BD needs to apply anew for Chinese buyer's credit

Dhaka needs to apply anew for Chinese loans for the projects, deals on which were signed during Xi Jinping's visit to Dhaka in 2016, to match his government's new lending policy.

China has reformed its policy on loan under the preferential buyer's credit (PBC).

Sources said Chinese Embassy in Dhaka informed the Economic Relations Division (ERD) of the new procedure effective from January 01, 2018.

Due to the policy, they said, the authorities concerned will have to submit the project proposals afresh along with feasibility studies to get the loans.

"Chinese Embassy will now scrutinise the projects first along with feasibility studies before submitting the papers to the Chinese EXIM Bank," said an official.

He said the agencies concerned were already informed about the Chinese government's new policy.

The projects, for which commercial contracts were already signed, would not fall under the purview of the new policy, sources said.

However, they said the projects under review need to follow the new procedure.

During the Chinese president's Dhaka visit, the two governments signed memoranda of understanding to fund 27 projects involving an estimated cost of $24 billion.

In the meantime, commercial contracts on PBC loans for five projects were signed.

Negotiations on commercial contracts for a good number of other projects are underway.

Of those on which commercial contracts were signed, the Karnaphuli multipurpose tunnel project received the 100 per cent Chinese loan under a special arrangement.

But the Padma Rail Link project received 85 per cent of the commercial contract of $3.14 billion in loan.

It is so far the highest amount of the Chinese government's loan for a single project.

The project, however, suffered as Bangladesh Railway signed a commercial contract with a Chinese company before complying with the PBC procedure.

Of the three other projects, two are in the power sector and one is deep sea single-point mooring.

The new policy stipulates that the ERD needs to send prescribed basic information on any project with a preliminary financing proposal and a feasibility study to the Chinese Embassy.

The Economic and Commercial Council Office of the embassy will carry out an initial appraisal of the project.

The embassy in its letter said no commercial contract with the government agencies would be signed before the approval of the Ministry of Commerce of China (MOFCOM).

Besides, Bangladesh needs to provide information on the number of companies and qualifications required for projects under the limited tendering method (LTD).

The MOFCOM will recommend qualified companies.

For direct procurement method projects, the embassy can notify the ERD to re-select the company which is not approved by the Chinese side.

The letter has said the PBC is not a government assistance fund; rather it is a loan with preferential conditions.

It is used mainly for infrastructure, energy and manufacturing.

The loan would not exceed 85 per cent of the commercial contract. The remaining part (not less than 15 per cent) will be borne by Bangladesh.

The interest rate of the PBC will be between 2.0-3.0 per cent.

The maturity period of the PBC will be between 15 and 20 years, including a grace period which will not be more than seven years.

Bangladesh will be the credit borrower or sovereign guarantor to any project.

Besides, 60 per cent of electric and complete components for a project must come from China. In the event of civil engineering projects like infrastructure ones, the components will account for 36 per cent.

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