Bank guarantee new headache for Bepza EZ investors

Three Chinese-owned factories in the newly opened Bangladesh Export Processing Zone Authority (Bepza) Economic Zone at Bangabandhu Sheikh Mujib Shilpa Nagar in Chattogram are facing difficulties due to a new bank guarantee rule imposed by the Chattogram Customs Bond Commissionerate.

These export-oriented factories must provide bank guarantees to release their imported raw materials, a rule not present in other EPZs (Export Processing Zones) in Bangladesh. This is causing delays and financial burdens for the companies.

Chinese investors Kaixi Lingerie Bangladesh Co Ltd, Fengqun Composite Material Co (BD) Ltd, and KPST Shoes (BD) Co Ltd started production and export activities in November last year.

According to Bepza, they have submitted bank guarantees totalling Tk2.55 crore in 15 consignments to release imported raw materials at the Chattogram Customs Bond Commissionerate.

KPST Shoes (BD) Co Ltd submitted Tk82.3 lakh in six consignments, Fengqun Composite Material Co (BD) Ltd submitted Tk74.21 lakh in six consignments, and Kaixi Lingerie (BD) Co Ltd submitted Tk98.61 lakh in three consignments.

Investors report financial losses due to the dollar crisis, increased dollar prices, and a global trade recession. Additionally, they struggle with labour shortages and inadequate infrastructure, including housing, water, utilities, and road connections. The bank guarantee complexity worsens these challenges.

A senior official from one of the establishments told TBS that despite various crises, they have already started production after completing the factory construction.

"We need 4,000 workers but have only 1,000. The labour shortage prevents full production, causing us to run at a loss. The bank guarantee complexity has become a major discomfort for us. The delay in releasing goods from the port due to these guarantees has also delayed production, harming foreign investment companies financially," he added.

Mohammad Anamul Haque, project director of Bepza Economic Zone, told TBS that Bepza acts as the guarantor for the companies in this zone.

He said, "Companies have invested by depositing security money. It is unnecessary to provide a bank guarantee to the customs department for importing raw materials. It is illogical for customs to think that these companies, which have invested hundreds of crores of taka, will evade customs duty.

"I have spoken to customs on this issue several times. This rule should be abolished so that investors are not discouraged."

The three companies in the Bepza Economic Zone have written letters to Bepza and other relevant organisations requesting the cancellation of the bank guarantee rule for importing raw materials.

Bepza Executive Director (Enterprise Services) Md Khorshid Alam told TBS that companies in production at the Bepza Economic Zone have informed them in writing about the difficulties faced in clearing goods with bank guarantees. "We have informed the NBR (National Board of Revenue) to cancel this rule to avoid inconvenience for investors."

In response, HM Ahsanul Kabir, second secretary (Customs: Export and Bond Branch) of NBR, recently sent a letter to the executive director (Enterprise Services) of Bepza, questioning why companies in the economic zone are required to provide bank guarantees despite importing under the duty-free bond facility.

"We will update the NBR on this issue next week after gathering information from the factory owners. Since this rule is not in place in other EPZs and there are foreign investors here, we hope the NBR will consider the factory owners' request to maintain their interest," Khorshid Alam added.

The customs office has not yet been established in the Bepza Economic Zone, making it impossible to monitor whether imported raw materials are being sold in the open market.

Chattogram Customs Bond Commissionerate Joint Commissioner Mizanur Rahman

Export-oriented companies that operate under the 100% export scheme enjoy duty-free benefits under the bond facility when importing raw materials. This means they are exempt from paying customs duties on these imports, under the condition that they use these materials to manufacture goods for export.

The eligibility for this benefit is determined by the Customs Bond Commissionerate, which assigns HS codes based on the type of product, potential raw materials, and quantities involved.

In contrast, bank guarantees for imported goods are not required in other EPZs where there are established Bond Commissionerate offices or supervision. However, in the Bepza Economic Zone, where such oversight is lacking, bank guarantees are mandated for imports.

Chattogram Customs Bond Commissionerate Joint Commissioner Mizanur Rahman told TBS, "The customs office has not yet been established in the Bepza Economic Zone, making it impossible to monitor whether imported raw materials are being sold in the open market.

"Therefore, we require a bank guarantee to cover the potential duty liabilities on these imports. Once a customs office is set up here, this concern will be addressed."

According to Bepza, 30 establishments have been contracted for investment and factory construction in the Bepza Economic Zone.

Of these, two are domestic and the remaining 28 are foreign companies, with total investments expected to reach around $700 million. Currently, three establishments have begun production and exporting activities.

Construction is ongoing at nine establishments, while 11 are in the planning stages for factory construction, set to commence soon. These 30 factories are expected to create jobs for over 200,000 workers.

The largest industrial city in the country, Bangabandhu Sheikh Mujib Shilpa Nagar, spans 50,000 acres across Mirsarai and Sitakunda upazilas of Chattogram and Sonagazi upazila of Feni.

It has attracted 152 approved investors who have been allocated more than 5,251 acres of land. Investments totalling $1.23 billion have already been made, with an additional proposed investment of $18.557 billion. Once fully operational, these establishments are expected to employ 7,75,228 people.

The Bepza Economic Zone, situated within Bangabandhu Sheikh Mujib Shilpa Nagar, spans 1,138.55 acres with 539 industrial plots. It aims to attract approximately $2.70 billion in foreign direct investments.

Currently, about 2,000 workers are employed across a total of nine factories, including three within the Bepza Economic Zone and six in various industrial groups within the industrial city.