World Bank Enables Corruption in Bangladesh
SYDNEY, June 9 (IPS) – The World Bank considers corruption a major obstacle to eradicating global poverty. The Bank officially has a zero-tolerance policy against fraud and corruption in its projects. Concerned with widespread corruption in Bangladesh, the Bank and the Government agreed on the Governance-oriented Country Assistance Strategy (GCAS) in 2006 and the Bank’s subsequent Country Partnership Strategy (CPS) ostensibly has been more selective on governance and anti-corruption (GAC) issues. Ironically, however, the Bank’s funding enables corruption. The Bank’s recent decision to advance a US$350 million loan allegedly for enhancing energy security is a glaring example.
Corruption-riddled energy sector
The Interim Government’s White Paper on the state of the economy documented the extent of collusion and corruption in the energy sector. It noted the authoritarian kleptocratic government’s inflated demand forecast, disregarding professional projections. Thus, the installed capacity hugely exceeds actual demand. Against the peak summer demand of approximately 17,000 MW, the installed capacity is nearly 32,000 MW (or 30,000 MW considering aging infrastructure). According to the White paper, this artificially “increased capacity was driven by unscrupulous motivations” to benefit the regime’s cronies who formed a monopoly cartel in the power sector.
A series of dodgy moves facilitated unprecedented misappropriation of public money in the sector. The first was the awarding of contracts to 17 private rental plants through ‘negotiation’ in 2010, circumventing the Public Procurement Rules. The second was the Quick Enhancement of Electricity and Energy Supply (Special Provision) Act 2010, which protected energy contracts from competitive bidding and legal challenges. Such indemnity is a license for corruption, facilitating unchecked project approvals and non-transparent often dollar-denominated Power Purchase Agreements.
These agreements enabled the purchase of electricity from furnace-oil-based plants at prices 40-50% above market rates and from gas-fired plants at prices 45% above market rates, according to the Interim Government’s review committee. Initially established for a four-year period to address an emergency supply situation, the arrangement has been extended multiple times, allowing the cronies to be paid an exorbitant excess capacity charge.
The estimated total excess capacity/rental payment to the private sector from 2010-11 to 2023-24 was approximately US$2.93 billion. In the 2024-25 fiscal year alone the capacity charge was approximately US$3.42 billionwhile nearly 63% of installed electricity generation capacity remained idle. According to the review committee, an estimated excess generation capacity of roughly 7,700 to 9,500 MW is causing an additional annual expenditure of US$900 million to US$1.5 billion in capacity payments.
The White Paper estimated that the rental power plants made as high as 35% profit against a standard 15%! The private sector power companies received payments from the government as rent for power plants under the guise of power purchase agreementswhere corruption, rather than electricity supply, was the main objective.
Most of the operational private power plants in Bangladesh are owned/controlled by a group of five cronies. They control country’s power sector to loot vast amounts of money. While the kleptocratic regime beat the drum of “self-sufficiency” in electricity, its cronies were pillaging the state coffer.
While the cronies enjoyed excess profits through extraordinary corrupt practices, consumers paid the price. Electricity prices were increased 12 times at the wholesale level and 14 times at the retail level over 15 years during the kleptocratic regime, ostensibly to reduce losses and subsidy requirements. But neither losses nor subsidies declined.
The review committee recommended that contracts containing evidence of corruption should be cancelled immediately. It also recommended renegotiation of high-cost and unequal power purchase agreements to revise and convert them to a “take-and-pay” model following Pakistan’s example.
Instead of taking these recommended measures, the current government has chosen the path of the kleptocratic regime’s looting model. The decision to hike the electricity price will protect the fatty pockets of cronies at the expense of the common people.
The World Bank’s role
The Bank has been a prime advocate of privatisation of Bangladesh’s energy sector, citing widespread corruption and inefficiency of the publicly-owned power sector. It pushed for “unbundling” vertically integrated state monopolies, facilitating Independent Power Producers (IPPs), and mobilising private capital through financial guarantees – a strategy that supposedly should improve energy security and at the same time ease public fiscal burden.
The Bank has been providing loans ostensibly to help Bangladesh improve its energy security. But that has made the country heavily reliant on imported Liquefied Natural Gas (LNG) and fossil fuels and has locked Bangladesh into steep capacity payments, draining foreign exchange reserves. Thus, the Bank’s loans allegedly for ensuring energy sector security have created a vicious circle of debt burden and plunder of public coffer through hefty capacity payments.
Instead of further advancing loans of US$350 million, the Bank should have told the government to implement the recommendations of the Interim Government’s review committee; i.e., cancel the unscrupulous agreements with IPPs and stop fiscal bleeding through unfair capacity payments. The savings from the capacity charges would have been more than enough to pay for the imports of LNG without incurring additional debt burden.
The Bank’s anti-corruption record
Why does the Bank advance loans to the sector riddled with widespread corruption? The Bank’s anti-corruption record is at best disappointing globally. The Bank once took a firm anti-corruption stance in Bangladesh when it pulled out of the Padma Bridge project alleging corruption. But it scrambled to recover its lost ground when other lenders with strategic interests came forward to fill the gap.
Evaluating the Bank’s engagement in Bangladesh during 2011-2020, the World Bank’s own Independent Evaluation Group concluded“Despite a trend of deterioration in the country’s institutional quality and economic management, the Bank Group significantly increased financing to Bangladesh over the review period, making Bangladesh one of the largest borrowers”.
As a lending agency, the Bank’s existence depends on debtor countries’ borrowings, regardless of its lofty ideals, such as poverty reduction. A fundamental flaw in the international aid system: “the donors are more desperate to give than the recipients are to receive”. Therefore, the Bank takes a “pragmatic” approach, and tolerates corruption.
Then why did the Bank declare zero-tolerance policy against corruption? Perhaps this is because it has to satisfy the public anti-corruption sentiment in creditor nations; their citizens do not want to see their tax dollars being misappropriated.
Renowned political economist, Robert Wade conceptualises this as gesturing to appease creditor governments while acting to the contrary to appease borrower governments. Thus, the Bank’s “organised hypocrisy” enables corruption in poor borrower countries.
Anis ChowdhuryEmeritus Professor, Western Sydney University (Australia). He held senior UN positions in Bangkok and New York and served as Special Assistant to the Chief Advisor for Finance (with the status and rank of State Minister) in the Professor Yunus-led Interim Government. Anis has written extensively on macroeconomic issues, sustainable development, international financial architecture and political economy. E-mail: [email protected]; [email protected]
IPS UN Bureau
© Inter Press Service (20260609045427) — All Rights Reserved. Original source: Inter Press Service
