Padma bridge: The financing aspect

The finance minister, in a pre-budget meeting with the Economic Reporters Forum (ERF), spelled out the financing plan for the Financial Year (FY) 2013-14 to 2016-17 of the 6.15 km Padma Bridge, totaling Tk.221.79 billion, from internal resources. The international tenders for the project will be invited at the latest by June next. According to the plan, the bridge is expected to be completed by the end of FY 2016-17. The estimated total foreign currency component of the bridge is $1.80 billion, the details of which the minister did not spell out; except that the Indian grant of $200 million has been set aside. In an earlier pre-budget discussion meeting with senior journalists and editors of different media, the minister asserted that railway communication is "very important for the transit facility for neighbouring countries" and added that the budgetary allocations would have special bias towards the Padma bridge and the railway sector. In a pre-budget meeting with members of a number of parliamentary standing committees on March 31, the finance minister also declared that the government would float a Sovereign Bond with 15 years maturity at an interest rate of about 6%. This means that out of the total requirement of $1.80 billion the government, with only $200 million Indian grant as tangible foreign currency in hand, is going ahead with the project. Despite the uncertainty in foreign currency, most of the MPs in the pre-budget meeting were in favour of resuming the bridge construction as soon as possible to fulfill the election pledge. Without elaborate discussions on the pros and cons of financing the bridge from domestic resources, one of the MPs even told the meeting that, to win over the vote banks, "at least one pillar" of the bridge has to be erected before the national election. Meanwhile, the ministry of communications has been instructed to re-appoint Maunsel Aecom Limited as the project consultant, whose contract was earlier cancelled due to, reportedly, commission scam. This shows that the government is expeditiously hurrying to "erect at least one pillar" of the bridge before the national election. But it seems this might not be possible because there are still many stages like inviting tenders, submission of tenders by the bidders, evaluation of the bids, awarding of the work order, mobilising resources like construction materials and equipments before resuming the construction work, which might take at least 9 months. The authority might feel upbeat about the good inflow of foreign currency as aid and grants from sources like ADB, IDA, World Bank and development partners during the last 8 months of the current fiscal year. In the face of persistent pre-election political instability, the inflow of foreign aid and grants is indicated to fall in the coming months. The FDI inflow, in the face of complex procedures, weak governance, gas and power shortages, etc, as identified by UNCTAD, coupled with the current political uncertainties, will remain uncertain until the present cloudy political sky is clear. For the same reason, possibilities of local investment are also bleak. To reinvigorate both foreign and local investments will take time even after the political impasse is settled. Bangladesh Bank and Bureau of Statics say that the GDP growth in the current fiscal may fall to 6-6.2% against the target of 7.2%. The ADB, however, projected that the GDP growth in the current FY will fall to 5.7% and World Bank indicated GDP growth at 5.8% for the same period. The recent Savar disaster, in addition to previous mishaps in the garment sector, has put a big question mark on the possibility of gaining the Generalised System of Preference (GSP) in the US market. The possible withdrawal of some readymade garment buyers will be a big blow to the export earnings of the country, thereby impeding the GDP growth rate. Even if no new tax or levy is imposed, with our nature-dependent agriculture and import-based economy, financing the bridge project as per the declared allocation of funds over the next four FYs from own resources will eat up the allocations in other sectors, inflicting negative impact on the much needed development projects like gas, electricity, roads, railways, and social sectors, which in turn will possibly further reduce the GDP growth in the coming FYs unless the present political crisis is resolved. Apart from these, the possible unproductive election expenditure of billions of taka in the next national election will push the inflationary pressure upward to 9-10%. The other ominous offshoots of financing the bridge from internal resources are: Uncertainty in mobilising foreign currency: Apart from the Indian grant of $200 million there is no other known fund in the pipeline. The $1 billion from sovereign bond is shrouded in uncertainty. So the government has to shop around for the remaining $1.60 billion of the foreign currency component. In view of this uncertainty, the finance minister's effort to impel the World Bank in the meeting during April 19-21 to divert the scrapped $1.20 billion Padma bridge fund to other development projects seems to have failed. Raising foreign currency from Sovereign Bonds at a high interest rate of 6% does not seem to be economically viable for the bridge project. Meanwhile, the Japanese ambassador recently asserted that Japan will not extend financial support for Padma bridge, and the overseas proposals from Malaysia and China are now just stories. Resuming the bridge construction work with the uncertainties in foreign currency component of the project could lead to further delays in the completion of the bridge, which would raise the project cost by another 15-20%! Confidence problem: The complex construction of the multipurpose bridge needs highly experienced world-class bridge builders of international repute. Such world-class bridge builders, in the uncertain funding arrangements, might not show interest. This will pave the way for the second grade builders to bid for the bridge project, delivering unsatisfactory work to adversely affect the long life of the bridge. Bridge supervision: Quality and security, needing sophisticated tests, are very important aspects of bridge construction which need internationally reputable, very experienced and specialised companies to do the job. For the same reason of fund arrangement qualified supervisory companies might not show interest in the project. Finally, the downward trend in the national economy will continue until the present political impasse is resolved. But unfortunately, no sign is visible as yet that it will be resolved in the near future. In such a situation, the government needs to hold the foreign currency reserve of about $14 billion for possible "rainy days" instead of spending part of it in the bridge project, as intended. In view of the bleak possibilities of foreign currency availability in the immediate future and possible negative impacts on development projects the authority may put a "pause" on the resumption of construction work on the Padma bridge until low-cost foreign currency component of the project is available from international sources. The writer is a Transport Economist and former Transport Consultant, Tehran Department of Transport, Iran. E-mail: mjinnat@yahoo.com