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Bangladesh - Power & Energy - August 23, 2023

Rooppur NPP project will sink Bangladesh

Suppliers’ credit to create big burden

Mahfuja Mukul: We are still interested in taking ‘soft loans’ from international lenders like the World Bank, IMF and Asian Development Bank, but the majority of our foreign loans are now suppliers’ credit.
Disadvantages of suppliers’ credit are that suppliers increase the amount of credit when lending project plant, machinery and equipment at rates much higher than competitive international market rates. In addition, suppliers’ credit has higher interest rates than soft loans and shorter repayment periods.
More seriously, the margin rates of politicians, contractors and bureaucrats on suppliers’ credit are very high. That’s why suppliers’ credit is called the most widely used mechanism in the predatory economy. Since the current government assumed power in 2009, the government’s internal and external debt as a percentage of GDP has been increasing every year.
As a result, according to IMF statistics in 2014, while the debt-GDP ratio of the Bangladesh government was 28.7 percent, it increased to 42.1 percent of GDP in April 2023. Currently, the total debt burden stands at $167 billion, which is about Tk 1.866 billion in current dollar rate. Of this, $95.07 billion was collected from various domestic sources. And $71.93 billion foreign debt.
From the very beginning, we suspected that the mega project to generate 2,400 megawatts of electricity using high-risk nuclear technology at a cost of $1,350 million was going to be a ‘white elephant of great waste’ for the country. This plant can also be catastrophic for the people of the country in case of any nuclear accident. From 2025 to 28 years from 2025, we will have to pay off this loan in installments of $565 million every year. Bangladesh’s recent public debt growth has been unusually high.
Due to this, experts fear that both domestic and foreign loan installments and interest payments will quickly reach an unbearable level as a burden on the economy. In the budget of fiscal year 2022-23, after the expenditure allocation in the public administration sector, the second highest expenditure allocation of 18 percent had to be kept in the interest payment sector of the government debt, a total of Tk 80,375 crores.
Tk 94 thousand crore have been proposed for this in the financial year 2023-24. The budget for the next fiscal year 2024-25 may exceed $4 billion. The column was written to warn the government against taking excessive suppliers’ credit.
In the 1970s, our two ‘fields of specialization’ were economic development and public finance while studying for a PhD course in economics at Vanderbilt University in the United States. Our professors at Vanderbilt University have repeatedly warned that developing country governments often resort to suppliers’ credit when it comes to foreign borrowing.
This is because projects financed by suppliers’ credit are often used as the most attractive areas for rulers to foster corruption and capital plunder.
Unfortunately, in recent times in Bangladesh too, the process has become the deadliest tool of corruption and capital looting by the ruling elite. Since the rulers face difficulties in meeting their strict conditions for obtaining loans from the World Bank and the Asian Development Bank for economic development projects, the current government in Bangladesh has mainly relied heavily on suppliers’ credit since 2009.
In particular, since the cancellation of the World Bank Padma Bridge project loan in 2012, the top leadership of the government has become reluctant to accept suppliers’ credit for various low-need projects!
Since China is now actively implementing its ‘Belt and Road Initiative’ policy of liberally giving suppliers credit to developing countries, it has become much easier to get credit from Chinese suppliers over the past decade and a half. Critics continue to call China’s generous credit policy a ‘debt trap’. Sri Lanka, Pakistan, Laos and some African countries are already trapped in this ‘Chinese debt trap’.
Bangladesh has received a total loan of Tk 1854 million from China so far. In the last 10 years, Bangladesh has been implementing a total of 12 projects with supplier credit from China.
Since the government is determined to maintain some kind of secrecy about the terms or interest rates of these project loans, we do not have much information to call them ‘hard loans’ or ‘tied loans’. But it must be said, this excessive addiction is not at all healthy for the economy. The mega projects which have been implemented or are under implementation in the country on the credit of Chinese suppliers are – Dhaka-Jesore-Pyra railway project via Padma bridge, Karnaphuli tunnel project and Dhaka-Gazipur BRT project. JICA suppliers in Japan on credit
The mega projects financed are – Dhaka Metrorail Project, Matarbari Deep Sea Port, Matarbari Coal Fired Power Project, Dhaka Shahjalal Airport Third Terminal, Jamuna Rail Bridge and Chittagong Outer Ring Road.
But the most questionable project with suppliers’ credit financing is the Rooppur nuclear power project, which is being built with a $12 billion Russian loan. The estimated cost of construction of this power plant of two units will be $1,350 million. The two units will take up to 2024 to complete. These two units are expected to generate 2,400 MW of electricity. Out of the estimated construction cost of $1,350 million, Russia will provide a loan of $1,200 million, while Bangladesh will spend the remaining $1,500 million.
The interest rate of Russia’s loan will be 4 percent, which Bangladesh will have to repay with interest over 28 years with a grace period of 10 years. The feasibility study report of the Russian company Rosatom claims that the life of this power plant will be approximately 60 years. Rosatom will operate the plant for one year after construction is completed.
Not many people know that a 2000-megawatt power plant was set up at Kudankulam in Tamil Nadu, India, a few years ago with only $6 billion in Russian loans.
But why do we have to take a Russian loan of $12 billion for our 2,400 MW power plant? Is the high margin of Bangladesh government officials responsible for this high cost? It is very worrying that when the current government took the initial decision to take up this project in Rooppur in 2009, its estimated cost was estimated at $300 to $400 million.
From the very beginning, we suspected that the majesty of generating 2,400 megawatts of electricity using extremely risky nuclear technology at a cost of $1,350 million was going to be a ‘white elephant of great waste’ for the country. This plant can also be catastrophic for the people of the country in case of any nuclear accident. From 2025 to 28 years from 2025, we will have to pay off this loan in installments of $565 million every year.

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