Padma Bridge Critical Essay

Padma Bridge Padma Multipurpose Bridge Carries| Motor vehicles, Railway| Crosses| Padma River| Locale| Louhajong, Munshiganj to Shariatpur and Madaripur, Bangladesh| Maintained by| Bangladesh Bridge Authority| Designer| Maunsell AECOM| Design| Truss bridge| Material| Steel| Total length| 6,150 m (20,180 ft)| Width| 21. 10 m (69. 2 ft)| The Padma Bridge is a multipurpose road-rail bridge across the Padma River to be constructed in Bangladesh. When completed it will be the largest bridge in Bangladesh and the first fixed river crossing for road traffic.

It will connect Louhajong, Munshiganj to Shariatpur and Madaripur, linking the south-west of the country, to northern and eastern regions. The project covers three districts — Munshiganj (Mawa Point/North bank), Shariatpur and Madaripur (Janjira/South bank). The total area of land to be acquired and required for its components is 918 hectares. The requisition of land for the construction yard will be for six years on a rental basis. As per the new design, an additional 144. 04 ha has been identified for acquisition, bringing the total to 1062. 14 hectares.

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This additional land is required because project site lost significant land due to erosion, for transition structures and due to a change in railway alignment. The two-level steel truss bridge will carry a four-lane highway on the upper level and a single track railway on a lower level. The project will include 6. 15 km long and 21. 10 m wide bridge,15. 1 km of approach roads, toll plazas and service area. Previous Source of Financing Project cost is estimated to be US$3. 00 billion. Funding for the project is provided by the Asian Development Bank (US$615 m), the World Bank ($1. billion), Japan International Cooperation Agency ($415 m), Islamic Development Bank ($140 m). 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). Of the total amount, the government will provide Tk 50 million while the rest will come in the form of project aid. 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). 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 fibre optic cable for future expansion. The project will be 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. Padma Bridge financing vs. word-of-mouth strategy THE Padma Bridge is a high priority national project of the Awami League government. It is a 6. 15-kilometre long and 21. 10-metre wide bridge with 15. 1-kilometre approach roads to connect the south-western districts with the capital. It will be a very important infrastructure for economic development of more than 30 million people. The construction work of the $2. 9 billion project was expected to begin in 2012 with financial assistance of the World Bank ($1. billion), the Asian Development Bank ($615 million), the Japan International Cooperation Agency ($400 million) and the Islamic Development Bank ($140 million). The government is a co-financer that has already spent Tk 15 billion on land acquisition and rehabilitation projects. However, the construction work became uncertain when the World Bank suspended its $1. 2 billion credit line last year alleging corruption conspiracy against Bangladeshi officials and executives of a Canadian firm. Considering the uncertainty of the World Bank financing, the government looked for an alternative source and almost confirmed a $2. billion Malaysian fund. Meanwhile, the bank, after almost one year of unsuccessful dealings, cancelled the agreement on June 29. It was usual for the ministers and high officials to react against the bank’s accusation. However, the government standing was ambiguous when the finance minister kept the World Bank chapter open to get the decision reviewed. An alternative deal with a Malaysian company went out of the frame when the prime minister announced that the bridge would be built with domestic fund, eight days after the World Bank decision.

Meanwhile, the word-of-mouth strategy in political game became dominant to whip up nationalistic sentiments. Moreover, come business organisations congratulated the prime minister, advertising their commitment to investing in the project. Padma Bridge with Own Fund The government will build the Padma bridge with its own funds and construction work will begin in the current fiscal year, Prime Minister Sheikh Hasina announced in parliament. She said the mega project, estimated to cost around Tk 23,000 crore, would be completed within fiscal year 2015-16.

The prime minister was delivering her concluding speech in the budget session of the House, which was prorogued last evening. She urged the global lenders not to put up “unnecessary obstacles” to Bangladesh's development efforts. Hasina's announcement came nine days after the World Bank pulled out of the bridge project, citing a corruption conspiracy. In her address, she sketched out how her government would arrange the money for the project from various sources.

Terming “unprecedented” the response she had received from people in the last few days in support of the government's plan for building the bridge with local resources, Hasina said she was overwhelmed by the way they had expressed their enthusiasm. She added: “We will not bow to anybody. We can in no way accept the huge damage the World Bank has done to Bangladesh on lame excuses. No Bangalee can accept the allegation of corruption by the World Bank when not a single penny was released for the project. Criticising the WB for delaying her government's move to build the bridge, she said, “The construction cost has increased due to the delay. I will ask the finance minister to seek compensation from the World Bank. ” Hasina also accused the global lender of instigating other lending agencies, including the Asian Development Bank, Islamic Development Bank and Jica, not to provide funds for the Padma bridge project. HOW TO RAISE FUNDS The premier said the government had lately estimated the construction cost of the bridge on a year-to-year basis.

