China offers soft loans of $15-20b

China has offered Bangladesh soft loans of $15-20 billion to help it expand railway networks across the country.

Officials of the Chinese embassy in Dhaka placed the loan proposal at a high-level meeting with Bangladesh officials at the Prime Minister's Office in January, railways ministry sources told The Daily Star.

Later that month, the PMO formed a three-member committee, headed by an additional secretary of the railways ministry, which primarily identified eight projects involving $10.79 billion.

Railways ministry officials said they sent a list of the projects to the Economic Relations Division of the finance ministry last month for holding discussions with the Chinese government.

Wishing anonymity, a finance ministry high-up said the ministry already sent a list of four projects to the Chinese government for assistance.

The projects are Padma bridge rail link (Dhaka-Mawa-Bhanga) involving $2.18 billion; Padma bridge rail link (Bhanga-Jessore) costing $1.14 billion; double line (Joydevpur-Ishwardi) involving $897 million; and double track line (Joydevpur-Mymensingh) costing $331 million.

The railways ministry has signed memorandums of understanding with China Railway Group Ltd for the two Padma bridge rail link projects.

According to finance ministry officials, China has invested trillions of dollars against treasury bonds in the US and countries in Europe.

As interest rates on those bonds continue to fall, China is now eager to invest in developing countries which will bring it profits through interest and also help it expand its businesses.

A finance ministry official said Bangladesh wants to avail itself of the opportunity, but on easier borrowing terms.

The ministry has been in talks with the Chinese government for softening the terms and conditions of the loans for the railway sector, said the official, asking not to be named.

At present, China charges 2 percent interest on soft loans with a repayment period of 15 years, including five years of grace period. The loan also carries 0.2 percent commitment fees and 0.2 percent management fees.

In case of such loans, the Chinese government selects the contractor, and stipulates that all materials for the projects have to be purchased from China.

On April 12, Finance Minister AMA Muhith held a meeting with Chinese Ambassador Ma Mingqiang and requested the envoy to take steps to soften the terms of the loans.

The minister later told reporters that China had assured it would lower the interest rate on the loan. But the rate was yet to be fixed.

Muhith said the Chinese ambassador told him that China had huge funds and wanted to invest those under softer terms.

The minister said China has always assisted Bangladesh, and the cooperation reached a new height following the Bangladesh prime minister's visit to China in June last year.

He said they already gave the Chinese government a list of projects for getting loans.

On the issue, Zahid Hussain, lead economist at World Bank's Dhaka office, said, “Development of the railways is very important for building an environment-friendly internal transportation system in Bangladesh. The financial needs are massive. So in principle, getting financing from China is highly welcome.”

“It will be important to make sure that the terms and conditions are affordable and transparent and that the procurement system ensures value for money for Bangladesh,” Zahid told this correspondent.