By Maheesha Mudugamuwa The state-owned Export-Import Bank of China (EXIM Bank) has refused to release funds promised for the Central Expressway Project (CEP) until conditions attached to the loan agreement are fully met, The Sunday Morning learnt. Officials told The Sunday Morning that the Government is yet to meet the preconditions agreed with EXIM Bank. The agreement between both parties is that the Sri Lankan Government will pay 15% of the agreed $ 1 billion loan for Section I of the project from the consolidated fund while China gives 85%. A top official told The Sunday Morning that while loans had already been approved by the Chinese bank and the agreement was signed in March this year, the funds had not yet been released. It is learnt that the Road Development Authority (RDA) had exceeded its loan capacity and was unable to secure another loan from local banks to pay 15% of the funds for Section I of the project. As a result, EXIM Bank had sought a guarantee from the Treasury that the 15% would be secured through two local banks – the Bank of Ceylon (BOC) and the People’s Bank (PB). However, the Government is still not in a position to give the two banks a guarantee on the repayment of the loan. The agreement to provide a concessional loan of $ 989 million covering 85% of the contract price for the CEP Section I from Kadawatha to Meerigama was signed in March by Finance Ministry Secretary Dr. R.H.S. Samarathunga on behalf of the Sri Lankan Government and Chinese Ambassador Cheng Xueyuan on behalf of EXIM Bank of China. The total estimated cost of the project is $ 1,164 million. As per an agreement with the Government, Section I of the CEP is currently being constructed by local contractors using their own funds, but at a very slow pace till the loan is received for them to be paid. When The Sunday Morning contacted the Department of External Resources Director General Priyantha Rathnayake, he said the Government had already signed the loan agreement but there were some preconditions which the Government had to meet. “We are planning to sign another loan agreement with BOC and PB to cover that 15% portion. There are minor contract deviations.” “We need to change some contract conditions in order to make that domestic loan and those changes have already been forwarded to the Chinese EXIM Bank for their concurrence. We are waiting for their concurrence and soon after, we will be able to sign the local loan agreement,” he added. Meanwhile, there is a fresh delay in obtaining funds from Japan for the construction of CEP Section III, owing to a political rift between Public Enterprise, Kandyan Heritage, and Kandy Development Minister Lakshman Kiriella and Highways and Road Development and Petroleum Resources Development Minister Kabir Hashim, The Sunday Morning learnt. According to sources, an issue pertaining to the loan agreement between Sri Lanka and Japan had already been solved but a new issue had arisen as a result of the omission of an Interchange in Pothuhera from Section III of the project which has now been included in Section I of the CEP which is currently being constructed by local contractors with local funds. A senior government official told The Sunday Morning that the omission had been done without proper analysis. The expected loan amount for the construction of CEP Section III is around $ 1 billion. A Japanese delegation is scheduled to arrived in Sri Lanka next month to prepare the required documents for the loan. However, the agreement would not be signed until the issues with regard to the construction plan are settled, the official said. Meanwhile, The Sunday Morning also learnt that a proposal that had been put forwarded by the Indian High Commission in relation to the project had been rejected by the Highways Ministry due to high interest rates. An official said that India had put forward a proposal to fund the construction of Central Expressway connectivity roads at an interest rate of about 8%. “The interest rate of the Chinese EXIM Bank loan is around 2.5% while the Japanese loan for Section III, the final effective interest rate according to Tokyo Interbank Offered Rate (TIBOR) +0.95, is around 2.5%. So we turned down the Indian offer,” he explained.