Govt opts for expensive IDB loan for Padma Bridge project

The government is taking US$140 million hard loan from the Islamic Development Bank (IDB) for building the Padma Bridge, which will make repayment expensive by $64 million, officials said.

Finance ministry officials said Bangladesh has to repay an extra $64 million, 45 per cent of the total $140 million credit, as interest.

As per other terms and conditions, the government will act as an agent of the Jeddah-based donor, which will provide the credit under its new hard-term credit programme “Istisna” for implementing the project, the officials said.

IDB money will be spent on construction of approach road and toll plaza in one side of the proposed Padma Bridge scheme.

The donor will appoint a contractor for constructing the approach road and the government’s project implementing body –Bridge Division –will act as an agency of the donor, a senior finance ministry official told the FE.

Under the “Istisna”, the IDB will capitalise the loan with LIBOR (London Inter-Bank Offered Loan) plus 120 bps (basis points) interest rate during the four years project execution period.

After that Bangladesh has to start repayment on the capitalised amount with US Swap rate plus IDB spread 1.20 per cent for next 16 years period.

SWAP is a rate of the fixed portion as determined by its particular market. This is the rate at which the swap will occur for one of the parties entering into the agreement.

During the four years period with interest capitalisation, the amount of principal and interest would stand at total $148 million, finance ministry official said.

After the four years period, the government has to repay the loan on the capitalised money where the US Swap rate and 120bps would be applicable.

Bankers said, as per US Swap rate in January 2011 (3.21 per cent), the government has to repay the loan at a rate of 4.41 per cent and the total amount would stand at nearly $204 million.

Finance ministry officials said for other IDB loans the government pays maximum 2.50 per cent interest.

For the Padma Bridge scheme, the World Bank has assured of providing $1.20 billion with 0.75 per cent interest rate, the ADB $615 million mixed credit at the rate ranging from one per cent to LIBOR plus 60bps and the Japan government $300 million at 0.01 per cent.

“We have no option but to take the IDB loan as the government has shortage of fund for building the Padma Bridge that will cost $2.9 billion,” a senior Economic Relations Division official said.

The government will build the 6.15-kilometre road-cum-railway bridge over the river Padma for connecting the country’s impoverished southwestern region with capital Dhaka.

FHM Humayan Kabir

FHM Humayan Kabir

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