India is keen to ink a deal on its new $2bn line of credit (LoC) by this month despite some issues, including use of goods and payment of tax and VAT, remaining unsettled, officials said.
In a negotiation meeting held on November 9 last in Dhaka between the delegations of Bangladesh and India, it was decided that Exim Bank of India would send Bangladesh the final draft of the credit agreement on the consensus reached earlier between the two sides, according to a letter sent to India.
But the final draft was received by Bangladesh on December 6 last has not been amended or modified as per the decisions of the negotiation meeting and the consensus between the two sides, it said.
“Some of the issues are yet to be properly addressed in the latest draft of the credit agreement,” said an official.
He said now Bangladesh has requested the final draft of the credit agreement for $2bn LoC incorporating the consensus between the two governments.
On the use of goods and services, India wrote that eligible goods and services including machinery and equipment for the purpose of various social and infrastructure development projects such as power, railways, road transportation, information and communication technology, shipping, health and technical education sectors in the borrowers’ country and consultancy services will be be exported from India.
Of the goods and services including consultancies, at least 75% of contract price must be supplied by the seller from India, and the remaining 25% may be procured by the seller from outside India, it said.
In reply to this, Bangladesh wrote that this is still not in line with the first LoC. In case of projects involving civil construction, eligible goods must be supplied by the seller from India which may further be reduced to 65% from 75%, and further reduction can be considered on a case basis, provided that the sourcing is not from a third country.
On joint venture company (JVC), it was agreed that as per the proposal of Bangladesh, India was agreeable to formation of a JVC between eligible Indian and Bangladeshi firms, provided that lead partner must be an Indian firm with minimum 51% holding.
“But the formation of JVC has not been included in the final draft received from India. The formation of JVC must be included in the final draft as agreed,” said the Bangladesh letter to India.
On Project Management Consultant (PMC), it was agreed in the negotiation meeting that Bangladesh will appoint PMC for large and complex contracts including works and services, and if the cost of PMC is borne by Bangladesh, it may choose any consultant of its choice.
But India’s letter said PMC must be appointed from India to provide consultancy services for the project.
Commenting on this, Bangladesh said the provision of PMC has not been included in the final draft as per the agreements of both sides from time to time.
On exemption of taxes for goods and temporary employees, the consensus was that goods and services must be exempted from taxes and duties except the income tax of the contractors or personal. The income tax will be defined as per the double taxation avoidance agreement.
But India wrote that goods and services must be exempted from all kinds of taxes and duties, except income tax as referred to the prevailing double taxation avoidance agreement between India and the borrower’s country.
On the letter of credit, the consensus was that it would be like the first $862 million LoC. But India wrote that it will remain the same as it was proposed by Exim Bank of India in the first draft of the credit agreement for $2bn.
Bangladesh side commented that this must be reinstated as it was mentioned in the first LoC.
India had offered the new LoC at 1% interest and 0.5% commitment fee (on undisbursed amount) during the Indian Prime Minister, Narendra Modi’s, two-day state visit to Bangladesh in the first week of June. The loan will have to be repaid in 20 years with a five-year grace period.
In August 2010, Bangladesh signed first $1bn credit deal with India to support Bangladesh’s development works. Of which, $800m has so far been released.