Bangladesh opposed to tough China loan conditions

China has tagged tough conditions with an under-processing loan in which Beijing seeks cancellation power on an instant notice, said official sources concerned.

The loan conditions for a proposed project of Rajshahi WASA also include high commitment and management fee alongside a shorter maturity period.

Besides, Chinese law will be applicable for any rights infringement while all arbitrations have to be settled in Beijing. 

Bangladesh has already sent a proposal to China with objections on these issues. In a recent inter-ministerial meeting, the Economic Relations Division (ERD) was assigned to negotiate with the Chinese government on it.

Dhaka sought $276.2 million credit from Beijing for the Rajshahi WASA Surface Water Treatment Plant.

On January 16, China sent a draft of the contract for Preferential Buyer?s Credit (PBC) in response to the loan request.

?Loan conditions in China are always tough. They want to impose such conditions not only for this project but also for other projects. Loan deals are only signed when mutual understanding is reached after negotiations,? an ERD high official said, seeking not to be named.

He also informed that Bangladesh was yet to receive any response from the Chinese government with regard to Bangladesh?s objections against the conditions set for the loan of Rajshahi WASA project.

The project was included in a memorandum of understanding (MoU) ?Strengthening Investment and Production Capacity Cooperation? signed between the two countries during the Chinese president?s visit to Dhaka in October 2016. Later, the loan negotiations advanced. 

According to the draft loan proposal, the interest rate of the loan is 2 percent excluding 0.25 percent management fee and 0.25 percent commitment fee a year on the unreleased money.

The inter-ministerial meeting held in late February on the Chinese loan observed that given the current global economic situation the management and commitment fees should be lowered.

It said there is no commitment fee on the loans from Japan and South Korea, while India?s commitment fee is a separate package-based and is not imposed on the whole of unreleased money.

Out of the multilateral lenders, the World Bank has no commitment fee, while Asian Development Bank takes only 0.15 percent commitment fee.

At the same time, there is no management fee for loans from most of the development partners and if there is any, the rate is very low compared to that of China, the meeting observed.

China has proposed a 20-year maturity period, while it is 30 year?s for Japanese loans and 40 years for Korean loans.

Moreover, the maturity period is 30-38

years for World Bank loans and 25 years for Asian Development Bank (ADB) loans.

The meeting decided to propose to China to extend the maturity period by five years to 25 years, according to the meeting minutes.

Both the grace period and availability period of the proposed Chinese loan have been set at 60 months. Bangladesh has proposed to extend it up to 72 months.

ERD has been tasked with settling the loan proposal linked to anytime cancellation power by negotiating with the Chinese authorities.

At the meeting, Rajshahi WASA Managing Director Md Zakir Hossain said the draft loan deal discussed only Bangladesh?s faults, ?but sometimes faults might have arisen from their part as well.?

For instance, he said, any issue may remain pending at the Chinese side for a long time, which causes financial losses for the country. Bangladesh also thinks that local law should be applied instead of Chinese law in case of any rights infringement or obligation. In addition, arbitration should be settled in a third country, the meeting decide. -(TheDailySun)