Document of

The World Bank

FOR OFFICIAL USE ONLY

RESTRUCTURING PAPER

ON A

PROPOSED PROJECT RESTRUCTURING

OF

BD PRIVATE SECTOR DEVELOPMENT PROJECT

CREDIT OF US$120 MILLION EQUIVALENT

March 1, 2011

TO THE

PEOPLE’S REPUBLIC OF BANGLADESH

JULY 14, 2013

FINANCE AND PRIVATE SECTOR DEVELOPMENT (SASFP)

SOUTH ASIA REGION

This document has a restricted distribution and may be used by recipients only in the performance of their

official duties. Its contents may not otherwise be disclosed without World Bank authorization.

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2

ABBREVIATIONS AND ACRONYMS

ADR Alternative Dispute Resolution

BASIS Bangladesh Association of Software and Information Systems

BEZA Bangladesh Economic Zones Authority

BEPZA Bangladesh Export Processing Zones Authority

BHTPA Bangladesh Hi Tech Park Authority

BICF Bangladesh Investment Climate Fund

BIAC Bangladesh International Arbitration Centre

BITM BASIS Institute of Technology and Management

CB Capacity Building

CCU Central Coordination Unit

CETP Central Effluent Treatment Plant

DFID (UK) Department for International Development

DPP/TAPP Development Project Proposal/Technical Assistance Project Proposal

EMF Environmental Management Framework

EOI Expression of Interest

EP Export Permit

EPZ Economic Processing Zone

ERD Economic Relations Division

EZ Economic Zone

GAAP Governance and Accountability Action Plan

GoB Government of Bangladesh

IBE Improving Business Environment

IDA International Development Association

IFC International Finance Corporation

IP Import Permit

IT/ITES Information Technology/IT Enabled Services

KHTP Kaliakoir Hi Tech Park

M&E Monitoring and Evaluation

MAR Moveable Assets Registry also referred to as Secured Lending Regime

for movable property

MTR Mid-Term Review

NASSCOM National Association of Software and Services Companies (India)

OSS One-Stop Shop

PAC Project Advisory Committee

PAD Project Appraisal Document

PCN Project Concept Note

PDO Project Development Objective

PIF Public Investment Facility

PIU Project Implementation Unit

PPP Public-Private Partnership

REOI Request for Expression of Interest

RFP Request for Proposal

RJSC Registrar of Joint Stock Companies and Firms

3

RMG Ready-Made Garments

SCP Sub-contracting Permit

SMART Specific, Measurable, Achievable, Relevant, and Time-phased

SME Small and Medium Enterprise

STR Secured Transaction Regime

TA Technical Advisory

TF Trust Fund

TNC Trans-national Corporation

UNCITRAL United Nations Commission on International Trade Law

Regional Vice President: Philippe H. Le Houerou

Country Director: Johannes Zutt

Sector Manager: Henry Bagazonzya

Task Team Leader: Manju Haththotuwa

4

BANGLADESH

BANGLADESH – PRIVATE SECTOR DEVELOPMENT SUPPORT PROJECT

CONTENTS

A. SUMMARY ......................................................................................................................................... 7 B. PROJECT BACK GROUND AND STATUS ................................................................................... 7 C. PROPOSED CHANGES .................................................................................................................... 9 D. APPRAISAL SUMMARY ............................................................................................................... 13

ANNEX 1: REALLOCATION OF FUNDS BY COMPONENT AND DISBURSEMENT ................ 15 ANNEX 2: RESULTS FRAMEWORK AND MONITORING ............................................................. 16 ANNEX 3: GOVERNANCE AND ACCOUNTABILITY ACTION PLAN .......................................... 20

5

Restructuring Status: Final Restructuring Type: Level two Last modified on date : 07/11/2013

1. Basic Information Project ID & Name P120843: BD: Private Sector Development Support

Country Bangladesh

Task Team Leader Manju Haththotuwa

Sector Manager/Director Henry K Bagazonzya/ Sujata Lamba

Country Director Johannes C.M. Zutt

Original Board Approval Date 03/01/2011

Original Closing Date: 06/30/2016

Current Closing Date 06/30/2016

Proposed Closing Date [if applicable]

EA Category A-Full Assessment

Revised EA Category A-Full Assessment-Full Assessment

EA Completion Date 04/30/2010

Revised EA Completion Date

2. Revised Financing Plan (US$m) Source Original Revised

BORR 3.00 0.00

DFID 17.41 17.41

IDA 120.00 40.00

Total 140.41 57.41

3. Borrower Organization Department Location

The Government of Bangladesh Bangladesh

6

4. Implementing Agency Organization Department Location

Bangladesh Economic Zones

Authority

Prime Minister's Office Bangladesh

Bangladesh Export Processing

Zones Authority (BEPZA)

Prime Minister's Office Bangladesh

Bangladesh High Tech Park

Authority

Ministry of Information

Communication and

Technology

Bangladesh

PSDSP Central Coordinating Unit External Resources

Department, Ministry of

Finance

Bangladesh

5. IDA Disbursement Estimates (US$m) Actual amount disbursed as of 07/11/2013 3.86

Fiscal Year Annual Cumulative

2014 9.00 12.86

2015 9.00 21.86

2016 18.14 40.00

Total 40.00

6. Policy Exceptions and Safeguard Policies Does the restructured project require any exceptions to Bank policies? N

Do the restructured projects trigger any new safeguard policies? If yes, please select from

the checklist below and update ISDS accordingly before submitting the package.

N

7a. Project Development Objectives/Outcomes Original/Current Project Development Objectives/Outcomes

The Project Development Objective (PDO) is to facilitate investment in growth centers in the emerging

manufacturing and services sectors of the economy with the aim of generating employment.

7b. Revised Project Development Objectives/Outcomes [if applicable]

7

BANGLADESH PRIVATE SECTOR DEVELOPMENT SUPPORT PROJECT (PSDSP)

RESTRUCTURING PAPER

A. SUMMARY

In view of developments in the country context, unrealistic projections in the original design, and

emerging challenges since project approval, the team is proposing practical modifications to the project

and corresponding agreements. The project team feels strongly that the original PDO can be achieved

with 41% of the originally estimated funds. Accordingly the project was right-sized with the cancellation

of SDR 51.3million of the original SDR 78 million of IDA funds on the June 26, 2013.

The Restructuring Paper (RP) seeks the Country Director’s (CD) approval for the following:

1. Revision of project scope to align it with implementation realities and the reduced financing

envelope;

2. Rationalization of the results indicators at both PDO and intermediate outcome levels to reflect

the revised project scope and to be more specific, measurable and realistic;

3. Reallocation of credit and grant funds among the disbursement categories consistent with the

downsizing;

4. Inclusion of a Governance and Accountability Action Plan (GAAP) to address governance issues.

5. Simplification of provisions on institutional arrangements in the Financing Agreement and

making it consistent with the current project scope and size.

B. PROJECT BACKGROUND AND STATUS

Project Background

The Project Development Objective (PDO) is to facilitate investment in growth centres in the emerging

manufacturing and services sectors of the economy with the aim of generating employment. Specifically,

the project has three components:

Capacity building of government institutions (including BEZA, BEPZA, HTPA, and ERD)

involved in the development of economic zones (EZ) through TA;

Public Investment Facility (PIF) to finance off-site, last-mile infrastructure to facilitate the

licensing and development of private-sector led economic zones, starting with the Kaliakor Hi-

Tech Park (KHTP) and extending to other zone projects. The Project will also meet resettlement

compensation where applicable;

Business linkages, product and process improvement of local firms supplying to or situated in

the economic zones to build better linkages between firms within the zones and related suppliers

by providing training, improving skills in the labor pool, quality standards and certification of

local firms.

