Sumitomo's majority stake in Japanese economic zone against national interest: ERD

Highlights:

• ERD says Sumitomo's majority control of BSEZ harms national interest
• Government-funded land development handed 76% ownership to foreign firm
• ERD seeks investigation before approving BSEZ expansion or new loans
• Beza cites contractual limits; former chair defends agreement as beneficial
• Project progress lags; Phase-1 incomplete despite major unspent loan funds
• Jica discussing future phases but with higher-interest loan proposals

The Economic Relations Division (ERD) has objected to Sumitomo Corporation's majority control of the Bangladesh Special Economic Zone (BSEZ), saying the arrangement runs counter to national interest, particularly as the government financed land acquisition and core infrastructure.

In a letter to the finance minister on 14 October, the division also opposed further expansion of the project and recommended an independent inquiry before any extension is considered.

According to ERD and Bangladesh Economic Zones Authority (Beza) sources, the government used borrowed funds to complete land development. The BSEZ was later formed as a private limited company, with 76% of its shares to Sumitomo, nominated by the Japanese government, and 24% retained by Beza.

Infograph: TBS

A three-member board was created to manage the company, though Beza holds only one seat, while Sumitomo controls leadership and decision-making. 

On 1 August 2022, Japan International Cooperation Agency (Jica) acquired 15% of Sumitomo's stake through an accession deed and secured observer status on the board.

Currently, only eight companies, including Bangladesh's Singer, are operating in the zone, also known as the Japanese Economic Zone, in Araihazar, Narayanganj.

The ERD letter, seen by The Business Standard, said there is no clear justification for borrowing money to acquire land only to hand 76% ownership of the zone's operating company to a foreign private firm. 

The division suggested the arrangement reflects the political intent of the previous government.

The letter added that a review of the company's Articles of Association, the 2022 Accession Deed, and the land lease agreement indicated an "unequal agreement inconsistent with national interest." 

It recommended an independent investigation into the zone's ownership and management before approving any expansion.

Senior ERD officials said Beza had been informed of the concerns with the adviser's approval and had been asked to explain how the BSEZ structure and share distribution were determined. Any decision on expansion, officials said, would follow only after receiving a satisfactory explanation.

Beza chairman on contractual constraints

Beza Chairman Ashik Chowdhury said once a contract is signed, policy continuity leaves little room to alter its terms, and there is effectively no scope to dishonour it. "Any idea of fairness or balance is highly relative. What seemed equitable at the time may not appear so today," he told The Business Standard.

Ashik added that he did not wish to comment on the fairness of the contract, as he was not chairman when it was concluded. "An independent body could review such agreements across government, though any assessment must consider the context in which they were negotiated."

He also noted that the zone has some of the best infrastructure among the country's economic zones, crediting Japanese partners for this achievement. 

He said only those involved at the time could fully explain the basis on which the agreement was reached, as it followed extensive negotiation. "I am assuming all parties acted in good faith."

'Higher stake doesn't always mean better deal'

Former Beza executive chairman Paban Chowdhury, who oversaw the signing of the agreement, said a higher stake is not always the better deal and Japan's qualitative 24% has proved more valuable. 

He said Japan compared Bangladesh with Myanmar, India and Indonesia during negotiations. Bangladesh ranked fourth but secured the project through firm negotiation.

Paban added that the land was leased rather than sold, and the Japanese side developed it at their own expense. Bangladesh will eventually receive a fully developed site, with its share calculated on land rent while loan components must be repaid as loans.

He described the Japanese economic zone as the country's most successful FDI project, similar to a public-private partnership, with Jica's investment and Japan's involvement playing decisive roles. 

He noted that progress in the China-backed zone remains slow, highlighting the contrast.

Paban added that Beza, the ERD, the Planning Commission and the Prime Minister's Office had all been involved in the project process, making it a shared responsibility.

Expansion proposed

To boost Japanese investment, Jica is financing the Foreign Direct Investment Promotion Project (FDIPP). Bangladesh Bank borrowed Tk461.62 crore at 0.01% interest and completed the first non-ADP phase of the economic zone by 30 June 2025. Loans to investors were issued from this fund.

Under the same agreement, Beza is implementing the "Infrastructure Development Project for the Japanese Economic Zone in Araihazar". A separate loan of 21,174 million JPY was signed on 29 May 2019 at 0.01% interest. The project was scheduled from March 2019 to 30 June 2025, although the disbursement deadline extends to 20 September 2028.

The zone covers 1,000 acres, being developed in phases. Phase one, covering 500 acres, is complete, with handover underway. Development of the second 500-acre phase awaits approval.

Meanwhile, Beza has proposed extending the infrastructure development deadline for the economic zone by two years, to 30 June 2027. The ERD has objected, saying any extension should follow a full review of project progress, cost reductions, and implementation challenges.

Despite cost cuts, progress has been slow. In the proposed second amendment, Beza requested a reduction in Jica funding from Tk2,127.82 crore to Tk239.55 crore. By 30 June 2025, financial progress was only 35.785%, while physical progress reached 60% – well below scheduled targets.

At a Planning Commission meeting on 21 August 2025, officials recommended returning unspent funds and obtaining ERD approval before implementing any second amendment.

Phase 1 deadline over, yet to Open

Although FDIPP Phase-1 was completed on schedule, the economic zone is not yet fully operational. The ERD has questioned Beza's proposal to extend the project by two years, saying it is unreasonable to take a new loan at a higher interest rate while Phase-1 funds (0.01% interest) remain unused.

Jica has also included FDIPP Phase-2 in its list of potentially approvable projects for the current fiscal year. At the Fact-Finding Mission wrap-up on 16 October 2025, the agency urged signing a new loan agreement by March 2026.

ERD officials said that although Tk240 crore from Phase-1 remains unutilised, Jica now proposes a fresh loan of Tk4,703 crore at 2.35% interest. 

The division has asked why Phase-1 infrastructure is not yet operational and why unspent loans were not returned. It added that the rationale for taking a higher-interest loan must be clarified, and that neither the project extension nor a new loan should be approved without proper investigation.

Jica's response

The Business Standard sought comments via email from Ichiguchi Tomohide, chief representative of Jica Bangladesh Office. The email noted ERD concerns over Sumitomo Corporation's majority share in BSEZ and asked for Jica's official position.

It also asked whether the project period, scheduled to end in June 2025, would be extended, and if so, whether the interest rate for the next phase would rise to around 2%, as indicated in recent discussions.

In response, Ichiguchi said the projects mentioned are still under discussion with the Government of Bangladesh, and Jica is unable to provide specific comments at this stage.