Padma Bridge Financing

10 October 2016

A number of the ferryboats are obsolete; they are often overloaded and there are frequent accidents, some resulting in considerable loss of life. The construction of the Padma Bridge will replace the unreliable and unsafe ferry connection with a reliable and safe fixed river crossing. The bridge will shorten the distance from the Southwest to Dhaka by 100 km and travelling time will be considerably reduced. When completed a reliable highway connection will be established between Dhaka and the land port of Benapole, the seaport of Mongla and the district capitals of Khulna and Barisal.

The provisions for a railway line on the Padma Bridge will make it possible to construct a new railway connection between Dhaka and the Southwest within the framework of the Trans Asian Railway network. Padma Bridge will also include options for major utility connections to the Southwest including gas, power transmission, and communication lines. The Padma Bridge will be the longest bridge of its type with 6. 15 kilometer of length. This will connect the south-western parts with the capital and is expected to save hundreds of thousands of working hours and huge transport costs.

The Padma Bridge is a high priority national project. It would change the economic landscape of the south-western region and ultimately uplift the national economy. The project was initially co-financed by the government of Bangladesh, the World Bank, the Asian Development Bank, the Japan International Cooperation Agency (JICA) and the Islamic Development Bank. The Bangladesh Bridge Authority is the executing agency of the project. Project cost is estimated to be US$3. 00 billion.

Construction of the bridge was expected to commence by early 2011 and be ready for major completion in 2013 and completed all sections by 2015. After the world bank claimed to have found credible evidence of a high-level corruption conspiracy among selected government officials involved in the Padma Bridge project, the funding from the world bank and other donor organizations have stopped. Thus government decided to take alternative sources of funding for this project such a self funding, funding from other particular countries. 2. Back ground of the study Necessity of Padma Bridge

The construction of the bridge would fulfill the long-standing dream of the people of the Southwest region to have a permanent crossing over the Padma River. The Padma Bridge is expected to unlock the potential and transform the lives of nearly 30 million Bangladeshis living in the country’s Southwest region. By reducing distances to major urban centers like Dhaka by almost 100km, the bridge will facilitate regional trade, reduce poverty while accelerating growth and development in the country as a whole. By facilitating transportation across the river, the bridge is expected to lead o a greater integration of regional markets within the Bangladeshi national economy. Given the interdependence of economic activities and sectors, the direct impacts of the Padma Bridge on individual sectors and factor markets are likely to induce a chain of changes in the rest of the sectors of the economy. It will also accelerate the trade between India and Bangladesh to carry the export and imported products in other part of Bangladesh. The industrialization is not very taken place in southwest part of the Bangladesh because of transportation barrier.

If the Padma Bridge would have been established within next few years, the industrialization will be increased. The Padma Bridge would not only offer a means for vehicles to cross the river, but it would also include a railway and a conduit for telecommunications, electricity, and natural gas transmission. As a result new job opportunity will be created for the people of the southwestern part of the Bangladesh. Thus, drive the business and economic growth of the country. About Padma River Bangladesh is a riverine country, and the major rivers flowing through it are the Ganges, Jamuna, Meghna, and Padma.

Historically, this river system has split Bangladesh into (i) the northwest zone, bordered by the Ganges and Jamuna rivers; (ii) the east zone, which is east of the Jamuna River, where the capital, Dhaka, and the major port, Chittagong, are situated; and (iii) the southwest zone, isolated by the Padma and Ganges rivers. The Padma River is formed by the confluence of the Ganges and the Jamuna rivers. The rivers have their sources in the glaciers of the Himalaya Mountain Range and both drain a huge catchment area in the Indian Plains.

The width of the Padma at the project site varied from 2 to 6 km in the period 1976 to present. At present, passengers and freight are transported across the river by ferry and, to a lesser extent, by launches and rowboats. Their services are grossly inadequate in terms of both capacity and service level. Existing ferry services involve long and unpredictable waits at terminals lacking basic amenities. Project Area The project area is located at about 35 Km southwest of Dhaka. The Bridge will be constructed between a site near the village of Mawa, lying north of the Padma River and Janjira on the south side.

