South Asia 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. The World Bank Enhancement and Strengthening of Power Transmission Network in Eastern Region (P159974) CURRENCY EQUIVALENTS Exchange Rate Effective November 30, 2024 Currency Unit = BDT BDT119.50 = US$1 US$1.31 = SDR 1 FISCAL YEAR July 1 – June 30 Regional Vice President: Martin Raiser Regional Director: Pankaj Gupta Country Director: Gayle Martin Practice Manager: Simon J. Stolp Task Team Leader (s): Mbuso Gwafila The World Bank Enhancement and Strengthening of Power Transmission Network in Eastern Region (P159974) ABBREVIATIONS AND ACRONYMS AF Additional Financing BoP Balance of Payment COVID-19 Corona Virus Disease 2019 DFIL Disbursement and Financial Information Letter DPC Development Policy Credit DPP Development Project Proforma EIA Environmental Impact Assessment EMP Environmental Management Plan ERR Economic Rate of Return ESPNER Enhancement and Strengthening of Power Transmission Network in Easter Region FAPAD Foreign Aided Project Audit Directorate GDP Gross Domestic Product GoB Government of Bangladesh GRM Grievance Redress Mechanism GW Gigawatt IA Implementing Agency IDA International Development Association IFR Interim Financial Report IMF International Monetary Fund kWh kilo watt hour LNG Liquefied Natural Gas NPV Net Present Value PAD Project Appraisal Document PDO Project Development Objective PFM Public Finance Management PGCB Power Grid Company of Bangladesh PIU Project Implementing Unit RAP Resettlement Action Plan USD United States Dollar VAT Value Added Tax The World Bank Enhancement and Strengthening of Power Transmission Network in Eastern Region (P159974) TABLE OF CONTENTS I. BACKGROUND AND RATIONALE FOR ADDITIONAL FINANCING........................................................................... 1 II. DESCRIPTION OF ADDITIONAL FINANCING ........................................................................................................... 3 III. KEY RISKS ................................................................................................................................................................ 4 IV. APPRAISAL SUMMARY ........................................................................................................................................... 4 V. WORLD BANK GRIEVANCE REDRESS ...................................................................................................................... 7 VI. PROPOSED CHANGES ............................................................................................................................................. 8 VII. DETAILED CHANGE(S) ............................................................................................................................................. 8 The World Bank Enhancement and Strengthening of Power Transmission Network in Eastern Region (P159974) @#&OPS~Doctype~OPS^dynamics@afaprbasicdata#doctemplate OPERATION INFORMATION BASIC DATA - MAIN Product Information - Enhancement and Strengthening of Power Transmission Network in Eastern Region (P159974) Operation ID Product/Financing Instrument P159974 Investment Project Financing (IPF) Task Team Leaders Mbuso Gwafila Beneficiary Country/Countries Geographical Identifier Bangladesh Bangladesh Requesting Unit Responsible Unit SACBB (8702) ISAE2 (10567) Approval Date Closing Date 29-Mar-2018 30-Jun-2025 Practice Area (Lead) Approval Fiscal year Energy & Extractives 2018 Is there collaboration between Bank and IFC? No Original EA Category Current EA Category Partial Assessment (B) (PAD Approval Package-29 Mar 2018) Implementing Agency Power Grid Company of Bangladesh Limited (PGCB) IMPLEMENTATION MODALITIES – MAIN Situations of Urgent Need of Assistance or Capacity Constraints [ ] Fragile State(s) [ ] Fragile within a non-fragile Country [ ] Small State(s) [ ] Conflict [ ] Responding to Natural or Man-made Disaster Other Situations i The World Bank Enhancement and Strengthening of Power Transmission Network in Eastern Region (P159974) [ ] Financial Intermediaries (FI) [ ] Series of Projects (SOP) [ ] Performance-Based Conditions (PBCs) [ ] Contingent Emergency Response Component (CERC) [ ] Alternative Procurement Arrangements (APA) [ ] Hands-on Expanded Implementation Support (HEIS) @#&OPS~Doctype~OPS^dynamics@afaproperationstatus#doctemplate OPERATION STATUS Development Objective (DO) Development Objective (Approved as part of Approval package on 29-Mar-2018) The proposed project aims to increase the transmission capacity and reliability of the electricity network in the eastern region and strengthen the institutional capacity of the Power Grid Company of Bangladesh Limited (PGCB). Key Information from Last ISR Operation Ratings NAME IMPLEMENTATION LAST ISR RATINGS 29-Jun-2023 19-Dec-2023 25-Mar-2024 20-Sep-2024 10-Dec-2024 Progress towards  Satisfactory  Moderately  Moderately  Moderately  Moderately achievement of Satisfactory Satisfactory Satisfactory Satisfactory PDO Overall  Moderately  Moderately  Moderately  Moderately  Moderately Implementation Satisfactory Satisfactory Satisfactory Satisfactory Satisfactory Progress (IP) Overall Risk  Substantial  Substantial  Substantial  High  Substantial Overall Safeguard  Moderately  Moderately  Moderately  Moderately  Moderately Rating Satisfactory Satisfactory Satisfactory Satisfactory Unsatisfactory Financial  Moderately  Moderately  Moderately  Moderately  Moderately Management Satisfactory Satisfactory Satisfactory Satisfactory Satisfactory Project  Satisfactory  Satisfactory  Satisfactory  Satisfactory  Satisfactory Management Procurement  Satisfactory  Satisfactory  Moderately  Moderately  Moderately Satisfactory Satisfactory Satisfactory Monitoring and  Moderately  Moderately  Moderately  Moderately  Moderately Evaluation Satisfactory Satisfactory Satisfactory Satisfactory Satisfactory Disbursement Summary (in USD million) ii The World Bank Enhancement and Strengthening of Power Transmission Network in Eastern Region (P159974) Source of Funds Net Commitment Disbursed Undisbursed % Disbursed IBRD -- -- -- 0 IDA 344.89 256.52 102.64 71.42 Grants -- -- -- 0 @#&OPS~Doctype~OPS^dynamics@afaprprocessing#doctemplate BASIC DATA – ADDITIONAL FINANCING Additional Financing No. 1 Additional Financing Type The operation has incurred increased costs due to inflation, exchange rate changes, and factors that were not [✓] anticipated at appraisal (Cost-overrun) The operation has experienced shortfalls in co-financing, counterpart financing, or cost recovery that were [ ] anticipated at appraisal but did not materialize. (Financing gap) [ ] Is this Additional Financing being used to replenish financing due to CERC or RRO activation? Expected Approval Date Review Type/Corporate Review Level 16-Dec-2024 Regular Decision Meeting (DM) Will consulting services be required? Is this an Urgent Need or Capacity Constraint request? No No IMPLEMENTATION MODALITIES – ADDITIONAL FINANCING Situations of Urgent Need of Assistance or Capacity Constraints [ ] Fragile State(s) [ ] Fragile within a non-fragile Country [ ] Small State(s) [ ] Conflict [ ] Responding to Natural or Man-made Disaster Other Situations [ ] Financial Intermediaries (FI) [ ] Series of Projects (SOP) [ ] Performance-Based Conditions (PBCs) [ ] Contingent Emergency Response Component (CERC) [ ] Alternative Procurement Arrangements (APA) [ ] Hands-on Expanded Implementation Support (HEIS) iii The World Bank Enhancement and Strengthening of Power Transmission Network in Eastern Region (P159974) @#&OPS~Doctype~OPS^dynamics@afaprcostfinancing#doctemplate COSTS & FINANCING Summary (Total Financing in US$, Millions) Proposed Last Approved Additional Cancellation Total Total Operation Cost 718.06 30.50 0.00 748.56 Total Financing 718.06 30.50 0.00 748.56 Of which IBRD/IDA 450.64 30.00 0.00 480.64 Financing Gap 0.00 0.00 Financing Details (in US$, Millions) Proposed Source Last Approved Additional Cancellation Total Counterpart Funding 267.42 0.50 0.00 267.92 Borrower/RecipientNEW 267.42 0.50 0.00 267.92 International Development 450.64 30.00 0.00 480.64 Association (IDA) IDA CreditNEW 450.64 30.00 0.00 480.64 Total Financing 718.06 30.50 0.00 748.56 IDA Resources (in US$, Millions)- Additional Financing Guarantee Credit Amount Grant Amount SML Amount Total Amount Amount National Performance-Based 30.00 0.00 0.00 0.00 30.00 Allocations (PBA) Scale-Up Window 0.00 0.00 0.00 0.00 0.00 (SUW) Total 30.00 0.00 0.00 0.00 30.00 iv The World Bank Enhancement and Strengthening of Power Transmission Network in Eastern Region (P159974) @#&OPS~Doctype~OPS^dynamics@afaprsort#doctemplate SYSTEMATIC OPERATIONS RISK- RATING TOOL (SORT) Last Approved Rating Risk Category Proposed Rating (ISR Seq. 015) Package - 10 Dec 2024 Political and Governance  Substantial  Substantial Macroeconomic  Substantial  Substantial Sector Strategies and Policies  Moderate  Moderate Technical Design of Project or Program  Low  Low Institutional Capacity for  Moderate  Moderate Implementation and Sustainability Fiduciary  Substantial  Substantial Environment and Social  Moderate  Moderate Stakeholders  Moderate  Moderate Other  Moderate  Moderate Overall  Substantial  Substantial @#&OPS~Doctype~OPS^dynamics@afaprclimate#doctemplate CLIMATE Climate Change and Disaster Screening Has this operation been screened for short-term and long-term climate change and disaster risks? Yes, it has been screened and the results are discussed in the Appraisal Document Where risks exist, have potential resilience-enhancing measures been identified in the appraisal document? Yes Does this operation address specific risks, vulnerabilities, gaps or needs with respect to Climate Change that are identified in the SCD or the CPF? Yes Greenhouse Gas Emissions Accounting and Shadow Price of Carbon Gross Emissions Net Emissions (annual average, Net Emissions (economic lifetime, tCO2e) (economic lifetime, tCO2e/year) tCO2e) Not Applicable Not Applicable Not Applicable Explanation for Not Applicable v The World Bank Enhancement and Strengthening of Power Transmission Network in Eastern Region (P159974) The proposed additional financing (AF) will address a funding shortfall under an existing transmission infrastructure project resulting from inflation and exchange rate fluctuations. Therefore, the Shadow price of Carbon does not apply. Has the operation applied the Shadow Price of Carbon in the Economic Analysis? Not Applicable Explanation for Not Applicable The proposed additional financing (AF) will address a funding shortfall under an existing transmission infrastructure project resulting from inflation and exchange rate fluctuations. Therefore, the Shadow price of Carbon does not apply. POLICY COMPLIANCE Does the operation depart from the CPF in content or in other significant respects? No Does the operation require any waivers from Bank policies? No @#&OPS~Doctype~OPS^dynamics@afaprteam#doctemplate TEAM Core Team Name Role Specialization ADM Responsible? Mbuso Gwafila Team Leader Task Team Leader Yes Financial Management Md. Didarul Islam Financial Management Yes Specialist Arafat Istiaque Procurement Specialist Procurement Yes Shakil Ahmed Ferdausi Environmental Specialist Environmental specialist Yes Iqbal Ahmed Environmental Specialist Environment Safeguard No Ekaterina Romanova Social Specialist Social Safeguards Yes Sabah Moyeen Social Specialist No Sachiko Morita Counsel Legal No Mohammad Nadeem Counsel Legal No Shahnun Nima Tania Procurement Team No Mohammad Zubair Procurement Team Technical No Stanikzai vi The World Bank Enhancement and Strengthening of Power Transmission Network in Eastern Region (P159974) Anthony Granville Procurement Team Technical No M Towhid Nawaz Mowla Procurement Team No Premendra Kumar Roy Team Member Technical No Satish Kumar Shivakumar Team Member Finance No Faisal Rabbi Team Member Technical No Mohammad Sayeed Team Member Disbursements No Economic & Financial Adwoa Asantewaa Team Member No Analysis Thi Bich Lien Nguyen Team Member No Olayinka Mutiat Edebiri Team Member Country Coordinator No Perla Del Carmen Espiel Team Member No Rajagopala Raghavan Team Member Finance No