Bhutan Ferroalloy and Steelmakers Resume Bank Repayments

Recovery Improving Cash Flows

Bhutan’s ferroalloy and steel industries, based at Pasakha, Phuentsholing near the border with India, have successfully made their first quarterly bank loan repayments since the onset of the global financial crisis.

Bhutan Ferro Alloys, Ugyen Ferro Alloys and Bhutan Concast Pvt Ltd, repaid Nu 8.8 mn, Nu 8.1 mn and Nu 5.7 mn respectively on 31 March. The repayments will be disbursed among a consortium of local lending banks: Bhutan National Bank (BNB), Bank of Bhutan (BoB) and Royal Insurance Corporation of Bhutan (RICBL). The next instalment is due on 30 June.

Five local financial institutions had given a consortium loan amounting to Nu 2.5 bn to the ferroalloy and steel industries in 2006. The borrowers had also borrowed around Nu 1.6 bn from individuals.

Last year the financial institutions and the Bhutan government accepted the industries’ request to defer repayments until the global economy stabilised, on the condition that they pay at least the interest of the loans and inject equity into their projects, which accounts for 50 percent of the loan amount.


“The overall performance of the industries has been better,” the relationship manager of BNB, Pema Jamtsho told the local newspaper, Kuensel, adding that their performances would be based on the performance with the banks. “If cash flow is good, then it means they’re doing good.”

However steel industrialists pointed out that prices had yet to get back to pre-crash levels.
In 2008, the cost of finished TMT bars ranged between Nu 44 and Nu 48 a kg. Today, it is Nu 35-36.

A source at one of the ferroalloy manufacturers said the industry was doing much better compared with last year. “But the market is unpredictable and there will be highs and lows,” he added.

Railway Rake Shortage Hits More Industries In Bhutan

The Association Of Bhutanese Industries reports that the shortage of railway rakes to carry raw materials from India to Bhutan is now affecting other industries with the ferroalloy and calcium carbide industries now hit. These industries import charcoal mostly from states in southern India, such as Tamil Nadu and Andhra Pradesh.

The delay has meant that raw materials are now taking up to 20 days to arrive against seven to 10 days previously. Bringing in raw materials by trucks is not an option because of frequent strikes and mechanical problems faced on the way.

“We’re expecting the government to take up the matter urgently as, irrespective of the status of the plant, the industrialist has to pay a fixed cost,” said the ABI secretary general, Letho. However there are fears amongst some industrialists that plants may have to close if the issue is not addressed.

Raw Material Shortage Closes Bhutan Steel Plants

A shortage of sponge iron for steelmaking has caused four of the five steel plants in the Pasakha region to temporarily close down, says the association of Bhutanese industries.

The Lhaki steel and rolling mills, Bhutan Concast, KK Steels and Bhutan Rolling Mills have all ceased production with some being closed for more than a month.

The reason for the shortage has been a shortage of railway rakes in India to transport the material to Bhutan.

According to the secretary general of the association of Bhutanese industries, Letho, raw material could not be transported, as there is a delay in the placement of railway rakes in India. “Also, there’s a delay in the movement of rakes carrying industrial raw material from India to Bhutan,” he said.

Indian media also reported that the shortage of railway rakes in India have resulted in unwarranted delays concerning delivery of industrial material.

“The Bhutanese steel industries don’t have a choice but to temporarily shut down and wait. If they have to transport the raw material through other means, then it would incur a huge cost,” said Mr Letho, the secretary general of the Association of Bhutanese Industries.

There are now fears that other Bhutanese industries that import raw material from India, such as the ferroalloy and calcium carbide industries, will also suffer from a shortage of raw materials. Now the Association has raised a petition to the government to look at the issue. Bhutan’s economic affairs secretary, Dasho Sonam Tshering, said that the issue has been brought to its attention and that the department has taken up the issue with the Indian government.

Steel plants in Bhutan manufacture TMT bars, billets, ingots and structural steel which are sold in India. Other than the Punatshangchu hydropower project Phase I there is not much domestic demand in Bhutan but even here Bhutanese suppliers are placed at a disadvantage as they are unable to compete with Indian suppliers who are exempt from excise duty. Under the trade agreement between the Indian government and Bhutan on Punatshangchu hydropower project it was agreed that both the governments would exempt central excise duty of India, taxes/levies or duties for plant, raw material, equipment, machinery and services to be used for the project. Bhutanese companies say that the same privilege is not given to them, especially on raw materials.

Bangladesh To Remove Bhutan Steel, Ferroalloy Tariffs

The Financial Express Bangladesh reports that the Bangladesh government is going to withdraw the entire import duty from 18 major exportable products from Bhutan to boost bilateral trade with the neighbouring country.

As per the report, the South Asian department of the foreign ministry has urged the NBR to take necessary steps to withdraw import duty from the import items following a commitment by Prime Minister Ms Sheikh Hasina during her recent visit to the country.

Mr Nasir Uddin Ahmed chairman of National Board of Revenue said “We will issue an order in this connection after getting directive from the finance minister.”

Presently, the NBR imposes a flat 15% customs duty on import of Bhutanese products.

