China Loan

China Should Get Loans On Easy Terms

China is our development partner. China is our best trading friend. Many of our projects have been successfully completed in Chinese loans. China has provided financial and technical assistance to Bangladesh in the form of many project grants.

Once again, Bangladesh is taking a loan of more than 500 million dollars from China under difficult conditions. This money is coming to Rajshahi Wasa water treatment plant and ship purchase project of Ministry of Shipping.

Among them, the loan negotiations for the Rajshahi Wasa water treatment plant project are over. The loan will be signed next month. The deal for the other is yet to be finalised. In these two projects, more than 5000 crores of loans are being taken in total.

The condition of these loans is that Exim Bank of China will decide the project contractor. The interest rate is 2.2 percent but the repayment period is only 15 years. Apart from this, the grace period is five years. That is, if the loan agreement is signed in 2023, the repayment will start from 2027. As the repayment period is quite short, the amount of loan installments is relatively high. Loans from organizations like World Bank, Asian Development Bank (ADB) have to be repaid in 30-35 years. According to Economic Relations Department (ERD) sources, a loan of 275 million dollars is being taken from Exim Bank of China for setting up an aboveground water treatment plant for Rajshahi Wasa. Last week, Exim Bank and ERD officials finalized the negotiations with this loan. Now the loan documents are being prepared. ERD officials are hoping that the loan agreement will be signed between the two parties by April 23. This negotiation has been going on for about four and a half years.

On the other hand, the discussion on the project of buying six ships for Bangladesh Shipping Corporation has not been completed for two years. There may be a loan agreement of 25 million dollars in this project. China will supply these ships within four years if the loan agreement is signed. It is supplier credit. China will give money and ships.

No official statement was received from ERD in this regard. However, ERD officials said that the appointment of contractors, quality of work, interest rates, loan repayment limits are different from other foreign aided projects. Hence sensitivity takes time to negotiate.

Major infrastructure expert and former secretary Muhammad Fawzul Kabir Khan said, China’s loan is not to help us, but the main purpose is to expand China’s business. For example, the Chinese contractor will work on the WASA project in Rajshahi, Chinese materials will be used. Engineers, consultants – all from China. Most of the loan money will go back to China.

Since the contractor is not fixed through any competition, the cost is much higher than the actual cost. The quality of work may also be questioned. He said, a study has shown that such hard loan projects cost 15-25 percent more.

A Tk 4 thousand 62 crore project was taken up by a Chinese contractor in July 2018 to set up a surface water treatment plant for Rajshahi WASA before the loan was finalised. This refinery will be in Godagari. At the time of the project’s passage, it was said that the implementation of the project is subject to the availability of Chinese loans.

Exim Bank of China fixed this contractor. The contracting company advises on feasibility studies, project planning, costing – everything. Later in March 2021, a formal agreement was signed between Rajshahi WASA and the Chinese contractor Hunan Construction Engineering Group Corporation.

But even then, the negotiations for getting a loan from China’s Exim Bank were not completed, and the payment was not confirmed. In this regard, Project Director and Chief Engineer of Rajshahi Wasa Parvez Mamud said, ‘Based on a letter from ERD in 2018, we started working with Hunan Construction Engineering Group Corporation.

We did everything including feasibility study, project design, the officials of that company only gave suggestions. Exim Bank of China has fixed this contractor. I have not yet started the main work as I have not received the loan amount. As the Chinese loan deal has been finalised, I will be able to complete the work within the next two years if I get the money.

Limited Tendering Method: Limited Tendering Last December, China agreed to hire contractors through the Limited Tendering Method (LTM). However, this will not be applicable in the case of Rajshahi Wasar project.

Generally, when a loan is proposed for a project, the Chinese authorities finalize the Chinese contractor for that particular project. That contractor completes the work. There is no opportunity to select a contracting firm from multiple contractors through tendering.

Limited Tendering Method (LTM) invites tenders for the appointment of contractors for a project, only Chinese contractors will participate. A contracting firm will be finally selected from among the many contractors participating in the tender.

At present, projects taken up through India’s Line of Credit (LOC) are fixed by the Indian contractor under the LTM system.