Md. Tafazzal Hossain Team Member No Faisal Rabbi Team Member Technical No Satish Kumar Shivakumar Team Member Finance No Economic & Financial Adwoa Asantewaa Team Member No Analysis Mohammad Sayeed Team Member Disbursements No Shariful Islam Team Member Social Safeguard No Premendra Kumar Roy Team Member Technical No vii The World Bank Enhancement and Strengthening of Power Transmission Network in Eastern Region (P159974) I. BACKGROUND AND RATIONALE FOR ADDITIONAL FINANCING A. Introduction and context 1. The Project Paper (PP) seeks the approval of the Board of Executive Directors for an additional financing (AF) in the amount of US$30 million to the Bangladesh Enhancement and Strengthening of Power Transmission Network in the Eastern Region (ESPNER) (P159974). ESPNER was approved on March 29, 2018 and became effective on July 4, 2018. The ESPNER parent project has undergone three restructurings, in April 2021, in December 2023, and in October 2024. The first restructuring involved (i) extending the project closing date by 12 months, from December 31, 2022, to December 31, 2023, and (ii) canceling €41,792,000 (US$50 million equivalent). The second restructuring further extended the closing date by another 12 months, from December 31, 2023, to December 30, 2024. The third restructuring extended the project closing date to June 30, 2025 and dropped project activities that could not be implemented within the extended project timeframe. 2. The ESPNER parent project has made important progress towards the achievement of the development objective, and the ratings for Progress towards achievement of the PDO and Overall Implementation Progress are both Moderately Satisfactory. The Safeguards performance rating is Moderately Satisfactory. Despite some delays in the land acquisition process, the expectation is that all compensation payments will be completed by the new closing date. The pending compensation payments are for transmission line tower footings as per the Electricity Rules that were enacted in 2022 when the project was already under implementation. The majority of the transmission line towers have already been erected and PGCB has agreed to compensate the PAPs retrospectively as per the new rules. The project level grievance redress mechanism (GRM) is in place and operational. The PIU has sufficient capacity to address the environmental and social risks. As of September 2024, total disbursement amounted to EUR236.4 million (70.7 percent) out of a total commitment of EUR334.2 million. The remaining/undisbursed balance (EUR97.8 million) is fully committed under the ongoing contracts, currently in active implementation. Consequently, it is expected that the entire undisbursed balance, along with the proposed additional financing (AF) to cater for the project cost overruns, will be fully utilized within the remaining project implementation timeframe. 3. Building on the strong implementation progress of the ESPNER parent project, the AF is requested by the Government of Bangladesh (GoB) to cover cost overruns that were not foreseen at the time of project appraisal. The cost overruns are due to the significant increase in global commodity prices, that include most key materials for the project, and labor since the last project restructuring in April 2021. The price escalations are beyond the control of both the government and the contractors and relevant contract adjustment clauses have been invoked. The main contributors to these price escalations are global supply chain/logistic bottlenecks that stemmed from the COVID-19 shutdowns. Consequently, due to these adjustments and the depreciation of the Euro against the US Dollar over the last three years, there is a project funding shortfall of approximately US$30 million that the proposed AF operation aims to cover. 4. The proposed AF operation is required solely to cover the identified funding gap under the ongoing project activities. There are no new activities that will be added to the project as part of the AF operation. B. Country context 5. Bangladesh experienced rapid economic and social progress in recent decades, reaching lower middle-income status in 2015. Stable macroeconomic conditions underpinned an average annual real GDP growth of 6.4 percent between 2010 and 2023. Over the same period, poverty and extreme poverty declined by 19.6 and 6.8 percentage points to 30 percent and 5 percent, respectively.1 However, the pace of poverty reduction has slowed, and urban inequality has widened. 6. An interim government led by Nobel Laureate Dr. Muhammad Yunus was sworn in on August 8, 2024 after former Prime Minister Sheikh Hasina resigned and left the country amid a student-led mass uprising. The events surrounding the resignation caused severe economic disruptions, including a surge in inflation, and a decline in industrial Page 1 The World Bank Enhancement and Strengthening of Power Transmission Network in Eastern Region (P159974) and service sector activities and exports and remittance inflows. The economic activities and the law-and-order situation have been gradually improving since the transition. 7. Real gross Domestic Product (GDP) grew by 5.2 percent in FY24. On the supply side, GDP growth was primarily driven by industry, which expanded by 5.8 percent—lower than the decadal average of 9.5 percent, impacted by energy shortages, import restrictions, and monetary tightening. Services growth also slowed to 5.3 percent as domestic purchasing power declined due to persistent inflation. Agricultural growth remained modest at 3.3 percent. 8. The current account deficit almost halved to US$6.5 billion (1.4 percent of GDP) in FY24 from US$11.6 billion in FY23, as the trade deficit improved, and remittance inflows grew by 10.7 percent. In May 2024, Bangladesh Bank adopted a crawling peg exchange rate system and devalued the exchange rate. As of September 2024, FX reserves declined by US$1.9 billion since June 2024 to reach US$19.8 billion, (3.2 months of import coverage). 