The implementing agencies of the Project are the Bangladesh Economic Zones Authority (BEZA), the

Bangladesh Hi-Tech Park Authority (BHTPA), and the Bangladesh Export Processing Zones Authority

(BEPZA), all of which have mandates for zone development. BEZA and BHTPA are new agencies

8

established by GoB with project funding for building their capacity. The Economic Relations Division

(ERD) is the Central Coordinating Unit (CCU) for the Project.

The Project was initially financed by SDR 78 million credit from IDA and $17.41 million grant from UK

DFID. UK DFID grant was applied net of taxes and IDA credit was inclusive of all taxes.

Project Implementation Status:

Disbursement. The project has been effective since August 2011 and has been rated “Moderately

Satisfactory” for both achievement of PDOs and implementation progress1. The project has experienced

initial delays and slow disbursement (to date, $3.86 million of IDA funds) against original disbursement

projections (in excess of $80million). These are due to protracted delays in government of Bangladesh

(GoB) approvals, Padma Bridge legacy issues, and Project design issues.

Capacity Building within GoB. The Project has supported all the zone related institutions (BEZA,

BEPZA, BHTPA) and the CCU (ERD) to participate in important international training events which also

provide a valuable opportunity for the GoB to establish contact with potential zone developers and large

investors. The Project has sponsored the participation of GoB officials in the World Free Zone

Convention in London in December 2012, where the GoB in a side event gave a presentation for 40

potential investors, and will sponsor the GoB in the upcoming NASSCOM trade fair and roadshow for the

IT / hi-tech sectors. This international training has also been complemented by focused in-country

training by visiting experts under the PSDSP.

Business Environment and Regulation. The Bangladesh Economic Zones Authority (BEZA) was

established in 2011 and EZ Rules were drafted to implement the EZ Act 2010 in close collaboration with

the IFC. Significant environmental and social management practices have been successfully piloted

through BEPZA in the country’s EPZs, which will eventually be rolled out into the new economic zones.

As a result, labor compliance among the companies operating in the country’s EPZs has been measured at

more than 93%, while baseline data is being collected on environmental compliance. The social and

environmental systems in place include: (a) sixty social counselors funded under the project to improve

labour relationships and compliance in EPZs (b) 24 environmental counselors who will be responsible for

overall environmental management of the zones, monitoring implementation of the Environmental

Management Framework (EMF), monitoring performance of the Central Effluent Treatment Plant

(CETP) and guiding enterprises’ environmental management.

Zone Development. BEZA has identified five potential zone sites and has taken 2 of those sites/projects

(Mongla and Sirajganj) directly to the market to find a private zone developer by floating a Request for

Expressions of Interest (REOI). The EOIs have been short-listed and an RFP is being issued for final

tendering. The Project is also supporting BEZA for conducting full feasibility studies and master

planning for the three other potential EZ sites with the aim of taking them to market once the feasibility

studies are complete. The consultancy firm for these feasibilities has been chosen, and mobilization is

expected in June 2013. BEZA has initiated measures to alienate land at the five sites for developing EZs.

The Project assisted the GoB in preparing tender documents and PPP concession agreements for a private

Park Developer for KHTP. Competitive bids were received through a tender in mid-2012 to develop the

Kaliakor Hi-Tech Park. The final award of the tender is pending Ministry of Law approval.

1 Rating from Fifth Implementation Support Mission (February 3-11, 2013)

9

Capacity Building in Private Sector. The Project has supported the Bangladesh Association of

Software and Information Systems (BASIS) to develop a program on management and capacity

development of the ICT industry through its training arm BASIS Institute of Technology and

Management (BITM). The Project has embedded a PSD and Technical Industry Advisor at BASIS to

perform the necessary background research for the establishment of BITM and develop it scope of work

and training plan. The Advisor has facilitated strategic contacts with international IT/ITES companies

that may be interested in investing in the sector in Bangladesh and has completed a concept note which

includes internationally-recognized certification mechanisms for the Bangladesh IT industry.

Project Challenges

Delays with the regulatory framework for economic zones: The Project-supported draft EZ Rules

were reviewed by the BEZA Board of Governors but have been pending approval since April 2012.

Efforts to promote the new EZs among private sector developers – especially those from Japan and

Europe who require clear rules of investment – have often been hampered by the delays with the final

approval for the EZ Rules.

Delays with the GoB approval of PSDSP project proposals (DPP) for BHTPA and the final

award of the KHTP tender: For a variety of reasons, including the Padma Bridge legacy issues and

disputes with the Railways Division over railway link costs, the DPP for the BHTPA did not receive

GoB approval until February 2013. This held back implementation of the component accounting for

the majority of PSDSP funds ($77 million). The final award of KHTP to the winning bidder has been

pending for nearly a year. This has substantially affected disbursement performance.

Rotation of key GoB staff: A steady rotation of all key personnel in BEZA, including the exit of the

Executive Chairman in November 2012, has hampered proper impetus for Project activities in that

institution, although a new Executive Chairman was appointed in May 2013. The Project has

provided extensive capacity building for each successive wave of staff, including formal in-country

training in master planning for economic zones and PPPs. In addition both BEZA and the BHTPA

have received the support of an embedded expert working within the PIU to accelerate capacity

building of the GoB team and make rapid progress on key activities.

Problems with original Project design: The original cost estimates were overestimated and project

implementation timelines were unrealistic. They were made under the assumption that construction

would begin immediately, and that $83.62 million (or 69.7%) would be disbursed during the first two

full fiscal years of implementation. This profile was not consistent with international practice for

economic zone development worldwide, nor did it take into account a number of critical activities and

milestones which were prerequisites for achieving that amount of disbursement, such as; feasibility

studies being conducted on each potential zone, investment promotion to zones, land alienation for

zones, the tendering of zone projects to private sector developers, landfill (which in Bangladesh is a

major issue as it takes up to a year for land to settle), design and construction of EZs

In light of the challenges and delays mentioned above, the Government of Bangladesh and the World

Bank agreed that the project costs needed to be right-sized and the IDA financing adjusted accordingly.

Consequently SDR 51.3 million was cancelled by the Borrower on June 26, 2013. The proposed changes

described below bring the project description in line with the reduced financing envelope.

10

C. PROPOSED CHANGES

The PDO continues to be relevant for the country’s poverty alleviation efforts through private sector

investments and job creation in economic zones. Hence, no changes are proposed to the PDO itself.

However, in order to ensure the objectives are achieved, the following changes set out in Section A are

proposed:

Revision of project scope

The revision of project scope involves some changes in physical investments and advisory services with

primary emphasis on financing plan changes. The nature of the changes and rationale are described

below.

Number of Zones: The number of zones to be supported under the investment project would

increase from three to at least five with one expected to be open for business during the

implementation period with partial occupancy. However the quantum per zone will be less than

was originally estimated and some of the last mile infrastructure will be developed after the

project’s current duration. Additional funds have been added to BEZA’s allocation to reflect the

construction of last-mile infrastructure for enabling works in the additional zones.

