Audit of rural electrification projects I, II, and III in Bangladesh, projects nos. 388-0021, 388-0054, and 388-0070

Report covers the period 12/77-8/87 and is based on site visits and interviews with USAID/B, the Government of Bangladesh"s Rural Electrification Board (REB), contractor, and World Bank officials. Progress has been made: the projects have created RE societies to implement the RE program and have extended electricity to 188,000 consumers. A.I.D. has obligated $113 million for equipment and financed a $22.7 million TA contract to upgrade the capacity of the REB and the RE societies. The financial viability of the latter is questionable, however, due to the management inadequacies of the REB and of the societies themselves. Only 2 of the 13 societies that have operated for an extended period of time have attained financial self-sufficiency, as required in Project Agreement covenants. RE III required that the GOB provide a plan to ensure sufficient power generation, transmission, and substation capacity to meet forecasted load capacity within each society served by the REB. The GOB has yet to produce a plan acceptable to USAID/B. In addition, available data on power losses raise questions concerning the GOB"s capacity to provide sufficient electricity for future demand. If demand is not met, the GOB will have to reduce the power supply through load shedding, which would be detrimental to the RE societies. In addition, USAID/B has failed to adequately monitor project commodities, and as a result has been unable to detect and resolve GOB problems in this area, e.g., the transfer of the commodities to non-project activities. Recommendations are that USAID/B: (1) have the REB exclude from RE societies" loans the costs of expatriate consultancy costs and interest on materials and supplies; (2) review with the REB the RE societies" current financial status to ensure that subsidies and the grace period on loan are adapted to the needs of individual societies; (3) require the GOB to transfer the Power Development Board transmission facilities to the RE societies; (4) help the GOB improve RE societies" managment practices by (a) reviewing their administrative and general expenses, (b) reviewing the level and use of depreciation funds for purposes other than replacing capital equipment, and (c) establishing a policy to write off the societies" bad debts; (5) have the GOB develop a power supply plan; (6) formally establish guidelines for monitoring the use of A.I.D.-financed commodities and review current inventories and take the appropriate related action; and (7) require corrective action by the GOB, including a refund of the dollar value of commodities costing $305,000 which had been loaned or exchanged from the Khulna warehouse. Only recommendation 4(b) is considered closed.