Bangladesh set to take Chinese loan on hard conditions

Bangladesh is set to take Chinese loan of over 500 million US dollars on hard conditions to implement two projects.

Money would be spent for establishing a water treatment plant under Rajshahi WASA and purchasing ships for the shipping ministry.  

The loan negotiation for the water treatment plant for Rajshahi WASA has been finalised. Loan agreement will be signed next month.

A total of Tk 50 billion is being taken for the implementation of these two projects.

As per the conditions of loan, Exim Bank of China will arrange the contractor. Although the interest rate is 2.15 per cent, the duration of loan payment is only 15 years. Grace period is only five years. If the loan agreement is signed in 2023, the loan payment will begin in 2027. As the period of loan payment is short, the amount of installment will be bigger comparatively. If loan is taken from World Bank and ADB, it is paid in 30-35 years.

Sources at the Economic Relations Division said a loan of 270 million US dollars is being taken from Chinese Exim Bank for establishing surface water treatment plant for Rajshahi WASA. Exim Bank and ERD officials have completed negotiations over the loan. The loan agreement will be signed in April.

Besides, Bangladesh Shipping Corporation is in a negotiation to purchase six vessels. Under this project, a loan of 250 million US dollars may be signed. If the loan agreement is signed, China will provide these vessels in four years. This is a supply loan. China will provide loan as well as vessels.

Speaking to Prothom Alo, infrastructure expert and former secretary Muhammad Fouzul Kabir Khan said, "The purpose of Chinese loan is not to provide us assistance rather than expansion of their business. For example, the Chinese contractor will work for the project of Rajshahi WASA and Chinese equipment will be used. China will provide engineers and consultants. Lion share of the project money will go back to China. As the contractor is not selected through a competition, so the cost will be higher than the actual cost. Questions may be raised over the quality of work."

He said it has been found in a study that 15-25 per cent additional cost is required in such loans with hard conditions.

In July 2018, a project of Tk 40.62 billion was undertaken for establishing a surface water treatment plant for Rajshahi WASA. This treatment plant was supposed to be set up at Godagari. During the passage of the project, it was said the project would be implemented subject to receiving Chinese loan. The duration of the project was fixed till June 2022. The implementation of the project couldn't be started as the Chinese loan is yet to be received. The tenure of the project has been extended till June 2024.

Although the agreement was not finalised, Chinese contractor Hunan Construction Engineering Group Corporation engaged with the project four years ago. Chinese Exim Bank fixed the contractor. The contractor firm gave suggestions for everything including feasibility study, project plan and expenditure. Later in March 2021, an informal agreement was signed between Rajshahi WASA and Chinese contractor Hunan Construction Engineering Group Corporation. But at the time, the loan negotiation with Chinese Exim Bank was not completed.

About the matter project director and Rajshahi WASA chief engineer Parvez Mahmud said, "In accordance with a letter of ERD in 2018, we started working with Chinese contractor Hunan Construction Engineering Group Corporation. The company has given suggestions for carrying out feasibility study and project design. Chinese Exim Bank arranged this contractor. As we have not received the loan, we are yet to start the work of the project. The negotiation for the loan has been finalised. So if we get the loan, we will be able to finish the work by two years."

China agreed to appoint contractor through a limited tender method in last December. However, that would not be applicable for the project of Rajshahi WASA.

Usually when China proposes loans for any project, the Chinese authorities fixes contractor for the specific project. That contractor implements the work. There is no scope to select contractor through a tender process.

Under the limited tendering method (LTM), only Chinese contractors will participate in the tender process for the appointment of contractors. One contract firm will be selected.

Loans agreements of 18.54 billion US dollars

In the last one decade Bangladesh has been implementing 12 projects with loans from China with hard conditions. The projects include multilane tunnel under Karnaphuli river, Shahjalal Fertilizer Factory, Dasherkandi sewage treatment plant, Info-Sarker Phase-3, Dhaka-Ashulia Elevated Expressway construction, Modernisation of Telecommunication Network for Digital Connection and power transmission lines extension and distribution.

Loan agreements of 18.54 billion US dollars have been signed for these projects. So far about 1.5 billion US dollars have been released. Of 12 projects being implemented by Chinese loans, the interest rate of loans for 11 projects is 2.15 per cent and the duration of loan payment including grace period is 15 years.

As the grace period of three projects -- Shahjalal Fertilizer Factory, Padma- Jashaldia water treatment plant and information technology development -- has ended, payment of loans of these projects has started. So far 1 billion US dollars have been paid.

*This report, originally published in Prothom Alo print and online editions, has been rewritten in English by Rabiul Islam.