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Workshop on “Business Opportunities to Develop Energy Efficient Brick Kilns in Bangladesh”

Distinguished guests, ladies and gentleman, Good morning.

I feel really privileged for inviting me to give opening remarks at today’s workshop on ”Business Opportunities to Develop Energy Efficient Brick Kilns in Bangladesh.” Since Bangladesh is situated in the world’s largest delta, the abundance of soil in the river delta topography provides the raw materials for bricks that have been the main building blocks for the country’s civil construction. But brick manufacturing process is energy intensive and a main source of greenhouse gas which create serious environment hazards to our country. The existing brick kilns are the no.1 cause for fine particulate pollution in Dhaka and its total greenhouse gas (GHG) emission is estimated to be 9.8 million tons of carbon dioxide (CO2) equivalent (tCO2e) per annum as of 2011.[1]

Global warming is an issue that calls for a global response. The rapid change in climate will be too great to allow many eco-systems to suitably adapt, since the change have direct impact on biodiversity, agriculture, forestry, dry land, water resources and human health. Due to unusual weather pattern, rising greenhouse gas, declining air quality etc. society demands that business also take responsibility in safeguarding the planet. In addition, Bangladesh is one of the most climate change vulnerable countries. In line with global development and response to the environmental degradation, financial sector in Bangladesh should play an important role as one of the key stake- holders.

For ensuring environmental friendly sustainable development BB already formulated and issued ” Environmental Risk Management Guidelines” and “Policy Guidelines for Green Banking” for the banks and financial institutions. Besides these, BB introduced a Refinance Scheme for Solar Energy, Bio-gas, and Effluent Treatment Plant (ETP) of Taka200 Crore in August, 2009. And the area of this refinance scheme has been extended for establishment of Hybrid Hoffman Kiln (HHK)/equivalent technology plant in brick manufacturing industry with a view to reducing carbon emission. For using this kind of modern technology in the brick fields Taka 30 crore has been earmarked out of total fund of Taka 200 crore. Till date, we have already sanctioned 8.7 Crore for 3 projects of which 2 Crore has already been disbursed for one project. Bangladesh Bank is providing fund currently at 5% interest rate and participating banks/financial institutions are charging maximum 9% interest rate to the ultimate borrowers.

In Bangladesh, 92% of the 4,880 brickfields are highly polluting Fixed Chimney Kilns (FCKs) because of a combination of low capital cost requirement and high investment return. But these kinds of kiln uses more coal/wooded fuel which emits more carbon. Also, this brick kiln is not energy efficient compared to other available technologies. Because of this negative environmental impact and high fuel costs from the large number of FCKs, Government issued directives on July 15, 2010 that (i) no FCK licenses be renewed after July15, 2012; (ii) environmental clearance be given to those using more energy efficient zigzag kilns, Vertical Shaft Brick Kiln (VSBKs), and HHKs; and (iii) All FCKs will cease to exist from 15 July, 2013.

In Bangladesh, with the rapid economic and population growth, the construction sector will continue to expand at the current rate of 8%-9% per year[2]. As the bricks constitute 44% of total construction materials, the demand for bricks will grow at least at about 5.6% per year. Since, we can’t reduce the brick demand; we need to take actions to reduce carbon emission in the brick fields. In the above context and for smooth and easy compliances with the Government directives by the brick manufacturers, I appreciate the proposed ADB credit facility designed to provide designated funding to exclusively meet the demand from the FCK owners to upgrade their facilities to the improved Zigzag kilns and finance more advanced VSBK, HHK and tunnel kiln development as a long term, permanent solution to modernize the brick sector and reduce Green House Gas (GHG) emission and fine particulate pollution.

ADB proposed two types of fund; Ordinary Capital Resources (OCR) fund of $30million[25 years maturity with 5 years grace period, and 0.567%(6 months LIBOR) plus 40bps, 21 bps rebate for 2011, and a commitment charge of 15 bps] and Asian Develop Fund (ADF) of $20 million[ It is fixed-term, 32 years maturity including a grace period of 8 years, a 1.0% interest charge during the grace period and 1.5% during the amortization period, and equal amortization]. Now the LIBOR rate is 0.567% which is at considerable rate but it may increase in future. In addition, there is a commitment charge. So, this fund is not attractive for us. Since Brick Kiln businessmen are already running their business and making profit, they will not be interested to take credit from banks unless they get it at a cheaper/concessional rate. Moreover, to attract new entrepreneurs in this sector, we need to offer lower rate. Conversion cost of a Zigzag Kiln from FCK is around Taka 35 lac.[3]Since, the interest charge on OCR loan will be based on commercial rate, as a implementing agency BB also have to charge more to borrowers and the borrowers will be reluctant to avail this fund facility. As a result, it will be difficult to implement the Government directives. Thus, my suggestion is to increase the amount of the ADF loan covering both upgradation cost from FCKs to Zigzag Kilns and cost for financing VSBK, advanced HHKs and tunnel kiln.

In addition, in the ADB’s proposed fund, the credit facility drawdown period is 24 months from the date of loan effectiveness. Since the demand from brick manufacturers will be less at the initial stage, the drawdown period may be extended to 36 months.

You know that many developing countries like China, India and Brazil are getting financial benefits through Carbon trading. Bangladesh being developing country has immense opportunities to earn credits through carbon trading. Bangladesh has the possibility to earn USD 70.00 million every year by trading carbon in Global Carbon Credit Market for USD15.20 per tons of carbon dioxide (Certified Emissions Reduction). But due to lack of awareness, we could not attain desired level of benefits from this Clean Development Mechanism (CDM). We are hopeful that presently some institutions (IIDFC, Grameen Shakti, etc) are coming forward to utilize these opportunities. In the meantime, IIDFC already signed Memorandum of Understanding (MOU) with Denmark and got register with WB and UN Agency for carbon emission reduction trading. Thus, ADB’s proposed fund may be considered as cheaper credit window that can help us to introduce energy efficient and environmental friendly technology in brick manufacturing sector by reducing GHG emission which can be traded in the Global Carbon Credit Market and thus, we can earn foreign currencies.  

I would like to conclude here, wishing the very best success of the today’s ADB workshop; thanking you all for your patient hearing.

[1] World Bank, 2011. Introducing Energy-efficient Clean Technologies in the brick sector of Bangladesh.

[2] World Bank, 2011. Introducing Energy-efficient Clean Technologies in the brick sector of Bangladesh

[3] Bangladesh Brick Manufacturing Owners Association.Press Release

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