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One of the major factors that has slowed down the pace of economic growth in Bangladesh is the lack of proper transport infrastructure, especially sea ports. The country has not built a new port since independence in 1971, and badly needs to construct one to meet its growing international trade requirements. Following its assumption of office in 2009, the Awami League (AL) government has attached priority to the upgrading of port facilities, since 15% of the country’s GDP is dependent on the export of readymade garments.

Bangladesh immediately needs a deep sea port that could effectively handle large number of containers. The country’s two sea ports, Chittagong and Mongla, are shallow water facilities. The Chittagong port is highly silted, and only small vessels can move by taking advantage of incoming and outgoing tides. While the Chittagong port suffers due to excessive traffic, Mongla faces the problem of inadequate rail and road connectivity. It is estimated that the delays caused by traffic congestion can cost Bangladesh an extra $15,000 per day.

Cancellation of the Sonadia project

Considering the prevailing circumstances, the Bangladesh government has adopted a pragmatic approach towards port development in the country. Last year the government shelved the $8 billion deep water port project at Sonadia Island in the southeastern region of the country that China had proposed to build. Beijing completed a feasibility study and promised to provide subsidised loan for the project. State-owned China Harbour Engineering was the frontrunner for the port project and both the sides were about to sign an agreement during Prime Minister Sheikh Hasina’s visit to Beijing in 2014.

However, Dhaka and Beijing could not reach an understanding on the port project since the issue of finance was not resolved. China was ready to offer only partial support for what would be Bangladesh’s biggest foreign investment in infrastructure development. According to local reports, the tough conditions put by China stood in the way of finalising the deal. The Chinese government fixed the rate of interest against the long-term credit at 2%. Besides, the procurement of commodities, services and equipment from China was made compulsory. The cancellation of the project is a setback for Chinese President Xi Jinping’s “One Belt One Road” initiative to build a network of ports and expressways and enhance trade, investment and influence in South Asia.

Though the official reason cited for the termination of the project was the lack of commercial viability, the factor that reportedly influenced the AL government’s decision had been the reservations expressed by Bangladesh’s close allies like United States (US) and India regarding China’s involvement in a strategically located port that would have a potential military role. China’s efforts to build a deep sea port at Sonadia Island in the Bay of Bengal raised India’s security concerns, because the area is not far away from its sensitive Andaman and Nicobar Islands. New Delhi believes that increasing Chinese engagement in the construction of maritime infrastructure in the Indian Ocean region is part of its “String of Pearls” policy to encircle India.

Approval of the Matarbari port and power projects

Meanwhile, in a significant move in September 2015, the AL government approved Japan’s proposal to finance and build a port at Matarbari, situated about 25 km from Sonadia where China had intended to set up Bangladesh’s deep water port. Reports suggest the Japan International Cooperation Agency (JICA) agreed to release $ 3.7 billion at a nominal interest rate of 0.1% over 30 years with an initial 10-year grace period, to build the $4.6 billion port and a power plant in Matarbari. Bangladesh’s Planning Minister Mustafa Kamal said the JICA had offered 80% funding on simple terms to construct four coal-fired power plants of 600 MW each, a port complex and a Liquefied Natural Gas (LNG) terminal in Matarbari. Reports indicate that Japan also seeks to build electricity transmission lines, highways and railway lines as part of an industrial corridor in Matarbari.

Bangladesh expects that the new Matarbari power plant will redress the perennial electricity shortages in the country and encourage foreign investment in the manufacturing sector. A comprehensive package offered by Japan is more beneficial for Bangladesh in view of its long-term economic development goals. In fact, the Japanese offer necessitated a review of whether the Sonadia project was required at all. The AL government maintains that the Matarbari project is sufficient for the country. Experts have noted that Matarbari has the potential to become a hub of trade and connectivity after all the schemes under it are fully implemented.

In commercial terms, the ports in the Indian Ocean zone are important for both China and Japan. A large number of the world’s oil trade routes passes through this region and its ports provide access to some of the biggest and fastest growing markets in Asia. In the face of growing competition over key infrastructure development projects in the littoral states of the Indian Ocean, Japan has succeeded in outmaneuvering China on interest rate terms by using its economic prowess. As per Tokyo’s assessment, the Matarbari port could emerge as a major trade gateway to Asia and beyond. Japan considers Bangladesh as the pivot in the evolving scenario due to its central location in the Bay of Bengal. It hopes that such strategic investments will bolster its economic and political clout in the region, give it easy access to the sea routes and check China’s influence.

