Half of US$1bn Indian credit to BD in 2010 unused

Half of US$1bn Indian credit to BD in 2010 unused

SAM Report,

Bangladesh has only been able to utilize 50 percent of the US$1.04 billion Indian credit provided in 2010. And it hasn’t even touched the US$ 2 billion provided in a second phase in March 2010. The credit is has been bogged down with conditionalities of using the funds on projects related to Indian interests or to important equipment from India. This has raised questions as to whether the speculated US$ 5 billion Indian credit to be provided during the ongoing visit of Bangladesh’s Prime Minister Sheikh Hasina can actually be put to use for development work.

Sources in Bangladesh say that US$ 200 million of the US$ 1 billion which was to be provided in 2010 to Bangladesh, was later changed into a grant for Padma Bridge. Later Delhi granted another US$ 62 million in loans to meet the demands created by increasing project costs. Finally the loan amount of the US$ 1 billion actually stood at US$ 862 million. Of this, US$ 353 million has been released. According to latest records, US$ 325 million has been used credit assistance for 15 projects. The later US$ 2 billion loan provided with the same conditionalities, is yet to be utilized. Only once the first loan is used, will the second one be touched.

Fresh credit will be provided to Bangladesh basically for the communication infrastructure sector. Most of the projects are related to connectivity between India’s main territory and its northeastern region. India had provided similar loans for the communications sector in the past, with strict and complicated conditions.

In the memorandum of understanding (MOU) signed during Indian Prime Minister Narendra Modi’s Dhaka visit, I was said that the second agreement would have the same conditionalities as the first. But later when Indian sent the draft of the agreement, it was seen that the conditionalities were much harder than those of the first agreement. After the first agreement was signed in 2010, the project was finalised. Under the new credit, the condition was that necessary goods and at least 75 percent of services would have to be taken from India. Bangladesh proposed to bring this down to 60 percent but India did not agree. Later the two countries agreed upon 65 percent.

From the outset India insisted that the managing consultants of the projects would have to be citizens of their country. Bangladesh objected to appointing Indian consultants for all the projects. Now 75 percent of the consultants are from India and 25 percent from Bangladesh.

In the draft proposal Delhi proposed that all projects and Indian persons related to the projects be exempted from paying taxes and VAT. There is no scope for any such exemption under Bangladesh’s prevailing laws. It was decided that Bangladesh would pay from its own resources the project VAT and the consultants’ taxes.

In an update on 30 December it was seen that till date seven projects under Indian credit assistance have been implemented. All of these are pertaining to purchase. These include single and double-decker buses for BRTC, wagons and containers.

Significant among the eight projects that remain incomplete are modernization of Bangladesh Standards and Testing Institution (BSTI) through the supply of new equipment, the second Bhairab bridge and second Titas bridge along with approach railway lines, and construction and renovation of several railways lines. These railway lines related ones are linked with India’s receiving transit facilities.

India’s Exim Bank delayed in giving its approval for the trade agreement for the four railway projects under Indian credit. That is why the release of funds was blocked for the four projects funded through Indian LOCs which included the Khulna-Mongla railway line construction, second Bhairab and second Titas bridge construction, third and fourth Dhaka-Tongi dual gage line, and Tongi-Joydevpur dual gage double line construction and rehabilitation of the Kulaura-Shahbazpur section.

Even though 79 percent of work on the second Bhairab and second Titas bridge construction projects is complete, it has not been possible to use Taka 104 crore of the allocation from the Indian loan. Work on the project has been delayed by the Indian contractors IRCON AFCONs JV and GANON FLCAL.

The BSTI modernization and strengthening project as well as the procurement of 120 coaches for the railway project are also progressing at a snail’s pace. Delays in the project have pushed costs up significantly.