$22.5 BILLION LOAN DEALS

China policy change may throw projects off track

Bangladesh is likely to face difficulties in implementing big projects using Chinese funds, as Beijing hinted at converting part of the soft loan promised during its president’s Dhaka visit, to commercial loans. Converting soft loans into commercial credit means Bangladesh will have to pay higher interest for the funds. Bangladesh signed deals worth $22.5 billion with China, for 27 projects, during Chinese President Xi Jinping’s visit to Dhaka in October 2016.

Economic and commercial counsellor at the Chinese Embassy in Dhaka, Li Guangjun, outlined the proposal in a letter three months back, according to a senior official at the Economic Relations Division (ERD). The ERD official further said the Chinese side has changed its stance regarding loans frequently, which creates severe problems in making any plans regarding project funding.

A few days back, the Chinese economic counsellor had said that China did not promise that all the projects signed between the two sides during the Chinese president’s visit would be implemented on the G2G (government to government) basis. So, China would give some of the loans on commercial terms. The Chinese official also said they would send ERD a detailed list outlining how much of the $22.5 billion would be treated as soft loans, how much as commercial credit, and how much is to be contributed by the Bangladesh government.

An ERD official, however, said that usually, when the agreements are signed at the state level, especially in the presence of two heads of government, such loans are treated as soft loans.

The ERD, meanwhile, informed the Chinese embassy that there are some important projects which will cost more than $300 million and needs concessional loans, and that it preferred the buyers’ credit model for funding. Otherwise, it will be difficult to implement those projects, especially the infrastructure ones.

Regarding the nomination of Chinese contractors by the Bangladesh side in case of negotiated tendering process (direct procurement method), the ERD need to consult with the stakeholders, specially the ministries and agencies concerned, before implementing the proposed process, the ERD added.

“We have also examined the project establishment and review and signing procedure—there will be some difficulties in implementing the new proposed process within the existing procedures in Bangladesh,” the ERD explained in a recent letter sent to the Chinese embassy in Dhaka, urging China to review the new process.

Meanwhile, the Chinese embassy informed the ERD, through email, that the new GCL policy is applicable to all countries.

Bangladesh and China are ready to sign loan agreements involving over $3 billion this fiscal year for the Padma Bridge Rail Link project, modernisation of telecommunication network for ‘digital connectivity’, and installation of a single point mooring (SPM) with double pipelines.

Under the SPM project, crude and finished petroleum products will directly be taken to the Eastern Refinery in Chittagong’s Patenga from deep sea through the two pipelines. Currently, the petroleum products are unloaded from mother vessels and taken to the port by smaller vessels. Then, the oil is taken to refineries by oil tankers.

Besides, negotiations are underway over loan mechanisms (commercial or/and soft loan) for two other projects: Expansion and Strengthening of Power System Network under Dhaka Power Distribution Company (DPDC), and Power Grid Network Strengthening Project under Power Grid Company of Bangladesh (PGCB).

 

$22.5 BILLION LOAN DEALS

China policy change may throw projects off track

Bangladesh is likely to face difficulties in implementing big projects using Chinese funds, as Beijing hinted at converting part of the soft loan promised during its presidents Dhaka visit, to commercial loans. Converting soft loans into commercial credit means Bangladesh will have to pay higher interest for the funds. Bangladesh signed deals worth $22.5 billion with China, for 27 projects, during Chinese President Xi Jinpings visit to Dhaka in October 2016. Economic and commercial counsellor at the Chinese Embassy in Dhaka, Li Guangjun, outlined the proposal in a letter three months back, according to a senior official at the Economic Relations Division (ERD). The ERD official further said the Chinese side has changed its stance regarding loans frequently, which creates severe problems in making any plans regarding project funding. A few days back, the Chinese economic counsellor had said that China did not promise that all the projects signed between the two sides during the Chinese presidents visit would be implemented on the G2G (government to government) basis. So, China would give some of the loans on commercial terms. The Chinese official also said they would send ERD a detailed list outlining how much of the $22.5 billion would be treated as soft loans, how much as commercial credit, and how much is to be contributed by the Bangladesh government. An ERD official, however, said that usually, when the agreements are signed at the state level, especially in the presence of two heads of government, such loans are treated as soft loans. The ERD, meanwhile, informed the Chinese embassy that there are some important projects which will cost more than $300 million and needs concessional loans, and that it preferred the buyers credit model for funding. Otherwise, it will be difficult to implement those projects, especially the infrastructure ones. Regarding the nomination of Chinese contractors by the Bangladesh side in case of negotiated tendering process (direct procurement method), the ERD need to consult with the stakeholders, specially the ministries and agencies concerned, before implementing the proposed process, the ERD added. We have also examined the project establishment and review and signing procedurethere will be some difficulties in implementing the new proposed process within the existing procedures in Bangladesh, the ERD explained in a recent letter sent to the Chinese embassy in Dhaka, urging China to review the new process. Meanwhile, the Chinese embassy informed the ERD, through email, that the new GCL policy is applicable to all countries. Bangladesh and China are ready to sign loan agreements involving over $3 billion this fiscal year for the Padma Bridge Rail Link project, modernisation of telecommunication network for digital connectivity, and installation of a single point mooring (SPM) with double pipelines. Under the SPM project, crude and finished petroleum products will directly be taken to the Eastern Refinery in Chittagongs Patenga from deep sea through the two pipelines. Currently, the petroleum products are unloaded from mother vessels and taken to the port by smaller vessels. Then, the oil is taken to refineries by oil tankers. Besides, negotiations are underway over loan mechanisms (commercial or/and soft loan) for two other projects: Expansion and Strengthening of Power System Network under Dhaka Power Distribution Company (DPDC), and Power Grid Network Strengthening Project under Power Grid Company of Bangladesh (PGCB).