Rooppur plant payment hurdle sticks with it

Infograph: TBS

Bangladesh has once again encountered difficulties in repaying interest and other charges on the Russian loan for the Rooppur Nuclear Power Plant project due to US sanctions on Russian entities.

Atomstroyexport, a subsidiary of Rosatom – the Russian state nuclear agency overseeing the project – opened an account at Sonali Bank in 2022. The account was intended to receive payments from Bangladesh and disburse funds to subcontractors after the US imposed sanctions on Russian financial institutions.

While Atomstroyexport can pay local subcontractors in Bangladesh using this Sonali Bank account, it is unable to transfer funds to foreign subcontractors or its own accounts abroad.

Blocked transactions due to sanctions

Atomstroyexport recently requested payments of $2.038 million to Roin World and $100,000 to its bank account in Egypt, in addition to $5.018 million for four local subcontractors.

Sonali Bank then attempted to transfer over $2 million to Roin World, a Spanish construction company subcontracted for the project. However, the transaction was blocked, and the funds were returned to Sonali Bank.

According to multiple letters from Sonali Bank to the Bangladesh Bank, Standard Chartered Bank in New York, which manages Sonali Bank's nostro account, halted the SWIFT payment due to US sanctions.

Interestingly, Sonali Bank had raised concerns with the Bangladesh Bank before initiating the transaction, citing potential risks of violating sanctions. However, Finance Adviser Salehuddin Ahmed insisted that the transfer be attempted on a "test basis".

Sonali Bank officials reported that the payment was sent to Standard Chartered Bank on 26 February. Standard Chartered then requested Atomstroyexport's tax ID and supporting documents within five business days. Despite providing the required documents, Sonali Bank was informed via email on 17 March that the transaction could not proceed due to sanctions.

Due to these complications, Bangladesh has also been unable to pay loan instalments directly to the Russian bank VEB.RF for several years.

While Sonali Bank successfully paid the local subcontractors, the failed transfer to Roin World led to a decision not to send the payment to Egypt.

Sonali Bank's concerns before the transaction

On 18 February, Sonali Bank's Managing Director Shawkat Ali Khan sent a letter to the Bangladesh Bank governor, warning that sending a SWIFT message for depositing dollars into Roin World's account could expose Sonali Bank to US sanctions.

The letter highlighted that all foreign currency payments must comply with Anti-Money Laundering and Common Equity Tier standards. It also pointed out ambiguities regarding the Ultimate Beneficial Owner of the requested transactions, making it difficult to process the payments.

Additionally, the letter warned that cross-border transactions related to the Rooppur project carried significant risks. Processing such payments could lead to strained relationships with correspondent banks, negatively affecting overall banking operations and international trade.

Following this, a meeting was held on 26 February, chaired by Finance Adviser Salehuddin Ahmed and attended by key government and banking officials. Despite Sonali Bank and Bangladesh Bank raising concerns about SWIFT transaction risks, the finance adviser directed Sonali Bank to proceed with the payment on a "test basis".

The Rooppur loan agreement

On 2 November 2011, Bangladesh signed an Inter-Governmental Credit Agreement (IGCA) with Russia for the construction of the Rooppur Nuclear Power Plant. Under this agreement, Russia committed to providing 90% of the $12.65 billion project cost, amounting to $11.38 billion, as a loan to Bangladesh.

Sonali Bank was designated as Bangladesh's representative, while VEB.RF represented the Russian government in handling financial transactions. The two banks signed an interbank agreement on 26 July 2017, enabling Sonali Bank to open letters of credit (LCs) for importing materials for the project.

However, after the Russia-Ukraine war began, US sanctions on VEB.RF and Rosatom complicated Bangladesh's ability to make loan repayments. Consequently, in 2022, Atomstroyexport opened a foreign currency account with Sonali Bank, through which $183.95 million has been paid to local subcontractors. Before the sanctions, Bangladesh had repaid $1.074 billion to Russia in 22 instalments.

Ongoing challenges in loan repayment

The repayment of the Russian loan for the Rooppur project has been a persistent challenge due to US sanctions on the banks facilitating the transactions. As a result, Bangladesh has been unable to fulfil its loan obligations.

In December last year, Bangladesh and Russia agreed to open an account with Sonali Bank under the name of the Russian government or its representative to deposit outstanding payments.

Russia was originally scheduled to disburse the full $11.38 billion loan by December 2024. However, factors such as the Covid-19 pandemic, the Russia-Ukraine war, global economic conditions, and changes in the Bangladeshi government have delayed the process. As of December 2023, Russia had disbursed $7.7 billion, and both countries agreed to extend the deadline for the remaining funds to December 2026, though no formal agreement has been signed yet.

Currently, Bangladesh owes Russia approximately $1 billion in interest and other charges related to the Rooppur project, adding to the financial complexities surrounding the nuclear power plant's development.