Components of the project such as approach roads and bridge end facilities will affect an area of 6 km inland on the Mawa side and 4 km inland on the Janjira side; bridge and river training works may even affect a corridor 15 km upstream and 7 km downstream in the river. The 250 km2 project area comprises areas located in 3 separate administrative districts: Munshiganj district on the Mawa side (north bank) and Shariatpur and Madaripur districts on the Janjira side (south bank). Lauhajong and Sreenagar upazilla (sub-district) lie on the north bank and Janjira and Shibchar upazilla lie along the south bank.

Environmental Impact Considering that this is a large project involving significant changes in land use and impacts on wildlife. Resettlement Action Plans are needed for the people. A total of 73,329 people will be affected by the construction of the bridge. The government has already allocated $30 million for their rehabilitation. It can reduce Hilsha fish breeding in the river because of waste and hazardous materials. The bridge and associated works are for a large part situated in the active floodplain of the Padma River, which combines the outflow of two of the longest rivers in the world: the Ganges and the Brahmaputra.

The project area is densely populated, yet also part of a highly dynamic environment consisting of moving river channels, sandbanks and chars, as well as cultivated temporary wetlands in the floodplain. Socio-Economic Impact The southwest zone has one of the highest poverty rates in Bangladesh, according to the household income and expenditure survey conducted in 2005. While 42% of the population of the whole country lived below the absolute poverty line, the southwest zone had a poverty incidence of 52% in Barisal Division and 46% in Khulna Division.

During construction, local unemployed people will gain employment, and increased commercial activity will generate income. The country will be physically integrated through the fixed link, reducing economic disparity and deprivation. An estimate of multiplier effects on the project investment shows the bridge increasing the gross domestic product growth rate by 1. 2% and the regional growth rate in the southwest zone by 3. 5%, generating 743,000 person-years of additional employment, and thereby contributing 1. 2% of the total labor market of Bangladesh.

Over the long term, the bridge’s impact on poverty reduction will be more significant, as the share of economic benefits generated by the bridge that will accrue to the poor is larger than the share of the gross domestic product that goes to the poor. Estimates of the benefits accruing to road users, using the conventional approach of estimating savings in vehicle operating and travel time costs, found the project economically viable, with an economic internal rate of return of 15%–20% under different benefit and cost assumptions.

The bridge can encompasses Bangladesh’s second major port, Mongla, its third major city, Khulna, and the inland port at Benapole bordering India–is due in part to difficult access across the Padma River to the rest of the country. At the same time, it is expected to raise Bangladesh’s GDP by 1. 2%, pushing it over 7% and thus, enabling it to become a middle-income country by World Bank standards, with over $1,000 per capita income by 2020. 3. INITIAL FINANCING OPTION OF PADMA BRIDGE Investment and Financing Plans The project is estimated to cost $2,972 million.

This estimate is based on the near-final engineering design of the bridge, approach roads, river training works, and related facilities prepared by the design consultant. Taking into account the financial costs, the total amount needed to finance the Padma Bridge Project is presented in the table below: Table 1. The total estimated financing cost of Padma bridge project Cost Item| Amount($ millions)| Main bridge and approach roads| 1,463. 1| River training works| 685. 4| Land acquisition, resettlement, and environmental management| 278. 8| Consultancy for project supervision| 88. | Project management, technical assistance, and training| 26. 0| Contingencies| 329. 8| Financing Charges During Implementation| 99. 0| Total Cost| 2,972. 0| Funding Arrangement The project cost was estimated to be US$3. 00 billion. Financing plan and loan signing have been finalized with the development partners. Funding for the project is provided by the Asian Development Banks (ADP) US$615, the World Bank (WB) US$1. 5billion, Japan International Corporation Agency US$415million, Islamic Development Bank US$140 million and Government of Bangladesh (GOB) US$600.

The government also signed another $14. 84 million agreement with the IDB for the implementation of the water-supply and sanitation project in cyclone-prone coastal areas, and Abu Dhabi Development Group ($30 m). Table 2. The estimated cash inflow from donor agencies. Project Financing Agency| Amount (USD in Millions)| Share of Total(%)| World Bank (WB)| 1200. 00| 41. 17| Asian Development Bank (ADB)| 615. 00| 21. 10| Japan International Co-operation Agency (JICA)| 415. 00| 13. 97| Islamic Development Bank (IDB)| 140. 00| 4. 80| Government of Bangladesh (GoB)| 600. 0| 20. 20| Of the total amount, the government will provide Tk 50 million while the rest will come in the form of project aid. The government has requested a loan of $539 million from ADB’s ordinary capital resources to help finance the project The loan will have a 27-year term, including a grace period of 7 years, an annual interest rate determined in accordance with ADB’s London interbank offered rate (LIBOR)-based lending facility; a commitment charge of 0. 15% per year and such other terms and conditions set forth in the draft loan and project agreements.

