$3.6b Chinese loan uncertain after Dhaka drops projects from agreed list

Bangladesh's hope of securing $3.6 billion in Chinese loans for five projects may not materialise as Dhaka has unilaterally decided to replace them in a list focusing bilateral cooperation.

The list was in a memorandum of understanding (MoU) highlighting investment and production capacity cooperation, signed during Chinese President Xi Jinping's Dhaka visit in October 2016.

Among the five being replaced are a Dhaka-Sylhet four lane highway project involving $2,110 million and one on extending Barapukuria coal mine's existing underground operations involving $256.41 million.

The remaining three involve prepay metering for Bangladesh Power Development Board's distribution zones ($521.56 million), a Gazaria 350-megawatt coal-fired thermal power plant ($433.00 million) and balancing, modernisation, rehabilitation and expansion of public jute mills of Bangladesh Jute Mills Corporation ($280 million).

A senior finance ministry official said whether Bangladesh would get the same amount of fund following the replacement was yet to be finalised.

The exclusion list has been sent to the Chinese embassy and they have been informed that those will be replaced, he said.   

However, the Chinese embassy recently stated that the MoU list was not of projects meant to be provided soft loans, and their side never made any commitment on the corresponding scale of soft loans.

It reminded that the amounts specifically mentioned against each project was not mentioned in the MoU, meaning the Bangladeshi side had unilaterally come up with the loan figures amounting to $3.6 billion. 

The finance ministry official also confirmed that the Chinese side had never committed soft loans of $3.6 billion for the five projects.

In accordance with the principle of retaining the same number of projects in the list, five projects could be replaced through negotiations, the embassy said in a letter to the government.

It requested Bangladesh to recommend for consideration and evaluation five new projects meant to be the replacements.

Exactly the same amounts can't be committed, the embassy informed.

At present, any single government-to-government project between China and Bangladesh reach scales much larger than those taken with other development partners, such as World Bank, Asian Development Bank and Japan International Cooperation Agency, according to the embassy. 

This makes getting approval for large projects difficult, it pointed out.

The jute project was one such government-to-government project.

The BJMC signed an agreement with a Chinese firm in July 2016 wanting to secure technical assistance from the China Textile Industrial Corporation for Foreign Economic and Technical Corporation.

The Chinese side was interested in helping modernise jute mills, said the official. But dropping it has apparently turned the situation sour.

"Since the Bangladesh side has unilaterally cancelled this project, the Chinese side shall no longer consider further cooperation in the field of textile and jute in the future," read the letter.

Now the government is looking for an alternative source to be lent the money, said the official.

The letter suggested that the Bangladesh side select new projects which were relatively of a smaller scale to be replacements for the old ones.

The new projects should meet standard requirements, such as having an associated feasibility study and environmental protection plans, it said.

China will no longer consider projects encompassing high pollution and high energy consumption, such as coal mining and coal-fired power stations, the letter said.

The Dhaka-Sylhet four-lane project was removed over corruption issues and a multilateral lender has agreed to provide the fund.

The remaining three projects are not on the government's priority list, so it is not keen to implement them using Chinese fund, said the official.

Of the 27 projects in the MoU list, seven have seen commercial agreements signed with contractors involving $5.4 billion as of June 2020. China has disbursed $1.60 billion.

The Daily Star had emailed the Chinese embassy last week for a comment regarding the fund involving the excluded projects. It is yet to receive a reply.