Comilla EPZ expansion – One of the original subprojects identified for PSDSP support was the

expansion of the existing Comilla EPZ, however due to strong community opposition to the

project, a strategic decision was taken not to fund the subproject. Hence, this activity is being

dropped from the project and the provisions of Section I.C.4 of Schedule 2 of the FA (relating to

the preparation of safeguard instruments for the Comilla EPZ) will be dropped as no longer

relevant.

Other new zone in Chittagong – A zone in Chittagong is still likely to be funded under the project

and at least partially constructed in the lifetime of the project. The initially projected funding

however is in excess of that anticipated for such a new private zone in Chittagong and the project

funding has been adjusted accordingly.

Rail connections, Carriages and Landings – in the course of analyzing the project, the current

road and road transportation system were deemed sufficient for the Kaliakoir Hi-Tech Park,

especially in its early phases. Hence, the railroad and landing are no longer required under the

current project and references to this activity will be deleted from Schedule 1 of the FA.

Training and Operating Costs - TA and expertise required to assist BEZA and BHTPA, which

are two newly created institutions, was under estimated and the allocated funding has been

increased accordingly. Furthermore, in the original Financing Agreement support to ERD and the

PIUs for the day-to-day management and coordination of the Project was not explicitly included

in the description of the project in Schedule 1, therefore this support will be added as a new Part

4, entitled “Project Management,” in Schedule 1 of the FA.

Compensation for Eligible Resettlement Costs – None of the sites currently identified by the GoB

for zone development appear to require major resettlement or have livelihood issues. Thus the

original allocation of $27.5 million will not be needed and instead a minimal contingency of

$2.17 million has been provided.

11

Dispute Resolution Mechanism (DRM) and Secured Lending Regime for Moveable Property

(MAR) – During implementation it was found that the project activities related to the

development of dispute resolution mechanisms to settle commercial disputes in connection with

economic zone investments had been supported by IFC and were already in place. Similarly, the

MAR has also progressed already under IFC assistance. Therefore, IDA support is no longer

needed and will be dropped from Parts 1(a)(v), 1(b)(iv) and 1(b)(iv) of Schedule 1 of the FA.

Consulting Services – Technical assistance has been scaled up, given that the original estimates

did not take into account market rates for the feasibility studies to potential zones, nor the scope

of the transaction advisory services for zone projects nor the sector specific training and capacity

building work to be carried out by the BASIS Institute for Technology and Management (BITM)

for ICT.

Revised cost reallocation by project component and projected disbursement tables are in Annex 1.

Implementation Arrangements

The following additional changes are to be incorporated in the revised Financing Agreement to reflect

ground realities of current project implementation.

In order to enhance good governance good governance practices, a new Governance and

Accountability action Plan (GAAP) in Annex 3 has been developed for the Project and will be

incorporated in the revised FA. The GAAP is a result of numerous conversations with the

primary GoB clients, the private sector, and a wider group of stakeholders, both in the process of

preparing the original Project design as well as interactions since the Project became effective.

The version attached in Annex 3 incorporates all comments from the GoB and other stakeholders

as of June 2013.

A PAC has been constituted with the functions agreed upon with IDA, however experience has

shown that the composition needs to be flexible in order to respond to changing challenges

during implementation. Therefore, the GoB has requested that the PAC composition not be

prescribed in the Financing Agreement.

The Procurement Risk Mitigation Plan (PRMP) referred to in the GAAP and the Financing

Agreement, Schedule 2, will be finalized no later than end September, 2013 and the Financing

Agreement amended accordingly.

Reallocation of credit and grant funds among the disbursement categories

In line with the revised project scope described above, the proposed credit proceeds reallocations are

primarily in the areas of works (reduction of SDR 34.9 million) and Compensation for Livelihood

Restoration (referred to as ”Eligible Resettlement Costs” in the FA) (reduction of SDR 16.4 million).

Goods are being reduced from the original budget allocation by SDR 3.7 million, to reflect the

considerably lower allocation found under this category in the individual DPPs and TAPPs of the

implementing agencies. Consulting Services have been increased by SDR 1.4 million whilst Operating

and Training costs have been considerably augmented from original levels (increase of SDR 2.5 million).

Changes in allocation are primarily to the IDA funds. Grant allocation DFID grant allocation has been

revised to be consistent with GoB’s TAPPs and DPP. In addition, at the request of GoB, the IDA credit

will finance all taxes (DFID grant is provided net of taxes).

12

These changes by expenditure category are summarized in the following table:

Rationalization of Results Framework

With respect to the results framework, the PDO is still valid, and will not be modified under the proposed

restructuring. However, the restructuring includes modifications to both the outcome indicators and

intermediate outcome level indicators and changes in targets. These will now reflect the revised project

scope and make the indicators more specific, measurable and realistic. Specifically, Annex 3 of the PAD

had substantial quality at entry errors with inconsistencies between Table 1 and Table 2, as well as with

the original FA. The framework has now been corrected and streamlined. The discussion and rationale

Category of

Expenditure

Allocation

% of Financing

Original PAD Restructuring Paper Original Restructured

(USD) (SDR)

(USD) (SDR)

IDA

Works 76,835,000 49,900,000

22,375,057 14,930,000 94 82

Goods 10,150,000 6,600,000

4,285,375 2,860,000 100 100

Consultants

Services 5,015,000 3,300,000

7,007,248 4,680,000 30 37

Training &

Operating

Costs

500,000 330,000

4,160,446 2,780,000 33 81

Eligible

Resettlement

Costs

27,500,000 17,870,000

2,171,875 1,450,000 100 100

Sub-Total 120,000,000 78,000,000

40,000,000 26,700,000 87 70

DFID

Works 5,000,000 ---

5,000,000 --- 6 18

Goods --- ---

--- --- --- ---

Consulting

Services 11,409.930 ---

11,432,878 --- 70 63

Training &

Operating

Costs

1,000,000 ---

977,052 --- 67 19

Compensation

for Livelihood

Restoration

--- ---

--- --- --- ---

Sub-Total 17,409,930 ---

17,409,930 --- 13 30

GOB

Government

contribution

(taxes) 3,000,000 ---

--- --- --- ---

Grand Total 140,409,930 ---

57,409,930 --- --- ---

13

for the change in each indicator as well as the new results framework are set out in Annex 2 of the RP.

For the purpose of this restructuring, the team has based the revised Results Framework on Table 2 (from

page 37 of the PAD), as this was the most technically consistent basis for projections and monitoring. In

addition, to streamline the FA and enhance operational flexibility, the KPIs will be removed from the FA,

and, if needed, revised by common agreement between the Government and IDA.

D. APPRAISAL SUMMARY

Technical and Fiduciary: The Project team has assessed the re-sized project, and with the

resources and timeframes indicated, believes that the project implementation plan can be

completed and objectives as defined can be achieved within the remaining time period. However,

project implementation should be revisited closer to the closing date to assess progress and the

need for further revisions. The Technical capacity, procurement capacity and financial management

capacity remains unchanged within PIUs.

Institutional arrangements remain unchanged. As per the original PAD, it was agreed that at the time of

the Mid-Term Review (MTR), scheduled for FY14, implementation arrangements would be revisited, in

terms of moving the Central Coordination Unit (CCU) from its current location in the Economic

Relations Division (ERD) to BEZA. This arrangement will be revisited at the MTR and will have to be

reevaluated to ensure that BEZA has the required capacity and personnel to effectively carry out the

duties of the CCU. Currently, there are significant capacity issues surrounding BEZA’s ability to

adequately manage a private zone regime, but a permanent Chairman has been appointed, and BEZA has

begun to engage with investors interested in developing economic zones. The capacity building

incorporated in the project should be sufficient to implement the restructured project as defined.

