The price of project delay: Import subsidy used to pay off loan  

Money for fertiliser import has been used to pay a loan instalment by the Ghorashal Palash Urea Fertiliser Factory, the country's largest urea manufacturing plant, just because of the delay in project implementation.   

The factory, which is expected to go into commercial production in a month or two, has paid the first instalment – Tk521.37 crore – of a loan taken from Japan for the project.  

According to sources related to the fertiliser factory project, the instalment, due on 13 September, was supposed to be covered with sales proceeds of fertiliser produced by the factory. 

However, the implementation of the project got delayed by about six months giving rise to this situation.

Ghorashal secured the amount from the Bangladesh Chemical Industries Corporation (BCIC), an agency in charge of importing urea with fertiliser subsidy allocation and of the Ghorsashal project, as per the advice of the finance ministry, sources said.

The BCIC reportedly sent several letters to the Ministry of Finance asking for the instalment amount but the finance ministry could not provide it.

Project Director Rajiur Rahman Mallick told The Business Standard, "There was some inconvenience to get the money but we have managed to pay the first instalment through Sonali Bank on due time. This instalment was paid out of the fertiliser subsidy."

The interest-free loan from the BCIC may have solved Ghorashal's debt problem for now but it has created new pressure on the BCIC to pay the bill for imported fertilisers. As of now, Tk3,500 crore used for urea import remains overdue.

The newly built plant, which has the capacity to produce 9.24 lakh tonnes of fertiliser annually, is currently on trial production (from 6 September). The government had to shut down three old fertiliser factories to increase gas supply to this new plant.

According to BCIC sources, the government has recently spent Tk70 per kg on importing urea. However, this imported urea is sold to farmers at the rate of Tk27 per kg. Hence, the government paid a subsidy of Tk43 per kg of urea.

Factory being built with loans from Chinese and Japanese lenders

The Ghorashal fertiliser plant has been constructed in Palash upazila of Narsingdi at a cost of Tk15,500 crore, of which Tk10,920 crore was given by Chinese and Japanese lenders, with the aim to boost local urea production and reduce import dependency and costs. 

To implement the project, loans were arranged from a joint consortium of Japanese and Chinese contractors — Bank of Tokyo-Mitsubishi UFJ Limited and The Hong Kong and Shanghai Banking Corporation Limited (HSBC) — on relatively tight terms.

Although the project implementation was delayed by about six months till December 2023, the Japanese lender refused to defer the deadline, sources said.

According to the loan agreement, Ghorashal factory has to repay Tk1,290 crore to the Japanese lender in three instalments within the current fiscal year. 

The second instalment of Tk517.57 crore is due in March next year and the third of Tk255 crore is due in May, said project officials.

Will urea import be impacted?

The issue of repayment of loan instalments was discussed in the board meeting of BCIC held on 7 September. 

Officials with knowledge about the meeting told TBS that BCIC directors, on the advice of the finance ministry, decided to pay the instalment from the fertiliser subsidy allocation in FY24 as non-payment could damage the image of the country. 

"With this payment made, additional pressure has been created on the BCIC regarding the urea import bill," said a senior BCIC official. He said the money was drawn from the fertiliser subsidy allocation, which comes from the Ministry of Agriculture. 

The official has also cautioned that there is no scope for BCIC to reduce urea imports for now because three factories under BCIC had to be closed due to gas shortages and to provide enough gas to Ghorashal.

According to the BCIC, it is already under pressure to pay for the import of fertilisers. Because there is already an overdue of about Tk3,500 crore for urea import.

Agricultural economist Dr. Jahangir Alam Khan cautioned against the unwise diversion of funds from farm subsidies. He emphasised that if such a diversion does occur, it should be promptly rectified; otherwise, Bangladesh's fertiliser imports could suffer adverse consequences.

Dr. Khan offered two recommendations to the government: First, expedite the settlement of overdue bills, and second, ensure a consistent gas supply to the local factories to facilitate the commencement of production.

Old factories closed to start off Ghorashal

The BCIC currently runs four fertiliser factories – Shahjalal Fertiliser Company Ltd (SFCL), Jamuna Fertiliser Company Ltd (JFCL), Chittagong Urea Fertiliser Ltd (CUFL) and Ashuganj Fertiliser and Chemical Company Ltd (AFCCL).

But the Chittagong Urea Fertiliser was closed in November 2022, the Ashuganj Fertiliser and Chemical Company was closed in April this year and the Jamuna Fertiliser Company was closed on 9 September as the government cut the gas supply to these plants completely in order to increase supply to the newly built Ghorashal Palash Fertilizer.

Supplying gas to this new factory has forced the closure of old factories, calling into question the government's aim of reducing import dependence.

Though the Ghorashal plant is on trial production, people related to the project believe that commercial production won't be possible before November.

However, Project Director Rajiur Rahman Mallik said, "If the gas supply is good, the new factory will come into production in the second week of October. We are trying our best to increase local production quickly and reduce imports."

How much farm subsidy is given

The government has earmarked around Tk18,000 crore for agricultural subsidy including fertiliser and other agricultural activities in the budget for FY 2023-24. 

In the preceding fiscal year, 2022-23, the government had designated Tk16,000 crore for agricultural subsidies, whereas it was Tk12,000 crore in the fiscal year 2021-22.

This increase in the subsidy budget can be attributed to the global price surge of all types of fertilisers in 2022, particularly following the Russia-Ukraine conflict. During that year, the prices of TSP, DAP, and MOP fertilisers witnessed significant hikes, rising by 57%, 47%, and 177%, respectively, compared to the previous year.