Govt considers withdrawing 3 rail projects from delayed Indian LoC

Infograph:TBS

Summary:

• Government plans to withdraw three stalled rail projects worth over $800 million
• Slow execution and poor disbursement require an additional $770 million in funding
• Delays caused by Indian approvals and contractor negligence escalate costs
• Decision will be finalized in Dhaka's upcoming LoC review meeting
• More projects may exit due to funding gaps and prolonged delays

The government is considering withdrawing at least three rail projects involving over $800 million from the Indian loan-funded portfo lio, as they have shown little progress despite  prolonged implementation periods, officials said. 

Poor disbursement and slow execution have already caused additional requirements of nearly $770 million, prompting the Economic Relations Division (ERD) to explore alternative financing options instead of Indian credit for these projects.

ERD officials said delays in obtaining Indian authorities' approvals are significantly hindering the implementation of these projects. Additionally, as Indian contractors execute these projects, their negligence further slows progress, leading to cost escalations.

The government is also looking to disengage from other sluggish Indian loan-funded projects, they said. 

This decision will be finalised in the upcoming progress review meeting on Indian Line of Credit (LoC) projects. The meeting, scheduled for tomorrow in Dhaka, will be attended by an Indian delegation.

The Indian team will be led by Suja K Menon, director for credit lines at India's Ministry of External Affairs, while Bangladesh will be represented by Mirana Mahrukh, additional secretary of ERD's Asia Wing.

According to railway sources, at least three projects may be removed from the LoC list during the review meeting, as delays in implementation are requiring additional funding. If India does not commit to providing extra financing, Bangladesh will make a final decision on these projects during the review.

SM Salimullah Bahar, chief planning officer of the Bangladesh Railway, told The Business Standard that complexities in the approval process significantly delay project implementation. These projects have been ongoing for years, causing costs to spiral.

For instance, the construction of the dual gauge railway line from Bogura to Sirajganj project was allocated $379.29 million in Indian credit. Implementation began in 2018, but due to delays, an additional $300 million has been requested from India. 

Similarly, the Khulna-Darsana rail line and dual gauge line from Parbatipur to Kaunia Section projects, also  initiated in 2018, also require extra funding. The LoC review meeting will determine the fate of these projects as well.

Currently, Indian credit allocations stand at $312.48 million for the Khulna-Darsana project, with an additional $350 million required for full implementation. The Parbatipur to Kaunia project has been allocated $120.41 million, but an extra $120 million is now needed.

However, this estimate is based on 2023 calculations, meaning current requirements could be even higher, according to railway sources. Over the past six years, the disbursement rate of Indian loans for the three rail projects has been just 1%.

Lack of Indian Response Frustrates Bangladesh

A review of stalled Indian LoC projects was initiated following the new interim government's assumption of office. The decision was made to withdraw from projects that show no substantial progress unless they can be expedited.

ERD and railway officials said the government had set a 31 January deadline for India to decide on the additional $300 million for the Bogura to Sirajganj rail line project and the shortlisting process for Indian contractors. 

A formal letter was sent to the Indian High Commission in late December, warning that failure to respond within the deadline would result in Bangladesh withdrawing from the project.

Similarly, a letter was sent to Indian authorities on 28 February regarding the Khulna-Darsana project, requiring their response within a stipulated time. However, ERD sources inform that no reply has been received from the Indian side.

Md Monirul Islam Ferozi, project director for the Bogura-Sirajganj and Khulna-Darsana rail projects, said although consultants have been appointed, contractors are yet to be hired. 

"As per the LoC agreement, all project documents require approval from India's Exim Bank, a process that significantly prolongs implementation. Despite the completion of feasibility studies and detailed designs, the approval process has consumed most of the project timeline," he added.

For example, Ferozi said Exim Bank received the shortlist of contractors for the Bogura-Sirajganj rail project more than 1.5 years ago but has yet to provide approval. "Such bureaucratic delays make it nearly impossible to implement projects effectively."

The total Indian Line of Credit (LoC) stands at $7.36 billion, with $1.88 billion disbursed as of January 2025 across 40 projects or project components.

Bangladesh signed its first Line of Credit agreement with India in 2010. However, over the years, several projects have been excluded from the LoC framework due to implementation challenges. At Bangladesh's request, multiple projects have been dropped as delays and cost escalations have prompted a reassessment of Indian financing

Potential expansion of exit list

Both ERD and railway sources have indicated that the list of projects being withdrawn from the Indian Line of Credit portfolio could expand further. 

Among the projects under scrutiny is the construction of the third and fourth Dual Gauge Rail Line Tracks between the Dhaka-Tongi and Tongi-Joydebpur sections. 

Originally initiated in 2011 with $301.10 million allocated in Indian credit, the project now requires an additional $21.78 million to proceed. Without securing this additional funding, the project may be excluded from the LoC list.

Another project facing challenges is the Kulaura-Shahbazpur Railway, which also began in 2011 with a $78.10 million loan from India. Despite the passage of over a decade, the project has made only 45% progress and now requires an additional $62.50 million to continue.

In addition, the Power Division has requested that India remove the power evacuation components (Package 7) of the Rooppur Nuclear Power Plant project due to significant cost escalations by Indian contractors. 

The Bay Container Terminal project, initially set for $400 million in funding, is also under review for potential withdrawal from the LoC. This follows approval from the World Bank in June, which has agreed to provide alternative financing for the project.

The Benapole-Jashore-Narail-Bhatiapara-Bhanga road project is another concern, with an estimated $1 billion required for completion. However, India has committed only $100 million, leading officials to consider removing the project from the LoC portfolio.

Past exits from LoC projects

Bangladesh signed its first Line of Credit agreement with India in 2010. However, over the years, several projects have been excluded from the LoC framework due to implementation challenges. At Bangladesh's request, multiple projects have been dropped as delays and cost escalations have prompted a reassessment of Indian financing. 

In 2023, India agreed to remove two projects from the LoC list: the Solar-Based Stations for Strengthening Teletalk Network project, which involved a $30 million loan, and the Supply of Machinery for Solid Waste Management project, which was backed by a $24.83 million loan. 

According to data from the ERD, three more projects were excluded from the LoC framework in 2022. These included the establishment of Jamalpur Medical College and Hospital, the power evacuation component (Package 6) of the Rooppur Nuclear Power Plant, and Package 3 of the Khulna-Mongla Port Rail Line. 

The Jamalpur Medical College project was withdrawn after multiple approval stages required by Indian authorities slowed progress, leading the Directorate General of Health Services to opt for domestic financing instead. 

Similarly, the Rooppur Power Evacuation project was removed after Indian contractors quoted prices significantly above estimates, prompting the Power Grid Company of Bangladesh to seek international open tenders. The Khulna-Mongla Port Rail project was also withdrawn for similar issues.  

In 2021, further projects were removed from the LoC framework, including the expansion of facilities for additional student enrolment in polytechnic institutes, the establishment of 500-bedded hospitals in Jessore, Cox's Bazar, Pabna, and Noakhali medical colleges, and the development of a transmission network in the new alignment of the Katihar-Parbatipur-Borahnagar project.