Foreign firms keen to lease Khulna jute mills

Eighteen local and foreign companies have submitted proposals for taking lease of 13 state-owned jute mills in Bangladesh. All of the four international firms that have applied are keen to invest only in the mills located in the Khulna region.

According to the Bangladesh Jute Mills Corporation (BJMC), India-based Pacific Jute Ltd and Mohan Jute Ltd have submitted expressions of interest (EOI) to lease all of the seven jute mills in Khulna.

Besides, Asiatic Trading LLC, Dubai, and Golden Fibre Australia Pty Ltd-JV have made investment proposals for three and two mills, respectively.

The 14 national investors that have submitted proposals also have expressed interest in taking the jute mills in Khulna on lease.

Infographic: TBS

The BJMC – the controller, supervisor, and coordinator of the state-owned jute mills – floated an international tender this February to lease out the 13 mills located in Dhaka, Chattogram, and Khulna zones.

A final decision on the leasing of the mills would be made only after receiving the government's nod following scrutiny by the BJMC's evaluation committee, officials concerned said.

Information provided by the BJMC shows that some of the 14 local companies that have applied for lease are already doing business in the jute sector, while some others are newcomers.

According to the tender, only private firms interested in producing jute and jute products can take lease on the jute mills for a period of five to 20 years.

BJMC officials said no application was received for three jute mills of the Khulna zone in the first phase of the privatisation tender, but this time applications have been received for all the mills.

Asked what might be the reasons for the foreign investors' interest in the mills in Khulna, they pointed to the convenience of the communication system in the region.

Khulna has a seaport and is well connected by river and road, they explained.

BJMC Chief Operating Officer Mohammad Jamal Hossain told The Business Standard that private sector entrepreneurs are very keen to take government mills on lease as the mills have a lot of land. On the other hand, the government is leasing the mills out to the private sector to reduce losses, he added.

He said, "After receiving expressions of interest from private sector entrepreneurs, the BJMC has asked them to submit final proposals by 25 May. The issue of lease will be finalised after evaluation once the proposals are received."

"The process is expected to be completed in a few months so that the mills can return to production quickly. This is because the reopening of the mills involves the issue of employment."

On 7 February this year, the BJMC again floated an international tender for the lease of the13 state-owned jute mills.

Earlier in April last year, the jute authorities had floated another international tender to lease out 17 out of 26 mills to the private sector.

At the time, several large local business groups had shown keenness to invest in the jute sector, but the BJMC did not lease out the mills to them as their price quotations were low.

Only four mills were finalised for lease, two of which – one in Palash upazila of Narsingdi and another in Chattogram – have already resumed production.

Meanwhile, the leasing of two other jute mills – Crescent Jute Mills Ltd in Khulna and Hafiz Jute Mills Ltd in Chattogram – is under process.

It may be recalled that the government went for a closure of state-owned jute mills in July 2020. A golden handshake was given to 25,000 workers of the mills. The government has paid about 97% of the workers' dues, but has not been able to pay the remaining dues due to lawsuits and other complications.

How will leasing benefit govt?

The jute mills are suffering due to low production caused by the use of old machinery, rampant corruption, and recruitment of excessive manpower. Government jute mills are counting huge losses as the expenditure is more than income, though private sector entrepreneurs are making good profits in this sector, thanks to proper management.

Against such a backdrop, the government wants to be free of losses by leaving the jute mills in the hands of the private sector.

According to the Economic Survey-2021, the government incurred a loss of Tk380 crore in the mills operated under BJMC in the fiscal year 2020-21, down from Tk773 crore in the previous year.

Now the government will lease out the jute mills on a rent basis. Private sector entrepreneurs by using the land of the leased mills will produce jute and jute products.

According to BJMC officials, if all the mills are leased, the government will earn a huge amount of revenue every year, because the jute mills will be rented by the entrepreneurs in exchange for the use of the mills' land and machineries. The government will get several crores of taka from that rent.

There will also be employment for the workers who earlier worked for government mills.

Although the lease agreement does not guarantee that the old workers of the mills will be employed even after the lease, private entrepreneurs will need experienced workers to run the mills. As a result, although the employment of all the old workers of the mills is not guaranteed, officials of the BJMC think that most of them will get job opportunities.

Falling trend in exports

Despite increasing demand for jute and jute products in the world market, exports from Bangladesh have been declining.

Jute and jute products produced in Bangladesh are exported to different countries of the world.

Although the private sector was more involved in the export trade in the jute industry, the government jute mills also used to have significant contributions to the export earnings in the sector.

In the first nine months of the current financial year, the export of jute and jute products decreased by about 7%, and exports fell short of the target by 17%.

During July-March of FY22, the export of jute and jute products was worth $887 million, which had been $953.5 million in the previous year.

Exports of raw jute and man-made filaments and staple fibres increased during the period, while exports of jute yarn and twine, jute sacks and bags, and other products posted a negative growth.

Govt jute mills and the BJMC

Prior to liberation in 1971, Bangladesh had 75 jute mills.

On 26 March 1972, the BJMC was formed through a presidential order to supervise, regulate and manage 78 mills, including the private and abandoned ones, and those owned by the former East Pakistan Industrial Development Corporation.

The number of jute mills increased to 82 in 1981. After 1982, 35 mills were privatised, while the government withdrew capital from eight and one mill merged with Mymensingh Jute Mills.

Eleven mills were shut down, sold or merged with other mills in different periods after 1993, including Adamjee Jute Mills, which was shut down in 2002.

The BJMC later resumed production in two mills in 2011 and three in 2013, raising the number of operational mills to 32 during this period.

Among them, cases regarding five mills are underway in courts, while a project for producing Viscose [a semi-synthetic material used in clothes, upholstery and bedding] is being implemented in another.

Twenty-five jute mills operated under the BJMC before the government shut down all state-run jute mills on 1 July last year due to heavy losses and excessive production costs.