9. Inflation remained elevated, averaging at 9.7 percent in FY24, driven by rising food inflation. Inflation averaged 9.7 percent in FY24 and reached 9.9 percent in September 2024 due to high food and import prices. Monetary policy has remained tight, as the policy rate was increased twice in FY25 to 9.5 percent. Vulnerabilities in the financial sector have worsened. 10. The fiscal deficit is estimated to have reached 4.5 percent of GDP in FY24. Revenue growth was robust but remained one of the lowest globally at 8.5 percent of GDP. Expenditure is estimated to have increased modestly to 13.0 percent of GDP, driven by current expenditure. The public debt to GDP ratio increased to 38.8 percent but remained sustainable. 11. Real GDP growth is projected to decline to 4.0 percent in FY25 but could range between 3.2 and 5.2 percent. The wide range of the projection reflects the unavailability of credible data in recent months and significant uncertainties around the outlook. These uncertainties are expected to keep investment and industrial growth subdued in the short term. Recent floods are expected to moderate agriculture growth. Growth is expected to rise gradually, benefiting from critical financial sector reforms, increased revenue mobilization, improved business climate, and trade. External sector pressure is expected to ease gradually, supported by robust remittance growth and improvement in exports. The fiscal deficit is expected to remain below 5 percent of GDP, with a moderate increase in revenues. Downside risks to the outlook have increased substantially. Increased political instability, poor corporate governance, and the potential insolvency of some banks could worsen an already weak financial sector. Persistently elevated inflation, weak global demand, energy shortages, and climate shocks could lower the growth outlook further and exacerbate vulnerability to falling into poverty. 12. Structural reforms are needed to support a faster pace of growth over the medium term. To achieve the goal of becoming an upper-middle income country, priorities include building a competitive business environment, diversifying exports, increasing human capital, building efficient infrastructure, deepening the financial sector, and attracting private investment. These reforms would strengthen international competitiveness as Bangladesh prepares for graduation from Least Developed Country (LDC) status in 2026, which will reduce concessional financing and preferential market access for its exports. Bangladesh is currently not subject to Debt Limits Conditionality under the Sustainable Development Finance Policy (SDFP). 13. Bangladesh faces a high level of vulnerability to the effects of climate change. The Global Climate Risk Index ranks it as the seventh most affected country between 2000-2019,2 with high susceptibility to extreme weather events such as cyclones, floods, and storm surges. According to the Bangladesh Country Climate and Development Report (CCDR), recurring flooding in Bangladesh affects a greater share of the population than any other natural hazard, impacting more than 1 million people annually. Once every three to five years, up to two-thirds of the country is inundated by floods. More recently, a major flood in the southeastern region of Bangladesh impacted over 3 million people in August 2024.Addressing these climate risks will support sustainable economic development and prevent vulnerable populations from being left behind. C. Sector context 14. Bangladesh has made impressive progress in increasing access to electricity and power generation capacity in the last decade. The electricity access rate has increased from 55 percent in 2010 to 100 percent in 2022. Bangladesh has Page 2 The World Bank Enhancement and Strengthening of Power Transmission Network in Eastern Region (P159974) an installed generation capacity of roughly 25 GW. In 2010, the installed generation capacity was 6 GW and could not meet 75 percent of peak demand, which shaved off an estimated three percent of GDP growth. The annual per capita consumption of electricity increased to 608 kWh in 2023 from 247 kWh in 2010, which represented about a quarter of India’s and was one of the lowest in the world. To address the generation capacity shortfall and low household access rate, the Government promulgated programs that prioritized generation capacity expansion and electrification scale-up, which led to the current achievements. Now the installed generation capacity far exceeds the 15.8 GW system peak demand by roughly 10 GW. A significant portion of the power plants that make the current installed generation capacity are liquid-fuel based emergency generators that were procured uncompetitively. 15. Despite the above achievements, power supply reliability and quality are still an issue due to insufficient investments in transmission grid strengthening and extension activities. Insufficient transmission capacity, including lack of redundancy and climate resilient investments, are the main contributors to inadequate supply quality and reliability.1 Many power plants cannot be dispatched fully due to insufficient evacuation and transmission capacity, leading to sub- optimal average generation costs and unsustainable capacity payments. This is posing a major challenge to the expansion of small and medium-scale enterprises with export potential. As significant industrialization is expected to take place after completion of some of the major infrastructure projects in the country, a steeper increase in power demand is anticipated. In addition, the sector requires to make climate resilience and integral part of its network expansion plans, engineering designs, and operation maintenance practices to address Bangladesh’ increasing vulnerability of climate change and natural hazards. This will ensure that the projected future growth in electricity demand is satisfactorily met within the required reliability and supply quality parameters. 