Beijing bolsters ties over power payments to India

Special Report :

In the wake of Sheikh Hasina’s ousting, China’s ties with Bangladesh continue to expand, spearheaded by Ambassador Yao Wen’s active diplomatic engagement with the new interim government.

In recent weeks, Yao has met with several key figures in the interim government, including Chief Adviser Professor Muhammad Yunus, and various other advisors such as Muhammad Fouzul Kabir Khan, Wahiduddin Mahmud, Nurjahan Begum, and Shafiqur Rahman of Jamaat-e-Islami.

During his meeting with Nobel Laureate Yunus on August 25, Yao reiterated China’s commitment to the principle of non-interference, while expressing hope for Bangladesh’s unity, stability, and prosperity.

He emphasized that despite domestic political changes, China’s dedication to enhancing bilateral relations remains unwavering.

Yao assured Yunus that China will continue to engage with Bangladesh at all levels, working to elevate the Comprehensive Strategic Cooperative Partnership to new heights.

Considering these new developments in bilateral relations, shipping lines have capitalized on the opportunity to establish new routes between China and Bangladesh.

Pacific International Lines (PIL) has launched a direct weekly service, the China Chittagong Express, reducing transit time from the usual 20-22 days via regional hubs like Singapore to just eight days.

The first vessel, carrying 935 TEUs of raw materials for Bangladesh’s garment industry, arrived in Chittagong in mid-September, with expectations to return to Ningbo carrying over 1,000 TEUs.

Bangladesh, which sources 25% of its imports from China, including raw materials and machinery for its garment sector, is expected to increase its imports from China as political ties with India worsen. Other shipping lines, such as Hong Kong-based SITC, Korea-based Sinokor-Hyundai, Maersk, and MSC, have also increased services between China and Chittagong, reflecting the growing demand for faster and more direct trade routes as Chinese investment in Bangladesh rises.

The relationship between Hasina and Modi started to turn sour when Bangladesh ran low on USD to service debt and pay for imports from India.

Especially, the Hasina government’s inability to pay for power imports from India exacerbated Bangladesh’s financial crisis, further contributing to its collapse.

According to findings based on US-based think tank Global Financial Integrity (GFI) over USD 93 billion has been laundered during the 15 years of Hasina’s rule. It remains unclear how much of this amount was used to fund foreign political parties in support of the kleptocracy.

Of the more than $1 billion owed to Indian power companies, approximately $800 million was owed to Adani Power, a critical supplier for Bangladesh’s power grid.

Other Indian power companies, such as PTC India and SEIL Energy India Ltd, also struggled to recover their dues, with PTC owed around $80 million and SEIL about $190 million, according to documents reviewed by Reuters.

Since Bangladesh imports nearly 20% of its electricity from India, the situation became untenable when the country failed to make payments for power imports for over eight to nine months.

Both SEIL and PTC India expressed concerns over the unsustainable situation, although they continued to supply electricity, hoping for the resolution of dues. SEIL had been providing power to Bangladesh under a 15-year contract, but their patience was wearing thin as the delays in payments persisted.

With SEIL and PTC India holding bank guarantees worth $34.1 million and $30.7 million, respectively, Bangladesh’s Rupali Bank found itself in a tight spot, scrambling to secure dollars to settle these debts. The risk of Indian companies cashing in on their guarantees added pressure to Bangladesh’s financial system.

Despite ongoing efforts between Rupali Bank, the Bangladesh Power Development Board (BPDB), and the central bank to resolve the issue, the mounting dues left the Hasina government with little room to maneuver.

This economic fallout, combined with the failure to secure a much-needed loan from China, sealed Hasina’s fate as political unrest grew.

The interim government now faces the challenge of navigating these financial obligations while stabilizing Bangladesh’s energy supply and broader economy.

With China stepping in as a potential financial and strategic partner, Dhaka’s relations with India may shift as Bangladesh seeks to balance its debts and development goals.

Analysts have noted that Yao’s outreach to multiple sectors of Bangladesh’s interim government suggests that Beijing aims to ensure the stability and growth of bilateral ties during this transitional period.

Liu Zongyi, secretary-general of the Research Center for China-South Asia Cooperation, remarked that China’s efforts to engage with Bangladesh at this time are strategic.

Ongoing infrastructure projects, which have already made significant progress, are central to Beijing’s long-term goals in the country, and discussions are underway with the interim government on how to advance these initiatives.

China’s involvement extends beyond infrastructure, as Beijing has also offered assistance in areas such as education and health.

This further solidifies China’s role as a crucial development partner for Bangladesh as it navigates its current challenges.

With a focus on continued stability, development, and prosperity, China’s deepening cooperation with Bangladesh is expected to persist regardless of changes in Dhaka’s political landscape.

In a significant development, Bangladesh announced that the World Bank has pledged over $2 billion in new financing for the fiscal year to support the country’s reform efforts, flood response, and improvements in air quality and healthcare.

The World Bank’s Country Director, Abdoulaye Seck, made the announcement after meeting with the interim government’s Chief Adviser, Nobel laureate Muhammad Yunus.

The bank also plans to repurpose an additional $1 billion from existing programs, bringing the total support to approximately $3 billion by June 2025.

These funds aim to address critical issues, including natural disaster response and economic reforms that are essential for Bangladesh’s future, particularly for its youth, with two million people joining the job market annually.

Yunus emphasized the need for flexibility and robust support from the World Bank to ensure successful reform implementation. This financial commitment comes as Bangladesh continues to face economic challenges exacerbated by rising fuel and food import costs following the Ukraine war.

The announcement follows Yunus’ recent appeal for $5 billion in aid to stabilize the economy, which has already secured a $4.7 billion bailout from the International Monetary Fund last year. The United States also pledged an additional $202 million in aid to support Bangladesh’s inclusive growth and development.