Bangladesh will get Tk 517 crore or $66 million in loans from the Asian Infrastructure Investment Bank for two power distribution projects -- the first loan for the country from the China-led development bank.

The projects at a total cost of Tk 821 crore were approved at a meeting of the Executive Committee of the National Economic Council (Ecnec) in Dhaka yesterday and will help improve the transmission lines of the country.

Under the projects, Dhaka Electric Supply Company Ltd will upgrade two existing substations and install 33kV distribution lines underground in urban areas.

The first project will upgrade grid substations and overhead distribution lines. It will cost Tk 569 crore, of which Tk 359 crore will come from the AIIB.

Another project is for replacing the small inefficient transformers and air-insulated switchgear systems at Bashundhara and Uttara grid substations with larger efficient transformers and gas-insulated switchgear systems.

The cost of the second project is Tk 251 crore, of which the AIIB will provide Tk 158 crore.

The interest rate of the AIIB loan will be linked to the repayment period. It will be LIBOR plus 0.80 percent to 1.4 percent, said an official of the finance ministry.

The repayment period will be eight years to 20 years.

If the repayment period is eight years then the interest rate will be LIBOR plus 0.80 percent. If the repayment period is 20 years then the interest rate will be LIBOR plus 1.40 percent, according to the official.

LIBOR (London Interbank Offered Rate) is the rate at which banks charge each other for short-term loans in the London interbank market. It also serves as a global benchmark for short-term interest rates.

Mohammad Asif-uz-Zaman, additional secretary of the Economic Relations Division, said a team from the AIIB would visit Bangladesh early next month when the terms and conditions of the loans will be finalised.

“The interest rate will be more or less that of the Asian Development Bank,” he said.

The ADB charges 1-2 percent for concessional loans while its non-concessional loan is LIBOR-linked. The interest rate on a US dollar-denominated 8-year loan from the Manila-based lender is 6-month LIBOR plus 0.39 percent and on a 19-year loan it would be LIBOR plus 0.59 percent.

An official of the finance ministry said the project proposal is likely to be placed at a meeting of the directors of the Beijing-based bank on June 20 or 22.

The first annual meeting of the Board of Governors of the bank will be held in Beijing on June 25-26.

Another proposal for Bangladesh Rural Electrification Board might be placed at the AIIB board meeting after the project is approved by the Ecnec.  

Governors and representatives from the bank's 57 founding signatories along with invited observers from international partners will participate in the meeting.

The AIIB, a new global multilateral financial institution, was formally established in December last year.

Despite opposition from Washington, US allies including Britain, Germany and South Korea are among the AIIB's 57 members. The bank expects to lend $10-15 billion a year in its first five or six years.

The Ecnec also approved four projects, including Dhaka Water Supply Network Development project.

The cost of the project, which aims to improve water supply system in the capital, is Tk 3,182 crore. The ADB will provide Tk 2,145 crore for the project.