ASIAN DEVELOPMENT BANK

. ASIAN DEVELOPMENT BANK TAR: BAN 35242 TECHNICAL ASSISTANCE TO THE PEOPLE S REPUBLIC OF BANGLADESH FOR PREPARING THE GAS SECTOR DEVELOPMENT PROJECT April 2004

CURRENCY EQUIVALENTS (as of 21 April 2004) Currency unit taka (Tk) Tk1.00 = $0.0170 $1.00 = Tk58.85 ABBREVIATIONS ADB Asian Development Bank ERC Energy Regulatory Commission Petrobangla Bangladesh Oil, Gas, and Mineral Corporation PMO project management office TA technical assistance WEIGHTS AND MEASURES TCF trillion cubic feet NOTE In this report, "$" refers to US dollars. This report was prepared by P. Abeygunawardena.

I. INTRODUCTION 1. During the 2003 Country Program Confirmation Mission of the Asian Development Bank (ADB), the Government of Bangladesh (the Government) renewed its request that ADB provide assistance for developing its gas sector. The ADB Fact-Finding Mission visited Bangladesh from 28 to 31 January 2004 and reached an understanding with the Government on the objective, scope, cost, financing, implementation arrangements, and the consultant s outline terms of reference. This Technical Assistance (TA) 1 is designed to assist the Government to prepare for the proposed Gas Sector Development Project (the Project). The Project is a standby loan included in the 2004 country program. 2 2. The Government has proposed several investments for ADB financing under the Project. These have been selected from components in the gas sector master plan (2003 2020) of the Bangladesh Oil, Gas and Mineral Corporation (Petrobangla). The projects comprise the most urgent components of the plan s priority investment program. Although preparatory work (technical and economic feasibility and environmental, social, and poverty impact analysis) of these investment components is under way, substantial additional work still is needed. 3 II. ISSUES 3. Noncommercial energy, mostly biomass, accounts for about two-thirds of total energy consumption in Bangladesh. Natural gas accounts for almost 70% of commercial energy. It also provides the basis for about 90% of electricity generation. In 2000 2001, natural gas consumption by various consumer categories was: 49% by electricity generation; 20% by the fertilizer industry; 13.6% by other industries; 9.4% by domestic use; 1.1% for commercial use and losses accounted for 6.9%. The share of oil in the total energy mix has declined, and the use of natural gas has increased. 4. Natural gas will provide most of the current and future energy requirements, and the gas market needs to be expanded to optimize the use of natural gas resources and support economic development. Although Bangladesh has been producing natural gas for over three decades, all its major fields are underdeveloped and have not been properly delineated. Assessments of the country s natural gas resource potential vary widely. Total proven recoverable gas reserves in Bangladesh from 22 fields (18 in the public sector and 4 in the private sector) are estimated at 20.4 trillion cubic feet (TCF), of which 5.09 TCF has so far been consumed. The current net recoverable reserve stands at 15.3 TCF. However, substantial natural gas reserves remain underdeveloped or undiscovered. 5. The natural gas sector consists of Petrobangla and its 11 subsidiaries operating companies (gas sector entities). Petrobangla is mandated to carry out oil and natural gas exploration, and the production and marketing of gas. The Ministry of Power, Energy and Mineral Resources (MEMR) oversees gas, mineral, petroleum, and power sectors in policy, regulatory, and operational matters. 1 The TA first appeared in ADB Business Opportunities (Internet edition) on 12 January 2004. Vice-President (Operations 1) cleared the TA concept paper on 18 March 2004. 2 A $170 million loan project was included in the 2000 country program but did not materialize. 3 Components for the proposed loan project will be selected considering their poverty reduction impact from making clean energy available to less developed areas, evidence of strong support from the local population, and a high likelihood of success.