16. Large investments are needed urgently to rehabilitate, expand, and modernize Bangladesh’s electricity networks. Electricity networks are the backbone of a secure and reliable power system. Given the backlog of investments, Bangladesh is estimated to need more than US$66 billion to rehabilitate and upgrade its electricity networks by 2041.3 Expansion and refurbishment of electricity networks will strengthen the resilience of electricity systems to climate change and extreme weather events, while smart grid investments will help increase reliability and security and reduce the cost of generating, transmitting, and distributing electricity and increase the penetration of variable renewable energy such as solar PV and wind. II. DESCRIPTION OF ADDITIONAL FINANCING 17. The proposed US$30 million AF is intended to fill the project financing gap that has resulted from inflation and exchange rate fluctuations. There will be no new activities added to the project as part of the AF. 18. The project is denominated in EUR and the contract commitments are in US Dollars. At approval the total commitment was EUR376 million, which was equivalent to US$450.64 million. In 2021 EUR41.79 million was cancelled because of savings that had been realized at the time because of contract prices that were lower than the estimated costs.4 At the time, the resulting commitment of EUR334.21 million (US$400.38 million equivalent) was, ceteris paribus, adequate to cover all the envisaged project costs. 19. However, in ensuing years there has been a significant shift in the EUR/US$ exchange rate. As per the current exchange rate the total the project’s total commitment is US$362.28 million.5 Additionally, some contractors have invoked that relevant contract price adjustment clauses in their contracts to cater for the increase in labor costs and global commodity prices that that emerged after the lifting of the COVID-19 pandemic restrictions. As a result, the total contract commitments under the project amount US$391.41 million, including contract price adjustments, which leaves a funding shortfall of roughly US$30 million as shown in Table 1. Page 3 The World Bank Enhancement and Strengthening of Power Transmission Network in Eastern Region (P159974) Table 1: Project components and additional financing Component Contract commitments Available IDA funding Available IDA funding (US$ million) * (EUR million) (US$ million) ** Component 1 385.46 313.80 340.16 Component 2 5.95 20.41 22.12 Total 391.41 334.21 362.28 Required Additional Financing 29.13 *Includes contract price adjustments ** calculated using a EUR/US$ exchange rate of 1.084 III. KEY RISKS 20. Given the long implementation history of the parent project, the overall risk is assessed as substantial because of the substantial ratings for Political and Governance risk, Macroeconomic risk, and Fiduciary risk. 21. The Political and Governance risk is substantial. Despite the priority the interim government is placing on law and order, safety and security concerns persist and are likely to remain until the police force is fully operational. Hence the timing of the next election is uncertain, and disagreements between political parties and the interim government over the election date could heighten political tensions. 22. The Macroeconomic risk is also substantial. The downside risks have increased, related to uncertainties in the political process and the security situation which impact the recovery of economic activities. The financial sector remains vulnerable with deviations from international regulatory and supervisory standards, and weak corporate governance. Despite recent improvements, the balance of payment (BoP) remained in deficit and the foreign exchange (FX) reserves remained under pressure. The macroeconomic risks are partially mitigated by the GoB’s reform program, supported by the International Monitory Fund (IMF) arrangements, ongoing World Bank and other DPs policy lending. 23. The fiduciary risk is substantial because of concerns about the adequacy of the public finance management (PFM) systems to satisfactorily undertake the required financial management of the project funds due to the recent change in regime, changes in senior management of the implementation agency (IA), and changes in staffing arrangements of the PIU. The other fiduciary risks include redirection of project resources to other activities, and delayed revision and approval of annual budgets that may lead to project implementation delays. Further, there are concerns that the project might incur further delays and cost overruns if: (i) the revised DPP is not approved in a timely manner, (ii) variation orders are not processed expeditiously; and contractors invoices are not paid timely. During the AF period there will not be any new procurement but will cover contract cost overrun, and time overrun. Considering the concerns about cost/time overruns and overall governance, the fiduciary rating is substantial. 24. These risks will be minimized through the direct payment method that has been adopted for all key activities under the project, including those that will be financed under the proposed AF. IV. APPRAISAL SUMMARY A. Economic and Financial (if applicable) Analysis 25. The economic analysis for this additional finance uses the original economic model used during the appraisal of the project. In this, the economic analysis follows a standard cost-benefit framework, which compares the present value of incurred costs to the stream of attributable benefits. The Net Present Value (NPV) and the Economic Rate of Return (ERR) of the project inform the project’s viability over its economic lifetime. The net benefits of the Project were calculated by comparing the economic costs and benefits of the “with Project” and “without Project” scenarios and estimated using Page 4 The World Bank Enhancement and Strengthening of Power Transmission Network in Eastern Region (P159974) the consumer surplus approach. An economic discount rate of 12 percent is used in this analysis as was used during appraisal. 