S Korea keen on lending $1b for MRT-5 southern route

Infographics: TBS

The prospect of initiating construction of the capital city's another major metro rail route in January 2024 now looks brighter as South Korea has agreed to join Asian Development Bank in financing the $5.5 billion transportation project.

South Korea has given Bangladesh preliminary assurances to provide a low-cost loan of $1 billion for Dhaka Mass Rapid Transit Line 5 (MRT-5) Southern Route, but wants the work booked for Korean entities—the terms now being examined by the Economic Relations Division, said an ERD official on condition of anonymity.

Earlier, the ADB pledged $2.5 billion for the 17.20-kilometre MRT-5 south line which extends from the city's Gabtoli to Dasherkandi.

Md Abdul Wohab, project director of MRT-5 Southern Route, told The Business Standard that discussions on co-financing with South Korea are underway. The ERD is negotiating the deal with its Korean counterparts.

"During negotiations, preparations for the project's implementation are underway to ensure a seamless transition. The procurement process is also in progress and will commence shortly with the submission of documents to the Korea Eximbank," he said.

This would be the second metro rail project to be financed by South Korea. It has also agreed to provide loans for the MRT Line 4.

The development is particularly significant as the ADB's technical assistance funding for the project expires on 30 June next year.

The project director also said the co-financing process is expected to conclude within two months but any delays will not hinder the project's execution as subsequent procurement processes, such as consultant hiring and contractor procurement, will proceed without delay.

The process of contractor procurement may take eight to nine months to complete and the goal is to initiate construction in January 2024, Abdul Wohab said, adding that with this timeline in mind, it is expected that the construction phase will conclude by 2030.

An ERD official, on the condition of anonymity, said South Korea has given Bangladesh preliminary assurances to co-finance the MRT-5 (Southern) project.

"Open bidding will be announced for ADB-financed packages, and qualified contractors from any country can apply. For Korean-financed packages, only Korean designated entities can participate," another official at the ERD said.

Bangladesh currently receives loans from South Korea at the lowest interest rates, according to the Economic Relations Division under the Ministry of Finance.

This project will be financed by Korea through the Economic Development Cooperation Fund (EDCF), which offers interest rates of 0.01% to 0.05%, a 40-year repayment period, and a 15-year grace period. As a condition of EDCF loans, Korea requires that only Korean contractors are eligible to bid for and participate in projects funded by such loans.

Challenges in project implementation

The Dhaka Mass Transit Company Limited aims to complete the process for the main project proposal's approval by December 2023 and secure the entire foreign loan within that time frame. If funding – either the ADB providing the entire amount, or someone else co-financing – is not secured by January 2024, implementation of the project cannot begin, and the ongoing support projects will be jeopardised.

In addition, the project will also face challenges to be completed within the specified time according to the government's action plan 2030. If the project proposal is not approved, it will not be possible to appoint the Construction Supervision Consultant (who inspects and supervises the construction process) and experienced manpower currently engaged in the project may not be retained.