2 6. The domestic gas price structure is established by the Government by setting the gas sales prices for different consumer categories. The Government also determines the level of taxes and the distribution margins for gas transmission and distribution companies. The gas production companies receive a price that is equivalent to the sales price of gas paid by endusers less the distribution margin for the transmission and distribution companies and the taxes levied by the Government. 7. Natural gas in Bangladesh remains underpriced in relation to the long-run marginal cost. This has led to significant resource transfer by some sectors and consumer groups. The average tariff for all users was 78% of total sales in 1999/2000, implying an average subsidy of 22%. The underpricing of domestic gas use leads to a high opportunity cost in terms of foregone resources that could have been mobilized to support investment within and outside the sector, especially given the country s massive development financing needs. Performance in the gas sector has also been limited; it is well below the potential because of low gas extraction and limited use by the domestic market. The delayed or inadequate investment in the expansion of the gas production, transmission, and distribution networks and their operation and maintenance are also major concerns in the sector. This has limited the market and constrained Petrobangla s gas production, causing supply shortages and disrupting fertilizer production and power generation. 8. ADB has had a long involvement in the energy sector of Bangladesh. ADB has been involved in the gas sector intermittently over the last 25 years, with eight loans totaling $446 million. As in other countries, ADB s role has evolved from provider of funds for individual products to a more proactive and comprehensive one involving technical advice for project preparation and policy advice in implementing sector reforms. Overall macroeconomic stability and policy issues have a significant bearing on the sector s performance and, more importantly, its ability to reform. Delegation of authority from the Government to the management of sector entities and from the management to the staff has been limited. Nevertheless, the Government recognizes the need to introduce gradual reforms aimed at commercialization of the sector and distancing operations, regulations, and policy making from each other. 9. Of two active gas sector loans, the Third Natural Gas Development Project 4 was completed in October 2003, more than 4 years behind schedule due to procurement delays. The Dhaka Clean Fuel Project has just been declared effective 1 year after loan approval. 5 The implementation of all previous power and gas sector projects has usually been delayed; thus, ADB s portfolio management in these sectors could have been more effective. No major loan cancellations have been made, although loan funds have been reallocated. ADB provided TA to prepare the Fourth Natural Gas Development Project 6 but TA did not lead to a loan project. The Fourth Natural Gas Development Project would have supported a gas transmission pipeline from the Jamuna Bridge to Bangladesh s border with India. However, the export of gas from Bangladesh to India has not yet been agreed upon. To the extent relevant, consultants working on the current TA will refer to work previously done, including for the Fourth Natural Gas Development Project. 10. Several major initiatives were taken under the Third Natural Gas Development Project, including the establishment of the Hydrocarbon Unit in the Ministry of Power, Energy and 4 ADB. 1993. Report and Recommendation of the President to the Board of Directors on a Proposed Loan to Bangladesh for the Third Natural Gas Development Project. Manila. 5 ADB. 2002. Report and Recommendation of the President to the Board of Directors on a Proposed Loan to Bangladesh for the Dhaka Clean Fuel Project. Manila. 6 ADB. 1997. Technical Assistance to Bangladesh for the Fourth Natural Gas Development Project. Manila.

