Ghorashal Palash urea factory hamstrung for lack of rail link, enough storage

Limited storage capacity and lack of a rail connection to move its product to market has hamstrung the brand new Ghorashal Palash Urea Fertiliser Factory.

Currently, the factory has to shut down its production from time to time because it cannot move the produced fertiliser fast enough to the market and, secondly, it cannot hold on to its production due to the limited storage.

The state-of-the-art Ghorashal Palash Urea Fertiliser Factory, biggest of its kind in Southeast Asia, went into production in mid-March with the primary goal of significantly cutting the country's dependence on imports of the key agricultural input.

Storage constraints halt production

The factory Project Director Rajiur Rahman Mallik says since the mill does not have storage space to accommodate continuous production, it has to shut down periodically. The factory is also hampered by the lack of a rail link to transport fertiliser from the factory.

With a daily production capacity of about 2,800 tonnes, the bulk storage gets full within seven days of production, necessitating a factory shutdown due to insufficient space.

Rajiur further acknowledged that fertiliser sales targets have not been met due to the current lean period's low demand. However, the Bangladesh Chemical Industries Corporation (BCIC) continues to intermittently procure around 3,000 tonnes of fertiliser a day.

Produced fertiliser is being stockpiled on-site as demand has declined during the ongoing Boro season.

Officials clarified that while the factory was inaugurated in November last year, commercial production only started in mid-March. Early production in November and December could have ensured fertiliser availability for the country's Boro season.

However, due to uncertainties surrounding commercial production, the BCIC secured fertilisers from alternative sources to meet seasonal demand. Consequently, the newly produced fertiliser remained unused.

The factory, constructed for Tk15,500 crore, has a bulk urea storage capacity of 1 lakh tonnes and a bagged urea storage capacity of 15,000 tonnes.

Following the completion of a readiness demonstration, commercial production recently commenced at the factory.

During the trial phase, approximately 104,547 tonnes of fertiliser were produced. Of this amount, 18,614 tonnes have been bagged, while the remainder is stored in bulk.

Loan repayment made using subsidies

Meanwhile, the repayment pressure of foreign loans spent on the construction of the factory keeps growing.

Since the factory was not making enough money by selling fertiliser, the government had to step in for loan instalment repayments. Consequently, the second Japanese loan instalment was covered with government subsidies.

Recently, the Ministry of Industries confirmed that a Tk537.35 crore foreign loan instalment was paid from the agricultural subsidy fund on 13 March in Japanese currency. The instalments are supposed to be paid from funds earned by fertiliser sales.

This was confirmed by BCIC and factory officials, citing their inability to sell the produced fertiliser.

"But, I hope the next instalment of Tk330 crore, which is due in May, can be paid from the factory's revenue," the factory project director Rajiur said.

Railway construction lags behind

A late-February steering committee meeting had identified railways as the most suitable mode of fertiliser transport from this factory.

Since the project began in 2018, the railway construction has seen two deadline extensions, the latest is June 2024.

The committee approved another deadline extension for two years to facilitate the rail link construction.

However, construction of the crucial railway line has not started yet, creating a logistical crisis.

The crisis is expected to be long-term, potentially recurring for the next two and a half years – the estimated construction timeframe for the railway line.

Bangladesh Railway Chief Engineer (East) Md Abu Jafor Mia told TBS that they are going to develop approximately 10 kilometres of rail line as part of an ongoing project.

He noted that physical work on roughly 2.5km track within the factory has recently started and there has been significant progress. The works are currently in the procurement stage for the remaining 7.5km outside the factory perimeter.

Jafor said the tender proposal will be placed before the Cabinet Committee on Government Purchase for approval. After that, the agreement with the contractor will be finalised.

It is anticipated that the works will take around one year to complete after the tender is awarded, he added.

Other issues are also affecting the factory operation besides the railway connectivity. These include a lack of employee housing and the ongoing construction of a regulating and metering station (RMS).

Project extension, additional works

The project's steering committee has granted provisional approval for a two-year extension of the GOB component deadline.

This period will prioritise the construction of the railway line, which officials estimate could take more than two and a half years to complete. The line will connect the factory to Ghorashal Railway Station.

Additionally, the construction of housing and related facilities for factory personnel is planned. This implementation is expected to take six months, while Titas Gas authorities have requested an extension until next August to finalise the RMS construction.

According to Titas Gas Transmission and Distribution Company Ltd Managing Director Engineer Md Harunur Rashid Mollah, opening the LC caused initial delays. The LC is now operational, and physical infrastructure work has begun. Imported machinery has arrived at the project site, with the new RMS expected to be completed by August 2024.

Despite the deadline extension, the project's steering committee has mandated no cost increase.

Loan details and repayment

The project, initiated in 2018 with a budget of Tk10,461 crore, aimed to construct a fertiliser factory in Narsingdi's Palash upazila with a yearly production capacity of 924,000 tonnes.

The original deadline of June 2022 was extended to June 2024 due to delays, with the project cost also rising to Tk15,500 crore.

A significant portion of the project, Tk10,920 crore, is financed by a joint consortium of Japanese and Chinese contractors – Bank of Tokyo-Mitsubishi UFJ Limited and the Hong Kong and Shanghai Banking Corporation Limited. The loan terms are relatively strict, with a combined interest rate of 4.5% including commitment fees and service charges.

The consortium requires repayment of the $1.3 billion loan within 15 years, encompassing the initial four-year construction period. Loan agreement stipulations mandate a Tk330 crore ($3.9 million) payment in US dollars by May. Two previous instalments were already settled in Japanese currency, with the most recent payment occurring on 13 March.