In the early 1990s, Bangladesh suffered power shortages and unreliable power supply because of insufficient generation capacity, an inadequate transmission grid, and unbalanced distribution facilities. Major constraints included (i) low institutional capability; (ii) unavailability of domestic resources for investment; (iii) limited capability of the economy to service foreign debt; (iv) centralized government management policy; (v) low employee commitment; and (vi) institutional weaknesses in governance, banking, law enforcement, and judicial processes external to the sector but essential for its proper functioning.

To overcome institutional weaknesses and improve sector performance, the government approved in September 1994 a policy paper that proposed the reform of the power sector by improving management and corporate governance, introducing competition, and facilitating public–private partnerships. Following this, the power sector embarked on a series of gradual structural changes with support from development partners. The reform-linked Power Sector Development Program of Bangladesh was approved by the Asian Development Bank (ADB) for an $83 million loan in December 2003. It aimed to continually support the government’s efforts to reform the power sector and prepare it for long-term financial sustainability as well as improve the country’s power supply, particularly in the northwestern region

The program had two components – a program loan and a project loan. The program loan was to support the conversion of the Bangladesh Power Development Board (BPDB) and the Dhaka Electric Supply Authority (DESA) into corporate bodies, and the creation of the Electricity Generation Company of Bangladesh (EGCB) and the North-West Zone Power Distribution Company (NWZPDCL) to further unbundle BPDB’s generation and distribution systems.  The project loan was to finance the physical aspect of improving power supply in the northwestern region by (i) adding 2×100 megawatt (MW) of gas-based peaking generation capacity to replace old and inefficient power plants; (ii) constructing a national load dispatch center (NLDC) to ensure economic dispatch and rationalize regional power supply; and (iii) upgrading the distribution systems to speed the development of the industry and the service sectors.

At completion, the project loan delivered all its planned physical outputs, though 2.5−5 years behind schedule. Additional power became available at peak hours and load shedding was minimized with the commissioning of a 2×120 MW gas-fired power plant instead of the 2×100 MW plant envisaged at appraisal.  Construction of an NLDC in Dhaka, comprising an energy management system and a supervisory control and data acquisition system, maximized generation from least-cost generators, in the process, contributing to improving the dispatch function of the national Power Grid Power Corporation of Bangladesh by instituting competition in generation.  Construction and renovation of distribution lines made operations more flexible, and created scope for 200,000 new consumer connections. Power supply to existing and new consumers greatly improved. Forty-five thousand new household connections were installed during project implementation.

However, the program loan only partly achieved its reform objectives.  BPDB handed over to EGCB the site management and construction of the new gas-fired power plant under the project loan component, as well as its other existing generation assets.  NWZPDCL was created in August 2005 but could not operate, as BPDB did not transfer to it the distribution networks in northwest Bangladesh.  BPDB apparently adopted a go-slow approach in operationalizing the NWZPDCL. BPDB was not corporatized mainly because it resisted corporatization and the government revised its sector reform strategy.  

The Cabinet Committee on Economic Affairs approved the proposal to corporatize DESA in July 2004. The corporatization took effect when the Dhaka Power Distribution Company (DPDC) was registered as a company in October 2005. But the appointment of directors with delegated powers took almost 2 years. Though consultants were hired in May 2005, services were suspended for over 2 years because of internal problems in DESA, political unrest, and travel restrictions in Bangladesh. DPDC finally took over the operations of DESA as a distinct power distributor in July 2008.  Despite approval by the government’s Cabinet Committee for Economic Affairs in January 2004, the corporatization of BPDB has not progressed.

The program had different executing agencies for its various components: the BPDB, and subsequently EGCB for the construction of the gas-fired power plant; the PGCB, for the NLDC component; and the BPDB, and subsequently NWZPDCL, for the modernization of the distribution lines. Project implementation offices helped in the smooth execution of the components.