3 Mineral Resources. The adoption in October 2003 (after project completion) of a gas pricing framework linked to international fuel oil prices largely comprises compliance with the related covenant. Other major policy covenants, particularly those relating to autonomy of the gas sector entities, have been partly complied with. The covenant relating to partial private sector ownership in each of the gas production, transmission, and distribution companies that were executing agencies under the loan project is irrelevant to the current reform process since it would not lead to significant change in the sector or the companies. Further, in retrospect, it appears that the condition was premature in the absence of a legal framework enabling private sector participation in gas transmission and distribution. Regulatory, policy, and capacity strengthening measures to address the issues encountered in implementing the Third Natural Gas Development Project will be pursued under the Dhaka Clean Fuel Project 7 and the others will form the basis of policy dialogue under the proposed Project. ADB s TA support in conjunction with the Third Natural Gas Development Project subsequently helped the drafting of the regulatory framework and key regulations that led to the creation of the Energy Regulatory Commission. 8 11. Pursuant to policy dialogue with ADB and development partners, the Government has taken steps to move away from administered gas tariffs to a flexible and transparent mechanism under which gas prices will be linked to the cost of supply for each category of consumer and adjusted periodically. As a first step toward commercializing gas sector operations, the Government in October 2003 adopted an interim pricing framework for electricity, gas, and petroleum products that would help provide policy guidelines to the new regulator. The new pricing framework has been designed to enable the sector to cover its operating expenses and debt-servicing liabilities, and generate a surplus to finance part of its investment program, rather than relying on the Government budget. The pricing framework will allow formula-based frequent tariff adjustments in line with international market prices. Prices of petroleum products will be based on import parity prices, the price of gas will be linked with the international high sulfur fuel oil, and power tariffs will reflect movements in gas or fuel oil prices and other variable costs. The prices for power will be reviewed quarterly; those for gas and petroleum will be reviewed monthly. Price adjustments will normally be made semi-annually. However, more frequent adjustments will be made if necessitated by international price movements and other economic factors and if the monthly variation exceeds 10%. Any subsidy, such as that for fertilizer, will be made transparent and provided through budgetary provisions. 12. The Government is preparing a 3-year plan for gas sector reform outlining its vision on restructuring, ownership, private sector participation, and regulation. The Government recognizes that an improved gas sector could have a large potential contribution to the development of the economy, but it would have to be effectively managed to maximize its role in poverty reduction and ensure an equitable distribution of benefits. Priority elements include ensuring good governance in the gas sector entities, including facilitating private sector participation; designing and implementing competitive and equitable pricing policies; strengthening and improving commercial operations; enacting laws to strengthen the legal framework to enable effective private sector participation, and defining the sector restructuring program; (v) implementing an action program to improve the financial performance of gas sector entities; (vi) developing human resources; and (vii) strengthening the institutional capability in policy making and monitoring. During the discussions, the Government stated that the ERC 7 ADB. 2002. Report and Recommendation of the President to the Board of Directors on a Proposed Loan to Bangladesh for the Dhaka Clean Fuel Project. Manila. 8 ADB. 1993. Technical Assistance for the Preparation of a Gas System Development Plan and the Strengthening of the Organizational and Regulatory Framework for the Oil and Gas Sector. Manila; ADB. 1997. Support to the Gas Regulatory Authority Project. Manila; ADB. 1998. Support for the Energy Regulatory Authority Project. Manila.

4 would soon be made operational to facilitate the separation of policy-making, regulation, and operational functions of the gas sector entities. III. THE TECHNICAL ASSISTANCE A. Purpose and Output 13. The TA will help the Government prepare a gas sector development project. The Project will include a sector development plan, policy reform measures, priority investments, and an institutional strengthening component. The TA framework is given in Appendix 1. B. Methodology and Key Activities 14. The TA will investigate the necessary sector reform requirements and alternatives to meet the projected gas demand especially in less developed areas of the country. This will involve reviewing the short-, medium-, and long-term sector development plans and preparing a policy package; reviewing infrastructure development proposals and other documents to define the scope of the components for financing under the ensuing Project; making a technical review of the proposals to confirm their suitability and soundness and preparing implementation schedules for the selected components; and undertaking financial, economic, environmental, social, poverty reduction, and institutional analyses of the investment feasibility studies prepared by the Government. The TA will also develop an institutional strengthening plan for Petrobangla and other relevant agencies. 15. Key activities include (v) (vi) (vii) (viii) preparing an internal report that analyzes the potential for economic growth and social development in less developed areas, particularly with reference to expanding natural gas supply and distribution; preparing a report that analyzes the potential and required reforms for gas sector development; preparing a report that assesses barriers to improving gas sector development; identifying policy packages for the promotion of gas sector development; developing an investment package that identifies infrastructure development components; performing detailed financial, economic, environmental, social, poverty reduction, and institutional analyses of the identified project components; reviewing the Project s cost estimates, financing plan, and procurement packages, and estimating the levels that greenhouse gas emissions will be reduced by the subprojects. 16. No major risks are associated with the TA, and the Government has expressed its strong support for the TA. Appendix 2 summarizes the initial social and poverty analysis of the Project. C. Cost and Financing 17. The total cost of the TA is estimated at $600,000 equivalent, comprising $305,000 in foreign exchange and $295,000 equivalent in local currency costs. The amount of $480,000, of which $305,000 is in foreign exchange and $175,000 equivalent is in local currency cost, will be financed on a grant basis by ADB s TA funding program. The Government will finance the