Financial and Economic Analysis: The original financial and economic analysis of the project

remains valid under the current restructuring. The assumptions which the original analysis relied on

assumed 3 sites - KHTP, Comilla and a site in Chittagong. Changes in the pipeline of potential sites were

anticipated even under the original design. Comilla site will now be replaced by a new site from GoB’s

current short list of 5 priority EZs. Chittagong will now have 2 sites. KHTP remains at the core of the

analysis. In fact the efficiency of the project has improved under the restructured scenario as it achieves

the same outcomes and PDO in the long run with a considerably smaller investment. It will facilitate the

development of as many zones (value added through land development) and at least as many jobs with the

reduced investment in a shorter time horizon, making the IRR and NPV more attractive.

Social and Environment: The project continues to be Category A. The safeguard instruments -

Environmental Management Framework (EMF) and Social Management Framework (SMF), prepared for

the project remains relevant even after restructuring. During the next planned update of the EMF and

SMF it will be updated by end September 2013. This update will incorporate: (i) provisions to support all

categories of encroachers, if adversely affected (ii) Setting up of “Green Cell” at BEPZA. The updated

EMF and SMF will be disclosed in the web sites of GoB, BHTPA and BEZA.

Safeguards and Risk: The critical risks evaluated during the original appraisal are not elevated under

the restructured scenario and overall risk remains at “moderate”. Indeed three of the risk dimensions have

reduced since original appraisal (PPP knowledge, procurement and fiduciary capacity of PIUs are now

built up to an acceptable standard). At least one zone has already had private sector participation (in the

tender for KHTP). No additional BPs or OPs are triggered under the restructured project. The project

team has also recently developed an ORAF (not part of the RP package) which addresses the risk

dimensions in more detail.

14

The table below summarizes the risk profile for PSDSP:

Type of Risk Rating

Project Stakeholder Risks Substantial

Operating Environment Risks

Country Risk Substantial

Sector/multi-Sector Risk High

Implementing Agency Risks

Capacity Risks High

Project Risks

Design Risks Substantial

Social and Environmental Risks Moderate

Program and Donor Risks Low

Delivery Monitoring and Sustainability Risks High

15

ANNEX 1: REVISED ALLOCATION AND DISBURSEMENT

The following is a component-wise breakdown of the proposed reallocation:

The new disbursement projections under this restructuring are detailed in the table below:

Fiscal Year

Original IDA

Projection from

PAD

Revised IDA

Projections

DFID Trust

Fund

Total Revised

(IDA + TF)

FY 2011 3.10 0.00* 0.00* 0.00*

FY 2012 33.26 0.53* 0.27* 0.80*

FY 2013 50.36 3.33* 3.76* 7.09*

FY 2014 8.17 9.00 6.34 15.34

FY 2015 12.61 9.00 7.00 16.00

FY 2016 12.50 18.14 closed 18.14

Total 120.00 40.00 17.37 57.37

*represents actual disbursed

Project Costs

(USD Millions)

Original Proposed

Components / Activities IDA DFID Total IDA DFID Total

Component 1: Technical

Advisory and Capacity

Building

3,120,000 10,084,930 13,204,930 6,286,063 6,447,491 12,733,554

Sub-component 1.1:

Capacity Building for

Zone Related Institutions

970,000 9,474,930 10,444,930 4,699,188 6,090,991 10,790,179

Sub-component 1.2:

Creating a Conducive

Business Environment

within EZs

2,150,000 610,000 2,760,000 1,586,875 356,500 1,943,375

Component 2: Public

Investment Fund

111,865,000 5,000,000 116,865,000 24,546,932 5,000,000 29,546,932

Compensation for livelihood

restoration

27,500,000 ---- 27,500,000 2,171,875 --- 2,171,875

Component 3: Business

Linkages and Product /

Process Improvement

5,015,000 1,325,000 6,340,000 5,006,559 4,985,387 9,991,946

Training and Operating

Costs

1,000,000 1,000,000 4,160,446 977,052 5,137,498

Sub TOTAL 120,000,000 17,409,930 137,409,930 40,000,000 17,409,930 57,409,930

16

ANNEX 2:

Results Framework and Monitoring

The changes to the Results Framework (RF) and rationale are described below. The original RF in

Annex 3 of the PAD could significantly benefit from more “SMART” (specific, measurable, attributable

and realistic) indicators relevant to ground realities during the implementation phase of the Project. The

following RF will replace table 1 and 2 in Annex 3 in the PAD.

PDO Indicators

The PDO indicators have been rationalized down to 3 from the original 6 indicators. The new indicators

are designed to be achievable in the remaining 3 years of the project and relevant to how economic zones

contribute to the project PDO.

The first indicator - “Direct private investment by zone developers in new zones” measures private

investor interest and quantum of investment targeted towards zones in Bangladesh. It makes specific

reference to zone developers as opposed to individual companies locating in the zone.

The assumptions which explain the numbers in the first indicator are as follows: At least 1 zone will be

50% complete by FY15 and 100% complete by FY16. Total cost of the zone development (phase 1 of

200 acres at KHTP or similar site) estimated at $70million and at least 20% of this is funded by private

equity ($14 million). Therefore $10 million at completion in FY16 is a prudent 72% of this estimate.

Two other zones are also expected to be substantially complete but not taken into account in the indicator

as there is risk of delay in their execution.

The second indicator - “Direct private investment by zone tenant companies located within new zones”

measures take up of tenant space within zones and more directly the quantum of investment by tenant

companies. The investment calculations assumes at least one zone is expected to be partially occupied

with about $5million in equipment invested by the private tenant company and another $5 million for

50,000 square feet of covered space developed and paid for by the tenant companies (i.e. 2 to 4 tenant

companies).

The third Indicator - “Number of jobs created (% female)”, is directly addressing the of job creation

dimension within zones of the PDO, focusing also on female employment %. The indicator is specific

and measurable. The projected employment figures are consistent with the assumptions in the second

indicator where 50,000 square feet of tenanted space could accommodate a work force of 1000. Current

experience in the targeted sectors indicates that 30% or more of those employed being female as a

realistic estimate.

Intermediate Result Indicators

The existing results monitoring framework is too numerous, complex, unrealistic in its design, with a high

number of indicators attempting to capture results which will not be attained within the remaining project

lifetime.

17

Component One – Technical Assistance and Capacity Building

The first new Intermediate Results Indicator (IRI) - “Cumulative number of firms receiving a license to

develop an economic zone” will measure the capacity of implementing agencies (HTPA and BEZA) to

attract and regulate private sector participation in zones.

The second IRI - “Cumulative number of completed site assessments, feasibility studies, master plans,

EIAs or SIAs in new zones (cumulative number)” demonstrates a well-planned zone program which

offers investors a pipeline of projects following sound analysis, with adequate safeguards for social and

environmental issues.

The third IRI measures savings to companies located within economic zones in time (and potentially

costs) of obtaining key licenses and permits such as, “Time (days) to process business registration in a

zone” (IRI 4). The baseline is taken from the Doing Business Report, 2010 for firms located outside the

Bangladesh Zone regime. This will be contrasted to those firms registered through the Zone regime.

