INFRASTRUCTURE PROJECTS IN PERIL: China throws up controversial clause of payment upfront

Implementation of nearly a dozen large infrastructure projects (commercial contracts on four have already been signed between Dhaka and Beijing) faces fresh difficulty after Chinese authorities tagged a controversial condition on the loans.
The Export-Import Bank of China last month asked the Bangladesh government to make them a 15 per cent prior payment of the total project cost under its preferential buyer’s credit financing modality, a senior finance ministry official said.
The new condition tagged by the Eximbank , a state bank solely owned by the Chinese government and under the direct leadership of the State Council, have caused delay in signings the commercial contracts of at least six infrastructure projects and made the fate of financing agreements of other four projects uncertain, the official in the ERD of the finance ministry said.
‘We have stated our reservations to the Chinese authorities that none of the ongoing Chinese-funded projects entails such 15 per cent prior payment criteria,’ Mesbah Uddin Ahmed, secretary, economic relations division of the finance ministry, told New Age on Wednesday.
He said the fate of projects become uncertain if the dispute is not resolved.
The ministry of finance in two separate letters in July, addressed to both Eximbank and the Chinese embassy in Dhaka, expressed its unwillingness to accept the controversial loan clause.
‘This is for your kind information that the guideline and procedures for supplier’s credit or Buyer’s credit of government of Bangladesh and the existing rules does not permit advance payment to the implementing contractors for any project. The project financed by the government of China is done on “Turn Key’’ basis and the payment is made directly to the contractor in China, so it is not possible to make payment directly to the Chinese contractors, which we have discussed in our previous meeting in Dhaka, ’reads the letter to the Chinese embassy.
The ERD officials said the government provides more than 20 per cent of total cost of the project to be implemented under the Chinese assistance. This 20 per cent includes cost of land acquisition, civil work, customs duty, vat and taxes.
‘Paying another 15 per cent project cost, which is generally inflated under the PBC system, makes no financial sense for the government,’ another ERD official said, adding, the Chinese authorities had not yet budged
from their controversial stance on their credit.
The government in the recent period signed four commercial contracts with the Chinese authorities, with the last being at the end of last month. The projects are — construction of tunnel under Karaphuli river at a cost of $1 billion, procurement of six new vessels for Bangladesh shipping corporation at a cost of $216 million, establishing IV tier data center involving $ 133.65 million and building the Dasherkandi sewerage treatment plant at a cost of $262.50 million.
The commercial contracts outline the technical specification of goods and services, duration of the project, origin of goods to be supplied and guarantee clauses, officials concerned said.
‘We were expecting the final deals—financing agreements—of the four projects to be signed at the latest by October. But the thing has hits a snag unexpectedly,’ the ERD official said, expressing his frustration.
The official said the ongoing projects under the Chinese preferential buyer’s credit – introduction of 3G and expansion of 2.5G, Shahjalal fertilizer and Padma water treatment plants, had been implemented without the proposed 15 per cent advance payment system.
The officials concerned in the road transport and bridges ministry said construction work for the tunnel under the river Karnaphuli was supposed to begin by the year-end and would be completed within a four-year timeframe, if the agreement is signed by October.
The tunnel will significantly help facilitate transit traffic, relieve the existing bridges of traffic pressure and promote regional economic growth, they added.
The 4.21 kilometer tunnel, which is a first-of-its-kind in Bangladesh, will improve the Dhaka-Chittagong-Cox’s Bazar highway network. It can later be linked to the planned Asian Highway Network, enabling road connections with Myanmar and India, another ministry official said.
Dasherkandi sewerage treatment plant will treat the polluted water of Hatirjheel—Begunbari canal. To treat the sewage of the capital’s Hatirjheel-Begunbari canal, the government had taken up ‘Dasher Kandi Sewage Treatment Plant’ project which was scheduled to begin in January 2011 and end in December 2013. The project could not be launched due to fund crunch.
In November 2013, the Dhaka Wasa and Chinese company Hydropower signed an agreement to implement the project through Chinese Exim Bank funding.

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