5 remaining $120,000 equivalent in local currency cost. The detailed cost estimates are presented in Appendix 3. The Government has been advised that approval of the TA does not commit ADB to finance any ensuing project. D. Implementation Arrangements 18. The Executing Agency for the TA will be Petrobangla, which will appoint a senior staff member as the Project director. The TA will finance the services of international and domestic consultants. The TA will be carried out for 4 months by an internationally recognized consulting firm in association with domestic consultants. The TA will commence in late June 2004 and will be completed by the end of October 2004. The consultants for the TA will be recruited by ADB on the basis of submission of simplified technical proposals and using the quality- and costbased selection procedure. The consultants will be engaged by ADB in accordance with ADB s Guidelines on the Use of Consultants and other arrangements satisfactory to ADB for the engagement of domestic consultants. International consultants will procure the equipment to be financed under the TA in accordance with ADB s Guidelines for Procurement, through direct purchase procedures with quotations from at least three suppliers. A project management office (PMO) will be established in Petrobangla. The PMO will be responsible for the day-to-day management of the TA and will coordinate with all government and nongovernment stakeholders of the proposed Project. The PMO will also oversee consultants activities and facilitate all ADB s TA administration and loan project processing activities. 19. International consultants will be engaged for a total of 8 person-months, and domestic consultants for 21 person-months. The consulting team will comprise international experts in gas sector development, natural gas economics, and financial analysis. The domestic experts will include an institutional development specialist, an environment specialist, a social development specialist, a poverty reduction specialist, (v) a financial analyst, (vi) a natural gas economist, and (vii) a natural gas policy specialist. The outline terms of reference for the consultants are in Appendix 4. 20. The consultants will submit an inception report 2 weeks after TA commencement and a draft final report 3 months later. The Government and ADB will provide comments and they will be discussed at tripartite meetings. At the end of 4 months, the consultants will submit the final report incorporating Government and ADB comments on the draft final report. IV. THE PRESIDENT'S DECISION 21. The President, acting under the authority delegated by the Board, has approved the provision of technical assistance not exceeding the equivalent of $480,000 on a grant basis to the Government of Bangladesh for preparing the Gas Sector Development Project, and hereby reports this action to the Board.

6 Appendix 1 TECHNICAL ASSISTANCE FRAMEWORK Sector Goal Design Summary Performance Targets Monitoring Mechanisms Assumptions and Risks Facilitate economic growth, poverty reduction, and environmental improvement through natural gas sector development. Increased economic growth in Bangladesh through provision of natural gas in a sustainable manner. Increased per capita income, quality of life, and clean energy supply. Purpose Prepare a natural gas sector development project. Develop a policy investment and institutional strengthening package for the development of the natural gas sector. Loan project design, associated assessments and reports, review missions, and policy dialogue. Government s willingness to engage in dialogue and commitment to implement eventual policy changes and infrastructure development. Outputs 1. Review of the sector development plan. An analysis of opportunities for the sector s growth and development. 2. Policy reform package. Develop a set of policies for sector development and investment promotion. 3. Identification of priority investments. 4. Assessment of institutional development requirements. Activities Develop project components using technical, financial, economic, environmental, social, poverty reduction criteria. Conduct an institutional assessment to identify requirements to implement proposed policies and investment components. Internal report and plan developed, review missions, and progress reports. Internal report, policy dialogue results, consultation, review missions, and progress reports. Technical, financial, economic, environmental, social, poverty reduction assessment reports, actual project design, review missions and progress reports. Institutional assessment report, review missions, and progress reports. Data is available, capable consultants are recruited; Government and the local agencies are committed to developing the natural gas sector. Data is available, capable consultants are recruited; Government and the local agencies are open to policy dialogue and committed to developing the natural gas sector. Data is available, capable consultants are recruited, and stakeholders support the Project. Data is available, capable consultants are recruited, and stakeholders support the Project. 1. Analyze potential for economic growth and social development. 2. Analyze potential for gas sector development. 3. Assess barriers to gas sector development. 4. Identify policy packages for the promotion of gas sector A review of sector plan, policy reform measures, priority investments, and institutional strengthening component. Technical Assistance (TA) outputs, policy dialogue, and review missions. Information availability, consultant s capabilities, and stakeholder involvement.