Component Two – Public Investment Facility (PIF)

The two existing Intermediate Results (“Access to industrial serviced land”, and “Provision of improved

infrastructure services”) were originally designed to address these 2 binding constraints the private sector

faces in Bangladesh. The revised IRI embodies these twin objectives into a single indicator by measuring

the “Development of new economic zones”.

This RFI will count the zones partially and fully developed with private sector participation. At least 1

zone is expected to be open for business and partially tenanted by the time the project closes.

Component 3: Business Linkages and Product/Process Improvement

This component is focusing on providing direct support to develop the private sector and maximize the

spillover effects to the local industry from FDI and business activity within the zones. Developing the

local private sector to be more competitive, innovative with their products/services, which will also

satisfy international standards of quality and certification will help these enterprises to integrate into the

supply chain of firms within the zones.

Increasingly the skill level of the work force in key industry segments such as the ICT sector. This will

impact this objective and is measured through the IRI – “Cumulative number of people receiving industry

specific training or certification”.

Compliance with ISO and other internationally recognized quality and environmental standards will also

enhance the opportunities for local firms to participate in the economic activity associated with the zones.

This is therefore measured by the IRI – “Cumulative number of firms located in economic zones

complying with relevant environmental standards (ISO 14000 or equivalent)”. Another IRI measures firm

level quality assurance by measuring “Incremental number of firms complying with Quality standards

(ISO 9001 or equivalent)” attributable to the Project.

18

Revised Results Framework, PSDSP

Outcome Indicators

Base-line

FY11 2013 2014 2015 2016

Frequency & Reports

Data Collection

Instruments

Responsibility for Collection

PDO Direct private investment by zone developers in new zones* (US$ millions)

0 -- -- 5 10 Annual Reports

BEZA, BEPZA, HTPA report

BEZA, BEPZA, HTPA

Direct private investment by zone tenant companies located within new zones (US$ millions)

0 -- -- -- 10 Annual Reports

BEZA, BEPZA, HTPA report

BEZA, BEPZA, HTPA

Number of jobs created (% female)

0 -- -- -- 2000 (30%)

Biennial for each zone

BEZA, BEPZA, HTPA report

BEZA, BEPZA, HTPA

Component 1 TA & Capacity Building

Cumulative number of firms receiving a license to develop an economic zone*

0 -- 1 3 5 Annual Reports

BEZA, HTPA records

BEZA, HTPA

Cumulative number of completed site assessments, feasibility studies/master plans, new zones – Cumulative No.

1 -- 4 5 6 Ongoing tracking by the Authority

BEZA, BEPZA, HTPA report

BEZA, BEPZA, HTPA

Time (days) to process business registration in a zone.

44**

-- 19* - 9 Ongoing tracking by the Authority

BEZA, HTPA report & 3

rd

part Survey

BEZA, HTPA & CCU

Component 2 Investment Facility (PIF)

Development of new economic zones* (in-progress)

0 -- 1 2 3*** Annual Reports

BEZA, BEPZA, HTPA report

BEZA, BEPZA, HTPA

19

Component 3 – Business Linkages & Product-Process Improvement

Cumulative number of people receiving industry specific training or certification

0 -- 200 800 2000 Quarterly Reports

BEZA, HTPA, BITM report

BEZA, HTPA, BITM

Cumulative number of firms located in economic zones complying with relevant environmental standards (ISO 14000 or equivalent)

0 -- 6 10 15

Quarterly Reports from environmental counselors

BEZA, HTPA environmental counselors

BEZA, HTPA

Cumulative number of firms complying with Quality standards (ISO 9001 or equivalent)

19 19 23 27 30 Quarterly Reports

BEZA, HTPA, BITM report

BEZA, HTPA, BITM

NOTES:

*GoB already has one private developer awaiting his license to develop a zone under a PPP concession.

** Baseline – Prevailing norms outside Zone regime as reported in the Doing Business, 2010.

*** At least 1 zone will be open for business (even partially completed) and a tenancy agreement signed.

20

ANNEX 3:

GOVERNANCE AND ACCOUNTABILITY ACTION PLAN

Purpose

This Governance and Accountability Action Plan (GAAP) for the PSDSP has been prepared to highlight

the governance risks of the program and to establish a plan to address these risks. This GAAP is being

retrofitted to the PSDSP which was approved by the World Bank Board in March 2011. However, given

that the project is placed in the highest risk category because the project includes extensive physical

works (Component 2 of the project) which are typically a target for fraud and corruption, a GAAP is

warranted for the project at this time.

This document will contain five sections:

1. Context for Risk Assessment

2. Governance Risks

3. Actions to Mitigate Risks

4. Monitoring, Remedies and Sanctions

5. GAAP Implementation Matrix

1. Context for Risk Assessment

Bangladesh is a high risk environment. It scores poorly on international corruption monitoring indices

although there have been some improvements in recent years. Its efforts to bolster its legal framework to

counter corruption, including the empowerment of an Anti-Corruption Commission, passage of an Anti-

Money Laundering Act, a soon-to-be adopted law protecting whistle-blowers, and joining the UN

Convention against corruption have not yet yielded substantial gains. These capacity and governance

shortcomings in the public sector, combined with the susceptibility of large civil works projects

worldwide to fraud and corruption, underline the importance of an action plan that utilizes a robust range

of tools to mitigate corruption and poor governance risks. This GAAP seeks to achieve these objectives,

and will be adjusted as is necessary to new circumstances and to challenges and risks throughout project

implementation.

The Bank’s strategy for improving governance in Bangladesh, laid out in its 2011-2014 Country

Assistance Strategy, focuses on developing accountability mechanisms in public sector operations,

especially through increased transparency. The Bank seeks to align with Government priorities in

developing the means of accountability, especially strengthening of public financial management, support

for local government, and use of information and communication technology (ICT) and the adoption of a

Right to Information (RTI) regime.

The Bank maintains a strong policy on integrity, and presses for sanctions on those who engage in corrupt

practices. Similarly, the Bank recognizes the importance of strengthening country systems to prevent

corruption from occurring. Unfortunately, the corruption allegations in the case of the Padma Bridge

construction and withdrawal of the loan request have now formed the backdrop of heightened sensitivity

for all projects requiring construction and infrastructure.

The Project Development Objective (PDO) of the PSDSP is to increase employment through the

facilitation of investment in selected emerging growth centers in the manufacturing and services sectors

of the economy. The primary PSDSP mechanism for achieving this is by enabling the environment for

21

privately-owned, developed and operated economic zones which will harness numerous tracts of land all

over the country for industrial and commercial purposes, thus creating the growth necessary to achieve

the PDO.

Given that the PSDSP involves construction of buildings, roads, and infrastructure, it contains heightened

integrity risks, hence the GAAP focuses on ensuring that every potential opportunity for corruption is

identified and specific mechanisms established for heightened multi-party scrutiny. Complementing this

GAAP is the Bank’s regular system of investigation and potential sanctions for fraud and corruption

operated by its Integrity (INT) Vice Presidency (including cross-debarment provisions with other

multilateral development banks). INT’s preventive services unit was consulted in defining this project’s

GAAP.

As part of the Project Appraisal Document (PAD), the team identified risks and established mitigation

measures (See Annex 1: Matrix of Risks and Possible Controversial Aspects from the Project Appraisal

Document).

