Change Initiative

1. Prepared by: Harunur Rashid (Shams)
Independent Economic Analyst & Researcher, DCCI
A Comparative Analysis of Connectivity and
Economic Benefits for Bangladesh

2. Outline
• Background
• Trade Gap and Transit
• Connectivity Facilities: Building Costs and Benefits
• Connectivity fees, tolls and transport service charges.
• Political Economy of Connectivity
• BCIM Economic Corridor versus BBIN
• Asian Highway (AH) and Silk Road
• Study Methodology
• Findings and discussions

3. Study Objectives
 To examine whether the benefits of multilateral connectivity will
be higher than bilateral connectivity facility
 To examine whether the Core Committee Transit (CCT)’s
proposed charges for connectivity between Bangladesh and
India is beneficial to Bangladesh

4. Background of the Study
 Bangladesh can be a communication hub due to geological position
 Multilateral connectivity can exert benefits through revival of the ancient silk-route.
 Bangladesh can become like Singapore, reap technology transfer from China and
connect with South Asia and rest of the world by road and maritime silk-rout.
 Bilateral Connectivity facility with the Indian North Eastern Region (NER) through
Bangladesh may on average reduce 1000 km distance for Indian traders to
transport their goods from the mainland of India to NER (North Eastern Region of
India).
Bangladesh could gain extra economic benefits
1. Reduction of trade deficit with India as it stands at US$8 billion, as extra added
9% trade deficit annually threatens terms of trade. (Export $873.27 Million & Import $8621.38
Million FY 2017-18
2. Charges and fees on Transit Route
3. Trade Diversion Determines benefit

5. Trade Gap and Connectivity
• If envisaged trade diversion is not happened along with expected charges,
the infrastructure cost will become an extra burden for emerging low-
middle income.
• Bangladesh imported about USD 8.62 billion from India in the last FY
2017-18 as against total exports worth of USD 873 million.
• Bangladesh has to initiate the first round project and US$1.8 billion for
construction of the preliminary infrastructure.
• CCT report informed around BDT 48,000 crore is required in next 10 years
for the connectivity related infrastructure development.
• The economic connectivity and transshipment without specifying the
documentation need, sensitive list of product, the country will bring its
woes.

6. Transshipment /Transit Facilities to India
• The maintenance cost could be about BDT 350 to 400 million each year.
• To avoid congestion at Dhaka city the 50 km Gazipur-Narsingdi Feeder road and a new
Tangail-Bhairab by-pass road stretching over 150 km should also be constructed.
Possible Routes for Transit
Between India-Bangladesh
Distance Remark
Benapole – Tamabil
Benapole – Akhaura
686
437
Via Dhaka. May serve all states except Tripura
and Mizoram.
Useful for Tripura, Mizoram, Manipur, Nagaland.
Hili – Tamabil
Hili – Akhaura
650
404
Can serve all Eastern and NE states equally well.
Banglabandh – Tamabil-
Banglabandh – Akhaura
876
627
Longest distance between Western and Eastern
border
Rohanpur – Tamabil
Rohanpur – Akhaura
763
416
May serve all Eastern & NE states well.
-do-

7. Benefits of India Through Transit
Road and Highway Indian Traffic Trip
Per Day
Indian Money Save
Per Truck / Per Trip
Total Money Save
Number of Traffic 500 $200 $100,000
Total Earning if Tk. 50 per 100 Km is charged as Transit
Fees considering the Asian Highway
For heavy trucks Distance Tariff
Earning
Inflation
Rate (%)
Inflation
amount
Year Inflated
Money
Imposition
Banglabandh – Tamabil 811 405.5 5.6 22.71 5 113.54 519.04
Tekhnaf Coxbaza-Mongla 911 455.5 5.6 25.51 5 127.54 583.04
Benaple-Tamabil 465 232.5 5.6 13.02 5 65.10 297.60

8. If the transshipment/connectivity fees would be determined at BDT318.3 Per 100 Km as proposed
by the CCT the imposition rate would range from 297.6 to 519.04.
For
Heavy trucks
Distance Tariff
only
Inflation
Rate
Inflation
amount
Year Inflated
Money
Impositio
n
Banglabandh – Tamabil 811 2578.98 5.6 144.42 5 722.11 3301.09
Tekhnaf Coxbaza-Mongla 911 2896.98 5.6 162.23 5 811.15 3708.13
Benaple Tamabil 465 1478.7 5.6 82.81 5 414.04 1892.74

9. Recently ADB has develop a policy
paperaiming to reconnect lagging
behind regions of Bangladesh with the
help of economic zones and to facilitate
decentralization from Dhaka.
Alamgir, M (2016) mentioned that the
government is paying more attention
on facilitating connectivity than
development of economic corridor for
inclusive development.
There is a concern on what extent the
Asian Highway or Economic corridor
would create trade diversion or benefit
Bangladesh most.

