Common use of Background and Necessity of the Project Clause in Contracts

Background and Necessity of the Project. (1) Current State and Issues of the Electricity Sector in Bangladesh The annual power consumption per capita in Bangladesh is at world's lowest level, 170kWh (FY2009/10), and the electrification rate is also low at 47%. The electricity supply cannot meet the increased demand: in FY2009/10, the peak demand reached 6,454MW but the installed capacity of electricity supply was 5,271MW only and the maximum power-generating capacity was a mere 70% or so of the demand. Thus, the country was obliged to perform planned outage chiefly at peak times. Due to an improvement in the electrification rate and industrialization thanks to the recent high economic growth, electricity demand is expected to increase by around 10% per year for the time being. The supply-demand gap is likely to remain due to delay in construction of new power generating plants because of fund shortages and other reasons. Accordingly, Bangladesh is faced with an urgent issue of establishing a stable electricity supply system through development of new power sources (particularly highly efficient power plants), diversification of energy sources including coal-fired thermal power, and rectification of system losses in the electric power transmission and distribution. (2) Development Policies for the Electricity Sector in Bangladesh and the Priority of the Project The Government of Bangladesh cites three long-term visions for the electricity sector in the “Policy Statement on Power Sector Reforms (2000)”, which are (a) securing of the supply capacity so that all citizens can use electricity by 2020; (b) reliable electricity supply; and (c) electricity supply at appropriate prices. The Sixth Five Year Plan (FY2011-FY2015), the latest national plan, refers to the necessity of reform on the electricity sector, viewing it as important infrastructure for economic growth leading to poverty reduction, and set out goals to increase the power-generating capacity to 15,457MW by 2014/15 and to 20,000MW by 2020/21, and the electrification rate to 68%. This project will, in line with these national policies, construct a highly efficient new-type power plant and support building of the operational structure of power generating companies that were spun off in accordance with the sector reform. Meanwhile, “The Bangladesh Climate Change Strategy and Action Plan (2008)” stipulates action policies that infrastructure for higher efficiency in power generation, transmission and distribution in the electricity sector will be established to realize a low carbon society. (3) Japan and JICA’s Policy and Operations in the Electricity Sector The Country Assistance Policy for Bangladesh formulated by the Ministry of Foreign Affairs of Japan in June 2012 views “acceleration of economic growth from which all the citizens can benefit to become middle income earners” as one of the priority areas, and shows the intention to assist development of power generating plants and transmission and distribution networks to overcome the shortage of electricity. Based on the policy, JICA designed the Country Analytical Work (February 2012), which regarded the electricity sector as a priority area and showed the intention to assist infrastructure development, and formulation and implementation of plans for comprehensive sector reform in collaboration with other donors. Thus, this project is consistent with the policies of the Japanese government and JICA itself. To date, Japan has given positive assistance to the electricity sector in Bangladesh, including the Program for Improvement of Solid Waste Management in Dhaka City toward the Low Carbon Society (2009. Grant Aid for Environmental Program). Major assistance programs conducted for the electricity sector in Bangladesh are as listed below: ・ Loan assistance: National Power Transmission Network Development Project; Central Zone Power Distribution Project; New Haripur Power Plant Development Project; and Rural Electrification Upgradation Project ・ Technical Cooperation: dispatches of advisors on electricity policies; training on Total Quality Management (TQM); and study for master plan on coal power development (4) Other Donors’ Activity As major donors, ADB and WB have been supporting the electricity sector reform in Bangladesh, including spinning-off and improving business efficiency of electricity companies; development of new power sources; development of transmission and distribution networks; and energy efficiency. (5) Necessity of the Project This project deals with tight electricity demand in Bangladesh by constructing a highly efficient new power plant and promotes the sector reform in collaboration with other donors by assisting development of the organizational structure of North West Power Generation Co., Ltd. (NWPGCL). It also contributes to alleviation of climate change by constructing a highly efficient new power plant. An ODA loan for the engineering services (E/S) for designing, bidding assistance, construction supervision and enhancement of the organizational capacity for this project was already made in FY2009. As stated above, the project conforms to the policy of the Bangladeshi government, and the assistance policy of the Japanese government and JICA. Thus, the project is highly necessary and relevant.