According to the estimate, Tk 3,197 crore will be needed in the current fiscal year, Tk 7,868 crore in 2013-14, Tk 7,786 crore in 2014-15 and Tk 3,785 crore in 2015-16 to complete the project. Citing the allocation of Tk 55,000 crore in the ADP for this fiscal year, Hasina said she had already discussed the matter with some ministries, and they had said they would not take their entire allocations in the current year's budget. “It is possible to save Tk 24,000 crore from the ADP. For this, we will have to be economical and may have to cut some development work under different ministries.

But again, construction of the Padma bridge is also development work and will generate employment for many,” she said. The government would be able to begin the construction work soon, and will not waste any more time. The prime minister said the government had earmarked Tk 1,500 crore for infrastructure development and Tk 3,000 crore in the public-private partnership fund. Besides, a certain amount of money had been allocated for the Padma bridge in the budget. The government had also decided to issue sovereign bonds to collect $750 million.

Besides, her government might levy a surcharge as was done for the construction of the Jamuna bridge. “We will also welcome any foreign investment in this project,” she added. Giving a breakdown of the Padma bridge costs, Hasina said Tk 15,000 crore would be spent for construction of the main portion of the bridge; Tk 7,200 crore for river training; Tk 1,281 crore for building Jajira approach road; and Tk 310 crore for Mawa approach road. She said her government had already spent Tk 1, 500 crore on land acquisition and rehabilitation purposes. The Consequent Impact of Constructing Padma Bridge in Own Fund

Be that as it may, the question is whether the prime minister’s plan to construct the Padma Bridge without external finance is realistic. According to the estimates, Tk 32 billion will be needed in 2012-13, Tk 79 billion in 2013-14, Tk 78 billion in 2014-15 and Tk 38 billion in 2015-16. The current year’s requirement, as announced, will be redirected from the annual development programme. The government also plans to issue sovereign bonds to collect $750 million and other accumulations will be defined in future. However, mobilisation of domestic resources has hardly been impressive in the past.

Regardless of the government rhetoric, the public-private partnership has not yet taken off although Tk 30 billion was allocated three years ago. In such circumstances, if the government continues to redirect funds from the ADP for the Padma Bridge, other projects will certainly be crowded out. The government is already reeling under high subsidy burden and inadequate allocation for its thrust sectors. Although the inflow of remittance has kept foreign exchange reserve adequate, foreign aid for public projects has dwindled over the years. As such, receipt of foreign direct investment is much needed.

In fact, did we not welcome the World Bank’s credit line for the Padma bridge project? Was it not highlighted in the news media? Amidst the raging global economic crisis, the government needs to realise the necessity of the soft loan from the World Bank. It needs to also have a closer looks at the country’s institutional capacity to finance such a colossal project without import of materials and without a foreign company. We might be able to prove our national capacity bypassing the World Bank, but the domestic financing for the project is highly likely to have some negative impacts on the economy.

The additional outflow of foreign currency for import of materials will raise the price of dollar for which the estimated cost of Tk 230 billion is expected to increase to up to Tk 300 billion. Moreover, fund accumulation from non-residents may not be steady because of downtrend in the current account balance. The current account balance, which was 3. 7 per cent of the gross domestic product in 2009-10 and is projected to decrease to 0. 3 per cent of the GDP in 2012-13, could slide to a negative value.

On the other hand, devaluation of the local currency will raise the price of imported products and will contribute to inflation. In addition, it will continue to provide additional tax burden on the taxpayers. In this context, the government’s strategy to enrich domestic capacity needs to be complemented with a friendly compliance strategy to handle donors and foreign investors. It is reported that the Anti-Corruption Commission failed to comply with the World Bank’s requirement due to its limitation with domestic policy.

However, what was the limitation for the ministers to control corruption of their personal secretary or officials. If and when domestic resources will be allocated for the multi-billion dollar project, will the designated officials and implementing agents hesitate to divert billions of taka to their personal accounts? Ultimately, the government needs to address the corruption-related problem first and foremost. To this end, mere assertions of commitment will not be enough; they have to be complemented with decisive and demonstrative actions.

Meanwhile, people will look forward to the dream of Padma Bridge coming to reality. So, in shortly if we summarized all the disadvantages of own funding for Padma Bridge, we could get:- * Mobilization of domestic resources is not impressive in our country, so there must be a huge need of importing resources. * We would need more Foreign Direct Investment (FDI), because foreign exchange is not adequate in Bangladesh. * Domestic funding would prove costly for the economy in the long run. * The additional outflow of foreign currency for import of materials will raise the price of dollar. Fund accumulation from non-residents may not be steady because of downtrend in the current account balance. * Devaluation of the local currency will raise the price of imported products and will contribute to inflation. We should not build the Padma Bridge just for the sake of building it. It has to be cost-effective, financially viable and above all economically rewarding. All of these depend on minimisation of direct and indirect costs of building the bridge with domestic finance as contemplated by the government.

The first and foremost issue in this context is to be fully aware of the possible risks and costs involved in domestic financing, and find a way out to minimise them before starting the construction work. What are the possible risks that may escalate both direct and indirect costs of building the bridge with domestic funding? First comes the direct resource cost, which was estimated to be around US$ 3. 0 billion or nearly Tk 24,500 crore. Since the decision was taken to build the bridge on the basis of the feasibility study carried out by an independent agency, it can be assumed that it was found cost effective.

