Bangladesh has rejected outright a Chinese offer for the BMRE (balancing, modernisation, rehabilitation and expansion) of the country's largest paper manufacturing unit, Karnaphuli Paper Mill.
Dhaka's decision in this regard was conveyed to the Chinese government through its diplomatic mission here last week without assigning any reason as to why Bangladesh was reluctant to revive the project.
In a letter to the Chinese Ambassador to Bangladesh Chai Xi on October 02, the Economic Relations Division (ERD) said Bangladesh is not "in a position" to undertake the BMRE project for the KPM on costly suppliers' credit offer from Beijing, highly-placed source at the ERD said Thursday.
Since 2000, Beijing has been flexing its diplomatic muscle to encourage Dhaka to move forward the US$87 million BMRE project of the KPM, a sister concern of the Bangladesh Chemical Industries Corporation (BCIC). Even the issue was taken up during the visit of the Chinese premier Wen Jibao to Bangladesh in May this year.
"The ERD rejected the Chinese offer considering a number of issues. Such a decision was taken in the light of the national interests," a high official of the Foreign Ministry told the FE.
The official, however, said that the rejection is unlikely to sour bilateral relations between Bangladesh and China.
A high official of the ERD also expressed identical views.
"It is undoubtedly a right decision, as Bangladesh can no longer afford to swallow suppliers' credit having exorbitantly high interest rates," the ERD official said. He said the decision is unlikely to create a rift in relations between the two friendly countries.
Dhaka and Beijing are celebrating the 30th anniversary of the establishment of the diplomatic relations, with the two declaring 2005 as the "Year of Friendship".
As part of the 30th anniversary celebration, Prime Minister Begum Khaleda Zia made official visits to China twice, including the latest one in August this year. She, however, cut short her state visit by two days due to countrywide serial bomb blasts that were designed in a meticulous way.
Sources said the Chinese side was learnt to have pushed its Bangladeshi counterpart for the finalisation of BMRE project of KPM in the meeting of the China-Bangladesh Joint Commission on Economic and Trade Cooperation, concluded in Dhaka between May 21 and 22 this year.
Prior to the meeting of the Joint Commission, the Chinese envoy, in separate letters to the Industries Minister and the Principal Secretary to the Prime Minister, also called upon them to finalise the matter.
In the meeting, the two sides had discussed a wide-range of issues, including the BMRE of KPM, Khulna 210-megawatt thermal power plant, Pagla water treatment Plant and North Dhaka Sewerage Project, and the installation of digital telephone exchange lines in important metropolitan areas, district towns, and upazila growth centres.
The revival of the BMRE project came to the forefront at a crucial time when the government is under tremendous pressure to privatise the state-owned enterprise, given its bloated losses.
"The early implementation of this important project will no doubt have abiding salutary implications on our bilateral relations and contribute to further consolidating the relationship of cooperation between our two countries," said the Ambassador in his letter to the Industries Minister.
The Chinese envoy said the Chinese government attaches importance to an early implementation of the KPM project especially because all other projects agreed between the two governments have either been already implemented or at various stages of development.
In the letter to the Principal Secretary, the Chinese envoy said, the BMRE would help enable the KPM to meet the requirement of the domestic use of paper and paper products "to a great extent".
Official sources at the Industries Ministry said the government undertook the BMRE project for the KPM way back in 2000 on Chinese suppliers' credit with a view to jacking up the annual production capacity by 20,000 tonnes.
But the project has got stuck up in bureaucratic red-tape since then, thus causing disruption to production due to lack of BMRE.
The contract for the execution of the project was awarded to the National Machinery Import and Export Corporation (CMC) through a competitive bidding and a deal was signed to that effect on May 7, 2001, he said, adding that most of the preliminaries in respect of the project like furnishing of sovereign guarantee were completed and the payment for mobilisation advance was underway.
If implemented, the BMRE would help raise the annual production capacity of the KPM to 50,000 tonnes from the existing 30,000 tonnes.
Established in 1953 in the hilly area of Chittagong, the KPM was initially capable of exporting its products after meeting the domestic demand. But with manifold increase in demand, the mill can now meet 25 percent of the local requirement.
But at present, the KPM is now facing severe competition from the local private producers, with the Bashundhara Paper Mill grabbing the major domestic market share. The rest of the demand is met through imported paper.