Mega project costs surge in currency shock

• Taka depreciation inflates mega project costs
• Rooppur plant burden rises despite dollar stability
• Metro rail projects face escalating foreign liabilities
• Economists warn of heavier repayment pressures

Government spending on several foreign-funded mega projects, including the Rooppur Nuclear Power Plant and metro rail works in Dhaka, has increased as the local currency Taka weakened sharply against the US dollar in recent years.

The increase has pushed up local currency costs even though dollar-based project values remain unchanged.

For the Rooppur plant alone, estimated costs may rise by 23 percent, equal to Tk 26,181 crore. However, the project value in dollars stays the same.

According to economists, a steep fall in the currency makes repayment for foreign-funded projects heavier. The impact is even harsher when the economy slows and revenue growth stalls, which is now the case in Bangladesh.

The Rooppur project was approved in 2016 at Tk 113,092 crore. Russian finance support was projected at Tk 91,040 crore, or $11.38 billion, based on an exchange rate of Tk 80 per dollar. After approval, the rate hovered near Tk 85 for several years.

Pent-up demand after the Covid pandemic drove imports up, and the Russia-Ukraine war raised global prices. The country then saw its dollar stocks fall rapidly.

Subsequently, dollar shortage worsened, and the exchange rate climbed gradually as the International Monetary Fund (IMF) pressed for a market-based rate. It eventually rose from Tk 85 to around Tk 115 before the political changeover in August last year.

But the project cost was not revised in step with the depreciation.

Recently, the Ministry of Science and Technology has sent the first revised proposal to the Planning Commission, seeking an increase to Tk 126,479 crore to account for the weaker currency.

The commission, however, has assessed that the dollar component was not fully reflected in the ministry's estimate. Its own calculation suggests the cost may reach Tk 139,274 crore.

So far, the project has used $8.29 billion, valued at Tk 95.28 per dollar. The rest of the financing, equal to $3.09 billion, is projected at an exchange rate of Tk 122.4.

The commission is reviewing the figures and expects to finalise them soon. It says the adjustment is necessary to determine the power generation cost accurately so that the project can meet its cost-benefit requirements.

Discussions have begun on the likely tariff for electricity from the nuclear power plant, estimated at around Tk 7 per unit, although the rate has not been finalised yet.

Although costs in dollars have not risen, the taka depreciation has pushed up the local currency burden sharply, said Zahid Hussain, former lead economist of the World Bank's Dhaka office.

He said the higher repayment costs will strain the budget. If revenue collection fails to improve, the deficit will widen.

"To cover that shortfall, the government may need to borrow again," he said.

In the first four months of the current fiscal year, debt servicing costs rose by 10 percent. In Taka terms, the increase was 13 percent, driven mainly by the weaker currency.

Hussain emphasised increasing revenue collection and reducing public spending to keep borrowing in check.

METRO PROJECTS HIT BY RISING COSTS

Cost pressures are not limited to the Rooppur plant. Rather, several metro rail projects in Dhaka also face higher bills.

The cost of Metro Rail Line 6, the country's first metro service, which now carries several lakh passengers daily on the Uttara to Motijheel route, has fallen slightly to Tk 32,717 crore from Tk 33,472 crore due to lower land acquisition costs under the government-funded portion.

However, costs under foreign loans have risen because of the weaker currency. Consultancy fees and repayment liabilities have increased, including an additional Tk 270 crore in foreign loan repayment linked to the depreciation.

The government approved the latest project costs this week.

Two other metro lines, Mass Rapid Transit-1 and Mass Rapid Transit-5, are also set for cost increases.

When the Japan International Cooperation Agency (Jica) funded projects were approved in 2019, they were valued at Tk 95,000 crore. Since then, the Taka has lost more than 40 percent of its value, meaning significant upward revisions.

An MRT-1 official recently informed Dhaka Mass Transit Company Limited (DMTCL) that the cost of Japan's funding package would rise to Tk 75,649 crore from Tk 39,450 crore, while the total project was originally estimated at Tk 53,977 crore.

A similar rise is expected for the 20-kilometre MRT-5 line from Hemayetpur to Bhatara through Gabtoli, Mirpur and Gulshan.

The project, split into ten packages, was approved at Tk 41,261 crore. The latest assessment shows Tk 15,527 crore will be needed for just one package, originally priced at Tk 3,968 crore.

Officials said talks are going on between Jica and the government to reduce the overall costs.