Hi all,
This is my first mail to this group :). The following article has been printed
in a daily newspaper of Bangladesh - The Daily Star; 31 August 2005 and a
background to it is also given below.
Regards,
Farhana
Infrastructure matters
Christine Wallich
[On August 29, World Bank Country Director for Bangladesh Christine Wallich
spoke at an international workshop on infrastructure financing in Bangladesh.
Her words have generated a great deal of debate and discussion, and we feel are
of sufficient import to warrant publication of the full text (with minor edits)
of her speech here for the benefit of our readers.]
The topic of infrastructure finance is one which I have personally given high
priority, and I won't pass up this occasion to highlight the importance of one
particular aspect of infrastructure finance -- asset securitisation -- that
warrants close attention in the infrastructure finance context.
The market has already been tested some months ago, with three asset-backed
zero coupon bonds issued by three NBFIs, a good beginning. Looking ahead, we
would be particularly keen to see other transactions take place, for example,
securitisation of the Jamuna Bridge revenues -- placing assets backed by
bridge-related revenues in the market. Our conservative estimate is that at
least Tk 100 crore could be raised though a securitisation of Jamuna Bridge
revenues. JMBA could use these revenues to develop further infrastructure
projects, for example, a contribution to the financing plan for the Padma
Bridge.
Asset securitisation has been used with great effect in China, where toll roads
are corporatised and IPO shares listed on a stock exchange, once their revenue
stream has stabilised; the proceeds of the IPO are then invested in the next
toll road, and so on, and so on. Many other possibilities exist for
securitising certain and predictable revenue streams. But Jamuna Bridge is a
good place to start -- a premier national asset, a well managed company, a
stable and proven revenue stream that will grow, long into the future.
To facilitate securitisation, there are still a few issues for GOB to attend
to: (i) removing the 1.5 percent stamp duty on issue and transfer of unlisted
securities; (ii) standardising the regulatory and accounting treatment for
securitisation; and (iii) a securitisation law in due course. These last few
wrinkles should be worked out soon, so that the securitisation can contribute
to infrastructure financing in Bangladesh. The World Bank is ready to assist,
if desired.
Infrastructure
The recent Investment Climate Assessment for Bangladesh identified poor quality
and poorly managed infrastructure as the major deficiency in the investment
climate, together with "security" and law and order. Specifically, power,
ports, and telecommunications were cited as major constraints to attracting
investment, and therefore to the much-needed higher growth path.
Improving the investment climate for growth is therefore a key pillar in our
forthcoming country assistance strategy, which is being done jointly with three
other donors -- Japan, ADB, and DFID. The focus will be on addressing the
policy and investment logjams in infrastructure sectors, including public
private partnerships.
This emphasis on infrastructure is relatively recent -- in Bangladesh, and in
general. In the pendulum swings that sometimes characterise thinking about
development, the 1990s emphasized the importance of human development -- health
and education -- for poverty reduction. The links between infrastructure and
poverty reduction were down-played or even forgotten. In addition, it was often
assumed that "the private sector will do it all, in terms financing
infrastructure," with the result that many donors, including us, backed away.
We now know differently: The quick rule of thumb that investment in
infrastructure should grow broadly in line with growth of GDP. In other words,
to get 8 percent GDP growth in Bangladesh, infrastructure also needs to grow by
8 percent each year. So, infrastructure is key to the millennium development
goal of growth and poverty reduction. (At present levels, this would imply $4
billion in spending on infrastructure annually in Bangladesh). Even today's 5.5
percent growth rate implies an infrastructure investment of $3 billion a year.
About half of this is for investment in new infrastructure, and half for
maintenance of existing assets.
But in fact infrastructure is an input in to all MDGs:
- Electricity is an input to the "cold chain" for vaccines.
- Better roads are inputs into education, increasing girls' primary school
attendance up 68 percent.
- Better transport is an input to MDGs for health, cited by 73 percent of women
as necessary to access prenatal healthcare.
- Networked water and sanitation are inputs into reducing infant and maternal
mortality -- by as much as 75 percent.
- Piped water available on the school premises, has raised school attendance by
up to 16 percent.
So, infrastructure matters. Not surprisingly, many of our key stakeholders
urged the World Bank to deepen its engagement in infrastructure; in South Asia,
our infrastructure commitments grew from $880 million in FY04 to $1.4 billion
in FY05 ended in June.
Governance
We would like to underline our commitment to infrastructure in Bangladesh. But
we also emphasise that support for larger-scale infrastructure investments can
come only with improved governance. Appropriate and transparent processes for
identifying, procuring, and managing infrastructure projects are a necessary
condition for support -- whether from the private sector, World Bank, or other
donors -- for large-scale infrastructure development. GOB is to be applauded
for the 2003 Public Procurement Regulations, and progress is also being made on
the Concessions law. However, it is the implementation that matters.
The power sector is a case in point. We believe that Bangladesh is denying
itself access to readily available power projects by failing to address the
essential role of procurement processes. It is emphatically not an absence of
finance that is holding up power sector development. This needs to be said for
the record.
Over the past 6 years, some 15 power plants have been publicly tendered, but
only 3 were awarded. The procurement processes followed were questionable and
non-transparent and not in the interest of good outcomes for Bangladesh. Had
the tendering process not been undermined, two world-class project finance
structures -- Meghnaghat II and Sirajganj -- could already be providing 900 MW
of very low-cost power to the system. Instead, we now see load shedding of
about 900 MW a day, expensive suppliers credits, and contingent liabilities,
for government. The Bank will support a 120 MW peaking plant at Siddhirganj, if
government completes the hand-over of power lines from PDB to REB, under the
Rural Electrification Project. Beyond that, of the 3000 MW planned to be added
by 2007, 730 MW at most will come on stream -- an amount that does not even
meet today's shortfall.
