Bangladesh looks for new financiers as Indian LoC projects stall

Bangladesh had to forsake Indian line of credit (LoC) support for three major infrastructure projects after months of noncooperation from the lender and contractors after the regime change through July 2024 uprising.

Dhaka is now looking for alternative funding sources to keep the delayed schemes alive, officials said Thursday.

The projects-two railway lines and the development of Mongla seaport, have suffered repeated setbacks due to prolonged approval processes, slow disbursements from India's Exim Bank, and contractors' reluctance to proceed.

Costs have risen sharply as a result, prompting the government to seek fresh partners to ensure work can continue, the officials added.

Bangladesh Railways (BR) has struggled to move forward with two LoC-supported projects: the Khulna-Darshana double rail lines and the Bogura-to-Shaheed M Mansur Ali Station (Sirajganj) line, according to railway officials.

Similarly, the Mongla Port Authority is facing serious hurdles with its port-development project for inordinate delays in disbursement by the lender and noncooperation by the contractor, a shipping ministry official told The Financial Express.

"We have decided not to continue with Indian LoC financing due to their prolonged noncooperation. But the projects will not be cancelled-they will continue. We now need new lenders and are actively looking for funding sources," says a Planning Commission official.

An Economic Relations Division (ERD) official has confirmed that alternative financiers are being searched for the delayed projects.

The state-run BR has faced persistent difficulties with LoC-backed initiatives. Although India confirmed funding for two projects six years ago, the money has yet to be released, leaving construction work stalled.

Two other ongoing projects also faced setbacks after the fall of the Awami League government in August 2024, when many Indian workers left Bangladesh. Not all have since returned, which has hampered progress.

The government approved the Khulna-Darshana double-line project in 2018 with an estimated cost of Tk 35.07 billion, to be funded from the Indian line of credits.

"But work has yet to start due to prolonged approval processes, and a lack of cooperation from Indian consultants and contractors," a BR official says. "We have no option but to look for alternative funding for this project."

Similarly, the 86-kilometre mixed-gauge railway from Bogura to Shaheed M Mansur Ali Station, approved in 2018 with a cost of Tk 55.80 billion, has also been stalled due to unresponsiveness from the lender and contractor.

The Bogura-Sirajganj line is considered crucial, as trains currently travel via Shantahar, Natore and Ishwardi in Pabna to reach Dhaka, adding up nearly 120 kilometres to the journey.

The line was originally scheduled for completion by June 30, 2023. However, feasibility studies and design work have lengthened the timeline up to June 2026.

The Mongla Port-upgrade project, approved in 2020 with a cost of Tk 60.14 billion including Indian financial support, has also not got started.

Following the political upheavals in 2024, the lender has been unwilling to finance the project, while the contractor has declined to proceed.

Project agencies also cite stringent conditions binding Indian LoC financing as a barrier. Under the terms, 75 per cent of goods, works or services must be sourced from India to access the committed loans.

India confirmed three LoCs to Bangladesh: US$862 million in 2010, $2.0 billion in 2016, and $4.5 billion in 2017. Together, they were intended to finance 40 projects in roads, railways, shipping, energy and other infrastructures.

So far, only 15 projects have been completed, eight are ongoing, while the rest remain stuck in preliminary stages, either selecting consultants and contractors or still preparing proposals.

Another ERD official told The Financial Express that both governments agreed to scrap projects still at the preparatory stage under LoC-1, LoC-2 and LoC-3. Out of 16 projects now marked for cancellation, most fall under LoC-2 and LoC-3.

According to ERD data, India's Exim Bank disbursed only $184.63 million to Bangladesh in FY2025, down from $311.4 million the year before.