2. Description of Governance Risks

Among the possible risks in this project – political, fraud and corruption, institutional and capacity,

procurement, contract execution and project management, financial management, etc. – the following four

are the most likely to be significant factors going forward in project implementation:

Procurement risks

Possible risks include fraud, corruption, collusion, and coercion amongst parties involved in the

procurement process. For example: collusion among the bidders; corruption involving bidders and

government officials; fraudulent documents; corruption between the bidder and the engineer; and

corruption between the winning bidder and the approving authority. Conflicts of interest may present a

serious problem, most notably through relationships with government and given that many government

officials have ties with business through family members.

The program will include the procurement of goods, services and works:

Goods: Office outfitting, furniture, computers, supplies

Services: Consulting services from both international and local firms and individuals (ranging

from a few thousand dollars to millions of dollars in the case of feasibility studies), transaction

advisory services, capacity building, strategic planning, guidelines for drafting rules, regulations

and procedures.

Works (the largest component of PSDSP funds): Construction materials, land fill, construction

of last-mile infrastructure (program / GoB funds will primarily be used for off-site infrastructure;

the private partner will generally be responsible for on-site infrastructure, although as an extra

incentive to attract the zone developer it is customary internationally for the public sector to

provide certain components of on-site infrastructure, for which Project funds may also be used).

Large infrastructure projects are prime candidates for corruption. In the process of negotiating contracts

behind closed doors, agreements can be reached that are not transparent, and under-the-table payments

can be made which are difficult if not impossible to detect. When looking into allegations of corruption,

investigators often have to rely on indirect sources of information and procedures and detect subtleties in

the bidding process in order to ferret out fraud and corruption.

22

The frequent rotation of government officials at all levels is another cause of concern under the topic of

procurement. In the life of the PSDSP project, all implementing agencies have seen at least one turnover

of personnel assigned to the project. This not only lends itself to discreet incidents of fraud, but also it

has often occurred that a GoB official is assigned to the PSDSP, gains considerable experience with and

knowledge of Bank guidelines, and is rotated out again. Since an understanding of World Bank

procurement practices and procedures is essential for the proper implementation and documentation of the

project and for avoiding practices which the Bank considers to be incorrect, the rotation of staff presents a

risk to governance.

A final source of possible concern is the performance of the private sector entity/ies chosen to either

develop the economic zone projects under the PSDSP or the individual infrastructure components within

the zones. For example, the private sector developer could fail to develop the zone according to the

master plan they have submitted when applying for an EZ license. The result could be a failed economic

zone project, valuable industrial land tied up in an unsuccessful project, and a bad reputation for

Bangladesh’s economic zones among potential investors. This is a governance issue because it requires an

effective regulatory agency to monitor the development of zone projects.

Financial Management in Implementation Risks

In the course of project implementation and monitoring the work of consultants and providers of the kinds

of goods, services and works described above, collusion is also possible between the contractor and the

PMU, including but not limited to aspects related to quality assurance, extension of time, variations to

contract and price adjustment.

For example:

[Goods] A company chosen as the principal supplier of office supplies can begin to use cheaper

supplies while being paid the same amounts in collusion with the PMU.

[Services] The GoB office supervising a feasibility study can agree to multiple time extensions

without significantly changing the scope of the work.

[Works] Two or more construction companies can collude in the bidding process for the

construction of an economic zone in order to pre-rig the bidding

Collusion can also involve the independent Construction Supervision Consultant (CSC) retained to serve

as engineer on the contracts and oversee technical implementation.

Regulatory Framework Delay Risks

A final major risk for the PSDSP project will be further delays in the GoB approving a fully-operational

regulatory framework for economic zones in Bangladesh.

The Economic Zones Act was approved in August 2010, and it took a full year (September 2011) before

the regulatory authority (Bangladesh Economic Zones Authority or BEZA) was operational, and to date a

set of implementing EZ Rules has yet to receive its final approval. They are currently with a specially-

appointed committee in the PMO, but have been through multiple desks in the GoB. They must

eventually be approved by the Board of Governors of BEZA. As of July 2013, the EZ Rules have been

pending for 22 months, since the first draft was completed in September 2011.

23

The reason for this delay is probably a combination of factors including (a) economic zones are a new

concept in Bangladesh, so GoB officials often delay the regulatory approvals because they do not

understand them; (b) it is often politically more popular to tout the sufficiency of local investors rather

than talk about attracting foreign investment which is normally associated with economic zones; (c) usual

government bureaucracy.

Similarly, the Hi-Tech Park Authority (HTPA) lacks implementing rules and regulations under the Hi-

Tech Park Authority Act of 2010; hence it lacks the necessary procedural framework for licensing private

economic zones. These delays have been due both to political economy issues as well as capacity issues.

Although economic zones play a prominent and important role in the manifestos of both political parties,

and most government agencies support the concept of economic zones, there have been considerable

differences of opinion as to how best to implement economic zones. For example, given the Digital

Bangladesh initiative, some factions of government and agencies favor concentrating on IT Parks; hence

the Hi-Tech Park Authority Act of 2010 was enacted in a far shorter time period than the EZ Act 2010.

Others believe that Bangladesh’s main competitive advantage is in traditional, labor-intensive industries,

and are therefore supporting the expansion of zones in traditional areas of textiles and garments. This

lack of unity of vision in terms of implementation is a major factor in the delays in the regulatory

framework as different visions for economic zones compete for prominence.

Lack of awareness in the GoB is another major factor in this delay, given that economic zones are a new

concept in Bangladesh. The government-owned, developed, and operated export processing zones are the

only zone model well-known in Bangladesh. Hence, when regulations and laws come up with the new

concepts of private-led zones, sales into the local market (as well as export markets), and the ability to

perform any commercial or industrial activity in the economic zones (as opposed to just manufacturing),

some officials may stall the process because they aren’t familiar with these concepts, in spite of WBG

efforts to train and familiarize over many years.

The PSDSP will continue to assist the GoB with developing the draft rules and regulations and

accompanying forms and applications for these, but when the WBG has assisted with this in the past, it

has not always guaranteed a speedy approval process.

In addition, the PPP Law which will play a major role in enabling the individual components of

infrastructure in the new economic zones has also experienced delay and to date has not been enacted.

These delays give a bad signal to the private sector, which seeks assurances that the rules of the game will

be clear, promises respected and that foreign and domestic investors are on an even playing field. Further

delays may turn away good investors from zone projects.

3. Actions to Mitigate Risks

In General:

GAC concerns will be addressed through a combination of project design and special measures to reflect

three basic principles: maximum transparency and provision of information about every step or action

undertaken including the individuals or entities involved; ensuring that multiple parties are in place to

provide external assessment of the actions that are undertaken in order to have a robust system of scrutiny

and checks; and enhanced use of mechanisms for feedback from individuals outside the implementation

of the project, particularly through use of ICT.

24

These risks are addressed through the overall design of the project and through enhanced transparency, in

addition to following Bank ICB guidelines with its requirements for firm timelines, transparency, and

other mechanisms to guard against corruption.

This section contains a summary of the actions to be undertaken followed by a matrix summarizing the

actions, responsible entities, timelines, and warning signs to trigger additional review through Bank

supervision and/or investigation. It is important to stress that these measures are not meant to be

exhaustive. Depending upon emerging risks highlighted by more intense project monitoring, additional

measures may be necessary.

