The government's bid to pay off Russia's dues -- of about $330 million -- for the Rooppur power plant using the Chinese yuan has run into fresh complications after the last round of sanctions by the US on Russia.

Earlier on April 12, the US imposed sanctions on over 120 targets, including JSC Nauchno-Issledovatelsky i Konstruktorsky Institut Montazhnoy Tekhnologii Atomstroy (NIKIMT), the engineering, procurement and construction (EPC) contractor of the Rooppur power plant.

The current dues for the Rooppur power plant -- which is for a $500 million loan agreed upon in 2013 for the project's primary work -- are to NIKIMT.

Last week, in an internal meeting, Bangladesh Bank officials weighed on the risks of sending payment instructions via SWIFT to China for the sanctioned entity, The Daily Star has learnt from officials familiar with the discussions.

The BB officials deemed the transaction to be dicey as it might land the country afoul of the US and conveyed as much to the Economic Relations Division, the government wing that deals with foreign loans.

"No final decision has been taken, but we won't do anything that is prohibited or underhand," Md Abul Bashar, acting BB spokesman, told The Daily Star on June 14.

At present, the dues for the Rooppur power plant are kept in an escrow account, a kind of trust fund managed by a third party.

Bangladesh has a correspondent account in the Bank of China.

"If there is any threat, they will let us know. If they agree to take payment, we will pay," Bashar added.

"No final decision has been taken, but we won't do anything that is prohibited or underhand."

— Md Abul Bashar, Acting BB spokesman

The US sanctions on NIKIMT were announced during the four-day meeting with the Russian delegation led by Georgii Chizhenkhob, deputy director of Russia's finance ministry's department of public debt and sovereign financial assets, where the preliminary agreement to pay in yuan was struck.

The meetings were held in Dhaka from April 10 to April 13, The Daily Star has learnt from finance ministry officials involved with the proceedings.

At the meeting, the Bangladesh side led by ERD Secretary Sharifa Khan let the Russian delegation know that it would not be possible to make payments in roubles, the Soviet nation's currency.

As per the loan agreements signed with Russia for the power plant, Bangladesh is to repay the loan in dollars.

That became unfeasible after Russia invaded Ukraine in February last year as some of the largest banks of the Soviet nation were expelled from the SWIFT financial system, which handles the vast majority of cross-border payments.

The Bank for Development and Foreign Economic Affairs (VEB), a Russian state-owned institution handling transactions for the Rooppur project, was among those expelled.

After that, Russia has been pushing for payment in roubles from Bangladesh.

Under the current monetary policy, Bangladesh can only deal with the SDR currency of the International Monetary Fund, Khan told the Russian delegation at the meetings.

"Bangladesh is not in a position to repay the Russian credits for the Rooppur project in rouble," she said, while pushing for yuan as the preferred option for payments.

In 2016, the IMF added the yuan to the basket of currencies that make up the Special Drawing Right (SDR).

Russia agreed to the proposition.

The exchange rate applied for the payments would be the USD/CNY Central Parity Rate quoted by the China Foreign Exchange Trade System 10 business days before the actual date of payment.

Bangladesh will send advice to the Bank of China for transferring the yuan equivalent of dollars due calculated at the applicable exchange rate to the correspondent Russian bank account.

Also at the meeting, the dispute regarding the commitment fee for the $11.38 billion Russian loan for the project was settled.

Before the start of a year, the two sides agree on an amount that Russia would disburse in the forthcoming year for use on the project. If Bangladesh cannot use the amount during the course of the year, a commitment fee amounting to 0.5 percent of the unutilised amount must be paid.

At the meeting, the Bangladesh side furnished evidence that the EPC contractor's estimates of fund that would be needed in the forthcoming years was "highly inflated", so the annual credit amounts could not be used in full.

For instance, in 2019, 48.91 percent of the funds could be used, and in 2022, just 39.15 percent.

"As a result, Bangladesh has been paying huge amounts of commitment fees for the past years and which will potentially grow further from year to year. This is the most pertinent issue for Bangladesh," Khan said at the meeting.

It was then decided that the commitment fee would be capped at $0.25 million and will be applicable for outstanding and future dues.

Also at the meeting, the interest rate that would be applied was settled.

When the loan agreement was signed, the six-month LIBOR rate was used as the interest rate. LIBOR has been replaced by SOFR in June 2023.

The new interest rate would be the six-month term SOFR, fixed spread adjustment equal to 0.42826 percent and a margin of 1.75 percent.

The six-month term SOFR rate at present is about 5.3 percent, so Bangladesh would have to pay a hefty interest.

But, it was decided that the interest rate would be capped at 4 percent.