26. As explained in the project document, the proposed US$30 million AF is intended to fill a project financing gap resulting from inflation and currency depreciation. At approval, the total commitment by the World Bank to Bangladesh was EUR376 million, which was equivalent to US$450.64 million. The Government also provided co-financing which brought the total financing of the project to US$718.06 million. In 2021, EUR41.79 million of the original net commitment was cancelled due to anticipated project savings as contract prices were lower than the estimated costs. 27. At the time, the resulting commitment of EUR334.21 million (US$400.38 million equivalent) was expected to be adequate to cover the envisaged project costs. However, there has been a major depreciation of the EURO against the USD leading to forex losses that has rendered project financing inadequate to cover costs. In addition, some contractors have invoked relevant price adjustment clauses in their contracts to cater for the increase in labor costs and global commodity prices which leaves a financing shortfall of roughly US$30 million as shown in Table 1. 28. In addition to this financing shortfall, there has been some changes in the assumptions on key economic variables especially during and following the covid-19 pandemic. These include the assumptions on actual and forecasted inflation rates and crude oil prices, as well as planned capex drawdown that reflects in disbursement rates and the completion of works. In addition, the project closing date has been extended from 2024 to 2025. 29. Results of the Economic Analysis with Additional Financing. As the original economic model was not modified following the cancellation of part of the project financing earlier, the baseline NPV and IRR used in this analysis are the estimates at appraisal. Key changes were here systematically introduced into the economic model. The changes were introduced sequentially to evaluate the effect of each change on the NPV and ERR of the project. Specifically, changes in US inflation rates were introduced, followed by actual and projected crude oil prices, initial cancelation, reintroduction of additional finance to cover increased costs and implementation delay effects6, in that order. 30. With these changes, the project NPV reduces from US$2.051 billion to US$1.397 billion. The ERR reduces from 46 percent to 41 percent. The largest contribution to the reduction in project NPV and ERR is implementation delays. Thus, timely implementation of the project will be important in maximizing the project’s economic benefits. See Table 2 for details. Table 2: Cumulative change in project NPV and ERR at Project Closing ERR Change NPV Change (USD billion) (USD billion) Appraisal 46% $ 2.051 US Inflation rates 45% -1% 2.036 -0.015 Crude Oil Price Effect 51% +6% 2.263 +0.227 Cancelation (Initial cost effectiveness) effect 54% +3% 2.293 +0.030 Additional Financing 52% -2% 2.275 -0.018 Extension of Implementation to 2025 and 41% -11% 1.397 -0.878 implementation delay effects Final ERR and NPV 41% -11% $ 1.397 -$0.878 Page 5 The World Bank Enhancement and Strengthening of Power Transmission Network in Eastern Region (P159974) B. Technical 31. The parent ESPNER project has been proven to be a robust design for achieving the objectives and addressing the sector issues. The AF is based on the technical appraisal that was done for the original project, and no new activities are being added. original project. The AF will finance the same transmission infrastructure that were selected based on the criteria adopted during the appraisal of the parent project. 32. The ongoing transmission investments whose financing will be supplemented by the AF have been designed to address climate change vulnerability and hazards such as flooding, high temperatures, and high cyclone winds. Implementing arrangements remain the same, hence the risk that the ongoing activities that will benefit from the AF financing will not be completed successfully is minimal. The contracts for these activities have all been awarded and are in the advanced stages of implementation. Notwithstanding, there could be some delays in the commissioning of some investments because of the recent country wide protests that resulted in the suspension of site-based works for security reasons. If this risk materializes, an extension of the project closing date by a few months may be required beyond the current closing date to enable the achievement of the project development objective. 33. The same citizen engagement (CE) approach of the parent project will be maintained that includes community consultations, use of the already operationalized grievance redress mechanism, and beneficiary satisfaction surveys. The existing CE indicator, “Improved customer (or beneficiary) satisfaction with new or improved electricity service”, will also be maintained as this is a simple AF to finance cost overruns.  34. The parent project continues to be gender informed. The AF will not include any new activities or indicators related to gender due to its limited scope and implementation timeframe. The Bank is in discussions with the government for a future World Bank funded project with the same implementing agency that will meet all the criteria for gender tagging. It is noted that the client has already become a WePOWER partner in July 2024. WePOWER is a voluntary professional network for women in the energy and power sectors in South Asia that supports women's participation in energy projects and institutions and promotes normative change regarding women in Science, Technology, Engineering, and Mathematics (STEM) education. As a partner of the network, PGCB will conduct targeted activities along the pillars of WePOWER as agreed through a Letter of Agreement and report on progress on a half yearly basis. Hence, it is expected that in future the Bank financed project will meaningfully integrate gender equality (specifically, more and better jobs) in its design and achieve the gender tag. C. Financial Management 35. The same financial management (FM) arrangements that were followed for the parent project will be followed for this AF. Hence, FM rating for the AF is substantial as that of the parent