Cross-cutting Measures

For all of the risks mentioned above, there are strategies that the program has used and will continue to

mitigate the potential impact of these risks:

Comprehensive communications campaign: From the IFC’s successful communications campaign on

economic zones which was able to get significant buy-in from both major political parties (economic

zones now being on both party manifestos), government agencies, the private sector and the public at

large, the PSDSP has learned that a comprehensive communications campaign can go a long way to get

buy-in for initiatives and approaches. The World Bank currently has a communications strategy on

corruption and governance, and the PSDSP will carry out communications activities as part of the overall

WBOD strategy. This will include:

Presentations and workshops for the private sector on governance and economic zones (two

have already been given by Ellen Goldstein with inputs from the project)

Enlisting private sector and government individuals to write op-eds each year on zones and

governance.

Capacity building on procurement and financial management: The WBOD’s procurement and financial

management team have already given several training sessions for the implementing agencies of the

PSDSP on correct procurement and financial management procedures. Further training sessions are

planned and talks with WBOD procurement are designed to come up with a program of training to ensure

that officials in the agencies are well aware of what constitutes procedures and behaviors that are above

reproach in the implementation of the PSDSP. The program of training – both beginners and advanced –

will also be given several times a year to cover new personnel, thus tackling the turnover problem, as well

as reinforcement for existing personnel.

Procurement Risks – Mitigating Measures

Specific mitigation measures:

The PSDSP Financing Agreement in Schedule-2 Section-III part-E (Other Undertakings) mentions a

number of measures for minimizing procurement related risks:

Employ a full-time procurement expert for the duration of the Project acceptable to the

Association. Experience from the first 22 months of the program demonstrates that the two keys

to a successful procurement are (a) having a qualified person in this position, and (b) ensuring

that they receive the necessary training to understand World Bank procedures. The program will

25

ensure that all four of the implementing agencies have qualified, trained procurement specialists

which will minimize the opportunity for conflicts of interest (according to World Bank rules),

Establish a suitable and functional webpage for HTPA23

and BEZA featuring project-related

procurement information accessible to the public, including selection criteria and processes. This

will be a deterrent to corruption, as the public will be able to scrutinize all available tender-

specific documents and will be able to spot whether correct procedures were followed in the

selection process.

Establish within HTPA, BEPZA and BEZA – the three organizations which will actually have

physical works under the PSDSP – a suitable and functional complaint handling system. Again,

this will give any party the opportunity to flag non-transparent practices, even those that are most

difficult to identify.

Establish an adequate database for recording, monitoring and following-up on all procurement

activities under the Project. As information on procurement activities is gathered systemically, it

will allow anyone wishing to investigate specific procurement matters to easily recreate whether

the procurement was conducted properly.

Establish a Procurement Risk Mitigation Plan by each agency for review by the Bank, including

the preparation and submission to the Association, on a quarterly basis, of reports on procurement

activities undertaken during the quarter preceding the quarter in which the report

In addition, the PSDSP will incorporate the following measures into the procurement process:

Both GoB officials and Technical Evaluation Committee members shall be required to submit

declarations of no conflict of interest in these procurements. These declarations shall specify that

there is no conflict of interest between bidding organizations and their personnel and (a) TEC

members or their close relatives, or (b) other officials of the Ministry of Communications,

Bridges Division, and the BBA involved with the procurement process or their close relatives.

The declarations will be submitted prior to the commencement of evaluation of bids. The BBA

will maintain these declarations on file as well as provide them to the Bank. If during the

procurement process a TEC member is found by any Project oversight entity or by the Bank to

have concealed a conflict of interest, that individual shall be immediately replaced on the TEC.

The GoB is aware that if such information is revealed following the conclusion of the

procurement process the Bank will consider appropriate remedies.

For the example of a private sector zone or zone-related infrastructure developer with sub-

standard performance, there are two measures that the PSDSP will take: (1) The GoB authority

overseeing the individual zone projects will hire transaction advisors with PSDSP funds to

oversee not only the initial tendering stage of each project, but also “Phase II” activities such as

the construction of the zone, the promotional efforts of the zone and the investor after-care that

the private zones offer; (2) the Project will treat the zone or infrastructure project as they would

any other project which is publicly procured and has performance issues – simply revoke the

2 Project “support” is defined as PSDSP funding of site assessments, feasibility studies, master plans, investment

promotion, last-mile infrastructure, and on-site infrastructure for specific economic zone projects. 3 Originally the BCC which was originally to have developed the Hi-Tech Park

26

license of the zone developer, for which specific procedures have been established in the EZ

Rules.

Financial Management in Implementation Risks – Mitigating Measures

Specific mitigation measures:

The PSDSP Financing Agreement in Schedule-2 Section-II part-B (Financial Management, Financial

Reports and Audits) mentions a number of measures for minimizing procurement related risks:

Submission of interim unaudited financial reports for the Project each quarter no later than 45

days after the end of the calendar quarter. This will provide a third-party inspection of invoices,

financial documents, and bank statements to catch any documented financial and other anomalies,

such as the example mentioned above of changing to a cheaper, lower-quality of office supplies

under the same contract.

Auditing of financial statements annually no later than 6 months after the end of each annual

period. This will provide a more thorough review of the above mentioned.

The complaints handling system mentioned above in the Financing Agreement in Schedule-2

Section-III part-E (Other Undertakings) – this would also be used during the project

implementation phase for grievances relating to improper implementation.

In addition, the PSDSP will incorporate the following measures into the project implementation process:

Establish a suitable and functional webpage for HTPA and BEZA featuring project-related

implementation information including contracted specifications, methods for accessing project

services, implementation status with expenditure data, monitoring procedures and reports,

grievance procedures, etc. This webpage with full information would also include any contract

extensions, and would thus flag the situation described in the example above of extending a

contact without materially changing the scope of work.

The PSDSP is considering facilitating third-party monitoring practices involving the

communities surrounding the construction and works of the economic zones. This would entail

visiting those communities, making sure they have available information on the works to be

conducted in the areas contiguous to their community, and providing a mechanism (probably by

cell phone) for communicating with the GoB agency supervising that particular construction

project in case of anomalies and lack of compliance. All materials would be in Bangla and

English to ensure that all stakeholders understand the documents. This would address incidents

of corruption such as the example cited above where a construction company chosen to construct

a road cuts on costs and splits the savings with a government official. A third-party monitoring

system will deter this from happening.

Regulatory Framework Delay Risks – Mitigating Measures

Specific mitigation measures:

The PSDSP has developed the complete set of forms, guidelines, and other documents necessary

to fully implement the EZ Act. In the absence of an approved regulatory framework, these

documents have already been used as a de facto regulatory regime or code of practice, especially

27

the application for a zone developer which has been used by 6 private zone developers to apply

for pre-qualification as zone developers. To further enhance BEZAs procedural handling of

applications and transparency, it can make all these forms and the procedures – whether finally

approved or not – available on their website. The PSDSP will work closely with the

implementing agencies to use the forms and guidelines to provide a mechanism and assurances

to potential private zone developers in the absence of a regulatory regime. This activity also

ensures that once the regulatory framework has been approved, BEZA can move quickly on its

prime activities of licensing and promoting.

