Only 16% of $7.3b Indian LoCs disbursed in 12 years

Infographic: TBS

Of $7.3 billion loans committed to Bangladesh under three lines of credit (LoCs) of India, $1.2 billion has so far been disbursed since the first credit line was signed 12 years ago and the third one five years back.

The disbursed loan accounts for 16.6% of the total amount pledged, according to the updated report of the Economic Relations Division (ERD).

Obtaining consent of the Indian authorities required for every project under the LoC programme and approval at various stages – from inviting tenders to appointing bidders – are among the causes that delay the start of project implementation and disbursement, officials of the ERD and implementing agencies told The Business Standard.

According to the terms and conditions of the Indian LoC, only contractors from India can be assigned to projects financed under this programme. But in many procurements, contracting firms bid more than the estimated costs, creating complications and thus delaying start of project work, they maintained.

A number of projects have also been delisted from the LoC mid-way due to India's stringent credit conditions and negligence on part of the Indian contractors, the officials said.

Tough loan terms

A number of implementing agencies are losing interest in projects under Indian LoC because of the tough loan terms and various other complications such as mandatory buying of 75% of the goods, services and works from India while only 25% from Bangladesh or the international market.

In case of projects related to public works, however, as low as 65% of Indian products can be procured subject to the approval of the Indian authorities. But this facility is applicable only for road projects. India does not provide this opportunity for power, shipping or rail infrastructure projects.

According to an ERD report, 11 out of the 15 projects under the first LoC were procurement or supply projects, while only two of the 15 projects under the second LoC are related to supply and the remaining 13 are related to construction work. Among the 16 projects under third LoC, none is a supply project.

A senior ERD official said on condition of anonymity that a political decision from the two countries is necessary to bring about changes in the terms of Indian loans.

Speaking to reporters on this topic, Planning Minister MA Mannan last week said, "In my experience, it is a bureaucratic programme and takes time to move forward. Asian Development Bank and World Bank are not so bureaucratic."

Dr Ahsan H Mansur, executive director of the Policy Research Institute of Bangladesh (PRI), said Indians are very conscious about their own interests. Therefore, he said, even if there is political will, the bureaucracy stands in the way.

"It is time to evaluate Indian loans through independent agencies. This assessment will show how much we are benefiting from Indian loans," he felt.

"The projects funded by India require the construction materials to be brought from India. Again only Indian contractors can participate in the tender," the economist said, explaining how loan conditions are limiting benefits expected from LoC projects.

Projects hit snag as fund flow slows

According to ERD data, the Indian authorities have disbursed $727.61 million as of 20 Augusts this year under the first LoC, which is 84% of the total loan amount of $862 million.

Out of the 15 projects being implemented under this LoC, signed on 7 August 2010, 12 have been completed. Most of these projects are concerning buying buses, trucks or other products from India.

The implementation of the three major projects of rail infrastructure construction taken up under the first LoC has been going on for more than a decade.

The implementation of the Kulaura-Shahbazpur Railway Line project started in July 2011. So far, the physical progress of the project is only 25% as it took six years to get the construction contract with an Indian company signed in 2017 after completing various approval processes from the Indian authorities concerned.

The construction work was supposed to be completed in May 2020. Later, the deadline was extended till June 2023.

Project Director Sultan Ali told TBS that the project work is going on at a snail's pace now.

At the 20th Bilateral Lines of Credit (LOC) Review Meeting held in June in New Delhi, the ERD expressed their concerns on the capability, sincerity and commitment of the EPC contractor and suggested that suitable action may be initiated if no improvement is seen in their performance.

Same situation is in the Dhaka-Tongi-Joydebpur Railway Line project. Construction work on the project, under the first LoC, started in 2012. The total cost of the project is Tk1,107 crore, of which Tk903 crore is pledged to be provided by India. So far, not even 50% of the physical work in this project is completed.

Meanwhile, the Indian authorities have disbursed $233 million under the second LoC, which is 11.6% of the committed figure of $2 billion.

The second LoC loan agreement with India was signed on 9 March 2016. A total of 15 projects have been taken up under this LoC, of which two vehicle purchase projects for the Bangladesh Road Transport Corporation (BRTC) have already been completed.

Four more projects are under execution under the second LoC, tender has been floated for another one while five projects are in project proposal approval or consultant appointment stage.

Last year, the Health Directorate decided not to take Indian loans in the middle of two ongoing projects of hospital construction. Later, following the application of the Ministry of Health, the two projects were removed from the second LoC list.

One of these two projects is Sheikh Hasina Medical College and Hospital and Nursing College in Jamalpur. The other is Establishment of 500-bed Hospital and Ancillary Buildings in Jashore, Cox's Bazar, Pabna and Noakhali Medical Colleges.

The Creating Facilities for Additional Students Enrollment in Different Polytechnic Institutes project has also been excluded from the second LoC due to a lack of interest of the implementing agency, although it was in the list.

On the other hand, the third LoC with India worth $4.5 billion was signed in March 2017.

Under this credit line, the implementation of two procurement projects – Procurement of 600 Double Decker and Single Decker Buses for BRTC, and Procurement of 600 Double-decker and Single-decker Buses for BRTC – has already been completed.

Because of the two completed projects, about $264 million or 3.8% of the total promised loan amount has been disbursed under the third LoC till 20 August 2022.

Of the other projects among the 16 projects taken under this LoC, one has reached execution stage, six are in tender floating stage, and five are in the approval or consultant engagement stage.

Implementing agencies backtrack on India LoC projects

Meanwhile, due to the complications caused by the Indian contractors bidding more than the estimated costs, state-owned telecom operator Teletalk has proposed to complete the project without completing the expansion of its 4G technology under the third Indian LoC.

In a letter sent to the Planning Commission regarding the Teletalk project, the Posts and Telecommunications Division said, "As per the terms of the Indian loan, 75% of the equipment used in the project has to be imported from India. Four years into the approval of the project, tenders were called last year, but Indian contractors proposed higher prices."

If the project is implemented at the rates proposed by the Indian contractors, the cost of the project will increase by 20%, which the telecom division found not justified.

Meanwhile, although in the list of projects under the third LoC, the authorities think it will not be reasonable to implement the Bay-Terminal project with the Indian loan. The project was supposed to get $400 million from the Indian credit line.

An official of the Chattogram Port Authority on condition of anonymity told TBS that the implementing agency has already informed the government of their decision not to implement the Bay-container project with Indian loan.