The main indirect cost will be the impact on other economic activities and the balance of payments as a result of diverting resources, both in terms of local and foreign currency. Economists have already expressed their concern about these indirect costs. Although the private sector cannot grow adequately if the infrastructural inadequacies are not removed, they will not build infrastructure on their own as its benefit cannot be fully internalised and priced properly to recover the cost. This is what the economists call the market failure, which shifts the onus on the government.

In principle, there is nothing wrong in diverting resources to build infrastructure by government which will ultimately help the private sector. The main point is to keep diversion of resources within tolerable limits so that it will not hurt the private sector significantly by squeezing the resources available to them. In the absence of sufficient sources for revenue earning, the government will have to borrow money from the banking sector to finance the bridge, limiting the resources available for the private sector to borrow from, which the economists call 'crowding out effect. It will also increase the interest rate raising the cost of credit for the private sector. The size of government borrowings and the extent of private sector's reliance on the banking sector will determine the actual crowding out effect. Another potential indirect effect of government borrowings may work through the stock market. When the banks are faced with liquidity crisis to give loans to the private sector, they may decide to withdraw from the stock market causing another nose-dive of stock price, which has just started bottoming up after a major debacle.

How government borrowing affects overall growth in a developing country, where the private sector is always constrained by infrastructural constraints, and government is the sole provider of infrastructure, is an empirical question. Unfortunately, this issue is not adequately researched in Bangladesh. There is only one study carried out by Bangladesh Bank a couple of years ago, which shows that private investment in Bangladesh is not affected significantly by rising interest rates. This finding makes it difficult to guesstimate crowding out effects of government borrowing in Bangladesh.

Moreover, 6. 3 per cent GDP growth in the last fiscal in the midst of hue and cry about the crowding out effect does not provide any clear indication of how significantly government borrowing affects overall growth in the country. Yet, the government cannot and should not completely shrug-off the likely effects of its domestic borrowing. It should leave no stone unturned to keep its borrowing from domestic sources as low as possible. It should rethink a new strategy to keep the yearly requirement of resources to meet the cost at a tolerable level.

One way of doing it would be to extend the construction period to five years from three years as currently envisioned. The total cost of Padma Bridge will have both local and foreign components; the former would require local currency, and the latter foreign currency. Let us review and compare the yearly requirement of taka and US dollar under different scenarios. No clear public information is available on the relative share of these two components. According to an expert, foreign component is about 40 per cent of the total cost.

That means the government would need approximately US$1. 2 billion and Tk 148. 50 billion to construct the bridge, if the total cost is $3. 0 billion as originally estimated. Let us increase these amounts by 10 per cent, to $1. 32 billion and Tk 160. 38 billion, to account for inflation (as the start of the construction work has been delayed by more than a year. ) With this upward adjustment, the yearly requirement in local currency will be about Tk 32. 08 billion if the bridge is constructed in five years. This amount will increase to Tk 53. 6 billion, if the bridge is constructed in three years. Similarly, the yearly requirement in foreign currency will be US$264 million if the construction period is five years, US$440 million in case of three years. If the total cost is equally divided between local and foreign components, yearly requirement will be Tk 44. 55 billion, if the bridge is constructed in three years and Tk 26. 73 billion in case of five years. Similarly, under this alternative scenario, yearly requirement will be US$550 million and $330 million respectably.

Yearly requirements of taka and US dollar under different scenarios are shown in the table. As can be seen, yearly requirement of taka under any scenario does not exceed Tk 53. 46 billion. This should not be a very big problem to collect this money without any significant crowding effect in the economy to negatively affect the growth. Also, even if there is some level of crowding out effect, part of it will be compensated by the multiplier effect of government spending in the construction of the bridge.

Some adjustments in the annual development programmes (which always involve some inefficient and politically motivated projects) will also help reduce the negative effects on resource diversion. Besides, compromise with some level of growth in the construction phase of the Bridge which will foster regional equity and growth (as evidenced from Banghabandhu Bridge) will not be entirely unjustifiable from economic point of view. Inter-temporal optimisation of benefits always includes some trade-off between present and future benefits.

The main problem that may become a concern is the availability of US dollar to finance the foreign component of the cost. The government has already expressed its optimism to be able to face this problem by using the forex reserve, which is currently in robust shape. However, this robustness may not sustain given the volatility of the global economy as well as our  export and import scenario. However, continued growth of remittances in the recent years is a plus point for the country.

Yet, to minimise the risk of any probable foreign currency crisis and reduce pressure on the balance of payment, it will be prudent to extend the construction period of the bridge to five years, which will keep the yearly need of US dollar at a level of about $330 million. It is not easy for a developing and growing economy, which constantly operates under a stringent resource frontier, to invest in a huge infrastructure project like that of the Padma bridge. But the above numbers suggest that constructing the bridge in five years with domestic financing is very much doable contradicting the apprehension expressed by many. The End

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