The interim government's decision to cancel 16 development projects worth around US$3.0 billion under India's Line of Credit (LoC) schemes due to excessive delays in both project implementation and fund disbursement by the lender is a step in the right direction.
Quoting official sources familiar with the matter, The Financial Express recently reported that the government has already formed a technical committee to work out an exit plan for the projects on the drop list.
The projects selected for cancellation are reportedly under the LoC-2 and LoC-3 financing schemes. Most of these projects have seen little to no progress, mainly due to delays in consultant selection or the absence of necessary approvals from the Indian side.
Project implementation under the LoCs had already been sluggish because of stringent conditions attached to the loans; and following the fall of the Hasina government, the situation worsened as Indian contractors and workers abandoned project sites, citing security concerns. As a result, these projects have been left in limbo, making it essential for the government to explore alternative options.
The Indian credit, which began with the first Line of Credit (LoC) worth US$862 million in 2010, increased to US$7.362 billion by 2017 with the addition of two more LoCs. However, only US$1.73 billion has been disbursed since August 5 last year.
Under this loan schemes, there were a total of 40 projects including roads, railways, and infrastructure development in shipping and energy sectors. Till date, only 15 projects have been completed, eight are ongoing and the rest remain stalled at preliminary stages, either in the process of selecting consultants and contractors or still preparing proposals.
The loan schemes were present as soft loans, as they carried an interest rate of just 1.0 per cent. However, the terms of the loans have proven far from favourable as they came with stringent conditions. For example, a key stipulation requires Bangladesh to source 75 per cent of project materials including goods and services from India.
Moreover, only Indian contractors have been awarded these projects, and it has been alleged that they inflated costs at their own discretion. Worse still, every stage of implementation, from land acquisition and tender preparation to design and final approval, is subjected to approval from the Exim Bank of India. A significant portion of the workforce also consists of Indian nationals. Given these constraints, questions have been raised as to why Bangladesh agreed to such loan terms in the first place, apparently at the expense of national sovereignty.
Many have also raised questions about the true motives behind the construction of some of these projects. A number the projects under these LoCs, including the construction of roads and railways on certain routes, would primarily benefit India, as the Awami League government had been actively working towards granting India transit facilities to transport goods to its northeastern states through Bangladesh.
How absurd it was that Bangladesh was constructing infrastructure to serve Indian interests, even while agreeing to harsh and self-defeating loan terms. It is therefore time to launch a thorough investigation into the LoC-funded projects and scrap those that have made little to no progress.
Admittedly, Bangladesh needs foreign fund to develop infrastructure, across different sectors such as power and energy, transport, urban and social to support its growing economy, urbanisation and large population.
As Bangladesh aims to enhance its global trade competitiveness and sustain its growth momentum in the post-LDC era, robust infrastructure development will be critical. Introduction of infrastructure bonds could help bridge the financing gap reducing reliance on foreign loans of stringent and unfavourable terms.
The interim government's decision to cancel 16 development projects worth around US$3.0 billion under India's Line of Credit (LoC) schemes due to excessive delays in both project implementation and fund disbursement by the lender is a step in the right direction. Quoting official sources familiar w
thefinancialexpress.com.bd