Line of Credit: Bangladesh, India again stress accelerating fund release
- $1.489 billion (20%) out of $7.362 billion announced under Indian LoC was released in 13 years
- 6 projects have been dropped from the LoC list in the last 3 years
- Obstacles to project implementation:
- Requirement of sourcing 75% of construction materials from India
- Indian authorities delay approvals at various stages from preparation of tender documents to appointment of contractors
- Only Indian contractors can participate in the Indian LoC projects
- They often bid more than the estimated project cost
At the 21st review meeting on projects under the Indian Line of Credit, Bangladesh and India have agreed to speed up debt financing for projects as only 20% of the fund announced under the scheme was released in the last 13 years.
Officials concerned said since the first Line of Credit agreement was signed in 2010, the two countries have been holding review meetings every year, but failed to solve many of the problems related to these projects. Consequently, several implementing agencies have decided to drop a number of projects which were fraught with various complications.
India is lending Bangladesh $7.362 billion under the three Line of Credit agreements. Of that amount, $1.489 billion or 20% has been disbursed till June this year.
Bangladesh and India signed the first Line of Credit agreement involving $862 million in August 2010. So far, $747.52 million under that agreement has been released.
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The second Line of Credit agreement involving $2 billion was signed in March 2016. Out of that amount, India has released $336.8 million so far.
The third agreement involving $4.5 billion under the system was signed in March 2017, out of which $405.14 million has been released so far.
Four proposed development projects are in the process of being dropped from the Indian Line of Credit list due to complications over implementation and loan terms. India was supposed to lend $1.01 billion for these projects.
A proposal was sent to the Indian authorities to withdraw these projects from the Line of Credit list due to the unwillingness of the implementing agencies, according to officials of the Economic Relations Division (ERD). The consent to delist the proposed four projects is yet to be obtained from the Indian authorities even though the government proposed the exclusions last December.
ERD officials said two projects were dropped from the Line of Credit list in May this year with the consent of the Indian authorities.
According to ERD sources, the projects that are being withdrawn are a railway project for constructing a new carriage workshop in Saidpur at $70.28 million, the Bangabandhu Sheikh Mujib Shilpa Nagar project at $165 million, Bay Container Terminal project at $400 million, and Saidpur Airport project at $375 million.
Officials of the Economic Relations Division said out of 40 projects listed under the Line of Credit system, 14 have been completed, eight are waiting for approval, and the rest are being implemented.
Six projects have been dropped from the Line of Credit list in the last three years, including two projects dropped in May 2023. Moreover, two packages under the Rooppur power transmission line construction project, and the Khulna-Mongla railway project have also been dropped from the Line of Credit list. India offered a $1.13 billion loan for these projects.
However, debt fund release under the Indian Line of Credit has increased in recent times, according to the Economic Relations Division officials. Around $337 million loan was disbursed under the system in FY22, which was higher than in any previous fiscal year. Earlier, the highest amount – $228 million – was released in FY21.
No progress in resolving issues owing to slow projects
The 21st Line of Credit review meeting between the two countries was held at the Economic Relations Division in Sher-e-Bangla Nagar 2-3 August. Md Anwar Hossain, additional secretary of the Economic Relations Division, and Ajay Kumar, joint secretary of the Indian external affairs ministry, led their respective countries at the meeting.
Officials present at the meeting said they expected a firm decision on the Kulaura-Shahbazpur rail line construction project, which has remained halted for the last three years. But there was no decision regarding the project that was stopped after 25% of physical progress was made.
Sources at the Economic Relations Division said the Bangladesh Railway has been given responsibility for the project. A decision regarding it will be taken after reassessing it.
Uncertainty over technical committee meeting
On 14 February 2023, during a high-level meeting held between the two countries, India agreed to review the conditions of the LoC loans as per Bangladesh's request.
According to the decision taken in the meeting, a technical committee comprising representatives from both countries will finalise the terms and conditions of the LoC loans. The ERD also expected that an Indian delegation would visit Bangladesh in April.
However, it has now been unexpectedly revealed from an ERD source that the scheduling of this technical committee meeting has faced uncertainty.
An ERD official, speaking on condition of anonymity, told TBS that the matter is now in India's hands, and the scheduling of the technical committee meeting will be done according to their convenience. Nevertheless, it is not yet clear whether the committee's meeting will be held promptly or delayed, the official added.
