Sources said the "buyer's credit" is nothing but a supplier's credit--a mode of financing restricted in the government policy and discouraged by the World Bank. According to economists, up to 40 per cent of such opaque credit goes to individuals' pockets.

A top political lobby close to the prime minister's family has been pushing the deal that seeks to limit procurement of digital telecom exchange equipment exclusively within Chinese companies.

A source pointed out that this idea was designed to ensure that the deal goes to a certain Chinese company. The local representative of that company has made an arrangement with the members of a top political family of the country in which the representative will pay the lobby 10 per cent of the total project cost as commission, the source claimed. "This is one of the last big deals of this political lobby ahead of the elections," he added.

The Cabinet Division on January 22 cleared a proposal to seek this loan from China for the project. The ERD signed the agreement yesterday as a follow-up.

Finance Minister M Saifur Rahman has been resisting this project titled Setting up Digital Telephone Exchange in the metropolitan cities, important towns and upazila growth centres since 2003 when the project exclusively tailored for China-based procurement was first conceived.

Prime Minister Khaleda Zia during her first China visit in 2003 discussed this project with the Chinese premier who instantly agreed to provide the finance under "supplier's credit" system.

However, Saifur's resistance against the supplier's credit system, which is a non-transparent financing mechanism that encourages corruption, shelved the project until early this year. Now the project's lending term has been converted to "buyer's credit".

According to the loan agreement between the two countries, the interest rate has been fixed at 2 per cent while Bangladesh will have to make a down-payment of 5 per cent of the total project cost or $10.5 million. The repayment period is 20 years. The management fee is 0.2 per cent and the loan disbursement period is five years.

Sources said China Exim Bank submitted a loan proposal in this regard and the government's Hard Term Loan Standing Committee on August 8, 2005 identified the loan terms as "buyer's credit" since the loan terms are rigid.

During the previous Awami League government's term, the same Chinese company was set to install a digital telephone exchange with very low quality equipment. When the BNP came to power, the cabinet members, especially Saifur Rahman, severely criticised that procurement.

The BTTB presently has around 600 telephone exchanges across the country, with 75 per cent of them digitised. The remaining 25 per cent exchanges are situated at the upazila level and desperately need modernisation.

The BTTB now provides 1.1 million phone lines while it is unable to meet the huge demand of more than 5,00,000 phones due to a lack of expansion of its exchanges, the sources pointed out.