by Jahangir Shah in Prothom Alo, Aug 20, 2023
Bangladesh has apparently lost its interest in undertaking projects under the Indian Line of Credits (LOC). It has already withdrawn eight projects from the Indian cluster loan during the last three years, while the authorities proposed withdrawal of four more projects.
The situation is largely attributed to a range of factors, including strict loan terms, high demands of contractors, and hassle of taking approval at every point, according to the Economic Relations Division (ERD).
The dropped projects were supposed to receive a cumulative investment of USD 1.13 billion, while the cost of projects that have been proposed for withdrawal is estimated at USD 1.01 billion.
Throughout the last one decade, Bangladesh signed loan agreements totaling around USD 7.5 billion with India under three LoCs. The funds were intended to support a comprehensive slate of 40 projects.
But, only USD 1.5 billion of the total amount has so far been disbursed.
Zahid Hussain, former lead economist of the World Bank office in Dhaka, said the pace of fund disbursements and project execution under the Indian loan has been notably sluggish throughout the last 12 years. There are bureaucratic delays and complications on both sides.
He pointed out the issue of inflated bids by Indian contractors and limited room for negotiation, saying, “We are bound to agree with a high-price bid as it is mandatory to assign the projects to Indian contractors. Here, we are hostage in a sense.”
The noted economist further said, “It is nearly impossible to implement the infrastructural projects by sourcing at least 75 per cent of raw materials from India. As a whole, the experience with Indian LoCs is not good. This is why I support project withdrawals from the LoCs.”
Proposal to drop projects
The authorities in Bangladesh sent a proposal to the Exim Bank of India in December to withdraw four projects from the list of LoC funded projects. However, no response has so far been received from the Indian side.
The projects are – a new workshop on Syedpur for Bangladesh Railway (USD 70 million), Bangabandhu Sheikh Mujib Industrial Park under the prime minister’s office (USD 160 million), Bay Container Terminal in Chattogram under the shipping ministry (USD 400 million), and Syedpur airport modernisation project (USD 370 million).
As per loan conditions, at least 75 per cent of required raw materials must be sourced from India. But the officials said the Indian contractors have to purchase all raw materials, including bricks, sand, rod, and cement, from India.
Kudrat-e-Khuda, chief mechanical engineer of Bangladesh Railway (west zone), siad a project proposal was submitted to the planning commission a year ago, seeking feasibility assessment and implementation. In response, the commission asked it to send another project proposal after conducting a feasibility test.
However, the authorities do not have enough skilled manpower to undertake such a project. From this point of view, the project might be dropped from the list, he siad, adding they are yet to receive any official notification regarding the withdrawal.
Project withdrawal dates
Several projects are taken under each LoC. As per the rules, a project proposal is first sent to the EXIM Bank, once they clear it, the proposal then makes it to the final list and allocation is made accordingly, but Bangladesh has withdrawn several projects from that list because of various complexities.
Lastly, Bangladesh withdrew from two projects in May this year. A project on strengthening the network of mobile operator Teletalk through solar power was dropped on 9 May. The EXIM Bank was supposed to provide USD 30 million.
Sources said the tender was called for the Teletalk project a year ago, but the estimated cost was increasing as Indian contractors asked for much higher prices, which is why the project was dropped. Besides, the authorities concerned did not comply with a condition on procuring 75 per cent of machinery from India.
Regarding this, Teletalk managing director AKM Habibur Rahman told Prothom Alo, “The contractor asked for a relatively higher price of machinery, which was much more than our estimated cost. Besides, conditions on procuring machinery from India could not be followed, for these reasons, the project was dropped.”
The project on procuring machinery for the Local Government Division’s waste management project was dropped for a similar reason. The EXIM was supposed to provide UDS 25 million for this project, but the project was withdrawn from the LoC list on 31 May this year because of higher prices of machinery.
Bangladesh also dropped two more projects from the LoC list on 17 March 2022; one is the WD-3 package for the signalling system connection of the Khulna-Mongla rail line and another is the Jamalpur Medical College and Hospital construction project. About USD 35 million was supposed to be invested in the Jamalpur project. As per the rules of EXIM Bank on infrastructure construction, 75 per cent of materials must be sourced from India, and that means bricks, sands and cement must come from India.
Besides, four more projects were also withdrawn. Those are; project to construct a power transmission line on the river for the Rooppur Nuclear Power Plant (USD 185 million) was dropped on 14 March 2022, the Katihar-Parbatipur-Barahnagar power transmission development line project (USD 390 million) on 19 July 2021, 500 bed-hospital construction projects in Jashore, Cox’s Bazar, Pabna and Noakhali (USD 180 million) and project to increase necessary facility for registration of additional students in polytechnic institutes in the country (USD 280 million) were dropped on 22 June 2021.
These eight projects were dropped before the withdrawal of the last four projects was proposed.
It has been learned after speaking to several ERD officials that for the Indian loan on projects, approval of EXIM Bank is necessary for each step from the inclusion of the project to the appointment of the contractors. As a result, it takes one or two years to appoint contractors. Besides, the conditions of procurement under Indian credit are quite tough, and it is very difficult to implement projects related to the construction of infrastructures under Indian credit.
Only USD 1.35 million of three LoC released
Bangladesh and India first signed a LoC of USD 1 billion in 2010. India later converted USD 140 million to grants for the Padma Bridge. The second LoC of USD 2 billion was signed in 2015 and the third LoC of USD 4.5 billion in 2017. ERD sources said the Indian EXIM Bank released a total of USD 1.49 billion as of June this year.
To date, 40 projects including the construction of roads, highways, and railways have been taken up under these three LoCs. With the latest proposal to drop four projects, 36 projects remain on the LoC list. Of them, 18 projects have been completed, eight more are underway, and the remaining ones see the appointment of consultants and contractors and preparation of project proposals.
Talks are underway with EXIM Bank to relax the conditions of the agreements. Currently, only Indian contractors can submit tenders for projects, which are funded under LoC. So, they place work orders with one-sided prices. Talks are on so that Bangladesh-India joint ventures can participate in the tender. Negotiation is also underway to relax conditions on the procurement of 75 per cent, in some cases 65 per cent, of materials or services from India.
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