KATHMANDU: The Asian Development Bank (ADB) is extending loans totalling $266 million to help Bangladesh address natural gas supply constraints in a bid to spur economic growth and cut poverty.

The ADB Board of Directors today approved a $261 million equivalent loan from its ordinary capital resources, and a further $5 million equivalent from its concessional Asian Development Fund, for the Bangladesh Natural Gas Access Improvement Project.

The funds will be used to build new gas transmission and distribution pipelines to meet growing demand, and to expand coverage to less developed areas in the southwest. The project will install compressors and metering systems to boost reliability, improve safety, and strengthen the management of gas supply and demand. An investment program to promote energy-efficient gas use will be drawn up, and training and support will be given to sector agencies, said the Manila-based bank.

Bangladesh’s vast reserves of natural gas provide around 70 per cent of its total primary energy supply, and fuel 85 per cent of its power generation. The country has made impressive strides in attracting investment for gas exploration and the development of new fields, but its transmission and distribution infrastructure has not kept pace with the growing needs of business and households. The government has drawn up a comprehensive gas sector reform road map and the project is an urgent priority.

“This project will address priority supply and network constraints to ensure sustained growth in the gas sector that is critical to the country’s economic development,” said Priyantha Wijayatunga, Energy Specialist in ADB’s South Asia Department.

Around 200,000 new households in the southwest, along with 1,400 industrial and commercial establishments, will receive gas as a result of the expanded distribution network. This will boost business, generate jobs, and improve the health of vulnerable groups, such as women and the poor, who are currently exposed to harmful air pollution from burning wood and other biomass fuels indoors.

The government, along with ADB, is committed to increasing private sector participation in the gas sector. As part of the project, Sundarban Gas Co Ltd - a newly formed distribution affiliate of state-owned Petrobangla - will enter into contracts with private firms for the operation, maintenance, metering and billing of gas supplied to consumers in the southwest from 2012. ADB’s assistance also comes with conditions linked to regulatory reforms designed to encourage more private investment in the gas industry.

Korea Eximbank will provide a loan of $45 million for the transmission expansion phase, while the Government of Bangladesh will provide $231 million equivalent in equity and loans, for a total project cost of $542 million. ADB’s loan, from its ordinary capital resources, has a 25-year term, including a grace period of five years, and interest determined in accordance with its LIBOR-based lending facility.

The Asian Development Fund loan has a 32-year tenor, including a grace period of eight years, with interest set at one per cent during the grace period and 1.5 per cent for the rest of the term.

The state-owned Petrobangla, Gas Transmission Company Ltd and Bangladesh Gas Fields Company Ltd, are among the executing agencies for the project, which is due for completion in March 2015.