35% of project costs lost to corruption, inefficiency: Study

Around 35% of project costs, equivalent to billions of dollars, are lost to corruption and inefficiency while direct government-to-government (G2G) deals drive up costs by over 400% compared to those signed through open bidding, says a study that analysed 42 major infrastructure projects undertaken in Bangladesh.

The study, led by researchers from SOAS University of London drew parallels between Sri Lanka and Bangladesh – both of which saw violent uprising, fall of regime and economic crisis – to conclude how unrestricted G2G contracts and corrupt management practices exposed two South Asian countries to long-term debt burdens and increased economic risks.

Bangladesh's foreign debt has risen sharply from $23.5 billion in 2009 to nearly $112 billion in 2025, representing a 377% increase. During the same period, one out of every five taka of government revenue is now spent solely on interest payments, even before principal repayments. Around 29 mega projects have experienced a 70.3% cost overrun, while overpriced power contracts require nearly $5 billion in annual subsidies to remain affordable.

Research findings indicate that mega corruption and weak governance in infrastructure projects, if overpricing or deliberately poor planning persists, could push the debt-to-GDP ratio to 65-70% by 2030. High-cost power projects are particularly sensitive to corruption and political collusion, as bribes and kickbacks often take precedence over efficiency gains, causing interest payments to now consume 20% of national revenue.

Corruption and collusion are much more serious problems in high-value infrastructure and power projects where investments may be in billions of dollars and where a few cents difference in the contracted price in power projects can mean hundreds of millions to tens of billions of dollars in additional profits over 25 years, depending on the project, the study points out.

Mushtaq Khan, development economist and professor of economics at the School of Oriental and African Studies, while presenting the keynote, cautioned that infrastructure investments can lead to public debt unsustainability due to two major types of governance failures.

Political and business groups often attempt to influence procurement processes, limit competition, and secure contracts at inflated prices, the research report highlighted, urging the government to take early policy action before fiscal pressures escalate. 

The report noted that both countries allowed power projects without competition and saw a surge in investments from China and India, it said. 

The findings of the study, titled "Corruption in Infrastructure Projects in Bangladesh and Sri Lanka: Implications for Public Debt," were presented today (18 January) at a seminar at the CIRDAB conference in Dhaka, organised by the research think-tank Change Initiative.

The study cited the White Paper released in 2024 by the interim government, which analysed 29 megaprojects under the Awami League and saw that 7 megaprojects showed an average cost escalation of 70.3% and a time escalation of 5 years. 

"In addition to overpricing, project selection and planning may also be corruptly determined," it added.

The study emphasises that these outcomes were rarely mere mistakes. Rather, they were often deliberate governance failures involving corruption, political collusion, or manipulation of procurement processes to benefit specific business and political interests.

The study referred to Bangladesh's National Power Review Committee, which this year reported that contracted prices with power producers are so high that annual subsidies of roughly $4.9 billion are needed to keep retail electricity prices affordable. Without subsidies, electricity prices would need to increase by 86%, risking deindustrialisation and consumer hardship, it warned.

Between 2011 and 2024, payments to power producers increased 11-fold, while capacity charges rose 20-fold, despite actual generation increasing only fourfold. Analysts attribute this to high contracted prices – from 40% to 80% above reasonable benchmarks – and poor planning, leaving many plants idle due to fuel shortages, often referred to as "ghost plants."

The 1,600MW Adani Godda coal-fired power plant in India's Jharkhand shows parallels with the Adani's Mannar wind power project in Sri Lanka, which was later withdrawn under extreme scrutiny and demands for renegotiation. Like Adani's power deal with Bangladesh, its Mannar plant's MoU was signed with no bidding and treated as G2G contract even though Adani was a private company. 

Though Jharkhand is coal-rich, the plant imports coal from Australia using an inflated pricing index. Electricity is transmitted to Bangladesh via a 90-kilometre transmission line costing $500 million, included in the power price.

The agreed levelised tariff was 8.61 US cents per kWh, while Bangladesh was simultaneously importing power from the Indian grid at 4.46 US cents per kWh. Researchers estimate that the plant's price is at least 40-50% above a fair levelised cost. Over 25 years, Bangladesh is projected to pay approximately $25 billion, with overpricing alone exceeding $10 billion.

The study emphasises that transparency and accountability alone are insufficient. Effective "horizontal checks" – mechanisms with sufficient authority to identify significant corruption cases, ensure prosecution, and enforce competitive processes—are essential. Strengthening administrative and social accountability at horizontal and institutional levels is critical to curbing high-level corruption.

Researchers involved in the study include Mushtaq Khan, Pallavi Roy and Ulrich Volz. The session was moderated by M. Zakir Hossain Khan, co-founder and CEO of Change Initiative, who stressed that debt governance must be assessed through a 'Natural Rights Led Governance' framework, focusing on people's and nature's rights rather than short-term fiscal considerations, with an emphasis on long-term prosperity.

Mustafa Al Mahmud, President of BSREA, said, "Where solar power costs less than 5 cents, we must stop wasting billions of dollars on imports. Expanding renewable energy through grid-connected land is no longer optional – it is essential for Bangladesh's survival."