Appendix 1 7 Design Summary development. 5. Develop an investment package. 6. Perform technical, financial, economic, environmental, social, poverty reduction, and institutional analyses of subprojects. 7. Review cost estimates, financial plan, and procurement packages. 8. Prepare an estimate of reduction of greenhouse gas emissions. Performance Targets Monitoring Mechanisms Assumptions and Risks Inputs Consulting services. International consulting services for 8 person-months. Domestic consulting services for 21 person-months. Total Cost. Estimated total cost of $600,000 equivalent comprising $305,000 in foreign exchange and $295,000 in equivalent local currency. Financing. ADB will finance $480,000 equivalent on a grant basis; Government s contribution is $120,000 equivalent. TA outputs and review missions. Capable consultants with requisite skills mix will be engaged; domestic consultants will provide required expertise and support. Counterpart funds are available to meet local support.

8 Appendix 2 SUMMARY INITIAL POVERTY AND SOCIAL ANALYSIS A. Linkages to the Country Poverty Analysis Sector identified as a national priority in country poverty analysis? Yes Sector identified as a national priority in country poverty partnership agreement? Yes Contribution of the sector/subsector to reduce poverty in Bangladesh: The development of the gas sector is necessary to promote pro-poor economic growth. As a cleaner source of energy than oil, the poor will benefit as they are the sector most adversely affected by pollution and environmental degradation. Policy reforms that lead to private sector development in the sector will also support pro-poor economic growth through job creation. B. Poverty Analysis Proposed Classification: Pro Poor Growth Consultants will prepare a social impact assessment and a poverty impact assessment. The social assessment will include a review of socioeconomic impacts of the proposed loan project, a review of land acquisition and relocation plans, the preparation of resettlement plans if required, and the incorporation of mitigation measures in cost estimates. The poverty impact assessment will include an evaluation of the impact of the proposed project on individuals, households, and groups in general; and the impacts on poor and vulnerable segments of society. The poverty impact ratio will be estimated. C. Participation Process Stakeholder analysis? Yes, stakeholder analysis will be undertaken. Participation strategy? Yes, a participation strategy will be devised during the Project Preparatory Technical Assistance implementation stage. Options will be reviewed to enhance stakeholder participation and local ownership. D. Gender and Development Strategy to maximize impacts on women: The poor and women will be carefully considered in conducting participatory activi ties. Gender plan prepared? No

Appendix 2 9 E. Social Safeguards and other Social Risks Significant/ Not significant/ Strategy to Address Issues None Resettlement Not significant The proposed Project involves physical construction and is likely to involve land acquisition. Current project categorization is Category A. Plan Required Full or Short Indigenous Peoples None The Project will not pass through areas of significant indigenous people s settlement or use. No Labor Positive The Project will require construction labor and will result in permanent employment for the operation and maintenance of project facilities. No Affordability Not significant No Other Risks/ Vulnerabilities None No

10 Appendix 3 Item COST ESTIMATES AND FINANCING PLAN ($ 000) Foreign Exchange Local Currency Total Cost A. Asian Development Bank Financing a 1. Consultants a. Remuneration and Per Diem i. International Consultants 185 0 185 ii. Domestic Consultants 0 115 115 b. International and Local Travel 40 15 55 c. Reports and Communications 5 5 10 2. Equipment b 15 5 20 3. Training, Seminars, and Conferences 15 10 25 4. Technical Assistance Contact Negotiations 5 0 5 5. Contingencies 40 25 65 Subtotal (A) 305 175 480 B. Government Financing 1. Office Accommodation and Transport 0 65 65 2. Remuneration and Per Diem 0 30 30 of Counterpart Staff 3. Others c 0 25 25 Subtotal (B) 0 120 120 Total (A+B) 305 295 600 a Financed by ADB s technical assistance funding program. b Includes office hardware (photocopier, four desktop computers, and a printer) and computer software for word processing, spreadsheet analysis, and Internet access. c To provide for unforseen expenses such as data acquisition, data processing, and map preparation. Source: Asian Development Bank estimates.

