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Published by towhid_35

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Published by: towhid_35 on Dec 05, 2012
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Case 3: World Bank revives $1.2 billion loan
The case highlights one of the important topic of Managerial Economics, i.e. how to optimize net benefits.Review the news report in The Daily Star, “World Bank revives $1.2 billion loan”(http://www.thedailystar.net/newDesign/latest_news.php?nid=41004) and the paper on PadmaMultipurpose Bridge Project below
Visit The World Bank, Asian Development Bank, JapanInternational Co-operative Agency (JICA) and Islamic development Bank (ISDB) websites. Youare also welcome to review any other reports on Padma bridge financing. Based on your review, please write a short paper no more than 5 (five) typed pages that should include:1.Why the World Bank cancelled and subsequently revived the Padma bridge financing?2.Was the World Bank justified in cancelling the loan?3.What are the costs and benefits of alternative financing: e.g.i)Malaysian proposal; oii)Domestic resources4.How would you like the bridge to be financed?5.“Corruption is everywhere”—why should you worry about it?.
Padma Multipurpose Bridge Project (RRP BAN 35049)
11. A financial analysis assessed the viability of the proposed project investment based on thecapacity of Bangladesh Bridge Authority (BBA) to generate sufficient revenues to cover thecapital costs of the project. The analysis was carried out on an incremental basis, using thediscounted cash flow method and measuring the financial internal rate of return of the project.
1B. Project Cost
12. Taking into account the financial costs, the total amount needed to finance the PadmaBridge Project is presented in Table 1.
Table1: Project Financing Plan
($ million)
Component World Bank ADB JICA IDB Govern-mentTotalA. Main Bridge
 A1 Main bridge and viaducts A1.1 Main bridge and viaducts 500.0 300.0 300.0 239.8 1,339.8 A1.2 Construction yards 57.5 57.5 A2 Approach roads and bridge-end facilities A2.1 Mawa side 35.0 35.0 A2.2 Janjira side 35.0 140.0 18.9 193.9Subtotal (A) 570.0 300.0 300.0 140.0 316.2 1,626.2
B. River Training Works
275.0 248.0 276.9 799.9
C. Implementation of SAP and EMP
C1 SAP 206.3 66.9 273.2C2 EMP 18.7 18.7Subtotal (C) 225.0 0.0 0.0 0.0 66.9 291.9
D. Consultancies for Supervision
D1 Construction supervision and projectmanagement support65.0 65.0D2 M&E and supervision of EMP and SAP 7.0 7.0Subtotal (D) 72.0 0.0 0.0 0.0 0.0 72.0
E. Project Management, TA, Training
E1 Project management support and audits 7.0 7.0E2 BBA strengthening, TA, POE, and training 14.0 14.0E3 Strategic studies 5.0 5.0Subtotal (E) 26.0 0.0 0.0 0.0 0.0 26.0
Total Project Cost
1,168.0 548.0 300.0 140.0 660.0 2,816.0
Financing Costs
32.0 67.0 99.0
Total Project Cost 1,200.0 615.0 300.0 140.0 660.0 2,915.0
 ADB = Asian Development Bank, BBA = Bangladesh Bridge Authority, EMP =environmental management plan, IDB = Islamic Development Bank, JICA = JapanInternational Cooperation Agency, POE = panel of experts, SAP = social action plan, TA= technical assistance.Sources: Government of Bangladesh, Asian Development Bank estimates2
13. Project financing needs were determined with the financing terms shown in Table 2.For the purpose of analysis, the term of the ADB loan from the ordinary capitalresources is 25 years with a 5-year grace period.Table 2: Financing TermsItem ADB World Bank JICA IDBOCR ADFLoan or credit amount($million)539 76 1,200 300 140Interest rate LIBOR+0.3%1.0%1.5%0.75% 0.01% LIBOR+1.2%floating Fixed at the end of constructionOther fees andcharges0.15% 0% 0% 0% 0%Loan period (years) 25 32 40 40 20Grace period (years) 5 8 10 10 4 ADB = Asian Development Bank, ADF = Asian Development Fund, IDA = InternationalDevelopment Association, IDB = Islamic Development Bank, JICA = Japan InternationalCooperation Agency, LIBOR = London interbank offered rate, OCR = ordinary capitalresources, SDR = special drawing right.Sources: Asian Development Bank estimates1C. Traffic Forecast14. Using detailed information on socioeconomics and travel patterns, a transport modelwas developed to forecast traffic volumes and revenues for the Padma bridge. Thebasic steps involved in the transport modeling are to (i) build the base and future year networks; (ii) determine base year river crossing demand using an origin–destinationsurvey undertaken in May 2009 and calibrate it to current conditions of road traffic; (iii)determine growth in future demand by forecasting growth in car ownership and changesin socio-demographics, including population and employment; (iv) calculate, based onthe relative costs of each mode, how mode choice may change for future year demand;(v) assess freight movements; and (vi) assign motorized traffic to a representation of theroad network.15. Two traffic scenarios have been analyzed. A high-traffic scenario, considered thebase case, results from the traffic model run and is based on sustained traffic growthrates as well as a high diversion rate of approximately 80% from other ferry crossings,mainly the Paturia ferry crossing. As part of a sensitivity analysis requested by thecofinanciers, a low-traffic scenario is also presented. This scenario is an adjusted resultbased on lower traffic growth rates, especially for 2010–2020, and on a 70% diversionrate from Paturia. The lower diversion rate from Paturia has a significant impact, asdiversion from Paturia should contribute approximately 65% of Padma bridge traffic.

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