Snail's pace in AIIB-funded projects prompt lender to slow down loans
Thirteen AIIB-funded projects are facing a similar situation
In 2020, the government signed a $404 million loan agreement with the Asian Infrastructure Investment Bank (AIIB) to widen the Sylhet-Tamabil highway, a dual carriageway, to four lanes scheduled for completion by June 2025.
After three years, the highway still remains a two-lane road with no physical progress made in the project, prompting the China-led financial institution to not release funds for the project.
According to a report from the Economic Relations Division (ERD), there are 13 AIIB-funded projects facing a similar situation.
The report highlights common challenges in project implementation including issues with foreign funding, land acquisition, utility shifting, frequent changes in project directors, delays in the tender process, and revisions to project proposals. Additionally, it takes a long time to disburse project funds as there is no AIIB regional office, the report states.
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ERD officials mention that the AIIB has allocated $2.07 billion to these projects but, as of September, only 22% or $458.45 million has been paid out.
"Efforts are underway to open an AIIB office for South Asia with discussions ongoing about the possibility of locating it in Dhaka."
The approved projects implementation period for most has been over already, while some are in their final stages. The five-year grace period for many of these loans is almost over. Furthermore, a commitment fee of up to 0.25% is being incurred on unutilised loans.
Project officials note that delays in paying the contractors have weakened their motivation. Additionally, the process of sending hard copies of bills and documents to the AIIB office takes one and a half months, complicating bill payments.
To address these issues, ERD officials held a meeting last week with stakeholders to find solutions for the slow-moving projects. AIIB officials were also present.
Masuma Akter, joint secretary at ERD, mentioned that they are introducing an online communication system to expedite document exchange with the AIIB for quicker bill payments.
Masuma Akter further said the AIIB does not plan to establish country offices to minimise costs. However, a regional office is operating in the UAE and efforts are underway to open another office for South Asia with discussions ongoing about the possibility of locating it in Dhaka.
As of June 2023, Bangladesh has secured loan commitments or signed loan agreements totalling $3.35 billion for 17 projects from the AIIB, which is often considered Beijing's answer to the World Bank.
The outstanding loan from this institution stands at $1.50 billion with more than half designated as budget support. Budget assistance loans are disbursed upon agreement signing whereas project loans are released based on implementation progress.
Slow to start
The AIIB is funding the construction of the Kewarkhali Bridge in Mymensingh to alleviate city traffic congestion by diverting traffic away from the central area which includes overpasses and an approach road.
In November 2021, a $260 million loan agreement was signed with the AIIB for the $419.65 million project but only $2.07 million has been disbursed as of September with no physical progress in the project.
The ERD report cites delays due to land acquisition and utility shifting issues, noting extended timelines for land acquisition and going beyond the allocation prompting prior approval for an additional budget.
Project Director Noor-E-Alam said the consultant and contractor for this project have been appointed although some issues linger in matters of land acquisition. The deputy commissioner oversees the land acquisition and efforts are being made to address these challenges.
He further noted, "The AIIB disbursed an instalment for this project last week, leading to an increase in its disbursement to $10.5 million."
Land acquisition
Electricity development projects are also facing similar complications, a case in point being the Power System upgrade and expansion (Chattogram Area) project, costing $13.98 million over four years with a $120 million AIIB loan.
Officials from the Power Grid Company of Bangladesh (PGCB) say the project is facing a "right-of-way issue", where people obstruct the installation of electricity poles, leading to delays in the implementation work.
A 2018 law mandated compensation solely for the area occupied by electricity poles. However, in practice, landowners face restrictions on building infrastructure or cultivating land where poles are installed, leading them to oppose acquisition.
The official noted that infrastructure projects typically do not need foreign funds in the initial two years. However, the AIIB charges a commitment fee for unutilised loans, which this project has to bear.
No AIIB office
The Power Grid Company's Dhaka Western Zone transmission project also faces slow implementation due to the absence of a local AIIB office and bill payment delays. This project, a $200 million loan agreement with the AIIB signed in June 2019, is facing challenges in disbursement.
Similarly, the Dhaka Sanitation Improvement project of Dhaka Wasa, with a $170 million loan agreement signed in September 2020, has only seen $8.6 million released out of the total loan.
For both projects, the ERD report identifies failure in the tendering process as the reason behind the delay. The report points out faulty cost estimates for the delay. Additionally, obtaining approval for "road cutting" is also causing delays, resulting in only 7.13% physical progress despite the project's scheduled completion next year.
Another such project is the $100 million "Covid-19 Emergency Response and Pandemic Preparedness" project. Only $15.31 million has been disbursed as of September, with a $32.50 million written off. ERD officials reported a 75% physical progress of the project, supported by $600 million in loans from the World Bank.
