Bangladesh seeks over $1.6b more for Indian LoC-funded projects

Bangladesh needs more than $1.6 billion in additional funding to complete the developmental projects that are being implemented under the three Indian Line of Credits (LoC).

Accordingly, Bangladesh proposed India to sign a new framework agreement to secure the funding needed to cover cost overruns in some of these ongoing projects, officials of the Economic Relations Division (ERD) said.

As part of the proposed framework, funding would be transferred from slow-running projects or those that have been dropped from the LoC list to projects that are making faster progress towards completion, as explained by ERD officials. 

"We will initially need an additional $1.6 billion in LoC-funded projects but it may take more than that. The cost of all ongoing and in-process projects will increase. This may require a reevaluation of the funds available for active projects," a senior ERD official, on condition of anonymity, told The Business Standard (TBS).

For example, the Dhaka-Tongi-Joydebpur rail line project will require an additional $66 million, in addition to $235.1 million previously provided by India, he said.

The IT/Hi-Tech Park establishment (in 12 districts) project needs $47 million in addition to a $193 million Indian loan, the official said.

Besides, the Benapole-Jashore-Narail-Bhatipara-Bhanga Road project will require an Indian loan of over $1 billion, on top of the $100 million given earlier, he told TBS. 

The ERD official said, "An Indian Technical Committee will visit Bangladesh to find out how much additional funding will be needed for all the projects. We wanted the team to come in March, but their visit was deferred to May due to Ramadan."

The exact amount of additional funding and its sourcing will be known after the arrival of the Indian team. A decision will be made on whether to arrange additional financing by relocating funds from slow-moving projects or through new loans from India, the official added.

During the 3rd meeting of the high-level project monitoring committee held on 14 February in Dhaka, both countries discussed the additional costs of the projects. Officials have decided that a technical team from India will visit Bangladesh to hold discussions and work out the details of the proposed new framework agreement.

The meeting was co-chaired by Special Secretary Prabhat Kumar from the Indian side and ERD Secretary Sharifa Khan from the Bangladesh side.

New framework agreement:

ERD officials said that in the new framework agreement, a project-based loan repayment and grace period facility has been proposed. India has also agreed to discuss a project-based grace period facility instead of the LoC-based one.

Under the terms of the current framework agreement with India, the calculation of the entire debt period starts immediately after the loan disbursement in any project under the LoC package. 

An LoC package can have a maximum of 15 projects. Once a project has started, the grace period kicks in, even for projects yet to be implemented.

When the Indian technical team arrives, a deadline will be fixed for the existing three LOCs. All projects and contracts expected to exceed that deadline will be shifted to the new framework agreement.

Officials familiar with the matter said the new arrangement will allow projects to have their own specific stand-alone repayment timeline. New projects that are currently under discussion could also be included under this larger framework agreement, and individual project-specific financing agreements could be finalised.

Status of LoC-funded projects:

Of the 42 projects under three Indian LoCs, 14 have been completed and the remaining 28 projects are at various stages of implementation. 

Of the remaining projects, eight are at the physical execution stage, and 11 are at the tendering stage. Some projects have been excluded from the LoC list due to implementation complications.

India has so far disbursed a little over 18.2% of the total $7.35 billion committed to Bangladesh under three lines of credit (LoCs) in more than 12 years, ERD data show. 

Causes for delay in implementation and an increase in costs:

The requirement to obtain consent from the Indian authorities for every project under the LoC programme and approval at various stages has caused delays in project implementation and disbursement, according to officials of the ERD and implementing agencies.

At the 3rd high-level meeting, ERD officials also stressed that the ministries concerned about the LoCs should quickly determine the exact amounts of fund escalation so that additional requirements can be discussed.

In the meeting, officials concerned said additional money is required for the Dhaka-Tongi-Joydebpur rail line project, which is being implemented under the first Indian LoC. Since the Indian contractor company is not working at the moment, no money is being spent on the Kulaura-Shahbazpur railway project under the same LoC. Hence, the fund of the Kulaura-Shahbazpur project can be used for the Dhaka-Tongi-Joydebpur rail line project.

The ERD informed the Indian authority that the Dhaka-Tongi-Joydebpur rail line project will require an additional $66 million loan.  The Indian side assured the ERD that the request will be assessed as soon as possible.

Construction work on the Dhaka-Joydebpur project began in 2012. The project, which was supposed to be completed in three years, will now take 15 years, to be completed in 2027.

Project Director Nazneen Ara Keya told railway officials that the feasibility study of the project had not been done properly, which was the reason for the delay. 

So far, the progress of the project is about 65% and the cost is being increased to Tk3,265.76 crore, which is four times the original estimate.

Meanwhile, railway officials said the cost of the Kulaura-Shahbazpur railway line project will increase again. The project, which started in June 2011, is being implemented by the Indian contractor firm Seoul. Project work stopped after 25% of progress.

Project Director Md Sultan Ali said progress in this project has been hindered due to the non-operation of the contractor. The project expired last December and the process for a two-year extension is now underway.

In November 2017, Bangladesh Railway signed an agreement with the Indian contractor Kalindee Rail Nirman, a concern of Texmaco Rail and Engineering Limited, for the restoration of the Shahbazpur railway line in Brahmanbaria from Kulaura in Maulvibazar. According to the contract, the contractor was supposed to complete the construction work in May 2020.

At the 3rd high-level meeting, the ERD noted that it may be better to terminate the Texmaco contract due to underperformance. The slow progress of this project was acting as a drag on LoC 1 and so it may be better to terminate the current contract and take on balance works under a new contract or project.

The Ashuganj-Sarail-Dharkar-Akhaura road project is also progressing slowly due to a cash flow problem of the Indian contractor. In addition, the cost of the Ashuganj inland container river port project will increase by 10% to 15%.

The cost of the Barapukuria-Bogura-Kaliakoir 400 KV line project has already increased due to an increase in the tender price. A proposal to amend this delayed project was recently approved by the Executive Committee of the National Economic Council (Ecnec). The project cost has been increased from Tk4,052 crore to Tk10,247 crore. Of which, the Indian loan increased from Tk2,050 crore to Tk6,373 crore.

Slow-moving projects:    

According to ERD officials, of the slow-moving projects identified till February this year, the Bay Container Terminal project at Chattogram (with a $400 million loan), the Saidpur airport project ($375 million loan) and the Saidpur Railway Carriage Workshop project ($375 million loan) may be shifted under the proposed new framework agreement.  

The project to build solar-based stations for the Teletalk network in hard-to-reach areas (with a $30 million loan) could be permanently dropped as nearly 50% of the 420 towers planned for construction under this project had been constructed under other ongoing projects.

Officials said several projects have been excluded from the Indian LoC list due to similar complications. Some other projects may also be dropped.

The establishment of Sheikh Hasina Medical College and Hospital and a nursing college in Jamalpur, along with the construction of 500-bed hospitals in Jashore, Cox's Bazar, Pabna and Noakhali, were also withdrawn from the LoC list by the government.

Besides, the Chattogram Port Authority has said the Bay Terminal construction project will also not be implemented with Indian credit.