Russia's illogical conditions in Rooppur

Inner containment construction at unit-2 of Rooppur Nuclear Power Plant at final stageUNB

Bangladesh has to pay fines if the Russian contractor delays in the construction of Rooppur Nuclear Power Plant Project. Already the government has paid a fine of Tk 780 million to Russia. Another fine of Tk 310 million is yet to be cleared.

Bangladesh has to pay the fines due to the condition of the agreement signed with Russia for the construction of the Rooppur Nuclear Power Plant.

Paragraph 5 of the article -5 of section - 2 of the inter-governmental credit agreement signed between Bangladesh and Russia, says if Bangladesh fails to spend all of the allocated money in a year, then the country will have to pay 5 per cent of the unused money as the commitment fee to Russia. Notably, it is not possible to spend all the allocated money when the contractor delays in the construction.

People concerned say this commitment fee is actually a fine. And it is the government who is saying that this commitment fee is illogical as a Russian contracting firm is implementing the project. It is the Russian company who makes the delay. Bangladesh has no part in this.

If all the money is not spent, then the liability lies with the contracting firm. Why will the government take the liability for this?
Sharifa Khan, Secretary, ERD

Bangladesh now wants an amendment in the relevant section of the agreement. The issue will be raised in the next meeting of the Bangladesh-Russia Intergovernmental Commission (BR-IGC). The three-day meeting will commence on 13 March. Sharifa Khan, secretary of the Economic Relations Division (ERD), will lead the Bangladesh side in the virtual meeting.

Asked about this, Sharifa Khan on Wednesday told Prothom Alo, “The government doesn’t spend the money allocated for Rooppur every year. The contracting firm spends that money. If all the money is not spent, then the liability lies with the contracting firm. Why will the government take the liability for this?”

“Therefore, we want exemption from the commitment fee. It was in the conditions of the loan agreement. Now the conditions need to be amended,” she added.

She also mentioned that all the loan agreements include commitment fees.

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Russia is financing the Rooppur Nuclear Power Plant project. They are also providing technological assistance in this project. Russia is providing a loan of $ 11.38 billion for the construction of this 2400 MW power plant. It is the biggest infrastructural project of Bangladesh. The interest rate on the loan provided by Russia is 4 per cent, which is double the interest rate on the loans provided by the Asian Development Bank (ADB) and Japan International Cooperation Agency (JICA).

The time limit for repaying the loan and the grace period is short as compared to other loans taken by Bangladesh.

At one end, the construction of the Rooppur power plant by taking a massive loan from Russia has drawn criticism within the country, there are concerns regarding the risks of the power plant on the other. In addition to that is the fine which Bangladesh has to pay in case of delay by the Russian contracting firm.

Bangladesh has signed two agreements for the construction of the Rooppur power plant. One is Inter-governmental and the other is inter-governmental credit agreement.

According to the credit agreement, Bangladesh and Russia will decide on how much money will be spent in a year six months prior to the start of that specific year. Bangladesh will have to pay the commitment fee in case of failure to spend that fixed amount of money. The commitment fee can be paid in USD or any other currency based on the consensus between the two countries and it should be paid within the first three months of the year.

Entire amount not spent

The government signed the loan agreement with Russia in two phases for the power plant. In the first phase, the agreement was signed for a loan of $ 500 million. It was spent for all preliminary works for the project, including detailed surveys. The government started to pay the interest on that loan from 2018.

The other loan agreement was signed in 2016 for the construction of the main structure of the power plant. Under this agreement Russia is providing Bangladesh with a loan of $ 11.38. The instalments of this project will start from 2027.

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According to the ERD, during the period from 2017 to 2022, the entire allocated money for the Rooppur project was fully spent only once in 2018. The rate of expenditure has been low since 2019. Only 49 per cent of the total allocated money was spent in that year. The expenditure rate was 68 per cent in 2020, 73 per cent in 2021 and 39 per cent in 2022.