The government has provided ADB with (i) the reasons for its decision to borrow under ADB’s LIBOR-based lending facility based on these terms and conditions, and (ii) an undertaking that these choices were its own independent Decision and not made in reliance on any communication or advice from ADB. The government has requested an additional loan in various currencies equivalent to SDR 48,206,000 from ADB’s Special Funds resources to help finance the project. The loan will have a 32-year term, including a grace period of 8 years, an interest rate of 1. % per annum during the grace period and 1. 5% per annum thereafter, and such other terms and conditions set forth in the draft loan and project agreements. ADB loans will be used to finance part of the cost of the civil works, financing charges during the implementation of the ADB loans, and local taxes and duties estimated at $80 million on ADB-financed expenditures. The taxes and duties are estimated to amount to 19. 5% of the total project cost, which is not excessive considering the high share of imported materials for bridge works.

The government will finance a large share of land acquisition and resettlement costs in addition to its share of civil works. ADB’s financing of taxes and duties will be material to the success of the project. No taxes or duties in Bangladesh are considered unreasonable or discriminatory. Three co-financiers will provide a total of $1,640 million through parallel co-financing. ADB assistance through the ongoing loan for design and other pre-construction activities has facilitated the partner’s participation as co-financiers in the project.

The below table has shown the interest rate and loan period charged by the donors for their loan for this Padma bridge project. Table 3. Rate of interest on loan from different financial institution Item| ADB| World Bank| JICA| IDB| | OCR | ADF | | | | Loan or credit amount ($millions)| 539| 76| 1200| 415| 140| Interest rate| LIBOR+0. 3%| 1. 0%| 0. 75%| 0. 01%| LIBOR+1. 2%| Other fees and charges| 0. 15%| 0%| 0%| 0%| 0%| Loan period (years)| 25| 32| 40| 40| 20| Grace period (years)| 5| 8| 10| 10| 4| The Bangladesh Bridge Authority (BBA) invited the pre-qualification tender for the project in April 2010.

Construction of the bridge was expected to commence by early 2011 and be ready for major completion in 2013 and complete all sections by late 2015. BBA will be the executing agency. The project implementation unit established for the ongoing TA loan and its supplementary loan will be expanded into a project management unit with sufficient staff to handle the wide range of tasks involved in project implementation. The project management unit will be headed by a project director, who will be reporting to the executive director of BBA, and will be staffed with qualified engineers and experts recruited both internally and externally.

The panel of experts, which was established during the design phase and provided the project implementation unit with independent advisory support, will continue to provide similar support during construction. The proposed Padma Multipurpose Bridge Project will provide direct connectivity between the central and southwestern part of the country through a fixed link on the Padma River at Mawa-Janjira points. The bridge will contribute significantly towards facilitating the social, economic and industrial development of this relatively underdeveloped region with a population of over 30 million.

The area of influence of the direct benefit of the project is about 44,000 km2 or 29% of the total area of Bangladesh. Therefore, the project is viewed as very important infrastructure towards improving the transportation network and regional economic development of the country. The bridge has provisions for rail, gas, electric line and fiber optic cable for future expansion.  As Padma bridge multipurpose project is one of the top agenda among current affairs relative to Bangladesh.

It is also regarding as a blessing to inhabitants of south-west region of the country because it will link northern and eastern part of the country to that region. According to Bangladesh bridge authority, project’s initial investment will be a around US$2. 97 billion and so far fund worth of around US$2. 92 billion has been arrange by the authority. After the cancellation of World Bank loan the question rose that, what method of financing should be chosen for this project as the economy of Bangladesh is a small and project of such magnitude will have greater influence the economy. For example, In recent ears, government have implemented expansionary fiscal policy(Providing Subsidies)for quick rental power plant, which eventually put the economy under pressure and force internal borrowing rate and interest rate to soar as a result many banks faced liquidity crisis. Therefore, the process of financing this project is very much crucial for future economic situation of the country. Undoubtedly, this project is one of the biggest projects after the Jamuna bridge and its financing has become an important fact as well. We will discuss about the available financing options in hand after the cancellation of World Bank loan.