project. The AF will be supplemented through a counter funding amount of US$0.5 million to finance expenses that cannot be financed by IDA. As with the parent project, quarterly interim unaudited financial reports (IUFRs) will be submitted within 45 days from the end of each quarter as outlined in the Disbursement and Financial Information Letter (DFIL). The IUFRs will track the expenditures relating to IDA financing and PGCB financing separately. There would be separate budget code for this AF. The annual accounts of PGCB and the project will be audited separately by an independent audit firm and the Foreign Aided Project Audit Directorate (FAPAD), and audit reports will be submitted to the World Bank by December 31 of each year. There are no outstanding audit reports under the project for the entity. Further, the proceeds of the AF will be disbursed once the proceeds of the parent project are fully disbursed. D. Procurement 36. The procurement and implementation arrangements will remain the same as those of the parent project. Further, there will be no additional procurement activities under this AF, which is only intended to cover cost overruns of the ongoing project contracts. Also, as is the case for the parent project, all amendments to the ongoing contracts will be in Page 6 The World Bank Enhancement and Strengthening of Power Transmission Network in Eastern Region (P159974) accordance with the World Bank Procurement Regulations. Therefore, based on the above, the procurement risk rating for the AF is low. E. Social (including Safeguards) 37. This Additional Financing is for cost-overrun only. There will be no changes in the type and scope of project activities and hence, the E&S footprint will remain the same as for the parent project. The ESPNER AF remains a category B project under the World Bank Safeguards Policy. Activities and investments are not expected to cause negative social impact. Potential social impacts will continue being managed through the instrument prepared for the parent project, namely Resettlement Action Plan (RAP). The Addendum to the RAP is currently being updated to reflect the changes in the compensation amounts due to changes in the national policy and findings of the land survey. Compensation payments through counterpart funding are ongoing but delayed. The RAP Addendum preparation and its implementation is carefully followed to ensure the timely completion of compensation payment ahead of the scheduled closing date. The implementation arrangements remain the same. The PIU has sufficient capacity to address the environmental and social risks. The project level GRM is in place and operational. F. Environment (including Safeguards) 38. The AF will not change the project design or implementation arrangement. It is required to cover the cost- overrun. The environmental safeguards performance of the parent project is considered satisfactory. During the parent project preparation, an environmental impact assessment (EIA) was carried out. Subproject-specific Environmental Management Plans (EMPs) were prepared during the project implementation. In addition to PGCB’s Environmental and Social Unit, an environmental and social monitoring firm has been responsible for monitoring the EMP implementation and preparing the quarterly report. AF will not change the environmental category and safeguards policies triggered. It will continue to be a Category ‘B’ Project and the safeguard policies OP/BP 4.01 (Environmental Assessment); OP/BP 4.04 (Natural Habitats); OP/BP 4.36 (Forests); OP/BP 4.11 (Physical Cultural Resources) will also be triggered for AF. G. Other Safeguard Policies (if applicable) V. WORLD BANK GRIEVANCE REDRESS 39. Communities and individuals who believe that they are adversely affected by a project supported by the World Bank may submit complaints to existing project-level grievance mechanisms or the Bank’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 Bank’s independent Accountability Mechanism (AM). The AM houses the Inspection Panel, which determines whether harm occurred, or could occur, as a result of Bank non-compliance with its policies and procedures, and the Dispute Resolution Service, which provides communities and borrowers with the opportunity to address complaints through dispute resolution. Complaints may be submitted to the AM at any time after concerns have been brought directly to the attention of Bank Management and after Management has been given an opportunity to respond. For information on how to submit complaints to the Bank’s Grievance Redress Service (GRS), visit http://www.worldbank.org/GRS. For information on how to submit complaints to the Bank’s Accountability Mechanism, visit https://accountability.worldbank.org. Page 7 The World Bank Enhancement and Strengthening of Power Transmission Network in Eastern Region (P159974) @#&OPS~Doctype~OPS^dynamics@afaprproposedchanges#doctemplate Summary changes VI. PROPOSED CHANGES Operation Information Proposed Changes Operation Information Proposed Changes Disbursements Arrangements Yes Loan Closing Date Extension No Development Objective No Loan Cancellations No EA Category No Reallocations No Safeguard Policies Triggered No Financial Management No MFD/PCE No Procurement No Results No Institutional Arrangement No Legal Covenants No Implementation Schedule No Conditions No Implementation Modalities No Implementation Modalities No Disbursements Estimates No Clients No Components No Beneficiary Countries No @#&OPS~Doctype~OPS^dynamics@afaprdetailedchanges#doctemplate VII. DETAILED CHANGE(S) COSTS & FINANCING Private Capital Facilitation Is this an MFD-Enabling Project (MFD-EP)? Is this project Private Capital Enabling (PCE)? LEGAL Environmental Assessment (EA) Category Change in EA Category? No Page 8 The World Bank Enhancement and Strengthening of Power Transmission Network in Eastern Region (P159974) Safeguard Policies Change in Safeguards Policies Triggered? No Triggered Explanation (required if rating changes) Policies Current Projects on International Waterways (OP) (BP No changes from