Appendix 4 11 A. International Consultants OUTLINE TERMS OF REFERENCE FOR CONSULTANTS 1. The consultants will ensure that all works and outputs under the Technical Assistance (TA) comply fully with all relevant ADB policies and guidelines. The main purpose of the TA is to examine the feasibility of the proposed Gas Sector Development Project for possible Asian Development Bank (ADB) loan support. The consultants duties include, but are not limited to the duties noted. 1. Gas Sector Development Specialist (3 person-months) 2. The specialist will do the following. (v) (vi) (vii) (viii) (ix) Be team leader for studies to be conducted by the TA. In this capacity, coordinate with other team members to develop a detailed work plan and implementation schedule; work with Petrobangla to oversee the consulting team; and compile, edit, and ensure the quality of the final report. Identify and analyze project components according to technical perspective and operating conditions. Define the selected project components so the documentation will be adequate for inclusion into the final project design. Assess the appropriateness of the proposed project components, taking into account current and projected natural gas demand, and various technical parameters of gas transmission, distribution, and other infrastructure needs. Review the present status of the gas transmission and distribution networks and their plans for expansion, and evaluate the least-cost option for urgent rehabilitation work. Review the scope, capital, and operating cost estimates, implementation schedule; and contracting and implementation arrangements. Prepare procurement packages for the proposed Project. Work with the economist to review current natural gas pricing policies and their impact on the proposed Project. With domestic consultants, recommend a policy matrix for sector reforms including issues on segregation and reassignment of policy-making, regulatory, and ownership functions; pricing based on cost-of-service; and sector restructuring and private sector induction. Identify short-, medium-, and long-term reform targets, beyond the 3-year plan being developed by the Government. Based on the reviews and analyses and in coordination with the other members of the team, recommend the necessary policy, investment, and capacity-building institutional needs to be addressed under the proposed Project. Assist the ADB team in developing a project framework for the proposed Project.

12 Appendix 4 (x) (xi) Review identified rehabilitation work and high pressure interconnection installations. Prepare the cost estimates for the infrastructure rehabilitation and new interconnection installations. 2. Natural Gas Economist (3 person-months) 3. The economist will do the following. (v) (vi) (vii) (viii) (ix) Review the power sector plans and plans for their expansion, and evaluate the least-cost option for power generation and distribution. With inputs from the domestic consultant, provide the economic rationale for the Project, including an analysis of alternatives. Estimate the economic capital and operating costs, and carry out least-cost, viability, and beneficiary analysis of the proposed Project. Include sensitivity analysis according to ADB's Guidelines for the Economic Analysis of Projects. Assess the economic feasibility of various subproject components, proposed policies, and options for infrastructure needs, including gas distribution networks. In consultation with the social development specialist, incorporate poverty reduction impacts in accordance with ADB s Handbook on Integrating Poverty Impact Assessment in the Economic Analysis of Projects. Undertake an economic benefit-cost analysis to confirm the overall viability of the proposed Project in terms of economic internal rates of return. Assess various stakeholders willingness and ability to pay for services under the proposed Project. Assess economic and sustainability issues and carry out distribution, sensitivity, and risk analyses. Evaluate the proposed Project s direct and indirect environmental impacts. Carry out an economic analysis of impacts in terms of net present value and internal rates of return, in accordance with the ADB's Workbook on Economic Evaluation of Environmental Impacts. 3. Financial Analyst (2 person-months) 4. The analyst will do the following. Undertake the financial analysis of the proposed Project in accordance with ADB s Guidelines for the Preparation and Presentation of Financial Analysis, using the financial internal rate of return method and comparing it with the relevant weighted average cost of capital.

Appendix 4 13 (v) Assess financial feasibility of subproject components, proposed policies, and options for infrastructure needs, including gas distribution networks. Assess and finalize the financial return of the proposed Project to equity, using various levels of equity contribution, and the options available to structure the proposed Project to be of interest to the private sector. Assess the financial performance of the executing and implementing agencies. Prepare appropriate financial statements in accordance with ADB s Guidelines for the Preparation and Presentation of Financial Analysis. Assess financial sustainability and carry out distribution, sensitivity, and risk analyses. B. Domestic Consultants 1. Institutional Development Specialist (3 person-months) 5. The specialist will do the following. Evaluate the constraints on the institutional structures to attract and raise investments from the private sector and meet the country s natural gas needs efficiently and at least cost. Determine the optimum organizational and ownership structure that will address the constraints and meet the objectives of improving sector efficiency and attracting private sector participation, taking into account the proposed sector reforms in relevant sectors of the country. Outline possible approaches for institutional restructuring of the natural gas sector entities, including roles of national, and local agencies along with proper corporatization plans. Share the information with the international consultants. 2. Environment Specialist (3 person-months) 6. The specialist will do the following. Review the environmental impact assessment reports for proposed project and the required mitigation measures in the design, construction, and maintenance of the proposed project, its components, and policy options. In each case, assess conformity with ADB s Environmental Policy (2002), Operations Manual F1/BP and F1/OP (2003), Environmental Guidelines for Selected Industrial and Power Projects and Environmental Assessment Requirements. Prepare a summary initial environment examination report in accordance with ADB s Environmental Policy (2002), Operations Manual F1/BP and F1/OP (2003), Environmental Guidelines for Selected Industrial and Power Projects and Environmental Assessment Guidelines, outlining environmental impacts, proposing mitigation measures, and identifying costs related to the mitigation of adverse environmental impacts.