Fund collection through ADP Shakespeare wrote in Macbeth, ‘Life is a tale told by an idiot, full of sound and fury, signifying nothing. Funnily enough, you could say the same about the politics of development in Bangladesh. It is hardly a surprise that the World Bank’s cancellation of the Padma bridge project has created so much ‘sound and fury. ‘ What is not sound and fury though is the fact that we do not need WB loans to build the Padma Bridge. The government has announced that the Padma bridge will cost Tk 23,000 crore over 4 years.

This year’s budget forecasts show that the total Annual Development Program (ADP) budget for the next 4 years is expected to be more than Tk 300,000 crore. In other words, the Padma Bridge will cost about 8% of the ADP budget. The simple fact of the matter is that the government can finance this bridge from the ADP budget alone. However, ADP financing of the bridge will make it relatively expensive because our ADP budgets are mostly financed through direct government borrowing from the banking sector at interest rates of up to 11-12%. It will definitely be more expensive than the 0. 5% concessional interest rate that the WB was offering on its loan. If the cost of financing matters a lot, it begs the question: why does the government even bother having its own development agenda? If the ADP budget is deficit-financed at high interest rates, and donors can implement the same projects at a cheaper rate, why isn’t the entire ADP budget outsourced to donors? This much is obvious — if the government is going to finance its own development budget, regardless of whether the interest rate it pays is 1% or 11%, the government might as well build the bridge with ADP money.

Let us crunch some numbers on this. It has been reported that 60-70% of the project cost will be in the form of imports of capital machinery, materials, consultancy services etc. With the total project cost estimated to be Tk 23,000 crore, let us assume that the import cost will be Tk 16,000 crore (about 70%) over the next 4 years. That translates to a Tk 4,000 crore annual increases in the demand for US dollars. In other words, all other things held equal, our trade deficit will rise by Tk 4,000 crore due to higher imports to build the bridge. Well, let us put things into perspective.

In the first 9 months of the last fiscal year (2011-12), we imported Tk 220,956 crore worth of goods and services. That means the increase in US dollar demand from Padma Bridge-related imports would be equivalent to only 2% of the import demand for foreign exchange in the last fiscal year. What impact will a 2% increase in the trade deficit have on the exchange rate? Perhaps the chart below can help with the answer. It shows the annual percentage change in the trade deficit, the foreign exchange reserve balance and the US dollar-taka exchange rate for the last 10 years. A 2% increase in the trade deficit would hardly register on that chart.

Our trade deficit fluctuates a lot every year. In FY 2010-11, the trade deficit rose by 46%. And yet, the exchange rate only depreciated by 3%. The reason for that is because up until recently, the Bangladesh Bank (BB) used to maintain a pretty tight dirty float, which basically means that BB did not allow the exchange rate to fluctuate very heavily. Figure: annual percentage change in external balances that could affect the financing of the padma project More recently, in the last fiscal year, the exchange rate depreciated by nearly 11%, even though the trade deficit actually fell by 4%.

The reason for the depreciation is, as the chart shows, our foreign exchange reserve balance fell by 13%. It was the reason why BB borrowed $1 billion from the IMF, essentially to avert the mini balance of payment crisis at the time. In any case, the important point to note here is that a 2% increase in the trade deficit will hardly cause a ripple as far as the balance of payment situation goes. So concerns that converting locally-raised Padma funds in to foreign exchange is going to precipitate a balance of payment crisis is highly exaggerated, to say the least.

A look at our past experience with the Jamuna Bridge might be useful at this point. The Jamuna Bridge was completed in 1998 at a total cost of $696 million. The WB, ADB and OECD between them donated $600 million for the project, and the Government chipped in with the rest. The bridge was built by Hyundai, one of South Korea’s biggest conglomerates, that is no doubt well-known for their very safe cars. By the mid-2000s, just a few years after construction, cracks appeared on the bridge.

An investigation by BUET engineers found that the cracks were partially caused by Hyundai’s faulty design, as well as the unregulated use of the bridge by excessively heavy trucks. At the end of the day, both causes are really the fault of past governments. And what about the other half a dozen smaller, but important bridges that have been built since that time? How well are those bridges being maintained? Going back to the example of the Jamuna Bridge, the fact that the bridge design was faulty, even for a project that was heavily supervised by donors, points to a simple fact.

