Economic impact of financing from internal resources

Earlier my article had focused on a few socio-economic indicators needing consideration before deciding to finance the multibillion dollar Padma bridge from our own resources. Here I shall outline the negative impacts this investment might have on our economy as well as on the foreign financing proposals.
Raising the revenue income
The then government raised Tk.5.70 billion fund for the Jamuna bridge from levies and charges at a lower rate over a long period of time before onset of the construction work. So the impact and incidence of the levies and charges were not felt in the economy. In case of the Padma bridge the government will have only 3 years to raise funds for the project. So the rate of levies must be high which will put a huge burden on the already over burdened net family income.
The impact and incidence of higher levies may lead to economic disarray and socio-political uprising.
Diverting funds from development projects will slow down or stop implementation of the infrastructure development projects of prime importance in sectors like Roads, Gas, Electricity, Education, etc. This slow down in infrastructure development projects will adversely affect the future national economic growth.
Bank borrowing
Bank borrowing will shrink the industrial and commercial financing ability of the banking system which is already in a poor shape due to the stock market collapse, Hall Mark and Destiny graft cases.
Other sources
The other possible sources are issue of local and international bonds including Wage Earner bonds or raising fund from the stock market. The cost of funds from all these sources will be much higher than workable level for projects like this. Raising funds from the stock market to invest in the long-term bridge project may put the ailing stock market in jeopardy.
Finally, even in the current world economic slowdown, our foreign remittance, good harvests and export earnings are keeping the country's development wheel moving. Investing funds from these earnings may put the country's economy in the "vicious circle."
Despite the finance minister's heroic warning "no graft will be allowed to take place in the execution of the bridge project." Funding the bridge from own sources might open the avenues to give birth to many Hall-Marks in the situation, where tender boxes for few lacs taka are snatched away. There will be the possibilities to increase the bridge cost significantly, in "BTCL style" for procuring the bridge materials. Apart from this, the enactment of the draft PPP Act-2013 into law, with Indemnity to PPP office, might also pave the way to graft and corruption.
The quality aspect
The multibillion dollar bridge should have a minimum effective life 150 years, so the quality of the construction work must be of highest standard with best quality materials. This quality might not be possible if materials are procured through supplier's credit. In the absence of the finance from sources like World Bank, ADB, JICA, IDB, etc. the highly reputed international companies might not show interest to do the supervisory works of the bridge. This is also a hindrance to get quality work done.
Foreign investment offers
Countries like, India, Malaysia and China are showing interests in the bridge project. In these financing proposals the issues to be considered are the cost of fund, work speed, technological ability and experience of the country concerned in construction of bridges of such magnitude. The interest rate and other related issues of the proposals must also be viewed with care. For example, if it is a hard term loan with interest of 4.5% the loan amount will be doubled in 16 years. The interest rate of the World Bank would have been about 0.6% with 35 to 40 years repayment period.
The communication minister has confirmed the local media that the government will sign MoU with Malaysia on February 21 for a total loan of US$2.19 billion. The Malaysian companies will implement the project. The interest rate and other issues will be negotiated later. Rate of interest, grace and repayment period are the major deciding factors of any loan. If the MoU is signed without discussing these major issues the other party may have the upper hand or the opportunity to dictate terms.
It seems like, putting the cart before the horse. The question also arises, "does Malaysia have enough experience, expertise and speed to build a bridge like the Padma Bridge?
As has been reported, India has offered US$1.00 billion loan, diverting most of it from the already committed infrastructure development projects. India's offer of fund does not seem to be enough for the requirement. The fund volume, ability, experience and speed of India also to be evaluated. Both Malaysia and India might not be able to deliver the product within the stipulated time of 3 years.
The Chinese offer
The China Railway Engineering Corporation has proposed the government of Bangladesh with an offer, even better than World Bank on BOT (Build-Own-Transfer) basis without or at much favourable interest on an investment of 2.00 billion US dollar.
They will complete the work within 3 years on the present two tire multipurpose bridge. If this offer is accepted, Bangladesh will need to invest only US$900 million which the country can comfortably afford within the project period. The Chinese propose to procure all the required materials on their own and will allow appointment of International supervisory company to monitor the project including quality and other aspects of the bridge works.
China has also the ability, experience and speed in the construction of bridges like Padma bridge. They also have the experience to build the world famous 36 km Hangzhou Bay Bridge in China. Among the three, the Chinese offer looks best in all respects.
The election commitment
To fulfill its election commitment the present government, in the changed circumstances, is pushing to start the construction work of the bridge too hastily. The hurry might lead to selection of a wrong or a less beneficial alternative. As the construction of the approach road on both sides of the bridge and material yard will begin from February 28, 2013, at an estimated cost of Tk.1,337 crore. The investment on the approach road will become a "dead investment," for such period until the bridge becomes functional.
In view of the situation, the following points demand consideration of the government:
1. The government may put a "pause" on the speed of the declared "time frame" to start construction work of the bridge and give enough time to the concerned departments and experts to carefully review the socio-economic indicators, financing alternatives mentioned, and select the most favourable one.
2. The government may also seat down with the opposition leaders to discuss related issues to come to a consensus on the favourable financing alternative. This will leave no room for future political disagreements and criticisms.
The above steps will bring the "political will" and technical and financial compatibility to an equilibrium giving birth to an efficient, safe and beneficial Padma Bridge of our national pride, ensuring harnessed economic growth of the country's south-western region of and the country as a whole to materialise the dream of making our beloved motherland a nation of "mid-level income group" country within a shortest possible time.

The writer is a former Transport Consultant, Tehran Department of Transport, Iran.
E-mail: [email protected]