MIGA Credit Enhancement Helps Boost Fertilizer Production in Bangladesh
WASHINGTON DC, March 9, 2020 — MIGA, a member of the World Bank Group, has issued US$357 million in guarantees to support the construction, installation and operation of the US$ 1.3 billion Ghorasal Polash Urea Fertilizer plant in Bangladesh. The guarantees were issued to HSBC and MUFG banks for up to 14 years against the risk of Non-Honoring of Sovereign Financial Obligations (NHSFO).
The plant will be owned and operated by the Bangladesh Chemical Industries Corporation (BCIC), a state-owned enterprise, and Engineering, Procurement and Construction will be undertaken by a consortium consisting of Mitsubishi Heavy Industries Ltd., and China National Chemical Engineering No. 7 Construction Co., Ltd. Commercial operations are expected to begin in 2023.
The new plant will have a production capacity of 2,800 metric tons per day and replace two existing obsolete facilities—more than tripling their combined output—while using the same amount of natural gas. Furthermore, the plant will produce urea at about $140 less per metric ton than it costs to import fertilizer, resulting in significant cost savings and related reductions in the Government’s fertilizer subsidy bill.
"This project will help improve the lives of smallholder farmers across Bangladesh while reducing the fiscal burden and boosting domestic production of fertilizer,” MIGA Chief Operating Officer, Vijay Iyer said. "Moreover, with cleaner and more efficient technology, the project will increase energy efficiency, and reduce emissions impacts.”
The project will also be significantly less carbon intensive than the existing sites, resulting in a greenhouse gas (GHG) emission savings of 433,000 tCO2/year. The project will be the first fertilizer plant in Bangladesh to use carbon capture technology, which is designed to capture 240 tons of CO2 per day.
Md Mahbub Ur Rahman, Deputy CEO and Country Head of Wholesale Banking, HSBC Bangladesh said, “We are proud to work with MIGA on this priority project for the Government of Bangladesh. The new fertiliser plant will create jobs and provide stimulus to the agriculture industry in alignment with the country’s Sustainable Development Goals, bringing positive impact economically as well as from an ESG perspective. This is the third financing HSBC has concluded with MIGA’s support under its NHSFO scheme in Bangladesh and demonstrates how our expertise in infrastructure financing, and the excellent relationship between our institutions are supporting growth in this fast-growing economy.”
The project also has direct development impact, generating around 2,000 jobs for workers during the demolition, preparation and construction phase.
“As an active lender in sustainable financing, we are supportive of Bangladesh’s efforts to not only leave a greener footprint on the environment, but also promote its economic and social development. We are delighted to play a role in this important project with MIGA, and are committed to the long-term growth of the Bangladeshi market," said Masayuki Fujiki, Managing Director, Head of Investment Banking for Asia Pacific at MUFG Bank, Ltd.
Urea fertilizer is an important input in Bangladesh’s agricultural production, and is used by small farms, which constitute around 88 percent of farms in the country.
Increases in farm incomes accounted for 90 percent of poverty reduction in Bangladesh between 2005 and 2010, and increases in urea fertilizers are likely to sustain this trend. However, lack of new investment in the fertilizer sector has resulted in a decrease in domestic production, forcing the country to rely on more expensive imports. The project is expected to contribute toward the substitution away from more expensive fertilizer imports and achieve greater self-sufficiency in the sector.
Agriculture contributes around 15 percent of the country’s annual income and 45 percent of total employment.
MIGA was created in 1988 as a member of the World Bank Group to promote foreign direct investment in emerging economies by helping mitigate the risks of restrictions on currency conversion and transfer, breach of contract by governments, expropriation, and war & civil disturbance; and offering credit enhancement to private investors and lenders.
Since its creation, MIGA has issued over $55 billion in guarantees across 114 developing countries.
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