14 Appendix 4 Assess any possibilities of obtaining support for possible reduction of greenhouse gases from the Clean Development Mechanism. Assess the leakages of gas at various stages from well head to users. 3. Social Development Specialist (3 person-months) 6. The specialist will do the following. Prepare a social impact assessment and its summary. Thoroughly review the socioeconomic impacts of the proposed project components, policy options, and overall Project according to ADB's Handbook for Incorporation of Social Dimensions in Projects. Include an assessment of indigenous people s issues. Review land acquisition and relocation plans of project components that involve resettlement, and assess their conformity with ADB Guidelines for Involuntary Resettlement, including (a) time-bound arrangements, public consultation, relocation, compensation for affected inhabitants; and (b) costs related to relocation, compensation for land acquisition, and right-of-way. Incorporate all mitigation measures into the cost estimates of the project components. 4. Poverty Reduction Specialist (3 person-months) 7. The specialist will do the following. Evaluate the impact of proposed policy and institutional measures on individuals, households, and groups. Evaluate the impact of proposed project components and the overall project on individuals, households, and groups, in particular poor and the vulnerable segments of the society. In consultation with the natural gas economist, estimate the number of beneficiaries and all other stakeholders, and estimate the economic benefits of the proposed Project in terms of direct and indirect earnings, cost savings, and poverty reduction impacts. Estimate the poverty reduction impact ratio according to the ADB guidelines and other requirements of ADB. 5. Financial Analyst (3 person-months) 8. The analyst will do the following. Assist the international consultant in reviewing the detailed project cost estimates for various project components and for the entire Project. Prepare summary cost tables in ADB format based on 2004 prices expressed in foreign exchange and local currencies, including appropriate provisions for

Appendix 4 15 physical contingency, price escalation, and financing charges (including interest during construction) and share them with the project team. Assist the international consultant in developing a suitable financing plan for the project components and the entire project, including financing available from national sources. Support sensitivity analyses of the components' financial evaluation, considering key factors that could affect their viability. 6. Natural Gas Economist (3 person-months) 9. The economist will do the following. (v) Assess the macroeconomic and sector context of the proposed project, and conduct a demand analysis. Assist the international consultant in undertaking least-cost, viability, economic, beneficiary analysis of the proposed project, including sensitivity analysis according to ADB's Guidelines for the Economic Analysis of Projects. Provide inputs to assess the economic feasibility of various project components, proposed policies, and options for infrastructure needs, including gas distribution networks. Assist in assessing various stakeholder s willingness and ability to pay for expected various services under the proposed Project. Provide inputs to assess the uncertainties and risks facing the proposed Project, and carry out sensitivity analyses to check the Project s viability under adverse conditions. 7. Natural Gas Policy Specialist (3 person-months) 10. The specialist will do the following. (v) Review the ongoing policy reforms in the natural gas, power, oil, and other relevant sectors. Help prepare a plan for natural gas sector development. Develop a policy package to assure adequate incentives for the private sector to take initiatives in promoting natural gas use. Assist the international consultant in analyzing the socioeconomic implications of the most likely sector reforms agenda for the gas sector. Help assess the macroeconomic and sector context of the proposed Project within the context of on going and future sector reforms. Based on the reviews and analyses, and in consultation with the team leader and the other members of the team, provide inputs to the policy matrix for the natural gas sector reforms and development.