This poor performance is all the more regrettable given the good past record
Bangladesh has for implementing large scale power projects, which the World
Bank has been proud to support with finance and guarantees.
As many here know, during the World Bank President Wolfowitz's visit last week
it was agreed that the Bank and government would assess the obstacles
(including governance and corruption-related obstacles) that have constrained
power sector development, and agree on a set of 3-6 month rolling targets
(including governance and corruption-related targets) to ensure that power
capacity needed for growth is put in place, and as a basis for donor support.
This assessment would also help us understand what it would take to overcome
the obstacles that have constrained infrastructure development generally.
Procurement
Let me revisit the point about infrastructure governance and procurement. The
media highlighted Mr. Wolfowitz's remarks on the corruption that usually goes
along with large infrastructure projects. Mr. Wolfowitz acknowledged that "it
takes two to tango" -- and that supplying countries have a special obligation
not to aid or abet corrupt practices. He also said that diagnosing the problem
is easy, but figuring out what to do is much harder.
On the diagnosis, we have a good idea that the roots of Bangladesh's current
problem of infrastructure governance lie outside the infrastructure sectors
themselves -- and lie in Bangladesh's system of political governance. Election
financing is thought to be a major source of corruption in Bangladesh. Some
would say the major source. The cost of getting elected in Bangladesh is said
to be among the highest in the world. Taka 200 billion was said to be spent by
the parties for the last elections. I cannot vouch for the number and it may
well be apocryphal. This is about $3.3 billion or 5 percent of GDP, a large
number for a country at Bangladesh's income level. If true, this amounts to $21
per capita paid by each and every Bangladeshi, or to put it another way, it's a
5.3 percent tax on the average (per capita) income of all Bangladeshis). And
yet the ceiling of election spending/contributions is a fraction of this and
the parties have no audited accounts.
In the absence of other party financing mechanisms, corruption, including
corrupt public procurement, and patronage systems in all sectors and
ministries, are used to raise vast resources to the parties' election coffers.
The power sectors, as Mr. Wolfowitz noted, is a tempting target, given the
magnitude of its transactions. GOB must remain alert, lest this be allowed to
happen: Unfortunately, once political parties become dependent on funding from
routine corruption in the sectors, the systemic corruption that pervades the
system is self-reinforcing.
Until and unless the system of election financing is addressed, infrastructure
governance reforms will be struggling uphill -- improvements will occur, but
cannot be fully successful unless the bigger picture of election financing is
also reformed. While this lies outside the World Bank's development mandate, we
are encouraging bilateral donors to address it by providing good-practice
models of political party financing.
Disclosure
So what about solutions? It's hard to know where to start, but here is a
suggestion. Earlier this year, in May the High Court gave a historic judgement
requiring all candidates intending to run for political office to make key
disclosures: Candidates must disclose their income, assets and liabilities, the
assets and liabilities of family members, their bank loans and repayments, and
sources of income, and any criminal record.
Asset/income disclosure laws exist world-wide and are intended to empower
voters with information and to make it harder for corrupt politicians and the
parties that support them. In the new democracies of Eastern Europe and the
FSU, asset disclosure laws were a key ingredient to de-criminalise politics and
reduce the systemic and self-reinforcing corruption that pervaded their system.
The fact that false information may be disclosed does not matter so much at the
outset -- the media and voters can usually tell.
With preparations for the elections soon underway, the Election Commission
could make no greater contribution to the Bangladeshi people than to rigorously
and relentlessly implement the High Court judgement on asset and income
disclosure. It will have its benefits for the elections. But infrastructure
finance will also benefit tangibly. By making it harder for corrupt politicians
and the parties that support them, over time there will be less pressure to use
infrastructure as a "cash cow" or "golden goose" for the party or candidate.
That's good for infrastructure, and for those of us who would like to help
finance it.
World Bank program
Let me conclude with a few words on the World Bank assistance strategy for
Bangladesh. In the past 2 years our engagement has deepened, and current
commitment levels are on the order of $650-750 million a year. Future IDA
commitments will of course depend on country performance -- the pace of
economic reforms and project implementation.
Preparation of our Country Assistance Strategy is underway; its supports
national priorities from the PRSP. Our preliminary consultations have included
the major political parties.
A particular challenge for us, but much more for the PRSP, will be making this
a strategy that bridges the political/electoral cycle. Given the PRSP's time
horizon, it must be jointly owned by both major parties. Substantial thought
needs to go into how this bipartisan ownership can be achieved. "Ring-fencing"
key policy areas and ensuring key reforms can go ahead with bipartisan support
-- coming together for the common good -- was also emphasised by Paul Wolfowitz
during his visit.
About a third of our support will continue to be for projects in health,
education, and the social sectors, including social protection. This is the
third year that we have provided budget support (Development Support Credits)
to the government as a means to support reforms in difficult areas like the
NCBs (where we and the IMF are supporting management contracts and
restructuring/privatisation, downsizing of SOEs, re-organisation and
modernisation of the NBR and Customs department. The future agenda may include
public administration/civil service reform, as well as legal and judicial
reform, and strengthening local government. We plan to support infrastructure
(power, ports, railways, and further energy sector restructuring) together with
our joint CAS partners, especially Japan and ADB.
Conclusion
To put Bangladesh on a path to prosperity means creating a policy environment
and investment climate that allows investors and entrepreneurs to contribute
fully to the growth process. There are no shortages of infrastructure
opportunities in Bangladesh, and there is no shortage of support amongst the
development partners to assist Bangladesh in bringing in infrastructure vision
to fruition. Governance reforms will be needed to elicit that support -- and
solutions need to be pursued across a range of areas.
---------------------------------
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