Bangladesh and India, adversaries on and off since Bangladesh broke off from Pakistan with India’s help to became a separate nation in Pakistan in 1971, have agreed to build US$1.5 billion a coal-based power plant that could be a much-needed shot in the arm towards improving economic ties between the two.

Hardly more than a month ago, tensions mounted along the India-Bangladesh border following the discovery of a video showing Indian border guards torturing a Bangladeshi cattle smuggler. Shot on a mobile phone camera, the video contained graphic footage of several men wearing the uniforms of India’s Border Security Force stripping a Bangladeshi man in his 20s completely naked and then tying him to a bamboo pole in a manner resembling a crucifix, then beating him as he screamed.

Despite sharing a 4,000 km border – the fifth longest land border in the world – and cultural, historical, and linguistic ties, Delhi and Dhaka have failed to realize their trading potential since India helped Bangladesh become independent from Pakistan in 1971.

Religious tension, illegal immigration and water sharing disputes over the numerous rivers that snake through both countries have dominated discussions rather than talk of mutual infrastructure and development projects like the coal-based power plant being built in Bagerhaat district in southern Bangladesh. When such agreements have been mooted or even signed, they have mostly failed to get off the ground.

Frustratingly for those advocating greater cross-border commercial activity in the region, plans between the two countries have thus rarely transformed into reality. If the coal-based power plant project materializes, it will represent a major first in India-Bangladesh economic cooperation.

“Bangladesh is a big potential market for India, and India is a big potential market for Bangladesh,” says Mustafizur Rahman, the executive director of the Center for Policy Dialogue, a Dhaka-based think tank.

Bangladesh’s 150 million population is starved for electricity. Daily power outages in the capital during the peak summer months from mid-March to mid-October can often last for longer than 10 hours. The situation is even worse in the rural areas of the country, and in many villages electrification has still not arrived.

A daily shortfall of 2,000 megawatts (MW) is blamed for slowing down the country’s economic growth. The coal-based power plant is expected to meet much of this excess demand, producing 1,320 MW every day.

Most of Bangladesh’s domestic energy output comes from elderly gas-fired plants whose output is projected to decline. Officials say that Bangladesh’s once sizable gas reserves are almost spent thanks to overuse and poor management. Less than a decade ago a 2003 study by the government’s Energy and Mineral Resources Division estimated that there were over 28 trillion cubic feet of reserves available.

The latest official statements say that there are only 8 trillion cu. Ft. of reserves left in the country.

This rapid depletion means the Bangladeshi government is more eager than it was in the past to exploit its domestic coal reserves – believed to be around 3.3 billion tons – providing India with an opportunity to step in with a helping hand.

Previous attempts at fostering relations were marred by the presence of hostile governments on one or both sides of the border. But in 2009 when the India-friendly Awami League came to power in Bangladesh at the same time as the re-election of the Congress Party in India, there were expectations that this would mean a new era in regional cooperation. After all, Indira Gandhi’s Congress party had actually led India into war against Pakistan to aid Awami League-led Bangladesh (then East Pakistan) in its struggle for independence in 1971.

Since 2009 there have been efforts to make headway, but they have all stumbled. In August 2010 India unveiled – to much fanfare – its decision to extend a US$1 billion credit line to Bangladesh for 21 infrastructure projects. This January Dhaka announced that it would be abandoning several projects under this credit line due to ‘tough conditions,’ including the requirement that 85 percent of goods and services be procured from India.

There is resistance to the coal-based power plant too, with the objections raised mostly related to but not limited to environmental concerns.

“Seventy percent of the funding will come from foreign aid, while India and Bangladeshi governments will fund 15 percent each. This is a 50-50 partnership they say, so this raises the question: what will happen with 50 percent of electricity output? Will it go to India? This is unclear to us. If that is the case then India will be getting 50 percent of the electricity for paying 15 percent of the cost, while Bangladesh will be bearing 100 percent of the environmental damage,” says BD Rahmatullah, the former Director General of the Bangladesh Power Development Board which is responsible for the coal-based project.

There are fears too in Bangladesh that opening doors to its giant neighbor could lead to an imbalanced relationship.

“At present the government to government relationship might be good, but people to people relationship is worse, it is very bad,” Rahmatullah said. “Every day near the border they are killing people, arresting people. People on our talk shows are saying ‘they have so much conflict with Pakistan, but they never kill any Pakistanis at that border’. They have so much favor with us, but they kill our people – they must not like us.”

But Rahman says that to for India to continue to ignore Bangladesh, and for Bangladesh to continue to resist engaging with India, is folly.

“India is becoming an economic superpower, how we can take advantage of this is something we should pay attention to,” said Rahman. “Bangladesh is in a critical geographical position if India wants connectivity with its northeast’s seven sister states, and with Burma. India’s northeast cannot be developed without Bangladesh's cooperation. To do big infrastructure investment there India has to go through Bangladesh.”

“Bangladesh will find it easier if we improve financial and economic relations. Talking about Bangladesh becoming a vassal state is less useful than actually taking part of what is going on in the region,” he added.