State-Run Jute Mills: Govt going for lease to private

The government has decided to lease out all 25 state-run jute mills to the private sector despite initial plans of reopening them either through joint venture, public-private partnership, or a government-to-government (G2G) agreement.

A nine-member inter-ministerial committee has nearly finalised the terms and conditions of the lease contracts and international tenders for this purpose might be issued within a week or two, said sources at the Bangladesh Jute Mills Corporation (BJMC).

According to BJMC and ministry sources, it has been decided to lease out the mills for a period of five to 20 years through an open bidding system.

The government closed all state-run jute mills on July 1 last year due to heavy losses and excessive production costs, laying off more than 50,000 workers in three categories -- permanent, temporary, and substitute.

At the time, the Ministry of Textiles and Jute in a press release stated that the mills would be modernised and reopened soon through joint venture, PPP, or a G2G agreement.

Later on July 16, a 13-member technical committee was formed to suggest ways to reopen the mills. It also recommended leasing out the mills to the private sector for a short term besides the options of joint venture, PPP and G2G.

The BJMC and ministry have now decided on the short-term contracts and are currently considering leasing out the mills, along with some of the land, as its first priority, said BJMC Chairman Abdur Rouf on February 20.

Talking to The Daily Star again yesterday, "Our decision is to modernise and reopen these mills through private management while the state ownership will remain in place.

"This is what we mean when we talk about leasing out the mills to the private sector."

Contacted, Secretary of the Ministry of Textiles and Jute Mohammad Lokman Hossain Mian said the options to go for a G2G agreement, PPP, or other forms of investment are still there.

"If we don't get proper response in this [leasing] process, we might consider these options. We cannot comment on this issue any further," he said.

According to the BJMC chairman, the government will not spend any money to modernise the mills. At most, it can remove the old machinery if the investors want them to do so.

The BJMC will remain as a monitoring body to oversee whether the investors are complying with the terms and conditions. BJMC will also lay off 90 percent of its 2,900 staff officers and maintain a small workforce only to monitor compliance issues.

The BJMC had earlier been reluctant to lease the land that comes with the mills to private investors.

Also member secretary of the technical committee, Abdur Rouf had told The Daily Star in September last year, "BJMC had bad experience leasing out the entire mills to the private sector for a longer period of time. Many businessmen tried to grab land and misused the mills."

To prevent such a situation, the technical committee had recommended that only the mills might be leased to industrialists and all the land would be kept under government control.

When asked last month why the decision about leasing the land has changed when there is previous evidence of land grabbing, Abdur Rouf said, "Land adjacent to a mill will also be leased so that the investors can extend the plant if necessary or build necessary infrastructure."

"However, he added, "land that is not adjacent to the mill – like the land for workers' and officers' quarters -- will not be leased out.

"For instance, one of our largest jute mills encompasses 113 acres of land. We have calculated that if we lease out the land adjacent to the mill, at most 50 acres will be leased out in the process. The remaining 63 acres will be under our control."

EXPERTS, INDUSTRIALISTS SCEPTICAL

Industrialists said the duration of the contract is too short and their demands for bank loans on easy terms have not yet been addressed.

Chairman of Bangladesh Jute Spinners Association Md Zahid Miah said, "I have been saying it for a long time that without a long-term contract, like for 99 years, investing in these mills will not be feasible. The mills and their equipment are so old that an investor will have to start from scratch.

"Getting bank loans and importing and installing new machinery will take time and if everything goes in the right direction, then the lease term will end just at the time when the investor will start to make profits. They [BJMC] might tell you that they will renew the contract but this can never be said beforehand."

Chairman of Bangladesh Jute Mills Association Mohammed Mahbubur Rahman Patwari said, "If the duration is so short and the land is not leased, no bank will be interested to give loans. The government should take special measures to sanction loans for the investors of these mills on easy terms."

Executive Chairman of Bangladesh Investment Development Authority Sirazul Islam said, "The locations of the jute mills are very lucrative and there is a large amount of land on their premises.

"If the government wanted to use these properties for other industries, many Bangladeshi and foreign investors would have come forward. However, the decision so far is to lease out the mills exclusively for jute industries."

Research Director at Centre for Policy Dialogue Khondaker Golam Moazzem said, "It seems that this plan has been adopted to sustain BJMC's regulatory power by maintaining large-scale jute mills. To ensure effective privatisation, BJMC's activities should be stopped in the first place.

"We have said previously that the large mills should be replaced with small and medium-scale privately run mills. The existing infrastructure and real estate can also be handed over to BEZA [Bangladesh Economic Zones Authority] who can establish economic zones to attract investment in more profitable industries."

He added, "The government can also incentivise the jute industry in these economic zones which will attract businessmen to invest in the jute mills."

Investors are also alarmed by the unsettled financial liabilities of these mills -- which amount, at present, to more than Tk 1,000 crore in unpaid loans to various banks. The mills also owe more than Tk 250 crore to raw jute merchants who have been clamouring for their dues for a long time, according to BJMC sources.

CPD's Moazzem said, "Before leasing out these mills, the government must clear all of the unsettled financial issues of the mills. Otherwise, there will be legal difficulties in getting bank loans."

In this regard, BJMC Chairman Abdur Rouf asserted that the government will clear these dues by the next fiscal year. He also said it will be mentioned in the contract, that the investors will not be liable for unsettled financial issues.