The electricity distribution network in Bangladesh has historically faced significant challenges due to high technical and non-technical (commercial) losses. Technical losses are mainly caused by outdated infrastructure and inefficiencies within the network, whereas non-technical losses often result from electricity theft.

In certain areas, much of the distribution infrastructure is outdated and in need of upgrades. These weaknesses have led to frequent power outages and voltage fluctuations. Additionally, the increasing power demand has caused overloading of some substations and transformers, exacerbating outages and reducing the overall efficiency of the system.

Distribution companies also contend with financial challenges arising from issues such as uncollected bills, subsidizing electricity for certain consumer segments, and bearing the costs of system losses. Other existing weaknesses and challenges of the electricity distribution network include inefficiencies in management practices and operational processes within the distribution utilities, lack of modern technology such as smart grids and advanced metering infrastructure, inefficient billing systems, challenges in new connection provisions, and the need for continuous training and skill development for personnel in the distribution sector, especially with the emergence of new technologies and practices.

Addressing these challenges is crucial for Bangladesh to achieve its energy objectives and ensure a reliable electricity supply to all consumers, including households, commercial, and industrial customers. The country is making efforts through infrastructure upgrades, international collaborations, policy reforms, and investments in technology and capacity building.

In Dhaka, two primary distribution companies, DPDC (Dhaka Power Distribution Company) and DESCO (Dhaka Electric Supply Company), power the city. DPDC currently has a peak demand of approximately 2,245 MW. The DPDC power backbone consists of 19 substations operating at 132/33 kV and 1 at 132/11 kV, with a combined capacity of 4,128 MVA. Additionally, there are 68 substations at 33/11 kV, collectively handling 4,403 MVA.

As Dhaka's energy demand escalates daily, the strain on existing infrastructure increases. Projections suggest that by 2025, the demand will rise to an estimated 3,285 MW. Addressing this growing need requires not only constructing new 132/33 kV and 33/11 kV substations but also reinforcing, renovating, and augmenting the existing 33/11 kV substations, improving and modernizing the existing grid, and introducing high technological (smart grid) solutions for improved management and control of the electricity distribution network.

A sovereign loan from the Agence Française de Développement (AFD) and a grant from the European Union (EU) on-lent and on-granted from the Government of Bangladesh (GoB) to DPDC aim to improve DPDC's distribution network as part of the broader Power System Expansion and Efficiency Improvement Investment Programme (PSEEIIP). The AFD loan (EUR 100 million) will be used for the construction of new or enhancement of existing substations and other facilities of the grid to improve the power factor of the DPDC grid (Component C1), while the EU Asia Investment Facility (EU-AIF) grant (EUR 12.4 million) will be used for the pilot implementation of smart grid system technology and related services for capacity building, studies, communication, visibility, and evaluation/audits (Component C2). AFD is responsible for the management of the Intervention, while DPDC is the Executing Agency.