Bangladesh seeks easier terms for Chinese loans
Bangladesh has urged China to soften the terms and conditions for loans as it is eyeing substantial credit over the next five years.
The move comes after the cabinet committee on economic affairs directed the Economic Relations Division to seek softer and more transparent conditions for Chinese loans in line with the country's laws and rules.
Accordingly, the ERD has sent out a proposal to China but is yet to receive a written response.
For instance, the government has proposed "limited tender" for all projects that would be implemented with Chinese credit.
At present, the Chinese government chooses a company from China to implement the project or supply the requisite goods and services.
Contacted, ERD Secretary Mohammad Mejbahuddin said: “In principle they agreed. They will do that.”
The ERD had discussions with the Chinese commerce minister and he assured that his government would make the terms and conditions softer, Mejbahuddin said.
For Chinese loans in general, 15 percent of the commercial credit has to be paid back in advance, but the ERD secretary said no advance payment has been made for the ongoing projects.
The Chinese government has assured that they will exempt Bangladesh from this criterion, he added. At present, five projects are being implemented with Chinese financing of $1.22 billion, with another seven involving $2.29 billion in the pipeline. The loans from China carry an interest of 2 percent.
As per rules, the ministries and divisions were supposed to go through six steps for projects that are being financed by China. In practice, they did not follow any uniform system.
Now, the ERD has suggested following nine steps for such projects.
The steps include preparing the draft of the commercial contract through negotiation, permission of the cabinet committee on economic affairs, Ecnec, cabinet committee on purchase and standing committee on non-concessional loans.
The ability to repay the loan by the government agency that will take the project loan will also have to be examined.
The first step in taking up a project is conducting a feasibility study to identify the real cost of the venture.
But in many cases it has been seen that the Chinese company that would implement the project does the feasibility study as well. In such a scenario, the transparency in the project's evaluation may come into question.
China has been requested to get an independent organisation to do the feasibility study, a finance ministry official said.
The move comes in preparation of the Chinese prime minister's forthcoming visit to Bangladesh, when the government would seek a big amount of soft loans.
The Prime Minister's Office and the foreign ministry have asked the various ministries and divisions to send them their lists of probable projects.
The road transport and bridges ministry, the railways ministry and the power division have sent their lists, which would require $37.57 billion.
The road transport ministry has sent a list of four projects that would cost $13.8 billion.
One of the projects is the Dhaka-Chittagong Expressway, for which a feasibility study financed by the Asian Development Bank is going on.
The power division has sent a list of 15 projects with an estimated cost of $13.08 billion.
The railways ministry has identified eight projects, including the Padma Bridge Rail Link Phase-1 and Phase -2, the estimated total cost of which would be $10.79 billion.