State sugar mills seek Tk6,000cr loan interest waiver

Infographics: TBS

The industries ministry has recommended waiving a staggering amount of loan interest for state-owned sugar mills and issuing bonds for their principal repayment to assist the ailing industries in getting rid of a massive loan burden.

In a letter dated 5 December, the ministry urged the Finance Division secretary to ensure special considerations for the 15 mills run under the Bangladesh Sugar and Food Industries Corporation (BSFIC).

According to ministry officials, the initiative aims to support the mills – which have suffered losses for years due to irregularities, mismanagement, and a lack of modern business strategies and raw materials – to get back to business.   

However, experts argue that keeping such ailing firms operational and providing them with special privileges increases state waste.

According to sources, the BSFIC has extended loans totalling Tk9,291 crore to the sugar mills through five state-owned banks including Sonali, Janata, Agrani, and Rupali.

One-third of this amount constitutes the principal debt, while the remainder comprises long-term accumulated interest. In essence, the industries ministry is seeking an interest waiver exceeding Tk6,000 crore for the mills.

Most of the loans were taken to support farmers, primarily those involved in sugarcane cultivation. Although the farmers repaid the funds through sugarcane cultivation, neither the mills nor the BSFIC returned the money to the banks.

An additional secretary at the Financial Institutions Division, who preferred not to be named, told The Business Standard, "The industries ministry has written the letter following discussions. However, given the magnitude of the decision, no resolution will be reached at this moment.

"A decision on this matter will be made by the new government formed after the upcoming general elections."

The industries ministry stated in the letter that there is a verbal directive from the prime minister regarding the interest waiver, emphasising that the accumulated interest of the sugar mills should not be imposed again.

"In light of this, the industries ministry held discussions with the Bangladesh Bank governor and the Financial Institutions Division secretary. Subsequently, on 26 September, an 11-member committee was constituted to deal with the interest waivers and loan repayments for these mills," reads the letter.

After a thorough review, the committee recommended suspending the imposition of interest due to the limited capacity of the sugar mills, aimed at mitigating the burden of loan interest. Additionally, it proposed waiving the interest accrued on the mills' loans.

The amount of waived interest should be allocated as an interest-free block. Subsequently, the cost of funds or an acceptable interest rate should be added to the remaining recoverable loan to determine the overall debt.

To address this amount, the government, acting on behalf of the BSFIC, will raise funds through issuing a bond, similar to the approach taken for the Bangladesh Jute Mills Corporation and the Bangladesh Petroleum Corporation in the past.

Senior Industries Secretary Zakia Sultana said the sugar mills lack the capacity to independently repay the loans. The mills are unable even to meet their employees' pension and gratuity payments. Consequently, the overall debt burden grows over time due to accumulating interest rates.

"In this situation, the prime minister has instructed an implementation of measures preventing further interest accrual. Taking this into consideration, the recommendation has been formulated through extensive reviews involving various stakeholders, including the Financial Institutions Division, the central bank, and commercial banks," she told TBS.

Zakia said initiatives have already been taken to boost sugar mills' production by cultivating improved varieties of sugarcane and incorporating new technologies. Additional plans are in place.

"If the mills are relieved of this substantial debt burden, it will create an opportunity for them to operate independently and generate income in the future," she asserted.

Abdul Jabbar, managing director of Janata Bank, said the Bangladesh Bank and the Financial Institutions Division have explicit policies concerning interest waivers.

"There is no impediment to providing an interest waiver facility under that policy. Any such proposal will, in fact, be acted upon, depending on the approval of the Board of Directors," he told TBS.

According to Janata Bank's 2022 annual report on its major borrowers, the loan extended to the BSFIC amounts to Tk1,511 crore.

BSFIC Managing Director Sheikh Shoebul Alam declined to make any comments, citing his recent appointment to the organisation.

However, a senior official, speaking on condition of anonymity, mentioned that the mills' debt has been there for such a long time that determining the principal amount and interest has become challenging.

He emphasised that sustaining the mills is not feasible without the special intervention of the government.

Income and expenditure

There are 15 sugar mills, two commercial establishments, and an engineering factory under the BSFIC. Carew & Co (Bangladesh) Ltd has a distillery plant and an organic fertiliser factory.

These institutions collectively employ 8,681 workers in various positions. Despite the institutions incurring losses, there are continued activities in the training and travel of officials both within the country and abroad.

In the fiscal 2022-23, the BSFIC earned Tk819 crore from all its mills and factories, which spent Tk1,534 crore on management. In essence, the agency incurred a loss of Tk715 crore. Over the past several years, the mills have consistently experienced an average annual loss of Tk1,000 crore.

To sustain the mills' operations in FY23, the government granted the BSFIC an operating loan of Tk200 crore. One of the challenges facing the corporation is the supply of working capital and the repayment of bank loans.

Breakdown of mill-wise losses

In the last financial year, Mobarakganj Sugar Mills in Jhenaidah incurred the highest loss of Tk98.77 crore, followed by Thakurgaon Sugar Mills, which suffered a loss of Tk91.34 crore.

Rajshahi Sugar Mills recorded a loss of Tk84.15 crore, Joypurhat Sugar Mills incurred Tk80.72 crore in losses, North Bengal Sugar Mills faced a loss of Tk72.95 crore, and Natore Sugar Mills experienced a loss of Tk65.99 crore.

Zeal Bangla Sugar Mills incurred a loss of Tk59.97 crore, Faridpur Sugar Mills Tk58.56 crore, Pabna Sugar Mills Tk46.89 crore, Kushtia Sugar Mills Tk41.83 crore, Shyampur Sugar Mills Tk32.65 crore, Panchagarh Sugar Mills Tk22.57 crore, Rangpur Sugar Mills Tk21.32 crore, Setabganj Sugar Mills Tk12.22 crore, and Renwick Jajneswar & Co Limited faced a loss of Tk5.18 crore.

Among them, sugar mills in Kushtia, Pabna, Panchagarh, Shyampur, and Setabganj have been closed since FY21. Regular salaries for over 2,500 workers from these closed mills must continue to be paid. Additionally, these mills are obligated to cover regular expenses for interest and utilities. The decision to close these mills was made to mitigate losses.

The BSFIC, in its annual report, cites the accumulated loan interest liability as a contributing factor to its losses. Additionally, the decline in sugarcane cultivation, rising raw material prices, and a lack of innovation in improved varieties of sugarcane are also contributing to the overall losses.

Notably, Carew & Company stands out as the sole profitable entity within the corporation. The company reported a profit of Tk80.57 crore in the last financial year.

Ahsan H Mansur, executive director of the Policy Research Institute, told TBS that the government should disengage from attempting to manage such struggling institutions.

He said privatising these institutions could be a viable solution, offering benefits to both banks and the state.

Production

The state-run 15 sugar mills in the country boast a combined annual production capacity of 2.1 lakh tonnes. However, due to limited sugarcane supply and inefficient machinery, they only produced 60,000 tonnes in the last financial year.

This falls short of the nation's annual demand of 20 lakh tonnes. To meet this gap, six private sugar refineries have sprung up, running profitably and expanding production year by year.