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Bangladesh, India to ink new $2bn LoC today

  • Published at 06:59 pm March 8th, 2016

Dhaka and New Delhi will sign a final deal today on the new Indian $2 billion Line of Credit (LoC) offered to Bangladesh by India around nine months back.

The agreement delayed due to disagreements over some terms and conditions like procurement of goods and services from both the countries, consultant appointment, seller selection, tax, VAT and procurement guideline to execute 13 projects under the LoC.

“But the unsettled issues were already settled down through long negotiations, paving the way for inking the deal,” said an Economic Relations Division (ERD) official.

On February 28, the prime minister approved the draft agreement, sources said in the ERD.

Under the draft agreement, on the use of goods and services, the two countries reached consensus that 65% to 75% of goods and services will be procured from India like the previous LoC.

Further reductions on the use of goods and services may be considered on a case-by-case basis, provided that they are not sourced from a third country, according to the draft.

In case of projects related to the civil construction, construction materials will be sourced from India-based suppliers if they are made available at prices stipulated in the contract.

Earlier, Bangladesh insisted that India reduce procurement of its goods and services to 65% or below it for civil works-related projects and more reduction for other projects.

Under the LoC, India primarily said a minimum of 75% goods and services needs to be of Indian origin and must be procured from India.

In response to it in July, Bangladesh proposed that 60% goods and services would be procured from India while the rest 40% from Bangladesh, and 50% construction materials like brick, sand and cement from India and 50% from Bangladesh.

On payment of customs duty, VAT and tax, the meeting decided to discuss further and was told that Indian must pay all personal and corporate taxes as per the country’s rules.

Earlier, India had requested Bangladesh to re-think about not giving tax and VAT waiver for its individuals and companies.

Both sides agreed to handle the letter of credit issue, borrower’s liability, immunity for the borrower, legal proceedings by court, specimen signature and amortisation schedule.

India had offered the new LoC at 1% interest and 0.5% commitment fee (on undisbursed amount) during 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 $1billion credit deal with India to support Bangladesh’s development works. Of which, $800 million have so far been released.

The proposed 13 projects for fresh LoC included setting up of double railway tracks in Khulna- Darshana line, converting the Parbatipur-Kaunia metre gauge line to a dual-gauge track, upgrading the Syedpur railway workshop, installation of Barapukuria-Bogra-Kaliakor 400-kilovolt power-transmission line, procurement of 500 trucks and 500 buses for BRTC, procurement of modern equipment to upgrade the Roads and Highways Department, setting up of four medical colleges and hospitals, national burn and plastic surgery institute and construction of 49 polytechnic and teacher-training institutes.