The items include all kinds of mineral waters, boulders, dolomite, gypsum, limestone, calcium carbonate, ferrosilicon, billets, semi finished products of iron or non-alloy steel.

Source: Steel Guru

Indian Steel Downturn Hits Bhutan Carbide And Chemicals

Forty employees of the Pasakha-based Bhutan Carbide and Chemicals Ltd. (BCCL), started by the Tashi group of companies, are home on what should be a normal workday.

BCCL laid off these 40 employees recently, because the company is not doing well for the first time in almost two decades of its operation, according to BCCL chairperson, Tobgyal Dorji. “We had to downsize because the market situation after the global recession hasn’t improved.”

The company produces calcium carbide, which is used to manufacture acetylene gas for welding purposes, and silico manganese, an essential raw material for steel. Most of BCCL products go to steel industries in India, which have been severely hit by recession, with declining consumption and rising stocks at warehouses.

“Many Indian manufacturing companies that use our products aren’t producing at an optimum level,” said the chairperson. “No matter how efficiently we produce, the market prices aren’t moving up and our cost of production is shooting.”

He said downsizing was not the only issue that the company was dealing with. “At present, we’re looking very deeply into cutting costs in other areas, such as consumption, production and procurement, until the situation improves,” he said. “We’re selling the material at a loss.”

BCCL has 440 employees and is considered one of the most profitable companies in the country today. Tashi group holds 52 percent equity in BCCL, the rest is held by financial institutions and the public. In 2004, BCCL was said to have invested Nu 1,000m to produce new products such as low carbon silico manganese. BCCL started commercial production in mid-1988.

“The company was doing exceptionally well for the past many years but, after the recession, our performance hasn’t been good. We’re taking these actions to make the company more efficient and productive,” said Tobgyal Dorji.

BCCL contributed Nu 13.703m as corporate income tax for the 2008 income year. Which means that the company had made a profit of about Nu 45.677m that year.

In 2007, the company had made a profit of about Nu 21.3m. The company is among the top five taxpayers in Phuentsholing, said a revenue and customs official.

“This year the company is looking at a loss. But the exact figure and situation would be known during a board meeting this month,” said chairperson Tobgyal Dorji. “The Indian manufacturers have reduced their tonnage and we’re unable to sell our products. It’s difficult to operate until the market turns around.”

Source: Kuensel

Bhutan Gateway Exports Down

Import through the gateway to Bhutan, Phuentsholing, from third countries decreased in the year 2008, while imports from India increased, according to data collected from the regional revenue and customs office in Phuentsholing.

Import value from other countries decreased by Nu 100 million, from Nu 600 million in 2007 to Nu 500 million in 2008. But the import value from India increased to over Nu 1,400 million last year from over Nu 1,200 million in 2007.

The data does not include figures from business transactions through other entry gates into the country.

Business people in the bordering town attribute the appreciating dollar value against the ngultrum for the decreased imports.

The top five commodities imported in 2007 were diesel with import value of Nu 1,009 million, followed by motor spirit at Nu 415 million. Rice and iron scrap followed with Nu 300 million each, followed by cars with an import value of Nu 272 million.

Diesel still topped the list in 2008 with imports worth Nu 1,067 million, then rice at Nu 763 million, ferro products at Nu 671 million, manganese ore and cars at over Nu 500 million.

Bhutan’s exports through Phuentsholing also saw a drop with goods worth Nu 7,933 million in 2008 compared to Nu 10,842 in 2007. The top five exporters in the year 2007 and 2008 were Bhutan Metals followed by Bhutan Carbide and Chemicals, Bhutan Ferro Alloys, Singye Vanaspati and Rangshar Industries.

Source: Kuensel Online, Bhutan

Bhutan Steel Bail-out Unlikely

A meeting between Bhutan's Royal Monetary Authority (RMA) and financial institutions has concluded that the sanction of additional working capital loan to the country's steel industries is not a good idea.

They also agreed that the banks could service the interest of steel industries’ loan to an extent and defer the principal repayment for 6 months. The decisions, however, are not final.

“The banks, by approving additional working capital, cannot guarantee the market, but instead could worsen the situation and drag financial institutions into the problem too,” said RMA’s managing director, Daw Tenzi, during the meeting.

Daw Tenzi added that if banks gave steel extra working capital, tourism and others, affected by the current global recession, might ask too. “We protect the safety of financial institutions and can’t put them at risk by relaxing the prudential regulations.”

Bank of Bhutan managing director, Kinga Tshering, said: “It will escalate the situation further by increasing the level of inventories if market demand for the product is not in place.”

RMA’s prudential regulation refers to the limit on credit to the ten largest borrowers from financial institutions, which is 30 percent of the total loan portfolio. “If banks cross the limit, then there’d be no liquid cash, which is their lifeline,” said RMA official Eden Dema.

Eden Dema added that, if the government guaranteed an additional loan to steel industries, it would not fall under RMA’s prudential regulations.

Following the international financial crisis, steel industries had recently approached banks for interim measures, such as capitalisation of interest, deferment of loan repayment by a year, reduction of interest rate of term loan with working capital limit for a year, and considering sanction of additional working capital loans.

The financial institutions are to prepare a report on the steel industries to submit to the ministry of economic affairs.

Source: Kuensel, Bhutan