Understanding the Padma Bridge Controversy

By Daniel Sabet September 2012

Monthly Current Events Analysis Series

Purpose of this report: An enormous amount of ink has been spilled over the Padma Bridge controversy. Nonetheless, in our view, there have been insufficient attempts to step back and succinctly look at all the issues in a detailed but concise analytical piece. This report seeks to fill this gap. The analysis lays out the basic details of the project, the corruption allegations that have been made, and the response of the government of Bangladesh. Details of the proposed project: The proposed Padma Multipurpose Bridge Project is to entail: 1 Construction of approach roads and a 6.15 km long two level bridge across the Padma River. The bridge would contain a four lane highway above and a rail line below (US$1,626.2 million). Construction of 13.5km of river training works to ensure the stability of the Padmas banks (US$799.9 million). Implementation of social action and environmental management plans, such as resettling affected populations (US$291.9 million). Other technical assistance, monitoring, evaluating, and capacity building activities (US$98 million). As such, the total cost of the project is estimated to be US$2.915 billion. US$1.2 billion of this amount was to come from the World Bank (WB), US$1.155 billion from other lending agencies (Asian Development Bank, Islamic Development Bank, and Japan International Cooperation Agency), and $560 million from the Bangladesh government. The World Banks share would come from its International Development Association, which provides credits rather than loans at no interest with only a .75% service charge. The Bangladesh government would not have to begin payment for 10 years, and it would have 40 years to pay off the loan.2 In short, the terms were highly favorable. Expected benefits: The expected benefits of the bridge as laid out in the World Banks Project Appraisal Document are substantial.3 The primary beneficiaries of the bridge would be the 30 million residents of the countrys southwest. The region is currently dependent on ferry services to connect to Dhaka, and waits at the ferry typically require more than two hours for buses and cars and more than ten hours for trucks. Furthermore, because of riverbank instability, ferry docks are at times left inoperable. The Padma Bridge would not only offer a means for vehicles to cross the river, but it would also include a railway and a conduit for telecommunications, electricity, and natural gas transmission.

The bridge would have regional trade benefits as well, reducing the distance required to travel between Dhaka and Kolkata. Construction of the bridge could also raise the profile of the southwests Mongla port, which operates at a fraction of its potential capacity. This could benefit the countrys northwest and provide an alternative port for Dhaka.

Fear of corruption: From the beginning, the World Bank classified its investment in Bangladesh has high risk and expressed concern over a weak governance environment.4 As such, the project entailed numerous measures to prevent corruption in its Governance and Accountability Action Plan. The measures included the establishment of a Project Steering Committee with NGO representation, a Project Integrity Advisor accountable to the Prime Minister, detailed and regular reporting requirements, measures to prevent conflict of interests, such as a mapping of individuals with access to procurement information and complementary statements of financial interests, and measures to ensure the integrity of the procurement process, such as prequalification, a two state bidding process, opening bids in the presence of NGOs, and the establishment of a complaint mechanism.5 Despite, or as a result of these measures, the World Banks detected some evidence of corruption in the procurement process. The corruption allegations: There are two corruption allegations in the Padma Bridge case: one regarding the primary contract to construct the bridge and another regarding the appointment of a consultant firm to oversee the construction. Construction contract: On September 21st, 2011 the World Bank gave the government a report from the Integrity Vice-Presidency of the Bank alleging that SAHCO, a firm named for and connected to then communications minister Syed Abul Hossain, had sought to coerce companies to use it as an intermediary to secure the main bridge contract. The report is believed to contain allegations by eleven confidential witnesses against the company.6 Abul Hossain has countered that these allegations were made up by companies angry that they had been rejected by the technical evaluation committee. He contends that there was no conflict of interest in the participation of SAHCO, as he had resigned as managing director of the company. In February 2012, Bangladeshs Anti-Corruption Commission (ACC) completed its own investigation into the allegations and concluded that there had been no wrong doing. The consultancy contract: Also in September 2011, Canadas national police forces anti corruption division raided Canadian based SNC-Lavalins offices in September 2011. In April 2012 two SNC-Lavalin executives were charged under Canadas Corruption of Foreign Public Officials Act for allegedly attempting to bribe Bangladeshi officials in their bid for the consultancy contract for the Padma Bridge.7 The court case against them is currently ongoing and little information has been made public; however, we do know that six Bangladeshi officials were named in the investigations, including the former communications minister. The allegations against SNC-Lavalin are not isolated. The company is also under investigation for corruption in Tunisia and Libya. The WB submitted a report on these allegations to the Bangladeshi government in April 2012. The ACC investigation into these allegations is still ongoing. Syed Abul Hossain: Because of his alleged role in irregularities in both contracts, much attention has focused on Abul Hossain. Even prior to the Padma Bridge issue, Abul Hossain had attracted controversy. Media reports raised other allegations of SAHCO using its influence to win contracts for foreign partners.8 As Communications Minister, Abul Hossain faced heavy public criticism for neglect of the countrys roads, which resulted in his eventual removal from the ministry (although not from the cabinet).9 In the previous Awami League government (19962000), he had been forced to resign as minister over unauthorized foreign travel, and he was 2

