Industries ministry has requested finance ministry to issue Tk 80 billion worth of government bond to adjust state-run sugar mills' liabilities to six banks, according to officials concerned.
The Bangladesh Sugar and Food Industries Corporation (BSFIC) owes Tk 69.50 billion to five state-run banks (Sonali Tk 41.65 billion, Janata Tk 14.65 billion, Agrani Tk 4.68 billion, Rupali Tk 8.42 billion and Krishi Tk 92 million).
On the other hand, the BSFIC will get an outstanding Tk 79.71 billion as trade gap/subsidy from the government.
It wants to adjust trade gap and non-payment of subsidy by the government with the proposed bond as the BSFIC is in a tight spot due to bank loans.
To this effect, the ministry wrote the finance division to take necessary steps in this connection as per the BSFIC's request.
If bank loans are rescheduled, the BSFIC will require a down payment of Tk 1.66 billion and quarterly installments of Tk 2.96 billion.
In the present situation, it is not possible to repay bank liabilities from the BSFIC's own income under any circumstances, according to a BSFIC official.
Due to continuous losses, the BSFIC, the parent organisation of sugar mills, has been demanding subsidy trade and that for gap from finance division through industries ministry to keep its activities running.
Due to non-payment of trade gap/subsidy, the official claimed, loans have been taken from banks to keep the mills/institutions running. Currently, it is difficult to pay salaries and operating expenses with proceeds from the sale of sugar.
If total loans are not waived for the sake of sustaining this agro-based industry, it will be hard to move the institution forward. The debts are increasing by an estimated Tk 10 billion annually due to charged/non-charged interest.
A senior official believes this initiative is intended to aid the struggling mills, which have incurred losses for years due to outdated business strategies, chronic raw material shortages and widespread mismanagement.
However, experts were not in favour of the move as they argued that such a measure would only exacerbate the government's financial burden.
Despite repeated requests by the FID and industries to issue such bond, the issuance of a state bond against BSFIC dues is caught in a bureaucratic quagmire, sources concerned say.
According to Investopedia, a government bond is a debt security issued by a government to finance its spending and obligations. These bonds typically pay periodic interest.
According to The Public Corporations (Management Coordination) Ordinance 1986, "The government shall reimburse to a public corporation the financial loss, if any, incurred by it or by any of its enterprises consequent upon the following by it or by such enterprises any specific instructions given by the government on matters relating to the business or administration of such corporation or enterprises, the letter mentioned."
According to the law, the BSFIC owes Tk 101 billion till the financial year 2023-24 as compensation for the loss. The government provided a total of Tk 21.31 billion out of Tk 101 billion as subsidy payment.
Trade deficit of the BSFIC has increased various reasons, including the sale of the sweetener at a subsidised rate.
Other reasons, according to sources, are insufficient basic raw materials, higher operating expenses and payments against bank loans.
The deposed Hasina government suspended the operation of six state-run sugar mills in 2020 to reduce costs.
Losses are piling up as the mills are not adjusting production costs with accumulated losses, hitting a new high of more than Tk 91.75 billion since fiscal year (FY) 2005-06, according to the Bangladesh Economic Review.
"Cash-strapped sugar mills are still struggling to meet regular expenses. The BSFIC finds it difficult to service its bank debts and make payments due to lack of required funds," a BSFIC official told the FE.
According to sources, the outstanding dues, including interest, owed by the mills to the five state-owned banks stood at Tk 99.39 billion.
The BSFIC cannot make profits due to huge loans and interest. The government even subsidised Tk 2.80 billion in FY24.
The mills cannot produce sugar at an expected level despite having the capacity due to lack of necessary raw materials, according to a high official.
"Besides, production cost of sugar by the state-owned sugar mills is higher than its selling prices. As a result, the mills are incurring heavy losses."
Currently, there are 15 mills under the corporation, with an annual production capacity of 0.21-million tonnes.
This volume is way too less than the country's annual demand for more than 2.2-million tonnes of sugar. To meet this demand, 2.2-2.4 million tonnes of raw sugar are imported annually.
Industries ministry has undertaken multiple projects to diversify sugar products by tapping the existing potential to make the mills profitable. Some projects are currently being implemented, the official said.
The BSFIC prepared a five-year roadmap for 2022-23 and 2026-27 fiscals with an eye to making the sugar industry profitable.
A source said the loans taken by the sugar mills were intended to support sugarcane farmers. While farmers repaid their debts by supplying sugarcane, the mills failed to do so.
In FY23, the corporation generated Tk 8.19 billion from all its mills and factories.
However, management costs exceeded Tk 15.34 billion. For years, these state-owned mills have consistently incurred average annual losses of Tk 10 billion.
BSFIC chairman Dr Lipika Bhadra could not be reached for comment despite attempts over phone.
