TDS Desk:

A new research presentation on infrastructure governance has warned that corruption and overpriced mega-projects are increasing long-term debt risks in Bangladesh and Sri Lanka, urging early policy action before fiscal pressures escalate.

The study, titled “Corruption in Infrastructure Projects in Bangladesh and Sri Lanka: Implications for Public Debt,” was led by researchers from SOAS University of London with support from the Open Society Foundations and Change Initiative.

It was presented at a seminar during the CIRDAB conference in Dhaka.

Delivering the keynote presentation, economist Mushtaq Khan, professor of economics at SOAS, said even small differences in infrastructure contract prices can translate into hundreds of millions of dollars in additional long-term costs.

Economists noted that when tariffs or contract prices are set only a few cents higher, the cumulative impact over the lifetime of large power or infrastructure projects can amount to billions of dollars.

Political and business groups may attempt to influence procurement processes, limit competition, and secure contracts at inflated prices.

TWO TYPES OF GOVERNANCE FAILURES

According to the researchers, infrastructure investments can undermine debt sustainability due to two major governance failures.

First, projects may be technically sound but priced excessively high. Even if such assets function properly, inflated investment costs make it difficult to recover expenses through revenue generation, leading to a growing debt burden.

Second, projects may be poorly constructed, inappropriately designed, or inadequately planned. In such cases, infrastructure remains underutilised or fails to generate expected economic returns, again increasing debt pressures.

The study argues that these outcomes were rarely mere technical mistakes. Instead, they often reflected deliberate governance failures involving corruption, political collusion, or manipulation of procurement processes to benefit specific business and political interests.

It calls for stronger enforcement mechanisms, greater transparency in procurement, and renewed political commitment to accountability.

INFRASTRUCTURE PUSH AND RISING DEBT

Following 2008–2009, both Bangladesh and Sri Lanka accelerated infrastructure-led development strategies.

In Sri Lanka, major investments in ports, highways and power projects were launched after the end of the civil war under former president Mahinda Rajapaksa.

Analyses indicate that approximately 65% of Sri Lanka’s external borrowing was used for infrastructure, with several projects later turning out to be underutilised or economically unviable.

Insufficient revenue generation increased repayment pressures, eventually contributing to the country’s debt crisis.

Bangladesh similarly expanded large-scale investments in roads, bridges and power generation during the same period.

The country’s external debt rose from $24 billion in 2009 to $112 billion in 2025, with rising interest payments consuming an increasing share of the revenue budget.

CASE STUDIES: MANNAR AND GODDA PROJECTS

The report cited the Mannar wind power project in northern Sri Lanka, linked to India’s Adani Group, as an example of procurement concerns. Initially planned as a 250MW facility, negotiations began in 2021 and a parliamentary MoU was announced without competitive bidding.

In 2022, Sri Lanka amended its Electricity Act to allow the contract to proceed without competition, treating Adani as a government-to-government partner.

During the 2022 Aragalaya uprising, the agreement faced intense scrutiny from community groups, MPs and energy experts. Amid mounting pressure and potential renegotiation, Adani withdrew from the project in 2025.

In Bangladesh, the National Review Committee reported that contracted prices with power producers are so high that annual subsidies of roughly $4.9 billion are required to keep retail electricity prices affordable.

Without subsidies, electricity prices would need to rise by 86%, risking deindustrialisation and consumer hardship.

Between 2011 and 2024, payments to power producers increased 11-fold, while capacity charges rose 20-fold, despite actual generation increasing only fourfold.

Analysts attribute this to high contracted prices, 40–80% above reasonable benchmarks, and poor planning, which left many plants idle due to fuel shortages, often referred to as “ghost plants.”

The 1,600MW Adani Godda coal-fired power plant in Jharkhand was also highlighted. Although Jharkhand is coal-rich, the plant imports coal from Australia using an inflated pricing index.

Electricity is transmitted to Bangladesh via a 90-kilometre transmission line costing $500 million, which is included in the power price.

The agreed levelised tariff was 8.61 US cents per kWh, compared with 4.46 US cents per kWh for electricity imported from the Indian grid.

Researchers estimate the plant’s price is at least 40–50% above a fair benchmark. Over 25 years, Bangladesh is projected to pay approximately $25 billion, with overpricing alone exceeding $10 billion.

Whistleblower evidence submitted to the NRC indicates significant payments to bureaucrats involved in signing the contract, and government investigations are ongoing.

WARNING ON DEBT SUSTAINABILITY

The study concludes that unless overpriced contracts are reviewed, corruption cases addressed through targeted legal action, and competitive bidding strengthened, the accumulation of costly infrastructure obligations could trigger sudden debt distress rather than gradual fiscal adjustment.