10. Total Cost has been determined to BDT201Billion (or USD 2.52 billion)
for construction of those proposed Asian Highway (Source: CCT).
On the other hand, savings of the Indian transport would able to save
US$0.1 million per day considering the per day 500 trips of Indian
trucks.
Table 1: Savings of Indian Transport Per Day/USD
Road and Highway Indian Traffic
Trip Per Day
Indian Money Save
Per Truck / Per Trip
Total Money
Save
Number of Traffic 500 $200 $100,000
Source: Younus, 2013 and CCT

11. Benefits of India- CCT Report
• Without this route, via Shilliguri-Shillong to Agartala, the distance
becomes 1600 km.
• CCT report, informed corridor would save US$210 per truck for
shortening of distance by 600 km.
• Indian traders have to spent US$15 while now they have to expenses
US$25 transport cost per ton.
• They now spends about Rs 100 billion every year in c/w transportation
across Shiliguri.
• If India contributes a half of this amount, both countries will be benefited
and Bangladesh would earn Rs. 50 billion, or BDT 60 billion every year.
• Bangladesh might lose export amounting around USD 200 million dollar
to India’s seven sister states.

12. Connectivity fees and transport charges
• The Core Committee proposed road usage charge at BDT 318.3 for every 100 km for
heavy trucks and BDT 215.9 for buses.
A. But Bangladesh decided to charge only BDT 52 for use of its roads
B. Bangladesh imposed tariff fee of BDT 192 instead of BDT 1058 per ton.
C. Of which the customs department will get BDT 130, roads and highways BDT 52 and inland
water transport authority BDT 10.
• These fees lacked adequate foresight and ignored required investments to develop
necessary infrastructure.
• Bangladesh has to invest more than USD1.5 billion for making additional
infrastructure . Of which India provided tide loan USD 1 billion .
• This loan must be repaid with 1.75 percent interest rate within 20 years and 5 percent
extra commitment fees are added.
• Ultimately, the interest rate stood at 6.75 percent which is more than the international
donor agencies rate.

13. Political Economy of Connectivity with India
Connectivity could be used as a tool to resolve other long-standing
bilateral issues between Bangladesh and India
 Teesta water treaty
 Determination of geological border
 Connectivity with Bhutan and Nepal
 Fencing in border areas, Border killing
 Water sharing of transnational 54 river s
 Inland water connectivity project initiated
 Farraka dam
Bi-lateral verses Multi-lateral Connectivity
 BCIM Economic Corridor versus BBIN
 Revival of the Silk Road

14. Study Methodology
Analytical Method
• The study keenly focused on estimating the net present value (NPV) and other statistics
like internal rate of return (IRR) and benefit cost ratio (BCR) to determine the benefit and
cost.
• NPV=Today’s value of the expected cash flows−Today’s value of invested cash.
• The internal rate of return (IRR) is a metric used in capital budgeting to estimate the
profitability of potential investments.
• If a project has a BCR greater than 1.0, the project is expected to deliver a positive net
present value to a firm and its investors.
• Where, Bn stands for the benefits in year n, Cn for the costs in year n and r for the
discount rate. The standard decision rule was followed to draw the conclusion.

15. • The study uses several parameters in estimating NPV,
BCR and IRR values:
Transshipment charges
Benefits of connectivity
Building physical capacities, maintenance and associated
costs
Trade potential and potential diversion
Cross-cutting issues like berthing, congestion costs
Freight of Vehicle in Three Connectivity Routes
Study Methodology

16. Data collection
For analytical model
• The study uses data from secondary sources like
published journals, books, unpublished reports, and
relevant papers.
For stakeholders’ perception
• Stakeholders qualitative survey was carried out to
understand the perception of the relevant stakeholders
about connectivity related issues

17. Study Findings
Measurements Current
connectivity
fees (192
BDT/ton)
Charges
over 435
(BDT/ton)
charges
At 800
(BDT
/ton)
charge
Expected
Benefits
(Optimum Fees)
Overall remarks
Net Present Value
(Million USD)
-80 >0 108 278.64 The obtained value of
NPV, BCR, NBCR
suggest that the
project can generate
a stream of benefits
and the discounted
total benefits will
exceed the
discounted total
associative costs
Benefit Cost Ratio
(BCR)
For the current rate, Bangladesh would
loss equivalent to around 80 USD million
per year. However, the neutral (no loss, no
gain) situation would hold if the fees
determined at 435 BDT/ton and if fees
would be further increased to 800
BDT/ton yield NPV value would be
US$108 million.
2.27
Net BCR 1.27
IRR 26 percent

18. Study Findings
Deviance of transshipment charges and like impacts
• As discussed in the methodology, the NPV value is linearly associated with transshipment charges.
• If other things remainstable, an increase in the transshipment charges would increase the NPV value.
The converse is also true.
• At this low transshipment, if transshipment charges are fixed at 10 percent as suggested by the CCT,
the NPV value would be a negative one (USD-104 million).