termed by the former U.S. ambassador as a less than honest man in a cable that was released by WikiLeaks.10 Abul Hossain has maintained his innocence throughout. Conditions: As a result of its investigations, the World Bank insisted on several conditions in order to fund the project. These include the following:11 Place all public officials suspected of corruption on leave. Appoint a special investigations team within the ACC to investigate the allegations. Agree to provide a WB panel with full access to the investigation. Provide financiers greater oversight of the project procurement process. The Bangladesh government did order the necessary investigations and consented to greater oversight, but it did not suspend the alleged officials nor agree to provide the WB panel with access to the ACC investigation. After months of negotiations not suddenly, as some have suggested - the World Bank decided to cancel the loan on June 30, 2012. The official response: The Bangladesh governments consistent position has been that there was no corruption in the project, that the WBs withdrawal was unwarranted, and that the WB should provide proof of corruption if it has it. On several occasions the Prime Minister has stated that there simply could be no corruption because the WB had not yet provided any funds. The notion that corruption could not occur before the WB disbursed funds is simply inconsistent with the allegations that have been leveled. The governmental response has been frustrating to many, and citizens have been left with insufficient information to evaluate the veracity of either sides statements. The WB submitted two reports alleging corruption to the government of Bangladesh, but the World Bank has no jurisdiction to conduct criminal investigations and its governing legislation does not permit it to make the reports public.12 The government, for its part, has refused to release the reports although it has the discretion to do so. Changing the debate: In the aftermath of the cancelation, the government was largely successful at reframing the debate by appealing to Bangladeshi nationalism. The thrust of the argument put forth was that Bangladesh should not and could not let its decision making be dictated by a foreign entity. Wild conjectures abounded: some suggesting that the loan was canceled as retribution for the governments actions against Grameen Bank or even to prevent the International War Crimes Tribunals from moving forward. Counter allegations of misconduct were leveled against the Bank. As an alternative, the government proposed that it would build the bridge on its own and mobilized its base to echo the idea. Pursuing other options: In the months prior to the loan cancellation, the government of Bangladesh had attempted to pursue other options. In April, it signed a Memorandum of Understanding with the government of Malaysia. Under the agreement, Malaysian banks and construction firms would provide financing and construct the bridge. Based on the latest proposal, the government of Bangladesh would have to repay the loan at an interest rate of 6.5% over 12 years, far worse terms than the WB proposal.13 This, in turn, would result in far higher tolls once the bridge was built. Furthermore, tolls would remain high, as the Malaysian government would continue to share the toll revenues for another fifteen years.14 More nationalistic quarters proposed that the government of Bangladesh self-finance the project. While concrete proposals were put forward, self-financing would inevitably impact funding available for other government programs, entail a major drain on the countrys foreign exchange reserves, and require even higher interest payments (estimated optimistically at 7.5% by one advocate of self-financing).15

Towards an agreement: Despite its strong anti-World Bank rhetoric, faced with undesirable alternatives, the Bangladesh government seems to have recognized that it needs the WB to complete the project. Backtracking, the government has sought to address the remaining concerns of the Bank in hopes that the project will move forward. Syed Abul Hossain formally resigned from the cabinet in July, and, after further WB pressure, his resignation was officially accepted in late August. Additional officials, such as Bridges Secretary Mosharraf Hossain, were also sent on leave. More recent attention has been on the Prime Ministers Economic Advisor Moshiur Rahman, who was also named in the investigation. Even if he was not directly involved in corruption, Moshiur Rahman had been designated as the Integrity Advisor for the project. This position was in many ways central to the projects anti-corruption strategy and the means by which the Prime Minister was to take direct responsibility for ensuring the project was free of corruption. As of this writing, there is optimism that Moshiur Rahman will step down and there are indications that the ACC would allow a World Bank panel access to its investigations. Conclusion It now appears that cooler heads might prevail in the Bangladesh government and that steps are being made to meet the World Banks conditions. Nonetheless, a deal still has not been reached, and, even if it is, poor relations might hinder eventual project implementation. Furthermore, the governments commitment to address corruption still appears to be far less than its commitment to defend the honor of its officials.
1

World Bank. 2011. Project Appraisal Document on a Proposed Credit in the Amount of SDR 779.3 Million to the Peoples Republic of Bangladesh for a Padma Multipurpose Bridge Project. Report No. 56512 -BD. World Bank. 2 Ibid. 3 Ibid. 4 Ellen Goldsteinn. 2011. How Padma Bridge will be built. The Daily Star: June 7. 5 Ibid.; WB. Project Appraisal Document. 6 Rejaul Karim Byron. 2011. WB names Abul, his firm. The Daily Star: Oct. 15. 7 See Graeme Smith. 2012. Two former SNC-Lavalin executives charged with corruption. The Globe and Mail: June 24. 8 Sharier Khan and Shakhawat Liton. 2012. Holy or less than an honest person? The Daily Star: July 24. 9 Mustafizur Rahman. 2011. Abul Hossain under fire from cabinet colleagues. New Age: Aug. 14. 10 New Age. 2011. Abul less-than-honest person: Moriarty. New Age: Sept. 3. 11 World Bank Statement on Padma Bridge. June 29, 2012. The World Bank. Available at: http://www.worldbank.org/en/news/2012/06/29/world-bank-statement-padma-bridge 12 Frequently Asked Questions Related to the Cancellation of the World Bank Credit for the Padma Multipurpose Bridge Project. July 17, 2012. The World Bank. Available at: http://www.worldbank.org/en/news/2012/07/17/frequently-asked-questions-related-to-the-cancellation-ofworld-bank-credit-for-padma-multipurpose-bridge-project 13 Munima Sultana. 2012. KL now estimates Padma Bridge cost at $2.8 b Financial Express. Aug. 29. 14 Ibid. 15 Star Business Report. 2012. A roadmap for Padma bridge with local funds. The Daily Star: July 20.

The newly created Center for Enterprise Society (CES) seeks to advance understanding of the opportunities and challenges to entrepreneurship and enterprise development in Bangladesh through objective, academic study. For more information, to access to our blog, to find previous analyses in this series, and for other resources, please visit: http://www.ulab.edu.bd/CES/center-for-enterprise-and-society/