The urgency to find a solution stems from a 2.4% penalty imposed by Russia for late payments
Amid US sanctions on Russian banks, Bangladesh is seeking alternative transaction methods to settle $587 million in overdue interest, commitment fees, and late fines on Russian loans for the Rooppur Nuclear Power Plant Project.
The urgency to find a solution stems from a 2.4% penalty imposed by Russia for late payments, according to finance ministry sources.
The government has proposed to Russia that rather than collecting the dues, Russia could consider investing the due funds in new projects, investing in the stock market, or purchasing goods from Bangladesh.
Apart from interest payments, the first instalment (principal amount) of the $12.65 billion Russian loan is set for March 2027, but Bangladesh is requesting a deferment until 2029.
A virtual inter-ministerial meeting, chaired by Uttam Kumar Karmaker, additional secretary to the Economic Relations Division (ERD) and head of ERD’s Europe Wing, yesterday discussed these alternative methods of payment for the due interest, sources present in the meeting told TBS.
The Economic Relations Department (ERD) plans to meet with Russian authorities next Sunday or Monday to discuss how Russian authorities can facilitate the payments avoiding further fines, given that Bangladesh cannot currently make payments due to US sanctions against Russia and its banks.
When inquired about possible alternative repayment methods, Additional Secretary to ERD Uttam Kumar Karmaker told TBS, “No method of repayment has been decided yet.”
He declined to provide further details.
In the meeting, Uttam Kumar said the Russian side has the impression that Bangladesh lacks sufficient foreign currency or funds, as some individuals from the Russian side shared this perception with him, according to officials present.
The government, however, anticipates that Russia will agree to an alternative repayment proposal.
Moinul Islam Titas, additional secretary of the Ministry of Science and Technology, who also attended the meeting, told TBS, “Efforts are underway to settle the dues as soon as possible. Various avenues are being explored in the hope that both parties will soon reach a viable alternative.”
Uttam Kumar in the meeting said that despite taking a lot of time, the Bangladesh Bank was unable to find a way to execute this transaction. The central bank was instructed to explore viable repayment methods and report to the ERD by next Thursday.
Alternatives for repayment: What are the options?
During the meeting, Bangladesh Bank proposed that instead of realising the due, Russia could invest the funds in Bangladesh, particularly in projects such as establishing a fuel oil refinery.
Russia could also invest the amount in the Bangladesh stock market, or purchase goods from Bangladesh. Payments for purchased goods would be made directly to Bangladeshi exporters using these funds.
Bangladesh Bank Additional Director Aminur Rahman Chowdhury said these proposals were presented to the Russian central bank during a meeting held last May.
The ERD has proposed that Russia consider converting the debt from the Ruppur project into a loan for a new project in Bangladesh.
According to sources from the Rooppur power project, the government has borrowed $12.65 billion from Russia to finance the initiative.
The first instalment of this loan is due on 15 March 2027. However, due to foreign exchange constraints, the government plans to defer the principal repayment until 15 March 2029. A formal request has already been sent to Russian authorities regarding this matter.
Russia is currently owed over $480 million in interest and commitment fees and $107 million in late fines on this loan, but payment has been delayed due to US sanctions on various Russian banks.
Why the delay?
Additional Director of Bangladesh Bank, Aminur Rahman, stated that the total sum of interest and commitment fees owed to Russia is currently reserved and will be repaid once a payment method is determined. The government has already assured Russia of this commitment.
Under the government-to-government agreement between Bangladesh and Russia for the Rooppur project, the loan interest payments were intended to be repaid through Russia’s national economic development institution, VEB.RF. However, the institution has been sanctioned by the US.
While Russia proposed settling the loan in yuan through The Industrial and Commercial Bank of China, technical hurdles have stalled this approach.
This coincides with China launching CIPS, a system intended to rival SWIFT for international transactions. However, Bangladesh has not yet adopted CIPS, creating an additional obstacle to resolving the payment issue.
The Project Director of the Rooppur power plant, Md Zahedul Hassan, attended the meeting along with other ERD officials. They mentioned that Bangladesh is encountering penalties for the interest and commitment fees due to the extended delay by the Bangladesh Bank.
However, Aminur Rahman, additional director of the Forex Reserve and Treasury Management Department at Bangladesh Bank, responded that at present, there is no alternative to settle the Russian debt in Chinese currency outside of the SWIFT system, which is the established method for international transactions.
Despite steps taken by the Bangladesh Bank to join CIPS, Governor Abdur Rouf Talukder has instructed against conducting transactions outside of SWIFT, as CIPS is not yet operational, said another official of the central bank in the meeting.
Mashiur Rahman, another additional director at Bangladesh Bank, explained that the issue of payment delay is more intricate due to indications from the US that individuals or entities attempting to bypass US sanctions may face sanctions themselves.
Roksana Akhtar, additional director of the Foreign Exchange Policy Department, said the US has placed certain banks under special surveillance, although sanctions have not been imposed. Dealing with these banks has also proven to be challenging.
Local Russian contractors not paid on time
Adding another layer of complexity, Moinul Islam Titas, Additional Secretary of the Ministry of Science and Technology, highlighted delays in payments to the Russian local contractor working on the Rooppur project.
He said the government has allocated Tk100 crore to Sonali Bank for this purpose. However, bureaucratic hurdles within Sonali Bank are causing delays in transferring the funds between accounts, creating the impression for Russian authorities that Bangladesh is unable to meet its financial obligations.
Bangladesh Bank’s Aminur Rahman also said that the Bangladesh Bank is assisting Sonali Bank with foreign currency to pay the debts of the Russian local contractors. On 15 May, the central bank provided $69 million to Sonali Bank for their payments.