the Parent projec 7.50) Projects in Disputed Area (OP) (BP 7.60) No changes from the Parent projec Environmental Assessment (OP) (BP 4.01) No changes from the Parent projec Performance Standards for Private Sector No changes from the Parent projec Activities OP/BP 4.03 Natural Habitats (OP) (BP 4.04) No changes from the Parent projec Forests (OP) (BP 4.36) No changes from the Parent projec Pest Management (OP 4.09) No changes from the Parent projec Physical Cultural Resources (OP) (BP 4.11) No changes from the Parent projec Indigenous Peoples (OP) (BP 4.10) No changes from the Parent projec Involuntary Resettlement (OP) (BP 4.12) No changes from the Parent projec Safety of Dams (OP) (BP 4.37) No changes from the Parent projec Page 9 The World Bank Enhancement and Strengthening of Power Transmission Network in Eastern Region(P159974) PROJECT PAPER Monitoring & Evaluation Plan: PDO Indicators by PDO Outcomes PDO Outcome Increase the transmission capacity and reliability of the electricity network in the eastern region Indicator Name Revise Increase in transformation capacity in the project area (Kilovolt-Amphere(KVA)) Description This indicator measures the transmission capacity of the network Frequency Data source Methodology for Data Collection Responsibility for Data Collection Indicator Name Mark For Deletion Improvement in maintenance and financial management practices (Yes/No) Description Frequency Data source Methodology for Data Collection Responsibility for Data Collection Indicator Name Revise Average interruption frequency per year in the project area (Number) Description This indicator will measure the reliability of the transmission system Page 10 The World Bank Enhancement and Strengthening of Power Transmission Network in Eastern Region(P159974) PROJECT PAPER Frequency Data source Methodology for Data Collection Responsibility for Data Collection Indicator Name Revise People provided with new or improved electricity service (Number) This indicator can only be achieved once the transmission lines and the substations under this project are energized, Description commercially operated and the power is transmitted to the end customers through the distribution utilities, which is estimated to be completed by end of FY24. The preparation of the survey is planned to start in January 2024. Frequency Data source Methodology for Data Collection Responsibility for Data Collection Indicator Name New Renewable energy capacity enabled with indirect support (Megawatt) CRI Description Frequency Data source Methodology for Data Collection Responsibility for Data Collection Page 11 The World Bank Enhancement and Strengthening of Power Transmission Network in Eastern Region(P159974) PROJECT PAPER Monitoring & Evaluation Plan: Intermediate Results Indicators by Components Results Area Enhancement and Strengthening of Power Network Indicator Name Revise Transmission lines constructed under the project (Kilometers) Description No description available for this Corporate indicator Frequency Data source Methodology for Data Collection Responsibility for Data Collection Indicator Name Revise Transmission lines rehabilitated under the project (Kilometers) The target was revised as the rehabilitation of the Shikolbaha-Potiya-Dohajari transmission line(38 route km) was completed Description through PGCB’s own financing, and 3km line connection at Korerhat (line-in/line out) has been moved to Package 1. The total route length under Package 3 is now 116km, instead of the initial 157km. Frequency Data source Methodology for Data Collection Responsibility for Data Collection Indicator Name Revise Substations constructed under the project (Number) Page 12 The World Bank Enhancement and Strengthening of Power Transmission Network in Eastern Region(P159974) PROJECT PAPER Description Frequency Data source Methodology for Data Collection Responsibility for Data Collection Indicator Name Revise Substations rehabilitated under the project (Number) Description Frequency Data source Methodology for Data Collection Responsibility for Data Collection Results Area Institutional Development and Implementation Support Indicator Name Mark For Deletion Corporate maintenance strategy developed (Yes/No) Description Final report submitted and this is under review. Frequency Data source Methodology for Data Collection Responsibility for Data Page 13 The World Bank Enhancement and Strengthening of Power Transmission Network in Eastern Region(P159974) PROJECT PAPER Collection Indicator Name Mark For Deletion Fixed asset registry in place (Yes/No) Description Report submitted. Bank provided comments. Frequency Data source Methodology for Data Collection Responsibility for Data Collection Indicator Name Mark For Deletion Live line maintenance implemented (Yes/No) Description The bidding documents for procurement of live line maintenance tools have already been reviewed and cleared by the Bank. Frequency Data source Methodology for Data Collection Responsibility for Data Collection Indicator Name Revise Improved customer (or beneficiary) satisfaction with new or improved electricity service (Yes/No) This indicator can only be achieved once the transmission lines and the substations under this project are energized, commercially operated and the power is transmitted to the end customers through the distribution utilities. Although the Description project is in sixth year of implementation, there have been significant delays because of the Covid-19 pandemic. Now there is visible progress in the implementation of the works now and PGCB plans to initiate the satisfaction survey one some of the investments are commissioned in FY24. Frequency Page 14 The World Bank Enhancement and Strengthening of Power Transmission Network in Eastern Region(P159974) PROJECT PAPER Data source Methodology for Data Collection Responsibility for Data Collection Indicator Name Revise Percentage of female staff trained from total staff trained (Percentage) Description Frequency Data source Methodology for Data Collection Responsibility for Data Collection Page 15