Missed deadline makes Ghorashal Fertiliser a drag on state coffers

The slow implementation of the Ghorasal-Polash Urea Fertilizer Factory in Narsingdi is set to deal a triple blow to the government, hitting where it hurts the most: the state's coffers.

The factory, which was set to go into production last June, now has to start to repay foreign loans even before operations can begin.

Secondly, the problem it was supposed to ease – fertiliser imports – is no longer an option as the government must import the agri input to meet demand.

Finally, the delay has created a fiscal burden on the government at a time when it is implementing austerity measures to counteract high inflation.

The factory, approved in 2018, is now scheduled to commence partial operations from November this year while the loan repayments will begin two months ahead in September.

Without any revenues to meet the repayments, the Bangladesh Chemical Industries Corporation (BCIC), the implementing agency for the project, has requested a budget allocation of Tk1,549 crore from the finance ministry.

The establishment of the urea fertiliser factory began with high-cost foreign loans having an interest rate of over 4.5% instead of the less than 2% charged by multilateral lenders.

Despite the cost the aim was to triple the production capacity of the existing Ghorashal and Polash urea factories by merging the two public limited companies.

The pay-off would have been less reliance on costly fertilisers needed to keep the rice production intact.

The factory's annual production capacity is expected to be 9.24 lakh tonnes, which is significantly higher than the combined capacity of the two existing factories – around 2.5 lakh tonnes.

But with delays becoming synonymous with many government projects, even such a crucial one was not spared from the affliction.
Project officials say the delays stemmed from the long time it took to finalise loan agreement, agreement with contractors and the Covid-19 pandemic.

Rajiur Rahman Mollik, director of the Ghorashal-Polash Urea Fertilizer project, told The Business Standard that the construction of the factory was delayed at the onset of the Covid pandemic immediately after the loan agreement was executed.

Although the factory is scheduled to be inaugurated next November, three new additions were made to the project last October – construction of a new gas regulating and metering station (RMS), a railway line up to Ghorashal station, and residences for officers and workers.

These may lead to an even longer project completion time than the tentative date set.

In the project's steering committee meeting last month chaired by Secretary of the Ministry of Industry Zakia Sultana, the same three factors were identified as the main challenges to full operation of the factory.

The project director said about 74% of the project had been completed till December. The contractor currently employs more than 5,000 workers. If the three challenges can be overcome, production can be started at full speed after the inauguration in November.

By the numbers

The project was sanctioned in October 2018 at a cost of Tk10,461 crore to set up a new factory to produce 9.24 lakh tonnes of fertiliser per annum at the site of the two old factories.

To implement the project, a joint consortium of Japanese and Chinese contractors – Japan International Cooperation Bank, Bank of Tokyo-Mitsubishi UFJ Ltd, and the Hongkong and Shanghai Banking Corporation Limited (HSBC) – provided a loan of Tk8,617 crore as suppliers' credit on relatively harder terms.

The interest rate of this loan, including commitment fee and service charge, comes to 4.5%.

The consortium would have to be paid back the $1.3 billion loan in 15 years, including the slated four-year construction period.

Due to several new additions in October, the cost of the project increased by Tk5,039 crore to Tk15,500 crore and the non-concessional loans now stand at Tk10,920 crore, which will require Tk1,549 crore in the next financial year.

According to sources in the Ministry of Planning, the output of the Ghorashal fertiliser plant was 5,00,000 tonnes of urea per year when it was set up in 1970. By last year, this had come down to half.

For the Polash factory, established in 1985, the production had recently fallen below 80,000 tonnes.

A retelling of crises

A review of the minutes of the steering committee meeting reveals that Titas Gas could not provide gas connection to the factory on a small scale last October as per the master plan.

The regulating and metering station used in the old factory was renovated and connected in December in a limited form with a tender for a new station to be operational by June.

To quicken the pace of establishing the regulating and metering station, the industries secretary also wrote a letter to the Petrobangla chairman to increase communications with Titas Gas and relevant parties.

The construction of the railway line from the factory to Ghorashal to transport the produced fertiliser could not begin as Bangladesh Railway officials say rates were hiked due to the rise in the cost of construction materials. The new rates were pending approval from the finance ministry.

There remain doubts whether the work can be completed by November as the tender process for it has not started yet. Without the railway line, the project may not be completed.

The project director also said the Ghorashal Polash Fertilizer Public Limited had not responded to six letters requesting it to vacate the construction site of 66 buildings needed for various reasons.

Meanwhile, the project is increasing the pressure on the government funds. The Ministry of Industries has written to the Planning Commission seeking an additional Tk555 crore for the project under the Annual Development Programme (ADP) of the current fiscal year.

In the current fiscal year, the government allocated Tk300 crore from its own funds. In the revised ADP, the BCIC had asked for Tk855 crore.

'Great example of inefficiency'

Sanem's Executive Director and Professor of economics at the Dhaka University Selim Raihan termed the whole issue as a great example of inefficiency in government fund management.

He said the financial pressure had increased a lot in recent times without seeing an increase in revenue.

There was also a downward pressure on foreign exchange reserves. In this situation, a loan to the BCIC will hurt the government.

He also said due to the gas crisis, production has stopped in many fertiliser factories, alongside other industries.

"Because of this, even if the factory is inaugurated, it will be difficult to repay the loan by selling fertilisers."

In this situation, Raihan advised to seek extra time to begin repaying loans.

Rajiur Rahman Mollik, project director, told Business Standard that although the project was approved in 2018, it took around a year and a half to get a guarantee from the Multilateral Investment Guarantee Agency (MIGA) on commercial loans.

The work could not be started due to the outbreak of the Covid-19 virus within a few days of the execution of the loan agreement in March 2020.

After five months, work began on a limited scale, but foreign consultants and engineers joined the work in person after another eight months. Due to all these reasons, the work was not completed on time.

Stating that the main work of the project, i.e. setting up the factory, was slightly delayed, he said the contractor asked for an additional time of only six months.

Due to the postponement of the contractor's work, they sought an additional six months to repay the loans, but there was no positive response from the lenders, he said.

Regarding the demand for additional allocation in ADP in the current financial year, he said the expenditure has increased a lot due to project revision. The entire amount of additional expenditure should be utilised in the current and next financial year.

Due to this, an additional Tk555 crore has been requested in the current financial year's ADP.

Prime Minister Sheikh Hasina will inaugurate the factory next November, he informed.