Govt looking for alternatives to China in two rail projects

Highlights:

• Chinese contractors backtrack after project costs are revised downward
• PM instructs to look for alternative foreign funding
• Railway ministry initiates process to find new contractor
• Jica interested in Joydebpur-Iswardi project 
• Indian contractor Ircon has shown interest for Akhaura-Ishwardi project

Prime Minister Sheikh Hasina has directed the railway ministry to look for alternative sources of foreign funds after Chinese contractors backtracked on two railway expansion projects citing downsized costs.

The two projects are – conversion of the Akhaura-Sylhet metre gauge railway line into dual gauge and construction of the Joydebpur-Ishwardi dual-gauge rail line.

Both projects, under a government-to-government (G2G) arrangement, were to be implemented through Chinese financing and contractors. Later, the costs for the projects were deemed too high compared to similar projects and the costs were revised downward by an inter-ministerial meeting at the instruction of the prime minister. 

The Chinese contractors soon informed the government of their decision to not move forward with the revised funding. When the matter was recently presented to the prime minister, she directed that alternative financing sources be sourced, railway officials said.

The railways ministry has started the process of securing foreign funds from alternative sources after receiving instructions from the prime minister. As part of this process, the Ministry of Railways has sent letters to the Planning Commission and the Economic Relations Division (ERD).

At the same time, the railways ministry is in talks with various development partners for financing. The ministry has already received initial assurance of loans from Japan International Cooperation Agency (Jica) for the construction of the dual gauge double line from Joydebpur to Ishwardi, railways officials said.

Md Golam Mostofa, project director of the Joydebebpur-Ishwardi rail line construction, told The Business Standard that the railways ministry has also started preliminary discussions with various development partners and received assurance of financing from Jica. 

"ERD will sit with Jica to finalise the loan. In case an agreement is not reached with Jica, the project will be implemented with some other development partner or government funding," he said.

"We want to speed up the financing process because project costs increase when work is stopped for a long time," Mr Mostofa added.

ERD officials said the railways would liaise with potential development partners to raise funds for the two projects. For this task, the ERD has a search committee that will determine which development partners to contact based on the type of project. Development partners such as Asian Development Bank (ADB) and Jica provide loans for general rail infrastructure projects. 

According to the Ministry of Railways, Jica has expressed interest in the construction of the railway line from Joyderpur to Ishwardi, while the ADB or Asian Infrastructure Investment Bank (AIIB) could be considered for the Akhaura-Sylhet project, ERD officials said.

The cost of the Joydebpur-Ishwardi double line project, which was approved by the Executive Committee of the National Economic Council (ECNEC) in 2018, was estimated at Tk14,250 crore. Of this, the loan amount from China was estimated to be Tk8,757 crore, while the railways initially agreed to a construction contract worth Tk10,302 crore with China Railway Engineering Construction Company.

The inter-ministerial committee later identified an additional expenditure of around Tk217 crore for this project.

The project to convert the Akhaura-Sylhet metre rail line to a dual gauge line was approved by ECNEC on 9 April, 2019. The cost of the project was estimated at Tk16,104 crore and the Chinese company, Construction Bridge Engineering Bureau Group Company, was given the contract at a cost of Tk12,079 crore. Following the directive of the prime minister, the inter-ministerial committee recommended a reduction in the cost of the project by Tk 3354 crore.

Indian state-owned Ircon International Limited (Ircon) has offered to fund the Akhaura-Sylhet rail line project, recently making the offer in a letter to Railways Minister Md Nurul Islam Sujan. 

"We hereby submit our Expression of Interest for construction of the Railway project for conversion of the meter Gauge line to Dual Gauge Line between Akhaura-Sylhet, with funding from the Exim Bank of India," read the letter.

However, the railway ministry said it was not considering the Indian proposal at this point. First, they want to secure funds from alternative sources like ADB or Jica, which offer loans on easier terms.