India may link additional diesel supply to progress on Bangladesh projects
India is reportedly weighing a request from Bangladesh for additional diesel supply, with the possibility of linking any increase to progress on stalled Line of Credit (LoC)-funded infrastructure projects in Bangladesh.
Several LoC-funded projects between India and Bangladesh have remained stalled amid a slowdown in project disbursement and implementation following the political transition in Bangladesh in August 2024.
Diesel supply to Bangladesh currently moves through the India-Bangladesh (Indo-Bangla) Friendship Pipeline, a cross-border pipeline connecting Assam's Numaligarh refinery to Bangladesh's Parbatipur depot.
The evolving diesel-and-LoC linkage reflects the broader recalibration of India-Bangladesh economic engagement since the change in government in Dhaka.
Line of Credit (LoC) as a Tool of Indian Development Diplomacy
A Line of Credit (LoC) is a concessional loan extended by the Government of India, through the Export-Import (EXIM) Bank of India, to a foreign government to finance the purchase of Indian goods and services for developmental projects. LoCs are India's principal instrument of development partnership diplomacy, distinct from grants (non-repayable) and pure commercial loans.
Key Details
- LoCs are extended under the Indian Development and Economic Assistance Scheme (IDEAS), administered by the Ministry of External Affairs through the EXIM Bank.
- Bangladesh is the largest recipient of Indian LoCs among all countries, having received cumulative commitments exceeding USD 8 billion across multiple tranches since 2010.
- LoC funds are tied — they must be used to procure at least 75% of goods and services from Indian suppliers, distinguishing them from untied multilateral development loans.
The diesel-supply linkage being considered ties a bilateral trade benefit (fuel supply) to progress on execution of these India-funded LoC infrastructure projects, several of which have stalled since 2024.
India-Bangladesh Friendship Pipeline
The Bangladesh-India Friendship Pipeline is a 131.57-km cross-border pipeline (approximately 126.57 km in Bangladesh, 5 km in India) connecting India's Numaligarh Refinery in Assam to the Parbatipur fuel depot in Bangladesh's Dinajpur district, built to supply high-speed diesel to northern Bangladesh.
Key Details
- Jointly inaugurated in March 2023; construction of the Bangladesh-side pipeline (approximately 126.57 km) was financed through an Indian Line of Credit of roughly ₹300 crore.
- Under a 15-year supply agreement, Bangladesh Petroleum Corporation (BPC) can import between 250,000 and 400,000 tonnes of diesel annually via the pipeline.
- The pipeline reduces transport time and cost compared to earlier rail-based diesel imports, and is designed to be extended further into Bangladesh — an extension project that was paused amid the 2024 political transition.
Any additional diesel supply requested by Bangladesh beyond existing pipeline capacity would need to be assessed against the pipeline's contracted annual volumes, while the extension project itself is among the stalled LoC-linked infrastructure works cited in the current linkage discussion.
India's Neighbourhood First Policy and Economic Diplomacy
India's Neighbourhood First Policy prioritizes economic, connectivity, and developmental cooperation with immediate neighbours, using instruments such as LoCs, grants, connectivity projects, and energy trade to build interdependence and goodwill.
Key Details
- Energy cooperation (diesel, LPG, and cross-border electricity trade) is a core pillar of India-Bangladesh economic ties alongside connectivity (rail, waterways) and trade facilitation.
- India also supplies Bangladesh with power via cross-border transmission links, including from the India-backed Adani Godda thermal plant supply arrangement.
- Since the political changes in Bangladesh in August 2024, India-Bangladesh engagement has continued at the foreign-ministry and diplomatic level even as some connectivity and infrastructure commitments have slowed.
Linking additional diesel supply to LoC project progress represents a recalibration of the Neighbourhood First economic toolkit — using an immediate energy-trade lever to encourage movement on stalled bilateral infrastructure commitments.
- Bangladesh-India Friendship Pipeline: 131.57 km total (126.57 km in Bangladesh, 5 km in India); inaugurated March 2023; links Numaligarh Refinery (Assam) to Parbatipur depot (Dinajpur).
- 15-year diesel supply agreement: 250,000–400,000 tonnes annually via the pipeline; the Bangladesh-side construction was financed via an Indian Line of Credit of roughly ₹300 crore.
- Bangladesh is the largest cumulative recipient of Indian Lines of Credit among all countries, with commitments exceeding USD 8 billion since 2010.
- LoCs are administered by the EXIM Bank of India under the Ministry of External Affairs' IDEAS scheme; funds are tied to procurement of Indian goods/services.
- Several India-funded LoC infrastructure projects in Bangladesh, including the pipeline extension, have remained stalled since the political transition in Bangladesh in August 2024.