Efforts to build a deep sea port at Payra

In another major development, the Bangladesh government has undertaken the task of building a second deep water port at Payra in Patuakhali district. The government is trying to make the Payra port operational on its own funding to enhance the country’s international trade, as both Chittagong and Mongla ports are facing a number of challenges in dealing with increasing volume of exports and imports. An initial estimate says over $ 3 billion investment would be needed for the Payra deep sea port project. A United Kingdom based marine consultancy firm H R Wallingford is reported to be in the process of preparing a master plan for development of the port.

The port project gained momentum in the last few years, with a Payra Port Authority being created in 2014. Earlier on May 19, 2013, Bangladesh premier Hasina inaugurated Payra sea port site and development work began soon after. The Parliament also enacted the Payra Port Authority Act. In October 2015, the National Economic Council approved Tk 1,128 Crore to build primary infrastructure and facilities to make the port functional. The port was scheduled to become operational from December last year on a limited scale.

The Bangladesh government intends to transform Payra into a deep sea port. Reports say it may take at least seven years to develop the Payra port. In order to make it effective, a deep channel would have to be cut through the heavily silted port to ensure the movement of large vessels. The port will handle loading and unloading of food grains, fertilizer and cement in the initial stage. Bangladesh seeks to start full-fledged port activities with a capacity to house 75,000 containers by 2023.

India’s interest in Bangladesh’s port development

The current AL government has devised a public-private partnership strategy for developing ports. Bangladesh’ Planning Ministry said several countries from Asia and Europe had evinced interest in the project. Among them, at least ten countries, including neighbouring India had already submitted their investment proposals. Recent reports suggest that three Indian companies are keen to invest in the Payra project. When India’s Foreign Secretary S Jaishankar expressed New Delhi’s interest on the Payra port project during his talks with Prime Minister Hasina on May 11, 2016, in Dhaka, he was told that the proposal could be executed through a consortium.

In its bids to thwart China’s growing involvement in the upgrading of maritime infrastructure in South Asia, Narendra Modi-led National Democratic Alliance (NDA) government has broadened India’s engagement in the infrastructure development of neighbouring countries. The NDA government has attached priority to strategically develop important ports in South Asia and adjoining areas to protect India’s long-term interests. Bangladesh’s proposed deep sea Payra port, located in the southwestern corner, near Chittagong, is much closer to the Indian coastline. New Delhi believes the Payra port will be able to handle a lot of container traffic bound for the country’s North-eastern region. The recent move by India assumes significance as it could take the bilateral ties to a new high. Both the neighbouring countries now refer to their bilateral cooperation as “a model” for the world.

These developments are to be seen against the backdrop of the growing Chinese naval forays into the Indian Ocean region and the efforts to counterbalance it through the “pivot to Asia” initiative by the US and its allies. Japan and India have been trying to protect their commercial and strategic interests in the maritime zone of South Asia and Bangladesh figures prominently in both the nations’ scheme of things.

During Modi’s landmark visit to Dhaka in June 2015, India and Bangladesh signed an agreement on the use of Chittagong and Mongla ports. India agreed to enhance the capability of Bangladesh’s busiest Chittagong port in an effort to keep its strategic adversary China away from the Bay of Bengal. Besides, the AL government’s decision to allow India’s landlocked and economically isolated North-eastern states to use Bangladesh’s ports for transportation of goods was a major breakthrough.

Japan is also a key development partner of Bangladesh. It is currently engaged in the upgrading of a number of Bangladesh’s infrastructure projects. While meeting Hasina on May 28 in Tokyo, Prime Minister Shinzo Abe assured that his country would soon release $ 1.5 billion soft loan out of the $ 6 billion it had pledged and help Bangladesh achieve the status of a middle income nation by 2021.

Facing technical and resource constraints, the Hasina government seeks greater foreign investment to improve the country’s infrastructure. Bangladesh calibrates its foreign policy priorities according to the prevailing geo-political and security environment of the region. Being sandwiched between the two Asian giants, Dhaka walks a diplomatic tight rope constantly balancing its ties between Beijing and New Delhi. The Bangladeshi foreign policy experts lament that their country is a victim of global and regional powers’ geo-political competition.

Rupak Bhattacharjeeis an independent political analyst based in New Delhi.