Background and Necessity of the Project. (1) Current State and Issues of the Electricity Power Sector in Bangladesh The annual power consumption per capita in In the People’s Republic of Bangladesh is at world's lowest level, 170kWh (FY2009/10hereinafter referred to as “Bangladesh”), and the electrification rate is also low at 47%. The electricity supply cannot meet the increased demand: in FY2009/10, the peak demand reached 6,454MW but the installed capacity of electricity supply was 5,271MW only and the maximum power-generating capacity was a mere 70% or so of the demand. Thus, the country was obliged to perform planned outage chiefly at peak times. Due to an improvement in the electrification rate and industrialization thanks annual per-capita electricity consumption are very low, at approximately 62% and 321kWh, respectively (as of 2013). With rapid economic growth in recent years, the power demand is projected to continue to grow at around 8.5% per annum to reach 33,708MW by 2030 (estimated in 2010); nevertheless, the maximum power supply capacity has remained at around 80% of the demand (in FY 2012-2013, the actual maximum power supply capacity was 6,350MW while the potential peak power demand was 8,349MW), which leading to regular planned power cuts. Currently, approximately 70% of electricity is generated by gas-fired thermal power plants using domestic natural gas; however, there is a need to diversify the energy sources because of the growing demand for domestic gas and the elevated risk of running out of it in recent high economic growthyears. Against this backdrop, electricity demand the Government of Bangladesh has formulated the Power System Master Plan 2010, according to which the Government is planning to developthe deep-sea port to import natural gas, coal and other fuels and construct power plants using these imported sources of energy in the Chittagong Division. While the power generation capacity in the division is expected to increase by continue to expand in years to come, this electricity needs to be transmitted to the Dhaka Metropolitan Area (accounting for around 1050% per year of the demand for the time being. The supply-demand gap is likely to remain due to delay in construction of new power generating plants because of fund shortages and other reasons. Accordinglyelectricity), Bangladesh is faced with an urgent issue of establishing for securing a stable supply of high-quality electricity supply system through is a key to sustainable economic development of new power sources (particularly highly efficient power plants), diversification of energy sources including coal-fired thermal power, and rectification of system losses in the electric power transmission and distributionBangladesh. (2) Development Policies for the Electricity Power Sector in Bangladesh and the Priority of the Project The Government of Bangladesh cites three long-term visions for As the electricity sector in most important national development strategy, the “Policy Statement on Power Sector Reforms (2000)”, which are (a) securing of the supply capacity so that all citizens can use electricity by 2020; (b) reliable electricity supply; and (c) electricity supply at appropriate prices. The Sixth Five Year Plan (from FY2011-2012 to FY2015), -2016) identifies the latest national plan, refers to power sector as one of the necessity of reform on the electricity sector, viewing it as most important infrastructure areas for economic growth development leading to poverty reduction. The Power System Master Plan 2010 aims to raise power generation capacity as well as develop and expand high-voltage transmission networks. The Master Plan also points out the necessity of transmitting power to the Dhaka area, and set out goals to increase the power-generating capacity to 15,457MW by 2014/15 and to 20,000MW by 2020/21where there is a high demand for electricity, and the electrification rate to 68%. This project will, in line with these national policies, construct a highly efficient new-type power plant and support building of the operational structure of power generating companies that were spun off in accordance with the sector reformfrom other areas. Meanwhile, “The the Bangladesh Climate Change Strategy and Action Plan (2008)” stipulates 2009 outlines a course of action policies to develop infrastructure that infrastructure for higher can improve the efficiency in of power generation, transmission transmission, and distribution in the electricity sector will be established order to realize create a low low-carbon society. This Project is in line with