There is no substitute for the government doing its job honestly and properly. No amount of donor paperwork and process of checks-and-balances will excuse the government from its duty to conduct due diligence. The government is the final arbiter of its own interest, and it has to perform by building the Padma Bridge on time and without cutting any corners. The Jamuna Bridge was first proposed by the late Maulana Bhashani in 1949. The first feasibility study of the bridge was not done until 20 years later in 1969, with the study estimating the cost to be $175 million.

Following liberation, a new feasibility study conducted by the Japanese donor agency, JICA, concluded that the bridge would not be economically viable, so the project was dropped. It was then revived by the administration of General Ershad in 1982, with Mr Muhith as the General’s then finance minister. The bridge design was changed and the new estimated cost stood at $420 million. The Ershad administration even went as far as raising Tk 500 crores in funds through surcharges and levies.

But it failed to start construction, which subsequently began under the BNP government in 1994 and was completed by the AL government in 1998, at a cost of $696 million. It took us 49 years and a 300% cost blow-out (mostly due to inflation) to implement Maulana Bhashani’s proposal. Surely, a Padma bridge that takes us 25 years to build and only has a 150% cost blow-out is a measure of progress, no? That might be a bit of rhetorical sound and fury signifying nothing, but what is not insignificant is that we have the money to build this bridge. Fund Collection through Bond

Raising capital by issuing bonds is a popular alternative to selling shares, as it allows a company to avoid relinquishing ownership of part of the business. A bond is a loan in the form of a debt security. The authorized issuer (the borrower) owes the bondholder (the lender) a debt and has an obligation to repay the principal and the coupon (interest) on the maturity of the loan. Bonds enable the issuer to finance long-term investments with external funds. We must admit that financing the entire project from the ADP budget is not the best idea in the world. Some portion of it can be ADP-financed, but definitely not all of it.

There are significant benefits to be had from using other funding sources. Issuing sovereign bonds in the local market (including zero-coupon convertible bonds), and subsequently allowing those bonds to be traded on a secondary market will help create a more liquid sovereign bond market in our country. That in turn will enable the development of a vibrant corporate bond market, lowering the cost of funding as well as systemic risk for local businesses that are currently over-reliant on bank borrowing and private funding arrangement may also be another alternative source of financing regarding Padma bridge.

Furthermore, deeper bond markets will provide greater investment choices to investors, which can help prevent the kind of price bubble we saw in the stock market a couple of years ago or are experiencing currently in the real estate market. The essential point is: raising funds from the local capital market will lead to a number of wider benefits. Zero-coupon corporate bonds are most prevalent in the high-yield market, where their lack of coupon payments in the first several years provides liquidity in a key period for bonds used to finance acquisitions, restructuring, or other immediate cash flow needs.

Many high-yield zero-coupon bonds have a structure which reflects this time series, and in fact begin making coupon payments after 3-7 years of coupon less existence. Taking on debt by issuing bonds is usually cheaper than either a bank overdraft or the cost of raising equity through a share issue. A major advantage is that the return on debt (interest) is tax-deductible, whereas the return on equity (dividends) is paid out of a company’s profits, which are taxed before dividend payments can be made to stockholders.

Financing by raising debt is a useful way of monitoring a corporation’s overall health, as the ability to repay the debt reflects the overall financial stability of the company. Bonds offer a more secure return for investors—dividends are paid out purely at the discretion of the company, whereas interest on debt must be paid according to the set terms of the bond. Private Fund Collections No one is contending the fact that Bangladesh can build a bridge using its own resources.

The questions are at what cost the proposed Padma Bridge will be built and what will the process of fund collection be. The government has decided to open two bank accounts to collect voluntary public contributions for the project, which we feel is a step in the right direction Although the opening of the bank accounts and declaration of such a move by the government is specifically aimed to avoid incidents like the one that took place at Rajshahi University, the step does not go far enough.

While we take some solace in the Finance Minister’s statement that no one was assigned to collect money from the public for the construction of the Padma Bridge, it is crucial that the government makes it known through official notification that funds will be collected only through appropriate institutional mechanisms and proper channels. The government can raise funds for the Padma bridge from the surcharge imposed on the individual income, utiliti bills, individual earning and surcharge on the mobile phone talking.

It must be made clear that there is no room to ask for contributions through any other means. Should any quarter make attempts to coerce such contributions, legal steps will be taken by the State against such party or parties. Otherwise, chaos will reign supreme in the land and the image of the government is bound to take a nosedive, because, in the final analysis, party-based collection automatically leads to extortion. 5. COST AND BENEFITS ANALYSIS OF DONOR FUND The estimated cost for the Padma Bridge is US$ 2. 9 billion.

