Dhaka faces a bit of trouble over Russian loan repayments

Trouble is brewing over the repayment of Russia’s loans for the Rooppur Nuclear Power Plant as Dhaka proposed an extension on repayment of capital, but Moscow is very reluctant on this matter. Rather they want payment of loan interest to be made through Chinese banks, which Dhaka is yet to give a green signal. As a result, the government faces a dilemma.

In the meantime, the interim government moved to review the loan agreements of various big projects including the Rooppur Nuclear Power Plant project. Thus fear looms large over possible strains in the bilateral relations between Dhaka and Moscow centering the Russian loan, according to sources concerned of the finance ministry’s Economic Relations Division.

Bangladesh started building the Rooppur Nuclear Power Plant at a cost of about Tk 1.14 trillion in 2016 and the project is set to be finished on 31 December 2025. Now the deadline seems to be delayed by two more years. Moscow is lending USD 12.65 billion for this project.

Selim Raihan, executive director of the South Asian Network on Economic Modeling (SANEM), said, “The matter of loan repayment should be discussed with Russia since there has already been a big investment. So, it is necessary to negotiate logically instead of getting emotional. If Russia can be convinced of our situation the matter will be solved soon.”

Pressures persist on the economy due to the coronavirus pandemic and the Russia-Ukraine war. That is why the operation of the Russian contractor firm for the Rooppur Nuclear Power Plant slowed down. The interim government proposed that Russia defers the repayment of capital for two years, and Russia also agreed primarily. So, the ERD prepared a draft loan agreement with some changes and gave opinions to the offices concerned including project implementing agencies, science and technology ministry, but there has been no progress since then.

On the other hand, Russia made another proposal to Bangladesh in August, asking that the money held in the special account of Bangladesh Bank be sent to Russia through a Chinese bank. Dhaka is yet to respond to the proposal.

To date, an overdue of USD 630 million has been deposited in a special account of Bangladesh Bank. As Russian banks faced sanctions over the Russia-Ukraine war, they wanted to take the interest money through the Chinese bank.

According to ERD sources, the 10-year grace period of Russian loan repayment ends on 15 March 2027, and repayment of capital starts subsequently. Dhaka requested Moscow to fix the deadline for the grace period at 15 March 2019, but no meeting was fixed over the past month.

Russian ambassador to Bangladesh Aleksandr Mantytsky held a meeting with the finance and commerce adviser to the interim government Salehuddin Ahmed on 25 August. ERD sources said issues related to start repayment of instalments of the Russian loans and payment through which currency were discussed at the meeting. Russia wants to take the interest money soon.

Bangladesh borrowed USD 12.65 billion from the Russia EXIM Bank for the Rooppur Nuclear Power Plant project. A bilateral agreement was signed on this matter in 2016, which was followed by the release of the funds in 2017. Payment of interest has already begun, and Dhaka is supposed to pay USD 110 million in two instalments annually. Since Russia faces international sanctions, Bangladesh cannot send money through the country’s EXIM bank. So, Dhaka is depositing the funds in a special account of Bangladesh Bank.

The 10-year grace period of the loan is set to end on 15 March and Bangladesh will have to start paying USD 380 million in two instalments per year plus the interest of USD 110. However, the amount of capital and interest payment may vary slightly from time to time.

A senior official of the Bangladesh Atomic Energy Commission told Prothom Alo that work on the project has been hampered due to Covid-19 and the Russia-Ukraine war. That is why both countries have agreed to defer the repayment of capital, and for this, both countries will have to sign a protocol.

As of July, 69 per cent of the Rooppur Nuclear Power Plant project was completed.

However, there has been apparently a shift in priority over foreign loans since the interim government took office. They prefer borrowing from multinational lending agencies including World Bank, Asian Development Bank (ADB), and Islamic Development Bank (IsDB), while the previous Awami League government was more interested in taking loans from bilateral sources like China, Russia and India.

This report appeared in the print and online editions of Prothom Alo and has been rewritten in English by Hasanul Banna.