these policies of Bangladesh. (3) Japan and JICA’s Policy and Operations in the Electricity Power Sector The JICA Country Analysis Paper for Bangladesh (issued in April 2013) identifies the stable supply of electricity as an important issue. The Country Assistance Policy Program for Bangladesh formulated by the Ministry of Foreign Affairs of Japan (issued in June 2012 views “acceleration 2012) also points out that the power supply shortage is the greatest impediment for the country’s economic development and that it is essential to make a significant improvement in electricity and energy supply (in terms of economic growth from which all the citizens can benefit to become middle income earners” as one of the priority areas, quantity and shows the intention to assist development of power generating plants and transmission and distribution networks to overcome the shortage of electricity. Based on the policy, JICA designed the Country Analytical Work (February 2012efficiency), which regarded the electricity sector as a priority area and showed the intention to assist infrastructure development, and formulation and implementation of plans for comprehensive sector reform in collaboration with other donors. Thus, this project Project is consistent with the policies policy and analysis of the Japanese government Government and JICA itselfJICA. To dateMajor cooperation projects implemented in the electricity sector are listed below. In addition to the projects below, Japan has given positive assistance to also extended active support for climate change measures, as represented by the electricity sector in Bangladesh, including the Program Programme for Improvement of Solid Waste Management in Dhaka City toward the Low Carbon Society (2009. Grant Aid for Environmental ProgramEnvironment Program in 2009), because the Japanese Government has identified it as an important issue in Bangladesh. Major assistance programs conducted for the electricity sector in Bangladesh are as listed below: ・ - Loan assistance: National Power Transmission Network Development Project; Central Zone Power Distribution Project; New Haripur Power Plant Development Project; Project (in 2007 and 2009), Central Zone Power Distribution Project (in 2009), Rural Electrification Upgradation Project ・ (in 2010), Bheramara Combined Cycle Power Plant Development Project (in 2013), National Power Transmission Development Project (in 2013), and Matarbari Ultra Super Critical Coal-Fired Power Project (I) (in 2014) - Technical Cooperationcooperation: dispatches Dispatch of advisors on electricity policies; training on Total Quality Management Power Sector Advisor (TQMin 2014); and , The study for master plan on coal power developmentdevelopment in the People's Republic of Bangladesh : power system master plan 2010 (PSMP2010), The project for development of energy efficiency and conservation master plan in Bangladesh (in 2014), etc. (4) Other Donors’ Donor’s Activity As major donors, ADB and WB have been The World Bank is supporting the electricity power sector reform in Bangladeshreform, including spinning-off the promotion of rural electrification, and improving business efficiency of electricity companies; the development of new power sources; renewable energy. Meanwhile, the Asian Development Bank is supporting the extension of electrification, the improvement of energy efficiency, the promotion of privatization, the facilitation of international electricity interconnections, and the promotion of renewable energy development of transmission and distribution networks; and energy efficiencyconservation. (5) Necessity of the Project This project deals Project is in line with tight electricity demand in Bangladesh by constructing a highly efficient new power plant and promotes the sector reform in collaboration with other donors by assisting development priority areas of the organizational structure Government of North West Power Generation Co., Ltd. (NWPGCL). It also contributes to alleviation of climate change by constructing a highly efficient new power plant. An ODA loan for Japan and JICA as well as the engineering services (E/S) for designing, bidding assistance, construction supervision development issues and enhancement policies of the organizational capacity for this project was already made in FY2009. As stated aboveGovernment of Bangladesh; therefore, the project conforms to the policy of the Bangladeshi government, and the assistance policy of the Japanese government and JICA. Thus, the project it is highly necessary and relevantrelevant for JICA to implement this Project.

