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Belt and Road

Belt and Road projects in limbo as Bangladesh cuts budgets

China withdraws infrastructure funding after Dhaka trims proposed costs

The Karnaphuli underwater tunnel project in Chittagong, Bangladesh, has been funded by China, which recently said it would not fund at least two rail projects in the country.

DHAKA -- China has withdrawn funding for Belt and Road infrastructure projects in Bangladesh after the recipient country re-evaluated the programs and downwardly revised their costs.

At least two rail projects are now uncertain, with another also feared to be in limbo. They are three of many projects listed in a memorandum of understanding signed during Chinese President Xi Jinping's visit to Bangladesh's capital in 2016 that also face delays due to China's newfound reluctance.

After re-evaluation reports of several infrastructure projects came out in October, the Prime Minister's Office proposed cutting rail project costs. The expected $1.045 billion in costs for the Joydebpur-Ishwardi dual-gauge double-line rail were to be trimmed by 12.91%, and the $1.272 billion budget for the Akhaura-Sylhet dual gauge rail was to be reduced by 20.8%. Total savings would come to nearly $572 million.

In response, the Chinese government said it would not fund the Joydebpur-Ishwardi double-line project, and Chinese contractors for the Akhaura-Sylhet dual gauge project said they would not do the work.

The order from the Prime Minister's Office also asked for a review of the costs of another project, the $902.33 million Joydebpur-Jamalpur dual-gauge rail, which was also supposed to be funded by China under a government to government, or G2G, arrangement.

Railway officials said that in G2G projects with China, funding, conditions for appointing contractors and project cost calculation processes are similar. The Joydebpur-Jamalpur dual-gauge rail-track project, then, might also lose Chinese funding if the expected costs are trimmed.

The main condition of Chinese funding is that contractors will be selected by the Chinese government instead of via an open tender. The Bangladesh government will pay for the land acquisition, rehousing locals as well as worker salaries and wages. The Chinese government will pay construction costs, which amount to roughly 80% to 85% of the total project costs.

Officials said the costs tended to increase when a contractor was selected without competitive bidding, and that the per kilometer cost of the Joydebpur-Ishwardi double-line rail, to be built by a Chinese contractor, was set at $7.2 million.

The per kilometer construction cost of similar work on the Akhaura-Laksam double track -- in which the contractor was selected via competitive bidding -- is set at $2.25 million.

According to officials, Bangladesh will write to China asking that it review its funding decisions. Otherwise, Bangladesh will have to seek loans from other sources, which could lead to long completion delays.

Some analysts say the rail projects will boost Indian connectivity through Bangladesh, which might be a reason for China's U-turn.

Earlier in February, China reacted strongly when Bangladesh unilaterally altered five projects -- including the modernization of a jute mill -- worth $3.6 billion from the list agreed to during Xi's Dhaka visit.

China said Beijing would not consider further cooperation in the field of textiles and jute. It also said in a letter that Beijing "shall no longer consider projects with high pollution and high energy consumption, such as coal mining and coal-fired power stations, etc."

In early May, the Chinese ambassador in Dhaka threatened "substantial damage" to the countries' relations if Bangladesh were to join the U.S.-led Quad -- an informal strategic dialogue between America, Japan, Australia and India. The ambassador regards the group as being anti-Beijing. Bangladesh later responded that Dhaka has not been invited to join the alliance and that the ambassador's comment was baseless.

Ahsan H. Mansur, executive director of the Policy Research Institute of Bangladesh, said one reason for China to withdraw the funding might be the steep cut in projected costs.

Padma Bridge, which China is constructing, is expected to be inaugurated in June 2022. (Photo by Alamin Leon)

"I believe Chinese projects are always overvalued," he said. "But since they [had already reached] advanced stages, a unilateral cut may have hurt China's ego." Mansur added that the countries' relationship first became strained when Bangladesh opted for an India-made COVID-19 vaccine rather than a made-in-China alternative.

Imtiaz Ahmed, a professor of international relations at the University of Dhaka, said every investor would first consider their potential return and that China might simply be withdrawing funds after taking into account how much profit might be left. "Geopolitics is a secondary matter in this case," he said.

M. Humayun Kabir, president of the Bangladesh Enterprise Institute and a career diplomat, said Bangladesh needed to be cautious in taking Chinese loans since many issues remain unclear. "China imposes different conditions for different countries in granting loans and expects different returns," he said. "China's withdrawal of funds from the projects has no geopolitical reasons, I think, but is more technical."

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