New challenges in implementing the Indian LoC
The 3rd tranche of the Indian Line of Credit (LoC III) worth USD 4.5 billion is of great importance to the country and we understand that some 17 projects come under it. They include the establishment of transport/port infrastructure, better trade facilitation, promotion of investment in special economic zones and also investment in the areas of energy and trade in energy, and putting in place measures towards harmonisation, standardisation and certification. The areas of involvement revolve around trade, transport, investment, energy, and people-to-people connectivity.
According to the new terms and conditions laid out in LoC III, the draft deal states that Bangladesh will have to take prior approval from the lender for every piece of procurement for the projects under the LoC and that poses a major problem when it comes to implementing projects within specified timelines. As reported in The Financial Express on September 15, our agency officials have expressed serious reservations about such clauses as it will be extremely time consuming. These terms are on top of what was agreed upon in the LoC-II deal where 75 percent of goods/services/works had to be procured from India and remaining 25 percent from other countries (in case of projects involving civil work/construction, 65 percent would have to be procured from lender country). There are arguments both for and against such provisions. The lending agency may feel them necessary to check graft while our agencies opine that it will add yet another bureaucratic step to the procurement process.
The Bangladesh side is supposed to sit and iron out what it will agree to by the end of the week and begin negotiations with its Indian counterpart shortly after that so that the LoC-III can be finalised within two months. It is interesting to note that while we have been facing problems utilising the 1st and 2nd tranche of LoC(s), we are about to enter into a 3rd tranche loan agreement. With nearly half the projects under LoC-I still in limbo and problems with some of the 14 projects under LoC-II already emerging, it is imperative we do hard bargaining on these clauses. Without a relaxation on purchase conditions, it is widely feared that the latest and biggest line of credit will face even greater problems than the earlier loan packages availed by Bangladesh. To put all this in perspective, when we talk about building roads, how viable is it to seek prior permission for each purchase of raw materials involving bricks, sand, rods, cement or other construction material?
Moving on to our capacity to implement projects, we find that of the 15 projects undertaken under LoC-I back in 2010, eight have been completed and seven are ongoing. The 2nd LoC came into existence in March, 2016 and hence it is too early to make a judgement on how that line of credit is being utilised. But whatever terms we agree on with Delhi, a few things are abundantly clear. We have a number of problems that have never really been addressed when it comes to project implementation. The issue of cost and time overrun has become a systemic problem and hence our costing of projects undertaken continually needs revisions—upward we may add.
A few high profile infrastructure projects undertaken during the current government's tenure give us a clear picture of this major problem. According to the Centre for Policy Dialogue (CPD) data, timeline of Padma bridge project spiralled by 42.9 percent due to successive revisions which ended up in an increase in cost by 183.3 percent, i.e. project cost nearly doubled. Another major undertaking, the Dhaka-Chittagong 4-lane project faced both cost revision (77.8 percent) and time overrun (22.2 percent) and the most striking of all, the Joydebpur-Mymensingh Road Improvement Project cost and time of completion doubled.
With such poor project implementation periods, precisely how much longer it will take when Bangladesh will have to take approval for every single purchase is of course open to speculation. It is not simply a question of taking prior permission for purchases made; it is also a question of our freedom of choice to procure materials, services or goods from domestic or foreign sources. We already have a plethora of problems in project execution and hardly see any logic in complicating matters further by agreeing to illogical demands that were not there in previous LoC(s). At the end of the day, it is up to our policymakers to negotiate a deal that makes sense and is implementable. These monies are not grants—they are concessional loans and will have to be repaid: "The loan has a 20-year repayment term, including a grace period of five years and a 1 percent annual interest rate along with a 0.5 percent commitment fee."
Syed Mansur Hashim is Assistant Editor, The Daily Star.