$770m Chinese loan tied with conditions
The government is going to sign a $770 million tied loan deal with China, which will require selection of two Chinese firms to set up a fertiliser factory and lay out telecom network.
This will leave no scope for Bangladesh to get the best price offers or look for technology options.
Such selection of contractors is required under the new lending policy of China.
After discussing the issue at several high-level meetings, the government has agreed in principle to the Chinese conditions, as it has no alternative source of funding for these two projects, said sources at Economic Relations Division (ERD).
Once the prime minister gives the go-ahead, the ministries concerned will take steps to ink the deal.
Of the loan amount, $559 million will be for the setting up of Shahjalal Fertiliser Factory and $211 million for the introduction of 3G technology and expansion of the existing 2.5G network, added the ERD sources.
ERD documents say natural gas will be available for Shahjalal factory in future, but Petrobangla's forecast does not show any surplus gas supply in the coming years. An acute gas crisis has compelled the government to cut gas supply to the existing fertiliser factories.
Interest rate on the Chinese loan is two percent and it is payable within 20 years with a five-year grace period. Besides, the commitment charge is 0.2 percent and management fees are 0.2 percent.
ERD sources mentioned that the interest rate is slightly higher than that of the $1billion credit from India under the recently signed deal but it is lower than that of suppliers' credits offered by China in the past. The rate of interest on Indian credit is 1.75 percent and commitment charge is 0.5 percent.
The Chinese government set conditions that Bangladesh will have to sign commercial contracts with China National Complete Plant Import and Export Corporation Ltd to get credit for Shahjalal factory and with China National Machinery and Equipment Import and Export Corporation for 3G technology and 2.5G network.
An ERD official said signing of the commercial contract is mandatory as per China's new credit policy. And the ERD had sought clarification from the Chinese government as to why a commercial contract has to be signed beforehand.
The Chinese government informed the ERD that it has introduced the new policy for giving concessionary loans.
Against this backdrop, an inter-ministerial meeting with Finance Minister AMA Muhith in the chair on September 8 took up the issue. It was attended by ministers for planning, industries and post and telecommunications, the prime minister's economic adviser, governor of Bangladesh Bank and high officials of the ministries concerned.
The meeting decided that the government will accept the Chinese conditions and sign the agreement.
It noted that in signing the commercial contract, the highest caution has to be exercised to ensure that the interest of Bangladesh is upheld.
The two projects have been included in the current fiscal year's annual development programme. Shahjalal factory project is scheduled to be completed by June 2013 and the 3G Technology project by June 2012.
Sources pointed out that during the prime minister's visit to China last year, Beijing expressed its interest to give the credit as part of providing loans for different projects.