Background and Necessity of the Project. (1) Current State and Issues of the Electricity Power Sector in Bangladesh The annual power consumption Bangladesh’s electricity demand has been increasing in accordance with the recent economic growth, whereas the country’s per capita electricity consumption is 252 kWh in 2009 remaining at the lowest level in the world. Electricity supply in Bangladesh is at world's lowest level, 170kWh (FY2009/10)not sufficient with the demand increase, and the electrification rate is also low at 47%. The supply capacity remains 80% of the demand (5,271MW of installed capacity for electricity supply cannot meet compared to 6,454MW of electricity demand in peak time). Moreover, all gas-fired generation plants accounting for 80% of the increased demand: in FY2009/10, the peak demand reached 6,454MW but the whole installed capacity of electricity supply was 5,271MW only power generation rely on natural gas produced in the country, and the maximum power-generating capacity was a mere 70% or so diversification of the demandenergy resources is therefore needed. ThusThe household electrification rate in Bangladesh is 50 percent (2012), making the country was obliged to perform planned outage chiefly the second in South Asia after India in terms of its non-electrified population at peak timesapproximately 95 million people. Due to an improvement in Looking at the electrification rate in Bangladesh by region, rural areas are merely at 35 percent, compared to 90 percent in urban areas, making the need for electrification particularly high in rural areas. Moreover, the existing customers have frequently experienced voltage fluctuation and industrialization thanks sudden power outage in off-peak time due to the recent high economic growthlack of transmission and distribution capacity and failure in electric equipment, electricity demand etc. Based on above, the challenge in the power sector is expected to facilitate increase by around 10% per year for the time being. The supply-demand gap is likely to remain due to delay in construction of new power generating plants because of fund shortages and other reasons. Accordingly, Bangladesh is faced with an urgent issue of establishing a stable electricity supply system capacity through development of new power sources (particularly highly and efficient power plants)operation of existing equipment, in addition to promote diversification of energy sources resources including coal-fired thermal power, introduction of renewable energy and rectification of system losses in local electrification at the electric power transmission and distributionsame time. (2) Development Policies for the Electricity Power Sector in Bangladesh and the Priority of the Project The In the “Sixth Five Year Plan” (FY 2011 – 2015), as a measure for the worldwide depletion of fossil fuels and for consideration of the environment, the Government of Bangladesh cites three long-term visions for has set a goal of increasing the electricity sector amount of renewable energy to 5% of all its electrical power by 2015. In addition, in the “Policy Statement on Power Sector Reforms Reform (2000)”, which the following three goals are set as a long-term vision of the power sector: (a) securing of the supply capacity so that all citizens can use electricity by 2020; (b) reliable electricity supply; and (c) electricity supply at appropriate prices. The Sixth Five Year Plan (FY2011-FY2015), the latest national plan, refers to the necessity Government of reform Bangladesh put a high priority on the electricity sector, viewing Project as it as important infrastructure for economic growth leading to poverty reduction, and set out goals to increase the power-generating capacity to 15,457MW by 2014/15 and to 20,000MW by 2020/21, and the electrification rate to 68%. This project will, in line with these national policies, construct a highly efficient new-type power plant and support building of the operational structure of power generating companies that were spun off is in accordance with the sector reform. Meanwhile, “The Bangladesh Climate Change Strategy and Action Plan (2008)” stipulates action policies that infrastructure for higher efficiency in power generation, transmission and distribution in the electricity sector will be established to realize a low carbon society.these goals.. (3) Japan and JICA’s Policy and Operations in the Electricity Power Sector The Japanese Government has intended to play a leading role to solve challenges in energy policies and transformation to green economy, etc. corresponding to the global warming, and put its interim goal until FY 2015 to provide assistance of 3 billion dollars for the area of climate change including renewable energy. In addition, “stable electricity supply” is a priority issue according to JICA Country Analytical Work for Bangladesh (in February 2012) and acceleration of economic growth is one of the priority areas expressed in the Country Assistance Policy for Bangladesh formulated by the Ministry of Foreign Affairs of Japan (in June 2012 views “acceleration of economic growth from which all the citizens can benefit to become middle income earners” as one of the priority areas, and shows the intention to assist development of power generating plants and transmission and distribution networks to overcome the shortage of electricity. Based on the policy, JICA designed the Country Analytical Work (February 2012), which regarded the electricity sector as a priority area and showed the intention to assist infrastructure development, and formulation and implementation of plans for comprehensive sector reform in collaboration with other donors. Thus, this project is consistent with the policies of the Japanese government ) and JICA itself. To dateRolling Plan for Bangladesh, Japan has given positive deciding its assistance for dissemination of renewable energy in order to respond