The Project will provide economic zones-specific capacity building for a wide group of

government stakeholders (e.g., PMO, Ministry of Law, Immigration, DoE, Department of Labor,

Local Government, in addition to BEZA, BEPZA, and the HTPA) for economic zones to reduce

the possibility that they would reject or delay specific policies, guidelines and regulations simply

because they don’t understand them. In reality, both the IFC and the PSDSP have had an

aggressive program of capacity building since 2007 that have included some of the following (not

an exhaustive list):

o Sponsoring GoB participation in the World Free Zone Conventions and pre-event

workshops every year from 2007-2012

o 10 BICF-sponsored stakeholder consultations on the provisions of the draft EZ Policy

from Feb – April 2008

o A resident advisor to assist with developing an EZ promotional strategy for the EZs

together with BEPZA in 2008

o Free Port Master Planning Class in Rotterdam in 2009

o 3-day IFC Deep Dive on Economic Zones in Dhaka in March 2009

o Seminar on why the country needs economic zones with press conference in

collaboration with the MP Chowdhury from Sylhet in 2010

o 2-day seminar on economic zone site selection, master planning and feasibility study in

2011

o Stakeholder review of the EZ Regulations in 2012 (two sessions – Dhaka and

Chittagong)

o Procurement and FMS training on several occasions since the Project was

operationalized.

Given the rotation of personnel within the GoB, this constant capacity building is deemed

necessary as new GoB officials come into zones institutions and are not familiar with the

concepts around economic zones. The PSDSP will continue to provide this kind of capacity

building throughout the life of the project.

4. Monitoring, Remedies and Sanctions

The Padma Bridge experience has provided some pilots, procedures and policies on what to do in the case

of an allegation of corruption that will serve the PSDSP in case that fraud and corruption occurs or there

are allegations of fraud and corruption. The Project team is fully conscious of the sensitivities around

corruption in Bangladesh, especially given the recent experiences, as well as the priorities of the World

Bank, and is fully committed to doing everything possible to prevent corruption from happening in the

PSDSP and to full disclosure and investigation if it does. Following the procedures and guidelines

28

mentioned in Section 3 of this document will be a considerable safeguard against corruption in the

Project.

Among the basic steps that the team will take in case of an allegation are the following:

Acknowledging all receipts of complaints and allegations of corruption that are received through

the established channels

Informing the CMU and Sector Management immediately once any allegation is received

Discussing with the internal WBOD team how to proceed in performing an initial review of the

documentation pertaining to the allegation

Apprising INT of the allegation so that a full investigation can be carried out

Implementing all recommendations of the internal team, INT, Sector Management and CMU with

regard to handling the allegation.

5. GAAP Implementation Matrix

The following is a summary of the mitigation measures described in Annex 3 of this document (in bold italics) with further detail on the

responsible entity, the projected timeline, and any early warning indicators that might trigger additional action:

Issues / Risk /

Objective Actions / Features

Reporting

Framework /

Agency

Responsible

Timeline /

Periodicity

Early Warning

Indicators to Trigger

Additional Action

Action in Case of Early

Warning

Cross-cutting

Measures

Presentations and workshops

for the private sector.

Adopting the provisions for

PSDSP team

jointly with GoB

counterparts

September 2013 –

June 2016

Private Sector

demonstrates a rejection

of the new EZ regime

Identify the reasons

expressed in the

workshops

Organize op-eds around

the constraints

RTI Act and transparency in

information sharing

BEZA, BEPZA,

HTPA

January 2014-June

2016

Designated officer not

appointed Designated Officer

appointed

Op-eds on zones and

governance

PSDSP team

jointly with GoB

counterparts

September 2013 –

June 2016

---

---

Training sessions on correct

procurement and financial

management procedures.

PSDSP team

ERD, BEZA,

BEPZA, HTPA

Oct 2012 – Dec

2014

Constant postponement of

proposed training (3

months or more)

Continue to provide

clearances and

comments on

procurement

Gain buy in of 1 key

person in each

implementing agency

Procurement

Risks

Employment of a full-time

procurement expert

BEZA, BEPZA,

HTPA

August 2012 –

June 2016

Delays (3 months or more)

in employing the expert Continue to provide

clearances and

comments on

procurement

Withhold funding on

projects until the expert

is hired

Establishment of a suitable

and functional webpage for

HTPA and BEZA

HTPA and BEZA

in collaboration

with the IFC

December 2013

30

Issues / Risk /

Objective Actions / Features

Reporting

Framework /

Agency

Responsible

Timeline /

Periodicity

Early Warning

Indicators to Trigger

Additional Action

Action in Case of Early

Warning

Suitable and functional

complaint handling system.

BEZA, BEPZA,

HTPA

March – Sept 2013 Delays in establishing the

system beyond June 2014 Facilitate TA for the

establishment of the

system

Withhold funding on

projects until the system

is established

Database for recording,

monitoring and following-up

on all procurement activities

BEZA, BEPZA,

HTPA

December 2013 Spot checks reveal that the

system is not working

(i.e., delays continue)

Facilitate TA for the

establishment of the

database

Withhold funding on

projects until the

database is establish

Procurement Risk Mitigation

Plan

ERD, BEZA,

BEPZA, HTPA

August 2013 Delays in establishing the

system beyond August

2013

Facilitate TA for the

establishment of the

plan

Withhold funding on

projects until the plan is

drafted and approved

Continue to provide no

objection and clearances

on procurement

Declarations of no conflict of

interest

ERD, BEZA,

BEPZA, HTPA

August 2013 Delays in establishing the

system beyond July 2013 Facilitate TA for the

establishment of the

plan

Withhold funding on

projects until the

practice is adopted

Hiring of a transaction

advisor for EZ projects

BEZA, HTPA December 2013 –

December 2015 Failure to establish the

zone according to the

master plan

Slower than

programmed in the

Warning notification to

zone developer

Revocation of zone

developer license

Revocation of the license of

the zone developer

BEZA, HTPA As needed

31

Issues / Risk /

Objective Actions / Features

Reporting

Framework /

Agency

Responsible

Timeline /

Periodicity

Early Warning

Indicators to Trigger

Additional Action

Action in Case of Early

Warning

license application

construction

Slower than anticipated

infrastructure

development

Slower than anticipated

uptake by investors

Specific complaints

from investors to

BEZA/HTPA

Financial

Management in

Implementation

Risks

Submission of interim

unaudited financial reports

ERD, BEZA,

BEPZA, HTPA

June 2012 – June

2016

Delays in submitting the

required reports of 3

months or more

Provide further training

for the FMSs in each

implementing agency

Downgrade rating in

ISR

Auditing of financial

statements annually

ERD, BEZA,

BEPZA, HTPA

June 2012 – June

2016

Delays in submitting the

required reports of 3

months or more

Provide further training

for the FMSs in each

implementing agency

Downgrade rating in

ISR

Complaints handling system

as above

Establishment of a suitable

and functional webpage for

HTPA and BEZA as above

Investigation of the

possibility for third-party

monitoring practices

PSDSP Team By Dec 2013

Delay in

Regulatory

Framework for

Zones

Use of codes of practice and

guidelines to provide

assurances to potential zone

developers and be a de-facto

ERD, BEZA,

BEPZA, HTPA

By Dec 2013 The institutions listed use

procedures and forms that

are not according to

international best practice

Hold working sessions

with the implementing

agencies on developing

correct forms and

32

Issues / Risk /

Objective Actions / Features

Reporting

Framework /

Agency

Responsible

Timeline /

Periodicity

Early Warning

Indicators to Trigger

Additional Action

Action in Case of Early

Warning

regulatory regime in the

absence of one formally

adopted by GoB.

guidelines

Provision of economic zones-

specific capacity building for

a wide group of stakeholders

PSDSP Team August 2011 –

June 2016

NOTE: The GAAP and this action matrix is a living document and the project team will review its content at regular intervals and

make the necessary changes by common agreement.