NDB delegation to discuss project financing for first time

A New Development Bank (NDB) delegation is expected to arrive this week for the first time to discuss financing various projects in the clean energy and energy efficiency, transport infrastructure, water and sanitation, environmental protection, social infrastructure, ‍and digital infrastructure sectors in Bangladesh.

Between 18 and 26 May, officials from the multilateral development bank will meet with various government agencies, thereby opening a new door for Bangladesh to receive foreign funding.

According to officials at the Economic Relations Division (ERD), the Shanghai-headquartered lender is keen on lending $2.2 billion for eight projects, which will be featured in their discussions.

A $235 million loan for a water supply project of Dhaka Water Supply and Sewerage Authority Wasa (Wasa) is expected to be finalised during their tour, the officials added.

They also said that financing for three projects under the Bridges Division – the construction of Payra, Bishkhali, and Karkhana bridges – will be accorded priority during the visit.

ERD officials said the delegation will also discuss providing $83 million for a water supply project in Rajshahi, $115 million for a 120MW solar power plant at Raipura, and $112 million for a power distribution project in the Northern Electricity Supply Company (NESCO) area.

The discussions will also focus on a $203 million loan for improving the distribution system in the west zone.

ERD officials further stated that the development partner has expressed interest in providing loans for various sectors, including clean energy and energy efficiency, transport infrastructure, water and sanitation, environmental protection, social infrastructure and digital infrastructure.

For this reason, it has asked for a new project list from various government agencies. It has invited around 35 government agencies for discussions.

A senior official of ERD, speaking on condition of anonymity, mentioned that for the time being, a loan will be taken from the NDB for a project to supply water to the 16 new wards of Dhaka city. Loans may not be taken at the SOFR rate for other projects at present due to the volatile global foreign exchange market, which has resulted in higher rates. However, the loan approval process will be completed so that loans can be taken for these projects once the SOFR rate drops.

Similar to the Asian Infrastructure Investment Bank (AIIB), the NDB offers the loan with floating interest rates. The rates range from SOFR+1.30% to SOFR+1.65%. Besides, there is a 0.25% front-end fee and a 0.65% commitment fee.

In contrast, the AIIB offers loans at SOFR+0.79% to SOFR+1.29%, plus 0.25% front-end and 0.65% commitment fees.

The ERD estimates that borrowing costs from NDB are 0.51% higher than the AIIB due to NDB being a newer bank with a lower credit rating.

According to ERD officials, NDB loans will be available in both US dollars and Chinese yuan, and there will be no strings attached. Unlike World Bank loan projects, which may have obligations to spend on consulting, Bangladesh will have the opportunity to implement projects under NDB loans according to its own procurement rules. Additionally, unlike other development partners, the NDB will not have a procurement process or guidelines.

Bangladesh has an opportunity to get a loan of $1.-1.5 billion from NDB every year, they added.

Bangladesh has the potential to avail funds ranging from $4 billion to $5 billion from the new development lender's $30 billion portfolio for the 2022–26 period, ERD officials pointed out. 

China led the formation of the New Development Bank in 2014, prioritising six development financing sectors in five major emerging economies: Brazil, Russia, India, China and South Africa.

In the 2017–21 period, the Brics bank approved more than $29 billion in loans to 74 projects in Russia, India, China and South Africa. The bank will disburse another $30 billion in the 2022-2026 period, according to its new five-year lending strategy. 

He Tian, project team leader of the Public Sector Department of the NDB, will head the eight-member delegation, which includes public sector experts Abdul Quader and Zhengyu Yang.

Apart from ERD, officials from the Planning Commission's Physical Infrastructure Department, Bridges Division, Ministry of Shipping, Ministry of Science and Technology, Dhaka Wasa, Dhaka North City Corporation, Dhaka South City Corporation, Road Transport and Highways Department, Directorate of Roads and Highways, Bangladesh Road Transport Corporation, and various other government agencies are expected to take part in the discussions with the NDB.

ERD officials stated that although Bangladesh became a member of the NDB in September 2021, it has not yet received a loan from the lender due to the long delay in submitting loan proposals. After becoming a member, the NDB wrote to various agencies through ERD, seeking loan proposals.

ERD officials said that due to the increase in the SOFR rate, Bangladesh is taking fewer market-based loans. Due to this, the government is moving slowly in the process of taking loans from NDB.

At present, Bangladesh is taking a 100% loan from AIIB at a market-based interest rate. More than half of the loans that the ADP gives to Bangladesh each year are market-based.

The authorities are also yet to finalise a law for NDB financing, which will enable Brics bank-funded projects to avail of some tax waivers. The draft of the law is now awaiting Cabinet Division approval.