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18 June, 2019 00:00 00 AM

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Two deals worth $2.3b likely during PM’s China visit

SPECIAL CORRESPONDENT, Dhaka
Two deals worth $2.3b likely during PM’s China visit

Bangladesh is likely to sign two agreements with China on two power projects involving USD 2.37 billion during Prime Minister Sheikh Hasina’s visit to that country in the first week of July. Besides, Bangladesh has sent a project proposal to the Chinese government for "feasibility study for construction of a tunnel under the Jamuna river".

According to foreign ministry sources, Sheikh Hasina is likely to visit China on July 1 to 4.

Bangladesh will also put emphasis during bilateral discussions with the head of the Chinese government to repatriate and resolve the Rohingya crisis, sources said.  According to finance ministry sources, the two project agreements to be signed during the Prime Minister’s visit to Beijing are “Expansion and strengthening of power system network under Dhaka power distribution company (DPDC) area" (USD 1,402.93 million) and the "Power grid network strengthening project under the Power Grid Company of Bangladesh" (USD 970.02 million).

Of the two projects, the government is likely to take a USD 1,021.77 million loan for a power system network project at 3 per cent interest, highest ever rate for non-concessional loans availed by the country.

The Exim Bank of China will provide the loan as preferential buyer’s credit (PBC) of USD 1,021.77 million for the USD 1.4 billion project.

The Government of China will provide the rest of amount of the project USD 381.16 million at 2 per cent interest rate under government concessional loan (GCL).

Prime Minister Sheikh Hasina has recently given her consent to take USD 1,021.77 million non-concessional loan for the project of “Expansion and strengthening of power system network under the Dhaka Power Distribution Company (DPDC) area project”.

Bangladesh will have to pay an additional interest of USD 104.66 million during 20 years or USD 5.23 million annually due to 3 per cent interest.

According to present and former senior officials of the Economic Relations Division (ERD) who deal with non-concessional loans with bilateral and multilateral development partners, the interest rate was not above 2.5 per cent. But 3 per cent interest is higher than any other non-concessional loans availed of by Bangladesh, they said.

A senior official of the ERD (Asia Wing) said Bangladesh had asked for USD 5.03 billion from the Exim Bank of China for the Padma Bridge Rail Link project and a project of the DPDC and another of the Power Grid Company of Bangladesh (PGCB) in 2017.

The official said China agreed to lend the funds for the Padma Rail Link project at 2 per cent. But the rate would be 4.5 percent for the two projects, since the funds have to be mobilised from the market, he added. According to the source, the interest rate for the PBC portion of the two projects was set at 3 per cent and later the ERD agreed to the rate.

He said that this interest rate is the highest among the Chinese projects.

Former secretary of the Bangladesh government, Arostoo Khan, who served in the ERD for a long time, said Chinese loan is always non-concessional and they don’t take risk but want to do business.

The World Bank, Asian Development Bank and JICA are different in providing loans, and their interest rate is very nominal, he added.

According to him, preferential buyer’s credit always has a high interest rate, but not more than 2.5 per cent.

Bangladesh has become a lower middle-income country, so lenders have increased the interest rate and now Bangladesh will have to take non-concessional loans, he added.

Another former ERD secretary, Mohammad-Asif-uz-Zaman, said a high interest loan will be slightly risky for the government in future.

He also said the government did not take such high interest loans during his period at the ERD .

However, he said he is not aware if the 3 per cent interest rate is the highest ever.

According to ERD officials, major development partners have started to readjust their terms and conditions by either increasing the interest rate, or by shortening the maturity and grace period due to Bangladesh becoming a lower middle-income country.

The World Bank has already increased its interest rate to 2.0 per cent from the previously applied interest rate of 0.75 per cent (in addition to 0.25 per cent commitment fee and 0.25 per cent front-end fee), while JICA (Japan International Cooperation Agency) increased its interest rate to 1.0 per cent from 0.014 per cent. A similar interest rate has been imposed by second largest multi-lateral development partner—the Asian Development Bank (ADB).

Development partners have also reduced maturity periods.

Bangladesh had wanted to borrow the funds at 2 per cent interest for this project, as it did in the case of five other China-funded projects signed since October 2016. Bangladesh had earlier signed loan agreements for five China-funded projects at 2 per cent interest rate, both for grant portion and PBC portion.

In August 2017, the Exim Bank of China wrote to the Economic Relations Division (ERD) to send a loan application for the DPDC project, amounting to USD 1,402.83 million. Of the loan money, China showed interest to lend USD 381.16 million in government concessional term at 2 per cent interest rate, and the rest USD 1,021.77 million at 3 per cent interest rate. The government will have to pay 0.25 per cent as commitment fees and 0.25 per cent as management fees.

Both loans carry a repayment period of 20 years with five years grace period.

According to the summary of loan proposal submitted to the Prime Minister, in that case, China would re-evaluate the project, which would take time and might create uncertainty about the fate of the project.

So, the PBC could be taken at 3 per cent interest rate considering the importance of the project. The management fee will have to be paid within 30 days of loan effectiveness, whether a loan is disbursed or not. ERD officials said this is a normal practice for Chinese loans. The interest of the other project will be 2 per cent.

However, The Bridges Division’s project proposal for a “feasibility study for construction of a tunnel under the Jamuna” has also been sent to the Chinese government.

It will be discussed with the Chinese government during Prime Minister Sheikh Hasina’s visit.

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Editor : M. Shamsur Rahman

Published by the Editor on behalf of Independent Publications Limited at Media Printers, 446/H, Tejgaon I/A, Dhaka-1215.
Editorial, News & Commercial Offices : Beximco Media Complex, 149-150 Tejgaon I/A, Dhaka-1208, Bangladesh. GPO Box No. 934, Dhaka-1000.

Editor : M. Shamsur Rahman
Published by the Editor on behalf of Independent Publications Limited at Media Printers, 446/H, Tejgaon I/A, Dhaka-1215.
Editorial, News & Commercial Offices : Beximco Media Complex, 149-150 Tejgaon I/A, Dhaka-1208, Bangladesh. GPO Box No. 934, Dhaka-1000.

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