China Eximbank provides $2.67 billion preferential buyer's credit for Padma Bridge Rail Link Project (Linked to Record ID#52765)

Project narrative

In January 2015, the Chinese Government proposed loans worth $15 to $20 billion to finance the expansion of various railways in Bangladesh. Soon thereafter, Bangladesh's Ministry of Railways sent a set of projects to the Economic Relations Division (ERD) of Bangladesh's Ministry of Finance to inquire about potential Chinese financing. Then, Bangladesh’s Ministry of Finance sent a list of projects, including the Padma Bridge Rail Project, to the Chinese Government. At that point, Bangladesh's Ministry of Railways had already signed memoranda of understanding (MoUs) with China Railway Group Limited for the Padma Bridge Rail Project. Then, on August 8, 2016, Bangladesh Railway and China Railway Engineering Corporation (CREC) signed a $3.13 billion commercial contract for the construction of a 172-kilometer-long railway line from Dhaka to Jessore crossing through the Padma Bridge. Two months later, in October 2016, during the state visit of Chinese President Xi Jinping to Bangladesh, the Chinese Government and the Government of Bangladesh signed an MoU on the Padma Bridge Rail Link Project. However, the project hit a snag because of disagreements between the Chinese Government and the Government of Bangladesh on the face value and interest rate of the proposed loan for the project. The Bangladesh's Ministry of Railways requested that the project begin implementation in January 2017 in order to be completed by the time the Padma Bridge was completed. However, a loan agreement with China Eximbank had yet to be signed and was scheduled to be signed on December 16, 2017. This date came and past, despite attempts of Bangladeshi authorities — including the Prime Minister's Office — to contact their Chinese counterparts to finalize the loan. The Government of Bangladesh had wanted the project to be completed before Bangladesh's December 2018 general elections. Specific issues relating to the face value of the loan were related to major increases in the cost of land acquisition. China Eximbank disagreed with the Government of Bangladesh over the costs of the land acquisition. As a result, China Eximbank reduced the promised loan amount by 15% (from approximately ৳247.490 billion BDT to ৳210.36 billion BDT) and turned its previously promised ‘soft loan’ (most likely a governmental concessional loan) into a preferential buyer's credit. As a result, the Government of Bangladesh was forced to increase its counterpart funding contribution from ৳102 billion BDT to ৳190.43 billion BDT. Then, on February 2, 2018, China Eximbank sent a letter to the Government of Bangladesh informing them that it would begin the process of signing the loan agreement. To ensure that China Eximbank would issue the loan for the Padma Bridge Rail Link Project promptly, in early February 2018 (presumably after the China Eximbank letter was received), the Government of Bangladesh approved ‘on an urgent basis’ a China Eximbank government concessional loan worth RMB 1,547,071,939.09 ($231.5 million) for the Modernization of Telecommunication Network for Digital Connectivity Project (MOTN) (captured via Record ID#52765) because the ‘[d]elay in offering the green signal to the Chinese assistance [for the telecommunications modernization project] was affecting the implementation of the [Padma Bridge Rail Link Project].’ The Government of Bangladesh had previous problems with the MOTN loan and delayed approving it, which provoked concerns among the Chinese authorities. To address these concerns and advance the Padma Bridge Rail Link Project, the Government of Bangladesh approved the MOTN loan. Then, China’s State Council provided its approval for China Eximbank to issue a loan for the Padma Bridge Rail Link Project in February 2018. The Chinese Government sent the loan agreement to the Bangladeshi Government by the end of February for final review and countersignature. Then, on April 27, 2018, China Eximbank and the Government of Bangladesh signed the $2,667,940,000 preferential buyer's credit (PBC) agreement for the Padma Bridge Rail Link Project (PBRLP). The PBC carried the following borrowing terms: an interest rate of 2%, a grace period of 6 years, a maturity period of 20 years, a management fee of 0.25%, and a commitment fee of 0.25%. The proceeds of the PBC were to be used by the borrower to finance 85% of the cost of a $3,138,750,000 commercial contract between the Government of Bangladesh and CREC, which was signed in August 2016. The Government of Bangladesh is responsible for covering the remaining 15% ($470.81 million). According to the Government of Bangladesh’s Economic Relations Division (ERD), the PBC had achieved a disbursement rate of 20% ($533,588,000 out of $2,667,940,000) as of June 