19. Volume of transshipments and NPV value
• The volume of transshipments is one of the key variables in determining the benefits of the project.
• The future size of NPV depends on the optimal volume of transshipments.
• As there is a relationship between the transshipment charges and the NPV value, the NPV value is also
proportional to the potential volume of transshipment implying larger the volume of transshipment,
the larger is the volume of NPV.
• The result shows that if 50 per cent of the target is achieved, the project would yield a positive NPV
value equivalent to USD 65 million.
• If full target is achieved, the NPV value would reach to around USD278 million. If the volume of
transshipment increases due to multilateral connectivity, the NPV would also continue to increase.
The sensitivity of NPV to volume of transshipment

20. Negotiable fees rate, the percent of fees proposed by CCTPercentageoftradediversion
30% 34% 38% 42% 46% 50% 54% 56% 58% 60%
50% -83 -75 -66 -58 -49 -41 -32 -28 -24 -20
55% -77 -68 -58 -49 -40 -30 -21 -16 -11 -7
60% -71 -60 -50 -40 -30 -20 -9 -4 1 6
65% -64 -53 -42 -31 -20 -9 2 8 13 19
70% -58 -46 -34 -22 -10 2 14 20 26 32
75% -52 -39 -26 -13 0 12 25 32 38 44
80% -45 -31 -18 -4 9 23 37 43 50 57
85% -39 -24 -10 5 19 34 48 55 63 70
90% -32 -17 -2 14 29 44 60 67 75 83
95% -26 -10 6 23 39 55 71 79 87 95
100% -20 -3 15 32 49 66 83 91 100 108
105% -13 5 23 41 58 76 94 103 112 121
110% -7 12 31 49 68 87 106 115 124 134
115% 0 19 39 58 78 98 117 127 137 147
• It might be ambitious, if we assume that trade diversion would increase from current level to 50-
135 percent and implementation of CCT rate is at 60 percent.
• Then the possibility of becoming beneficiary is logically expected and Bangladesh would be
benefited from the connectivity agreement with India.
• If trade diversion increases from 50 percent and beyond, what Younus, M. (2016)predicted then
the possibility of earning USD5 billion annually after five year is possible but it is over
expectation.
Trade Diversion and Connectivity
Charges
• If 60 percent of the CCT proposed
rate is implemented at maximum
level, while the trade diversion is
low, charge would not make any
favor to Bangladesh.
• Only trade diversion through
transshipment could increase
vehicle freights from mainland
India to NER, can make beneficial
condition for Bangladesh.
• But, there is a concern that
Bangladeshi export or trade
possibility with NER is not much
high.

21. Stakeholders' Opinion Survey
• Considering the contribution to research as well as engagements in the
international trade and commerce fifty respondents including experts
from Bangladesh and India were selected randomly from the primary
list of experts and stakeholders
• Survey was carried out in February 2017.
• A semi-structured questionnaire was used to collect opinions
• Among the respondents, 38 were relevant academicians/researchers,
10 were entrepreneurs and traders and 2 were customs officials.
• Among the respondents, 18 were PhD degree and 29 respondents
completed university/masters degree in the field of economics, finance
and commerce.

22. Earlier the Bangladesh Tariff Commission proposed Tk 1,058 per ton
as transshipment fee, but the government finally agreed upon only
Tk 192 per ton. Do you think that is justifiable?
20.0
64.0
16.0
Yes
No
Not Sure

23. Do you think that Government should consult with all
stakeholders adequately to determine the
connectivity/transshipment fees?
98%
2%
Yes No

24. To your understanding/experiences, which type of connectivity
facilities would be more beneficial to economy of Bangladesh?
.0
35.0
70.0
12.0%
68.0%
20.0%

25. Recommendations and way Forward
• Given cost-benefit analysis, any value less than BDT435 is not
economically beneficial to Bangladesh .
• Revival of the BCIM corridor and Silk-route along with the connectivity
through Asian Highway is the efficient option in terms of economic gain
through trade diversion.
• Bangladesh should reap the benefits of transporting goods to Nepal and
Bhutan by using the territory of India.
• The rates of transshipment should be revisited between Bangladesh and
India
• Marginal saving of the cost generated through the connectivity facilitation
must be distributed on the basis of benefit sharing

26. • The charges related to congestion (at port and in roadways) and water
pollution should be considered critically to control the potential traffic of
cargo.
• Infrastructure development should not be delayed since further delay would
not only increase cost escalation in terms of cost overrun and time overrun
but also will offset the possible spillover benefits.
• Bangladeshi vehicles and ships should be the preference while transfer goods
from India.
• Imposition of sensitive list of product on transshipped product by India.
• Before allowing the use of Chittagong and Mongla Ports, the deep sea port of
Shonadia, Payra and Matarbariare required to be constructed.
Recommendations and way Forward