As per mutual understanding and signed agreement among the government, WB, ADB, IDB and JICA invest and ensure the cash flow. On February 24, 2011, the WB approved a $1. 2 billion IDA credit to Bangladesh for the Padma Multipurpose Bridge project. At that time, the bank mentioned that the 6. 15-kilometer bridge is the largest IDA credit ever. Later on April 28, the government signed an agreement for the credit with IDA, the World Bank’s concessionary arm. ADB, JICA and IDB then joined in the lenders’ pool and made agreement with the overnment for funding the project. According to the agreement, the ADB was to provide $615 million, JICA $400 million and IDB $140 million. Bangladesh government was to invest the rest of $2. 91 billion. Financing by donor is the most practiced process of large projects for the least developing countries like Bangladesh. Interest rates of international financing organizations like WB, ADB, JICA and IDB are low compared to commercial loan. Beside the payback period is long, which will allow the borrower to repay loans without putting any pressure on the economy.

If we assume that World Bank did not cancel the proposed loan then the total invested amount would have been refunded within the period of 40 years including 10 years grace periods with only 0. 75 percent concessional interest rate. Financing the project by a donor has more benefits rather than costs. The donor agency not only provides cash flow, but it also creates some space on social regurgitation, reliability, technical advising/support and risk sharing. For example China has enough fund but they receive donor support and the hidden objective is only risk sharing.

If the Padma Bridge is funded by international organization then foreign investors will find an assurance of investing industries and projects in nearby area. Areas around the project are more likely to get affected by the development project as it opens door of vast opportunities and development as transportations system between both river bank areas of the bridge will be developed. In addition, foreign firms do not show any interest in projects, which are locally funded by the government in emerging countries unless the project is financed by international organisation.

Involvements of foreign firms are also important for a project of such magnitude and local firm may lack technological advantage and skilled labour to handle and execute this project. Another benefit of donor financing is that it allows government to continue the development programmes of education, health and food sector without obstructing their allocated fund. Donor financing cost is relatively small compared to its benefits. Soft loan has a very low interest although the loan size is big and interest payment amount is higher than the normal loan.

Beside this, uncertainty is normal and Padma Bridge is also no different one. Expected cash inflows from Padma Bridge are uncertain as any environmental, economic or political event or shock may have adverse effect on the use of Padma Bridge. The loan amount for Padma Bridge project is expected to be paid through revenues generated by the bridge itself. Imposing fee for using the bridge is one way of generating revenue and it will also cover maintenance cost of the bridge as well.

Portion of revenue will be used for repayment of interest and soft loan taken for the project. If interest is avoided then the additional amount which will be used for payment of interest and loan could be used for other development projects. 6. COST AND BENEFITS ANALYSIS OF OWN FUND In the first week of July, the government ethically took a decision to build Padma Bridge by own fund after declaration of ‘agreement cancel’ by World Bank. The government has announced that the Padma Bridge will cost Tk 23,000 crore over four years.

This year’s budget forecasts show that the total ADP budget for the next four years is expected to be more than Tk 300,000 crore. In other words, the Padma Bridge will cost about eight per cent of the ADP budget which means the government can finance this bridge from the ADP budget itself. However, ADP financing of the bridge will make it relatively expensive because ADP budgets are mostly financed through direct government borrowing from the banking sector at interest rates of up to 11-12 per cent. It will definitely be more expensive than the 0. 5 per cent concessional interest rate that the WB was offering. Bangladesh does not have any experience in financing large projects by itself but with proper management of fund and thorough execution of policies it is possible to achieve success. If own financing practice is initiated then the likelihood of seeking foreign aid for future projects will reduce. The government will be more confident to take bold decisions for undertaking more development project. Soft loan does have a small interest rate but still interest is considered as cost of borrowing.

Self-financing exempt cost of borrowing thus no additional cash outflow will occur regarding financing the project after project completion. Another benefit of self-financing scheme is it attracts investors for investment in the economy because self-financing shows that the economy is strong enough to support its own growth and bright prospects of future growth. Emerging countries provide more opportunity than developed countries because the growth of emerging economies is much higher than developed economies.