30, 2020 and a 40.4% disbursement rate ($1,079,727,000 out of $2,667,940,000) as of June 30, 2021, a 58.8% disbursement rate ($1,569,247,000) out of $2,667,940,000) as of June 30, 2022, and a 76.8% disbursement rate ($2,050,115,000 out of $2,667,940,000) as of June 30, 2023. According to the Government of Bangladesh’s ERD, the borrower had not made any repayments under the PBC as of June 30, 2021, June 30, 2022, or June 30, 2023. The purpose of the project is to construct a new railway track that runs from the city of Dhaka to the city of Jessore via Padma Multipurpose Bridge to establish new Broad Gauge (BG) railway connectivity through south-west part of the country. The project is being implemented in 2 phases. The first phase is an 82 kilometer section from Dhaka to Bhanga, and the second phase is a Bhanga to Jessore section. The project involves the construction of 215.22 km of rail track, including loops and sidings; 23.38 km of viaducts, 1.98 km of ramps, 66 major bridges, 244 minor bridges and culverts, 1 highway overpass, and 29 level crossings. The project also includes the construction of 14 new station buildings, remodeling of 6 existing station buildings, the supply of 100 passenger coaches, and the acquisition of 1796 acres of land. 172 kilometer of track is to be laid between Dhaka to Jessore via Padam Bridge and Bhanga of Faridpur, while 43.2 km of track was set to be lines loop lines. 23 kilometers of the rail line is set to be elevated. The single-track rail line is designed to accommodate a maximum speed of 120 kilometers per hour. Construction of the railway is expected to impact the living accommodations of 7,705 people, necessitating resettlement arrangements. The PBRLP seeks to establish a rail-based transportation network with nine southern districts including the Port of Mongla and Benapole Land Port through the 6.15-kilometer Padma Bridge (which was still under construction when this project began implementation). The route is to be constructed in four sections: Dhaka-Gendaria, Gendaria-Mawa, Mawa-Bhanga junction via Padma Bridge and Bhanga-Jessore Bridge. The 50-kilometer-long Mawa-Bhanga junction-Bhanga via Padma Bridge section was originally expected to be completed by the end of 2018 to allow trains to travel over the bridge on the day of its inauguration. The project, part of the Bangladesh-China-India-Myanmar Economic Corridor (BCIM) of the Belt and Road Initiative (BRI), is expected to cut the travel time from Dhaka to Kolkata, West Bengal, India by five hours and time from Dhaka to Khulna in southern Bangladesh from nine hours to 3 hours. CREC is the general EPC contractor responsible for implementation. China Railway First Group Co, Ltd. (CRFG) — a subsidiary of China Railway Group Limited — is also involved in project implementation. The Engineering Corps of Bangladesh Army and Bangladesh University of Engineering and Technology have also served as consultants for the project. Bangladesh Railway is the main executing agency on behalf of the Bangladeshi Government, while Bangladesh's Ministry of Railways (MoR) is the ‘sponsoring ministry.’ After the signing of the loan agreement, construction was placed under the supervision of Fast Track Project Monitoring Committee, headed by Prime Minister of Bangladesh Sheikh Hasina. Project implementation commenced on July 3, 2018, with an intended completion date of June 2022. However, even by May 2018, before implementation had commenced, Bangladesh Railways officials were attempting to secure an extension of implementation from June 2022 to June 2024 due to the previously described delays relating to the loan. Prime Minister Hasina officially inaugurated work on the project on October 14, 2018, despite the commencement of construction works several months prior. By November 2020, the project had achieved a 28.28% completion rate, despite the outbreak of the COVID-19 pandemic. The expected project completion date at that time was June 2024, and the Mawa-Bhanga junction-Bhanga via Padma Bridge section was to be set to be open in 2021 (although this section was originally scheduled to be opened by the end of 2018). On August 23, 2021, the installation of all road slabs on Padma Bridge was completed. In total, 2,917 road slabs and 2,959 railway slabs were installed on the 6.15 km-long bridge. As of November 2021, the physical works of the main structure of the Padma Bridge had achieved a 95% completion rate and the overall progress of the bridge construction stood at an 88.75% completion rate. Asphalt carpeting on the road slabs also began in November 2021. On June 25, 2022, Prime Minister Hasina inaugurated the four-lane highway on the upper level of the Padma Bridge. Then, on December 24, 2024, the Padma Bridge Rail Link Project officially opened to traffic across its entire route, linking Dhaka to Jessore via the Padma Bridge.