Two to two-and-a-half years to complete commercial contracts : As many projects taken up with Chinese loans, two to two-and-a-half years have passed to complete commercial contracts. According to ERD sources, when a proposal is sent to the Exim Bank of China for a loan for a project, the Chinese authorities first consider the potential economic benefits of the project.

After that, if the loan is agreed upon, a contracting company is contacted by the ministry or organization implementing the project in Bangladesh. After both parties sit down and finalize the design and work plan of the entire project, the commercial agreement is made. It takes about two to two and a half years to complete the work.

 Total loan agreement of 18.54 billion dollars: In the last 10 years, Bangladesh has been implementing 12 projects with loans from China on tough terms and a total loan agreement of 18.54 billion dollars.

Among the projects are the construction of a multi-lane road tunnel under the Karnaphuli River; Shahjalal Fertilizer Factory; Dasherkandi Sewage Treatment Plant; Info Government-3; Construction of Dhaka-Ashulia Elevated Expressway. Modernization of Telecommunication Network for Digital Connection, Power network expansion and distribution, One of the. n all these projects, a loan agreement of 1 thousand 854 million dollars has been made. So far, one and a half billion dollars have been discounted. All but one of China’s loans have an interest rate of 2.2 percent and a grace period of 15 years.

In the meantime, three projects – Shahjalal Fertilizer Factory, Padma-Yashaldia Water Treatment Plant and Development of Information Technology Sector – have completed the five-year grace period and the loan repayment has started. So far about 100 million dollars of debt has been paid.

What should be in the agreement with China:

1. We need all these agreements with China to be on simpler terms. Loan tenure should be long term like World Bank, ADB, IMF. It is easy to repay the loan. Don’t have to face difficult problems in providing money. Our foreign exchange reserves are dwindling amid the turmoil in the global economy. Moreover, the earlier loan installments have already come due.

2. The agreement with China should contain a provision to purchase raw materials and other materials from multiple institutions at a lower price after evaluation. It will reduce the purchase cost of products. Project costs will come down considerably.

3. The appointment of the contractor is in the contract with the lender. This is completely inconsistent. It may not get a good contractor. In the case of hiring contractors, good contractors can be found at low cost if done through tender.

4. There should be transparency, impartiality in all cases. Overspending occurs when there is corruption in a project. Efforts to bring ‘zero tolerance’ to corruption in the words of the Prime Minister should be continued at all times.

5. Why only China, we can undertake mega projects by taking loans from countries like Japan, Saudi Arabia, Qatar, Kuwait, Germany, France etc. Relying too much on just one country often results in an uneven deal.

6. The project should be completed within the contract period. Otherwise project costs increase. It increases the debt burden on the country. Our per capita debt is increasing day by day. But the income is not increasing compared to that. We need to increase our exports to increase our foreign exchange earnings. The number of export products should be increased. Initiatives should be taken to export new products. Special facilities should be given to exporters. All the facilities that are provided in the export processing area. Similarly, the industry outside the export zone should also be given the same facility. It will increase exports. Then foreign exchange mastery will increase.

On the other hand, more attention should be paid to the export of skilled workers. Skilled workers can earn more by going abroad. Remittance and more will come then. For this, the government has taken special steps to be accepted.

Abul Quasem Haider
আবুল কাসেম হায়দার

সাবেক সহ সভাপতি এফবিসিসিআই, বিটিএমইএ, বিজিএমইএ , বেসরকারি বিশ্ববিদ্যালয় সমিতি, প্রতিষ্ঠতা চেয়ারম্যান ইস্টার্ন ইউনির্ভাসিটি ও ইসলামিক ফাইন্যান্স এন্ড ইনভেস্টমেন্ট লি:, অষ্ট্রেলিয়ান ইন্টারন্যাশনাল স্কুল, আবুল কাসেম হায়দার মহিলা কলেজ সন্দ্বীপ, চট্টগ্রাম, সাবেক সিনেট সদস্য ঢাকা বিশ্ববিদ্যালয়।

তিনি আজীবন সদস্য : এশিয়াটিক সোসাইটী বাংলাদেশ, বাংলা একাডেমী, চট্টগ্রাম সমিতি, সন্দ্বীপ সমিতি ঢাকা ।

লেখক দৈনিক আজকের আওয়াজ ও সাপ্তাহিক প্যানোরামা সম্পাদকের দায়িত্ব পালন করছেন।

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