Bangladesh is in dilemma over signing a deal on a non-concessional loan amounting to US$400 from the Chinese government to finance the country's telecommunications expansion plan.
Beijing has proposed to initially pump $211 million into the project under which digital telephone exchanges in Bangladesh's metropolitan areas, important district towns and upazila growth centres will be installed.
Highly-placed sources said the latest proposal from the Chinese side for the loan, categorised as hard-term loans, included a five per cent down payment and a repayment period of 20 years. China also wants its procuring entity in Bangladesh to go for the "limited bid evaluation" process, meaning that it would bypass the international competitive bidding.
The conditions of China, outlined in a letter dated September 29, forwarded from the Chinese Embassy in Dhaka to the Bangladesh side.
"Last month, we received at least two letters from the Chinese Embassy regarding the loan offer," a high official of the Economic Relations Division (ERD) told the FE. The official said though the Chinese side had agreed to extend the repayment period from the previous 15 years as insisted by the home side, it was still reluctant to go for open tendering.
"The country's dilemma is understandable. It cannot also leave the bilateral relations between Bangladesh and China to suffer. But if it receives such loan, it may antagonise the multilateral lenders," another ERD official said, who preferred to remain anonymous because of the sensitivity of the issue.
The communiqué of the Chinese mission highlights Beijing's continued push for signing the loan agreement, which was expected to be finalised during the Bangladesh Prime Minister's mid-August state visit to China.
But stringent loan conditions and the pressure from the multilateral lending agencies to avoid receiving suppliers' credit forced the government to refrain from signing the deal.
Official sources said the ERD of the Finance Ministry had asked the Post and Telecommunications Ministry to take necessary steps on this score, apparently to avoid shouldering any responsibility on the part of the government agency that maintains liaison with the country's donor community.
In a carefully-drafted letter forwarded to the Telecommunications Secretary October 3, the ERD made it clear that the ministry could respond positively to the loan offer considering a number of issues.
"But it requires concurrence of the Cabinet Division as per the article 4 under the Public Procurement Regulations 2003," says the letter. The Article 4 of the PPR 2003 stipulates that any government procurement must go through open tendering for international competition.
In addition, the ERD added, the Telecom Ministry must have clearance from the Planning Commission, the Finance Division and the ERD in the light of the decision taken by the Hard Term Loan Committee headed by Finance Minister Saifur Rahman.
The committee had a crucial meeting on the Chinese loan proposal just before the visit of the Prime Minister Khaleda Zia to China. The high-powered committee recommended that Bangladesh should not ink the deal unless the Chinese government deleted the provision of a five per cent down-payment from the loan agreement.
Dhaka has repeatedly voiced its dismay over the lukewarm response from Beijing to further soften the loan conditions.
The International Monetary Fund (FUND) recently warned that Bangladesh's macro-economic stability would be jeopardised if it continued to pull in suppliers' credit with high interests rate.
The government entered into an agreement with the IMF not to "cross a certain ceiling about the use of foreign currency in a single year for the procurement of goods at non-concessional terms and about committing or entering into any loan agreement with any country or agency in a single fiscal year".
A Memorandum of Understanding (MoU) for the proposed loan along with eight others was signed during the visit of the Chinese premier Wen Jiabao to Bangladesh in April last.