to the electricity sector gap between power demand and supply and contributing to increase of electrification ratio. Hence, the Project is in Bangladesh, including the Program for Improvement of Solid Waste Management in Dhaka City toward the Low Carbon Society (2009. Grant Aid for Environmental Program)line with these analysis and policy. Major assistance programs projects conducted for in the electricity power sector in Bangladesh are as listed below: ・ Loan assistanceLoans: National Power Grid Substations and Associated Transmission Network Development Project; Central Zone Power Distribution Project; Lines Project (2006), New Haripur Power Plant Development Project; Project (Phase-I) and (Phase-II) (2007 and 2009), Central Zone Power Development Project (2009), Rural Electrification Upgradation Project (2010) ・ Technical Cooperation: dispatches Project for Strengthening Management and Performance Standards in Power Sector of advisors Bangladesh through promoting of TQM (2006-2009), Master Plan Study on electricity policies; training on Total Quality Management Coal Power Development in Bangladesh (TQM2009 – 2010); and study for master plan on coal power development (4) Other Donors’ Activity As major donorsThe World Bank, ADB Asian Development Bank (ADB), the Islamic Development Bank, Kreditanstalt fuer Wiederaufbau (KfW), the Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ), and WB other donors have been supporting provided loans, grant aid, and technical assistance to the electricity sector reform Infrastructure Development Company Limited (IDOCL) for the Solar Home System (SHS). With regard to other renewable energy technologies, the World Bank, KfW, the GIZ, etc. implement loans, grant aids, and technical assistance projects for solar irrigation systems, biomass-based power generation, and solar mini-grids in Bangladeshremote areas, including spinning-off and improving business efficiency of electricity companies; development of new power sources; development of transmission and distribution networks; and energy efficiencyetc. (5) Necessity of the Project This project deals with tight electricity demand in Bangladesh by constructing a highly efficient new power plant and promotes the sector reform The IDCOL is working in collaboration with other donors local NGOs and private sectors (sponsor agencies) to spread the SHS in rural areas since 2003, and has installed 1,709,714 systems (cumulative from 2003) as of September 2012, smoothly expanding the program size. In order to address significant needs for power supply expansion in off-grids regions, the IDCOL aims to install 3 million SHS systems in total by assisting development December 2015, and estimates 788 million dollars necessary for further dissemination of the organizational structure SHS from 2013 to 2015. Moreover, the IDCOL is expanding its target of North West Power Generation Co.solar irrigation systems, Ltd. (NWPGCL)etc., based on its experience in above-mentioned program. It also contributes to alleviation of climate change by constructing a highly efficient new power plant. An ODA loan for the engineering services (E/S) for designing, bidding Besides financial assistance, construction supervision the IDCOL requires assistance for establishing mechanism for technical specifications, etc. The Project aims to promote diversification of power supply sources and enhancement increase of power supply through installing renewable energy equipment including the organizational capacity for this project was already made in FY2009SHS program specifically by providing two-step loan to the IDCOL. As stated above, the project conforms to the Project meets Bangladesh’s challenges and development policy of the Bangladeshi government, and the assistance policy of the Japanese government Japan and JICA. Thus, the project Therefore, its necessity and relevance is highly necessary and relevanthigh.

Background and Necessity of the Project. (1) Current State and Issues of the Electricity Sector in Bangladesh The In the People's Republic of Bangladesh (hereinafter called Bangladesh), the annual power electric consumption per capita in Bangladesh is at world's lowest level, 170kWh just 170 kWh (FY2009/10), the lowest level in the world, and the electrification rate is also as low at as 47%. The electricity supply cannot meet the increased increasing demand: in . In FY2009/10, the supply capacity remained at 5,271 MW while the peak demand reached 6,454MW but was 6,454 MW. As the installed maximum generation capacity of electricity supply was 5,271MW 4,699 MW is only and the maximum power-generating capacity was a mere around 70% or so of the demand. Thus, the country was obliged government needs to perform planned conduct scheduled outage chiefly at mainly during peak timeshours. Due to an improvement in With the increasing electrification rate and industrialization thanks to following the recent high rates of economic growth, electricity the demand is expected to increase by around an average of 10% per year for the time beingyear. The supply-demand gap is likely to remain However, due to a delay in construction plans of new power generating plants because plant construction caused by lack of fund shortages and other reasonsfunds, etc., the demand-supply gap is expected to remain. AccordinglyIn such a situation, Bangladesh there is faced with an urgent issue of establishing need to establish a stable electricity power supply system through such measures as development of new power sources (particularly highly efficient especially high efficiency power plants), diversification of energy sources including coal-fired thermal powerpower generation, and rectification decrease of system losses in the electric power transmission and distribution. (2) Development Policies for the Electricity Sector in Bangladesh and the Priority of the Project The Government of Bangladesh cites three long-term