Miniscule progress, complications still haunt Indian LoC projects

The fate of various infrastructure projects – signed under the Indian Line of Credit (LoC) over the course of the last decade – still is in limbo as they have been persistently showing very little progress towards completion.

Three railway infrastructure projects, under the first Indian LoC signed in 2010, have not been completed yet due to slow disbursement of funds, sluggish implementation by Indian contractors and a lengthy approval process on the part of the Indian authorities.

Sources at Bangladesh Railway said the situation has raised some serious concerns about when these projects will actually be finished. Moreover, circumstances surrounding the second and third LoC projects have also had different implementing agencies worried.

The construction process of all infrastructure projects under LoC-2 and LoC-3 has yet to see the light of day, as they are plagued by the same issues faced by the LoC-1 projects.

According to the Economic Relations Division (ERD), India had extended three LOCs worth $7.862 billion to Bangladesh for undertaking critical infrastructure development projects in a wide array of sectors.

The first Indian LoC of $862 million was signed a decade ago, and so far, $607 million have been disbursed under the deal. The Bangladesh Railway awarded construction projects to Indian contractor firms in 2016 and 2018, but its three infrastructure projects are yet to be completed.

Under the second LoC of $2 billion extended to Bangladesh in 2016, Exim Bank in India has disbursed only $84 million so far. Only two projects have been completed under the deal – the procurement of trucks, and double decker and single decker AC and non-AC buses.

Construction in ten projects under LoC-2 did not begin due to delays in the tender process, which must to be approved by India at every step. Another three projects have lingered in the Development Project Proposal (DPP) phase since 2016, ERD sources said.

The latest and third Indian LoC of 4.5 billion was signed in 2017, and currently it has 11 projects under the DPP preparation stage. So far, five projects have reached the tendering execution phase.

Under the LoC-2 and LoC-3 deals, many priority projects will be implemented, such as - Ashuganj Inland Container River Port, Payra Multipurpose Terminal, Bay Container terminal, Upgradation of Mongla Port, Barapukuria-Bogura-Kaliakair 400KV Transmission Line, Power Evacuation Facilities of Rooppur Power project, Indian Economic Zone in Mongla and Bangabandhu Sheikh Mujib Shilpa Nagar.

What does the problem lie?

A review of LoC project documents revealed a number of factors behind the complications plaguing the start and completion of such projects, including delays in the approval process from the Indian authorities and a longer DPP preparation phase caused by Bangladeshi implementing agencies.

One of the biggest issues affecting the projects is the ongoing complications in the tender process and the irresponsibility of Indian contractors during the implementation phase, so reads a railway project report.

Moreover, India is not easing up on the loan conditions. Under the LoC deals, Bangladesh has to import 75% of the construction material – including bricks and sand – from India, which drives up the cost. This issue has thrown a wrench into the implementation of many LoC projects.

The Saidpur Airport Upgradation Project under LoC-3 can be cited as an example.

A number of officials from the Ministry of Civil Aviation and Tourism discussed the project's feasibility at a recent meeting of the ministry, said an official present at the meeting.

For the project's construction, Bangladesh must import sand, stone, cement and rods from India as per the LoC deal, despite such material being easy to obtain locally. Such a move will have the project's expenses shoot up, and also add extra costs due to customs duty and taxes.

For the Saidpur Airport Upgradation Project, Bangladesh will have to spend an additional Tk485 crore as extra costs, as pointed out in the minutes of the meeting.

In a similar manner, Bangladesh will have to spend additional funds while implementing most infrastructural projects taken up under the LoC deals. Officials from implementing agencies said India does not want to renegotiate the terms of the LoC, and Bangladesh is reluctant to pursue the matter more assertively.

They added that in some projects, India lowered the construction material import requirement of LoC deals from 75% to 65%, but agencies must apply for the facility during the implementation phase.

However, Indian contractors have the power to decide whether or not to provide such a facility to Bangladesh.

Implementation dogged by complications

In light of the experience garnered from the projects under LoC-1, officials have expressed serious concerns regarding the implementation of projects under LoC-2 and LoC-3.

The Executive Committee of the National Economic Council (ECNEC) approved the DPP of Khulna-Darshana Railway line under LoC-2 on August 5 this year.

However, the tender process for appointing a consultant and an Engineering Procurement Construction (EPC) contractor have been delayed severely due a lack of competent bidders and the lengthy approval process from India.

The Parbatipur-Kawnia Railway Line Project under LoC-2 and Bogura to Shaheed M Monsur Ali Station Railway Line Project under LoC-3 have also met with a similar fate.

According to sources involved with these projects, Bangladesh is spending a significant amount of time to take approval from the Indian authorities in every step of the process, from preparing the tender to appointing contractors.

Work on the Kulaura-Shahbazpur railway project – under the LoC-1 deal – began in July 2011. The project is supposed to end this month, but the current physical progress stands at only 16%.

According to railway sources, the Indian contractor firm Kalindee Rail Company is yet to supply Bangladesh with manpower and necessary equipment for the implementation of the project. The firm has also demanded that prices be altered by changing the red schedule of 2016.

The Khulna-Mongla Rail Project is facing a similar dilemma.  The contractor firm of this project – IRCON International Ltd – has taken two years to bring machinery and raw material to the construction site.

There are allegations that the firm had pressured Bangladesh Railway to clear their bills without showing any significant progress in the project, railway sources said.

Responding to a query, Project Director Jahangir Hossain said, "The Indian construction firm was slow in the beginning, but now it is working round the clock."

The Dhaka-Tongi-Joydebpur railway project is progressing rather slowly as well. The Indian consulting firm is yet to deliver the design for the project, and the Indian contractor firm did not supply sleepers and ballasts to the construction site on time.

Speaking to The Business Standard, railway officials said a number of problems regarding the implementation of LoC projects have been identified, with the two neighbouring countries holding several meetings a year to resolve them.

However, in those meetings, issues related to contractor firms "asking for bill payments without adequate progress" are getting more priority instead of complications plaguing the implementation process.

These issues have persisted for years, and this is why the progress of LoC projects' implementation is very slow.

The 17th LoC meeting, participated in by Bangladesh and India and held on August 19 and 20 this year, ended the same way.

Those involved with the projects under LoC-2 and LoC-3 have stated that the implementation process could get even more delayed if these issues are not resolved soon.

AB Mirza Azizul Islam, former financial adviser to the caretaker government, said, "Bangladesh should resolve the issues disrupting the LoC projects through effective discussions with India."

Meanwhile, Ahsan H Mansur, executive director of the Policy Research Institute, said, "All projects under the three Indian LoCs need to be completed quickly in the interest of trade and investment in both countries.

The noted economist also called for political intervention to help the projects move faster towards completion.