Under this package, dubbed as power sector development programme, $100 million will be used to bring financial stability to the sector, says a press release.

The funding was required as part of the ADB-prescribed reforms process that led to the creation of the Power Grid Company (PGCB) or Dhaka Electric Supply Company (Desco).

The PGCB and Desco will use the fund to pay off their outstanding bills with the Power Development Board (PDB) and help corporatise four other sectoral entities to improve governance and financial discipline.

PDB sources said the government is in the process of corporatising Khulna Power Distribution Zone (KPDZ) and talks on the Northern Distribution Zone with the ADB are ongoing. The government has already appointed the managing body for the KPDZ.

The two other distribution zones, which will be corporatised in future, are the Central Power Distribution Zone (CPDZ) in Mymensingh and Sylhet, and Chittagong Zone.

German lender KfW has offered to be the main financier in corporatising the CPDZ and the World Bank in Chittagong Zone.

The donor communities stayed away from funding the energy projects since 1991 until recent times due to Bangladesh's poor reforms record.

Th rest $186 million of the ADB fund will be used in the Siddhirganj project to upgrade unsteady power supply from there by improving the load generation capacity. The plant, construction of which will require another $148.5 million, is expected to reduce load shedding during peak hours.

The Nordic Development Fund will finance $9.6 million the government and executing agencies $98.7 million. Rest $34.2 million will come in the shape of domestic borrowing.

A new load dispatch centre will also be set up in the capital to reduce power generation cost.

The project will upgrade electricity services in 10 towns in the underdeveloped northwest districts and provide connection to 300,000 new customers.

"The sectoral approach addresses not only some of the financial and governance constraints, but also provides investment in generation capacity that will have a major long-term impact on the performance and viability of the power sector," said Mats Elerud, an ADB energy specialist.

"The programme aims to improve the sector's financial and economic viability over the next five years and to enhance oversight and governance, paving the way for sustained growth."

"The investments in the northwest distribution system should have a positive impact on the growth of cottage industries and enterprises that depend on electricity as well as services such as water supply and health services," he said.

The programme is due to complete by the end of 2004 and the Siddhirganj project by 2007.