visions for the electricity sector in In the “Policy Statement on Power Sector Reforms (2000)”, which are the Bangladesh government set three long-term visions – (a) securing of the power supply capacity so that all citizens can use electricity by 2020; (b) reliable electricity supply; and (c) electricity supply at appropriate prices. The prices Moreover, the Sixth Five Year Plan (FY20112011-FY20152015), which is the latest national state plan, refers to also mentions the necessity of electricity sector reform on the electricity sector, viewing and describes it as an important infrastructure for economic growth leading that will lead to poverty reduction, and set out goals to increase the power-generating setting such targets as increasing power generation capacity to 15,457MW 15,457 MW by 2014/15 and to 20,000MW 20,000 MW by 2020/21, 2020/21 and increasing the electrification rate to 68%. This project will, in line with these national policies, construct a highly efficient new-type power plant and support building of As for the operational structure development of power generating companies that were spun off in accordance with the sector reform. Meanwhile, “The Bangladesh Climate Change Strategy and Action Plan (2008)” stipulates action policies that infrastructure for higher efficiency in power generation, transmission and distribution in networks, the electricity sector will be established to realize government has a low carbon societytarget of developing a 400 kV transmission line (650 km), a 230 kV transmission line (460 km) and a 132 kV transmission line (422 km) through multiple projects. This project was requested as a high priority project among such projects. (3) Japan and JICA’s Policy and Operations in the Electricity Sector The Country Assistance Program (May 2006) and the Assistance Policy (June 2012) for Bangladesh formulated by the Ministry of Foreign Affairs of Japan in June 2012 views positions “acceleration of economic growth from which all the citizens can benefit to become middle income earners” as one of a priority field and provides that Japan will assist the priority areas, and shows the intention to assist development of power generating plants and transmission and distribution networks to overcome the eliminate a shortage of electricity. Based on the this policy, JICA designed in the Country Analytical Work (February 2012), which regarded JICA described the electricity sector as a priority area field and showed the intention to assist infrastructure development, and formulation announced that they would provide assistance for planning and implementation of plans for comprehensive sector reform as well as infrastructure improvement in collaboration cooperation with other donors. Thus, The Project is in line with this project is consistent with the policies of the Japanese government and JICA itselfpolicy. To date, Japan has given positive assistance to The major support activities in the electricity sector in Bangladesh, including the Program for Improvement of Solid Waste Management in Dhaka City toward past include the Low Carbon Society (2009followings. Grant Aid for Environmental Program). Major assistance programs conducted for the electricity sector in Bangladesh are as listed below: ・ Loan assistance: National Power Transmission Network Development Project; , Central Zone Power Distribution Project; , New Haripur Power Plant Development Project; and , Rural Electrification Upgradation Project ・ Technical Cooperationassistance: dispatches of advisors on electricity policies; training on policy advisors, Total Quality Management (TQM); and ) training, study for master plan on coal power development (4) Other Donors’ Activity As major donors, ADB and WB have been supporting the electricity sector reform in Bangladesh, including spinning-off and improving business efficiency of electricity companies; development of new power sources; development of transmission and distribution networks; and energy efficiency. (5) Necessity of the Project This project deals with tight To respond to the electricity demand in Bangladesh increasing by constructing about 10% per year, new capital investment with a highly efficient good balance among the areas of power generation, transmission and distribution, and in the area of power transmission the transmission capacity has to be increased in line with the new power plant source development in the future. The new and promotes the sector reform in collaboration with other donors by assisting development existing target substations of the organizational structure of North West Power Generation Co., Ltd. (NWPGCL). It also contributes to alleviation of climate change by constructing a highly efficient new power plant. An ODA loan for the engineering services (E/S) for designing, bidding assistance, construction supervision and enhancement of the organizational capacity for this project was already made in FY2009. As stated aboveProject are located around regional hub cities including Chittagong, the project conforms second largest city in Bangladesh, and will supply electricity to the policy of the Bangladeshi governmenthighly commercial/industrial areas. Frequent outage and serious voltage drop are severe impediments to economic activities especially among small and medium-sized businesses lacking with private power generation facilities, and the imbalance between supply and demand is expected to be worse by 5-10% per year. Aiming at stabilizing the electricity system across Bangladesh, maintaining the low rate of power loss in transmission and achieving stable electricity supply, the Project is in line with the tasks and development policies of the Bangladesh government as well as the assistance policy policies of the Japanese government and JICA. ThusTherefore, JICA’s assistance through the project is highly necessary Project has a high degree of necessity and relevantrelevance.