Russia to get Rooppur loan payments via Sonali Bank account

Bangladesh and Russia have reached an agreement on a mechanism to repay the principal and interest of the Rooppur Nuclear Power Plant loan, bringing clarity to the long-pending issue after extended negotiations, according to officials from the Economic Relations Division (ERD).

Under the agreement, a foreign currency account will be opened in the name of the Russian government at Bangladesh's state-owned Sonali Bank's Local Branch in Dhaka.

The Russian Ministry of Finance will manage the account and receive payments going forward with the account set to open following final approval from the Russian central government. 

The ERD, representing the Bangladeshi government, will ensure the timely deposit of both principal and interest into the account, according to a high-level meeting held at the ERD on Wednesday. 

Infograph: TBS

Chaired by ERD Secretary Shahriar Kader Siddiky, the meeting brought together representatives from the ERD, the Ministry of Science and Technology, and other stakeholders, alongside an eight-member Russian delegation led by Atomstroyexport Joint Stock Company (ASE JSC), representing the Russian government.

Led by Anton Kozhinov, finance director of ASE JSC, the Russian delegation included Denis Mamonov, director of the Department of Public Debt and Sovereign Financial Agent at the Ministry of Finance, and Malyavin Ilya, executive director of the Government Agent Office at VEB.RF.

The Rooppur project, costing $12.65 billion, is 90% funded by Russia. Prior to the Russia-Ukraine war, Bangladesh made interest payments via Russia's VEB.RF bank. 

After the war broke out, US sanctions on Russian banks halted regular transactions, resulting in nearly $800 million in dues from overdue interest, commitment fees, and late fines. The repayment of the principal amount will begin in 2027.

However, the proposed Sonali Bank account will handle future repayments, but the accrued dues will not be settled from it. A decision on clearing the dues is yet to be made, said a senior ERD official, speaking anonymously.

He told TBS that the Bangladesh government has deposited all dues owed to Russia into an escrow account at the Bangladesh Bank. However, Russia prefers direct control over the funds and efforts to resolve the issue have been ongoing for nearly two years.

The Russian government had proposed opening a branch of its bank in Bangladesh to receive the loan money. However, the central banks of both countries could not reach an agreement on various matters. Eventually, it was decided to open an account in the name of the Russian government in Bangladesh, the official said.

The official also said that the method of operating the account is highly favourable for Russia. Russia can lend the deposited money to other banks or financial institutions in Bangladesh, or even conduct currency swaps. They can also earn interest on the funds in the account.

However, the official clarified that the funds already deposited in the Bangladesh Bank escrow account for the Russian government's dues will not be transferred to the Sonali Bank account.

The ERD official further stated that the account will be opened once the Russian central government approves the decision made in the meeting. The Bangladesh government has already agreed to proceed with the account opening.

Russia so far disbursed $7.3b

The loan agreement with Russia for the Rooppur project was signed in 2016, with disbursements commencing in the following year. 

According to the terms, the loan was expected to be fully disbursed by December 2024. However, as of 14 August this year, Russia had released $7.33 billion to Bangladesh in 25 instalments. 

The total estimated cost of the Rooppur project is $12.65 billion, with 90% ($11.38 billion) funded by the Russian government as a loan while the remaining 10% is provided by the Bangladesh government. 

In addition, Bangladesh has taken a loan of $491 million from Russia for the project's feasibility study, with repayment of the last two instalments (principal amount) of this loan still pending.

Around $800m in dues accrued

Under the agreement, interest is to be paid every six months after loan disbursement. Bangladesh had been making these payments until the Russia-Ukraine war. 

Although the government deposited the funds in an escrow account at Bangladesh Bank, Russia is charging penalty interest due to non-receipt of the payment. The outstanding amount owed for interest, penalties, and commitment fees now stands at around $800 million.

According to the ERD, on 21 August this year, Russia's VEB.RF bank requested the payment of $630 million in dues by 15 September. Russia asked a bank in China to facilitate this payment, but due to technical complications and US sanctions, Bangladesh was unable to make the payment.

Extension for disbursement, repayment deadlines

As the nuclear power project has not yet been fully completed, Bangladesh in June requested Russia to extend the deadlines for both the remaining loan disbursement and repayment of the principal amount by two years.

According to the agreement, the loan disbursement period for this project is set to end in December this year and the first instalment of the principal amount of the loan is scheduled for payment on 15 March 2027.

As of October, 67.81% of the project had been completed, according to IMED. The government sent a letter to the Russian authorities in June requesting the loan disbursement period be extended to 2026 and the principal repayment to 2029.

Officials concerned with the project told TBS that the Russian government has not yet responded to the proposal amid concerns about outstanding interest dues. 

A senior project official, speaking anonymously, told TBS that both parties recognise that the Rooppur project cannot proceed without an extension to the loan disbursement period. 

It is anticipated that the Russian government will make a decision soon. If the loan disbursement period is extended, the start of loan repayments will also be delayed, he added.