Project Description

This summary covers investments by Orascom Telecom Holding S.A.E. (“Orascom Telecom”) of Egypt into its Banglalink mobile telecommunications project in Bangladesh. The investor has applied for MIGA guarantees totaling $500 million for a period of up to six years against the risks of transfer restriction, expropriation, and war and civil disturbance.

Orascom made its initial investment into the project in September 2004 through its wholly-owned subsidiary Orascom Telecom Ventures Ltd. The project involved the acquisition of Sheba Telecom (Pvt.) Ltd. (subsequently renamed Banglalink) and the operation and maintenance of a national mobile telephone network based on GSM technology. MIGA issued a guarantee of $78.3 million to Orascom Telecom in July 2005 covering its initial equity investment in the project.

Banglalink has expanded rapidly since MIGA’s previous cover in 2005, with Orascom Telecom having initially replaced the existing infrastructure and then significantly expanded network coverage and capacity using new technology and equipment, resulting in a high-quality mobile telecommunications service. Orascom Telecom’s investments have resulted in strong subscriber growth, increasing from 1.2 million subscribers at the end of 2005 to over 10 million at November 2008.

The investor has requested that MIGA replace the existing guarantee of $78.3 million with guarantees amounting to $500 million to reflect the additional investments that have been made.

Environmental and Social Categorization

The project is a Category C under MIGA’s Policy on Social and Environmental Sustainability.  The investments made since 2005 on infrastructure and related physical works, including land take, have not caused any adverse social and environmental impacts.  The new expansion is expected to be similar. The project is required to inform MIGA in the event of any change in scope and for further land acquisition, and such changes would need to comply with MIGA’s Performance Standards on Social and Environmental Sustainability.

Development Impact

Banglalink is a key player in a competitive market in Bangladesh and offers high quality and innovative services to its customers. Cell phone networks are one of the most significant success stories of private sector participation in infrastructure and investment in the country. Banglalink also provides tax and license revenues to the government and provides direct and indirect employment in a variety of sectors.

MIGA’s proposed participation in the project is aligned with key agency priorities, which include supporting South-South investments, investments in infrastructure, and investments in IDA-eligible countries. The project is also aligned with the World Bank’s Country Assistance Strategy as it is contributing to an improved investment climate.

This project is no longer being considered for a MIGA guarantee, as of March 25, 2009.

The project involves the acquisition, operation and maintenance of a national mobile telephone network based on GSM technology. The company offers countrywide services. Since acquiring Sheba, Orascom has upgraded the network and re-branded the company as Banglalink. Orascom has rapidly deployed new network infrastructure, set up a distribution network, and offers high-quality mobile services at competitive prices.

By supporting this project, MIGA aims to help the government address the acute shortage of reliable telephone services in the country. Bangladesh has an extremely low teledensity of less than 1 percent. Landline telephony is exorbitantly expensive for the majority of Bangladeshis, with connection charges as high as $150 and the average wait for a connection ranging from 10-13 months.

Sheba expects to increase its number of customers from the current one million to more than six million by 2012. The project will expand access to telecommunications throughout the country, thereby facilitating commerce in rural and urban areas. The national government will receive a 1 percent share of the project’s annual revenue in addition to $20 million annually in corporate and other taxes. Consumers will benefit from better and cheaper cellular service. Sheba’s actions have prompted other operators to improve their networks, and the increased competition has caused rates to fall by 25-30 percent. The company also employs and trains 350 local staff and about 2,000 people through exclusive dealers of Sheba service.

MIGA issued a $29.3 million guarantee to cover Coastal Power Khulna, Ltd., a wholly-owned subsidiary of the Coastal Corporation of the United States, for its investment in the construction and operation of a dual-fuel barge- mounted 110 MW power plant, located in Khulna. The plant will operate on heavy fuel oil in the initial years of operation, and will be converted for gas use as soon as it becomes available in the area. MIGA's guarantee covers the investment against the risks of transfer restriction, expropriation, and war and civil disturbance.

The plant is designed to alleviate the severe power shortages in the Khulna and adjacent areas, identified as industrial growth centers by the Government of Bangladesh, while improving the overall reliability of the country's power supply. The facility will displace the generating capacity of the older, less efficient, and high-cost plants in the region. The plant conforms to all applicable environmental standards.

The plant will directly and positively affect the economy of the immediate region. It provides employment to over 100 people from the surrounding areas and many of the jobs are technical and managerial in nature. Significant numbers of jobs have been created at the fuel terminal, barges, restaurants, transportation services, and other ancillary businesses created to serve the needs of the plant. New industrial and commercial establishments are likely to open to take advantage of the stable and reliable power, and existing establishments do not require back-up generators. In addition, the plant has contributed significant funds toward social causes in the region.

MIGA issued a $9 million guarantee to Société Générale, S.A. of France for its investment in the establishment and operation of a branch bank in Dhaka. MIGA's guarantee covers the investment against the risks of expropriation, transfer restriction, and war and civil disturbance.

Société Générale (Bangladesh) will concentrate on commercial, merchant, and investment banking activities, and its clients will include private individuals, export companies, and multinational corporations. The bank will employ about 60 local staff and provide on-the-job training in technical and managerial skills, such as cash management, trade finance, management information systems, and foreign exchange transactions. Technology for a new financial management system, designed by Société Générale for its overseas operations, will improve banking operations.

In fiscal 1991 MIGA issued guarantees of $9.9 million each to support Marubeni Corporation and Chiyoda Corporation, two Japanese equity investors in the Kamaphuli Fertilizer Company, Ltd. (KAFCO) in Bangladesh. This $500 million fertilizer facility experienced delays in implementation that necessitated a restructuring of the complex project financing. As a result, both Marubeni and Chiyoda increased their contributions to the project in fiscal 1992. MIGA issued $16.1 million of additional coverage to each of these Japanese investors to cover their loans to the project.

MIGA's guarantees of $9.9 million each support two Japanese equity investors in the Karnaphuli Fertilizer Company Ltd. (KAFCO) in Bangladesh. This large project, which involves a total investment of $435 million, is the first major private-sector investment in Bangladesh. It will provide 2,000 jobs during the construction phase and 835 permanent jobs. Investment insurers from Denmark, Japan, the United Kingdom and the United States, as well as a number of bilateral aid and export agencies, also are expected to participate in the project.

MIGA's insurance covers loan guaranties issued by Marubeni and Chiyoda against the risks of expropriation and war and civil disturbance.