Bangladesh and Russia agreed to spend $8.41 billion in this time period. However, the actual expenditure in this time is $5.46 billion, which is 65 per cent of the allocated money. As the entire allocated money could not be spent, Bangladesh had to pay the fine.

The relevant document says Bangladesh so far has paid a total of $ 7,421,408 in three phases on 30 March 2018, 15 March 2020 and 29 March 2021.

Bangladesh could not pay the fine of $2.91 million for the year 2021, which was scheduled to be cleared in 2022, at the behest of Russia.

Notably, financial transactions with Russia became uncertain due to the sanctions from the West. As a result, Russia has asked Bangladesh to hold the repayment of the fine for the time being.

Liability lies with the contracting firm

Russian agency Atomstroyexport is implementing the Rooppur power plant project. The Russian government engaged this agency.

According to a document of the Bangladesh government, the allocation for a year is fixed on the basis of the demand of the Russian agency. It has been observed in the last few years that the entire money allocated by the Russian Ministry of Finance couldn’t be spent as the Russian contracting firm failed to finish the work in time. Besides, the goal of the project could not be achieved due to the coronavirus pandemic and the current global situation.

It further states that the Bangladesh government can do nothing except urging the contracting firm or reminding them about it in case the agency makes any delay. Therefore it’s not logical to fine Bangladesh when the contractor makes the delay.

According to the sources, Russia assured of exempting Bangladesh from paying the fine incurred in 2020 and 2021 in a previous meeting. Bangladesh wants exemptions from those fines and an amendment in the relevant section of the loan agreement. It is because the government thinks the Rooppur project can be delayed due to several reasons. Therefore, Bangladesh has been negotiating over relaxing the fine-related conditions in the agreement since 2020. However, all these efforts went in vain.

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According to sources, there will be discussion about the currency to be used for the payment of instalments on the loan given by Russia in the bilateral meeting to be held between the two countries in May.

ERD secretary Sharifa Khan told Prothom Alo, “Russia wants Bangladesh to repay the loan in roubles. We said that it is not possible. We have made an alternative proposal. However, the issue hasn’t been finalised yet.”

Doubts over completing the project in time

The construction works of the Rooppur power plant started on 30 November 2017. Speaking to Prothom Alo, Alok Chakrabarty, divisional head (administration and finance) of the project, said, “The first unit of the power plant is scheduled to be in operation by 2024 and the second unit by 2025. We want the project to be finished by that time.” 

However, the sources say the project will not be finished in time and the project cost may rise further. In that case, Bangladesh will have to pay millions of taka as fine.

Apart from this project, there are criticisms about other agreements in the power sector of Bangladesh now. One of these is the agreement signed with the Adani Group of India for purchasing electricity. The government has to pay a capacity charge of Tk 200 billion per year even if the power plants in the country are not in operation. There has been criticism regarding this as well. Amid all these, the price of electricity is being raised repeatedly.

There should not be any commitment fee in the Rooppur power plant project, because the loan from Russia is a commercial loan
Fouzul Kabir Khan, former power secretary

These power plants have been constructed on the basis of Enhancement of Electricity and Energy Supply (Special Provisions) Act, 2010. According to the act the contract to construct power plants can be given without any tender.

Speaking regarding this to Prothom Alo, former power secretary Fouzul Kabir Khan said, “There should not be any commitment fee in the Rooppur power plant project, because the loan from Russia is a commercial loan. Usually commitment fees are included in loans on low interest, like the ones provided by agencies like the ADB or the World Bank. The question is why did Bangladesh agree to pay the commitment fee while signing the agreement.”

Asked about the accountability of the persons who were in charge of reviewing the conditions of the loan, Fouzul Kabir Khan said, “They have been given indemnity. No one is allowed to raise this issue in court.”

*This report appeared on the print and online versions of Prothom Alo and has been rewritten in English by Ashish Basu