Govt agencies, BB question some provisions of $1.0b Indian loan deal draft

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Nazmul Ahsan
A number of government agencies and the Bangladesh Bank have opposed certain clauses incorporated into the draft agreement sent by India on its $1 billion loan proposal, official sources said.
The major clauses 'in question' include the provisions for importing hundred per cent goods and services from India using the loan amount, commitment charge and arbitration mechanism.
The Prime Minister of India had offered a credit of US$ 1.0 billion to Bangladesh for a range of projects, including railway infrastructure, supply of broad gauge locomotives and passenger coaches, rehabilitation of Saidpur workshop, procurement of buses including articulate buses and dredging projects, during the visit of the Bangladesh Prime Minister to India in January this year.
India has sent the draft agreement to the government of Bangladesh over one month back. A number of ministries and the BB expressed their reservation about the clauses in question when the Economic Relations Division (ERD) had sought opinions from them on the draft credit agreement, sources said.
The Ministry of Finance (MoF) has given its opinion in writing saying that both interest rate and default interest rate mentioned in the draft agreement are high. It said a number of clauses, particularly the terms and conditions in relation to the use of the proposed loan, are not consistent. The MoF said the draft agreement could have been more attractive had the annual interest rate been lower and the commitment fee at 0.50 per cent avoided.
The Planning Commission said the clause of the agreement that made the mandatory importation of 100 per cent goods and services from India, is not justified.
It said the proposed two per cent interest rate on defaulted loan is exorbitant compared to 1.75 per cent annual interest rate.
The BB in its opinion said the commitment fee is generally imposed by global lenders like the World Bank and the International Monetary Fund, not charged at the bilateral level. The BB advised the government for holding negotiations with India to delete the clause relating to 'commitment fee' from the final loan agreement.
The Ministry of Foreign Affairs said the proposed credit agreement should be signed between the governments of Bangladesh and India, instead of the proposal of signing between Exim Bank of India and Bangladesh.
The Planning Ministry in its opinion said the draft agreement does not allow both local and foreign procurement of goods and services, excepting those from India, for implementation of infrastructure projects with the proposed Indian loan.
The ministry has further said the clause of the draft agreement has not taken the local laws into consideration for any arbitration and has proposed the India Arbitration and Conciliation Act, 1996 as the basis for any arbitration. The loan repayment period of the proposed credit is 20 years with a 5-year grace period.
A high official in the ERD said they would request India to allow at least 30 per cent local procurement of goods and services for the projects. Besides, it would request the Indian government to lower the commitment charge to 0.25 per cent, he added.