Own financing also gives the government authority to modify and execute policies it wants to use for the betterment of the economy and the project without any interference of foreign affair. Government controls the whole project and can induce any rules, regulations or policies which will affect it. Self-financing has a big problem to increasing cost of the project. Cost of such project is not always fixed and it increases as construction goes forward. Even, due to some economic shock, government may need to reprioritize its fund allocated for the project and eventually it will obstruct regular project progression.

The government is likely to face problem of not convincing an internationally renowned firm for undertaking the project. In emerging countries, internationally renowned firms do not operate their task unless projects are funded by WB, ADB and JICA. Though local firms can be used for the project but local firms in Bangladesh lack the expertise, technology and skills needed to successfully accomplish this project. Last but not the least; Bangladesh government will need to undertake austerity measures to reduce the pressure of this project from the economy. 7. OBSERVATION AND FINDINGS

Donor financing is better for Bangladesh because the ‘net social benefit’ is more in donor financing scheme than own financing scheme. The opportunity cost of own financing is much higher than donor financing scheme. If own financing is chosen then other development drives is more likely to face dilemma of going forward or even face a sudden halt. Education, health and employment development are integral part for building a stable and bright future for a nation but funds are also needed to support such development. Soft loan provided for this project is around US$ 2. 4 billion as stated earlier. The amount of interest on loan provided by WB, ADB, JICA and IDB are respectively US$ 249 million, US$ 246 million, US$ 10 million and US$ 54. 60 million. Most of the loan period is 40 years except IDB with 20 years. Thus, the government has enough time to repay the loan and with steady growth in economy will be able to pay back the loan before its maturity as the project will trigger development on project nearby area. Besides, the bridge itself will provide a strong revenue stream through imposing ‘toll rate’ for passing vehicles.

With a high traffic scenario, analysts predicted that the bridge itself will be able to repay the loan in 17 years, which shows a financial internal rate of return (FIRR) of 7. 9 per cent in nominal terms. Even in a low traffic scenario, analysts predicted that it will repay in 19 years with a FIRR of 6. 5 per cent. This much is obvious — if the government is going to finance its own development budget, regardless of the interest rate, the government might as well build the bridge by the help of ADP.

And if the Padma Bridge is not a high priority development work, we do not know how to solve this problem precisely. That said, we must admit that financing the entire project from the ADP budget is not the best idea in the world. Some portion of it can be ADP-financed, but definitely not all of it. There are significant benefits to be had from using other funding sources. Besides, the issue of sovereign bonds in the local market (including zero-coupon convertible bonds), and subsequently allowing those bonds to be traded on a secondary market will help create a more liquid sovereign bond market in our country.

That, in turn, will enable the development of a vibrant corporate bond market, lowering the cost of funding as well as systemic risk for local businesses that are currently over-reliant on bank borrowing. However, this line of argument is also not without its critiques. One such critique is that this project will require a large amount of foreign currency, which will be costly to attain if the funds are raised locally and then have to be converted into foreign exchange. That is no doubt a valid cause for concern, but one that is prone to exaggeration.

It has been reported that 60-70 per cent of the project cost will be in the form of imports of capital machinery, materials, consultancy services etc. With the total project cost estimated to be Tk 23,000 crore, it can be assumed that the import cost will be around Tk 16,000 crore over the next four years. That translates to a Tk 4,000 crore annual increases in the demand for US dollars. In other words, all other things held equal, our trade deficit will widen by Tk 4,000 crore due to higher imports to build the bridge.

This means, in the first nine months of the last fiscal year, Tk 220,956 crore worth of goods and services were imported. That means the increase in US dollar demand from the project related imports would be equivalent to only two per cent of the import demand for foreign exchange in the last fiscal year. In FY 2010-11, the trade deficit rose by 46 per cent. And yet, the exchange rate only depreciated by three per cent. The reason for that is because up until recently, the Bangladesh Bank used to maintain a pretty tight dirty float, which basically means that BB did not allow the exchange rate to fluctuate very heavily. . CONCLUSION All things considered, we do not think it is unreasonable to conclude that we are capable of financing the Padma Bride on our own. That said, financing a bridge and implementing a project of the sheer large scale and complexity as the Padma bridge are two different things. So let us address the real elephant in the room. Does the government have the institutional capability to deliver this project? A project of this size will undoubtedly require the implementation of lots of other side projects, such as dredging the river, river training, construction and maintenance etc.

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