Red tape puts a damper on FDI: KEPZ suffers

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Muhammad Zamir The present government has reiterated on several occasions its commitment to encourage foreign direct investment (FDI) in Bangladesh. In this context, steps have also been taken to create the necessary regulatory regime to facilitate this process. This has been done to enable foreign institutions (both private and government) to function meaningfully within the paradigm of both government-sponsored export processing zones and private initiatives taken in this regard. Coordination in some areas among relevant agencies has led to constructive inter-active engagement. We have moved forward - but not entirely as expected. It has almost been like the proverbial snail climbing the greased pole. It moves up two feet after one hour and slips down one foot the next hour. A classical case in point has been the troubles being faced by the Korean Export Processing Zone (KEPZ) located in the eastern bank of River Karnaphuly in the Upazilla of Anwara in Chittagong District. It is understood that the heads of governments of Bangladesh and Korea agreed on the setting up of an EPZ (export processing zone) in the private sector as a means of attracting foreign investment into this country. Youngone Corporation, a Seoul-based pioneer investment/exporter in apparel sector of Bangladesh, was entrusted with the project by both governments and then Korean EPZ Corporation (BD) was established. The Bangladesh government, it may be recalled, later passed the Bangladesh Private Export Processing Zones Act, 1996 (Act Number XX of 1996) to provide the legal framework. On April 28, a Demand Note was issued by the Office of the DC, Chittagong to KEPZ authorities to undertake payment for possession of the land (2492 acres) acquired for KEPZ. Necessary payments were made by the KEPZ in June 1999. Prime Minister Sheikh Hasina, who was the Prime Minister at that time, inaugurated the land-breaking ceremony of KEPZ in October 1999. In the meantime, the Korean company, while waiting for the land registration formalities, initiated their comprehensive environment-related plan for KEPZ. It was made more eco-friendly by planting of 1.7 million trees, digging of 17 lakes, creation of sweet water reservoirs from rainfall runoff and construction of 21 km of paved roads within the KEPZ to facilitate movement of goods. However, despite the passage of more than a decade since the issuance of the Deputy Commissioner's Demand Note, and full payment for the entire acquired property, the problem of execution of the Deed of Transfer (DoT) for the entire land is till awaited and in its absence no lease agreements can be concluded. This complication has made the question of investors investing in KEPZ legally difficult. Some additional legal complications surfaced subsequently (after the 16th Session of the Board of Governors (BoG) of Private EPZ in October, 2010) with regard to payment of 50 per cent additional compensation for khas land. This was resolved through out of court settlement as decided by the BoG. This required further payments having to be made by KEPZ. This was done on January 30, 2011. Unexpectedly, a new challenge was introduced into the matrix after the 17th meeting of the BoG on June 17, 2012. Instead of concluding the DoT as per decision of the 16th Board meeting, it decided that the Deed of Transfer for the entire land would be executed in phases of 500 acres. Proper utilisation of 500 acres within a period of two years would be required for the next phase to take place. This new decision came as a surprise for the Korean company which had undertaken steps treating the creation of KEPZ as an integrated project covering the full area of allotted acreage divided into different blocks according to the different types of envisaged industrial activity implementable simultaneously depending on the demand received from different investors. This new measure of piecemeal execution of the Deed of Transfer, they felt, would greatly hamper implementation of their plans. For example, if one investor came for investing in an industrial activity block, which is not included within a particular 500-acre area, such an investor could not be entertained. The KEPZ has since appealed to the PMO (Prime Minister's Office) that the decision regarding the 500-acre area be revoked. This has however not happened. Instead, the DC, Chittagong has been asked to execute the Deed of Transfer for only 500 acres. This has put the entire project in jeopardy. Another factor has added to the complexity of the KEPZ process. Section 14 of the Bangladesh Private EPZ Act, 1996 stipulated that the authority of the Sponsor Company (in this case, Korean EPZ Corporation, BD, Limited) would have the authority to approve the industries to be set up in that Zone (in this case the KEPZ). Sub-section 2 of the same Section also laid down that the Sponsor Company shall, on receipt of an application under Section 14 (1), process it, and if satisfied that the applicant fulfills the requirement for setting up the industry, grant the Applicant a permission letter in the form prescribed for this purpose. This legal principle has, however, been changed to the detriment of the Sponsor company. Now, according to guidelines in the Bangladesh Gazette dated November 15, 2009, the Sponsor Company can issue the letter of permission to set up industries in the Zone only with prior approval from the Executive Cell, Private EPZ, PMO. This appears to be a violation of earlier guarantees pertaining to Private Sector EPZs and contrary to the 'One-stop service principle'. It is almost like going to play soccer and moving the goal posts in the middle of the match. This has been further complicated with measures taken to restrict the types of industries that can be set up in the KEPZ to 14. This limitation appears to be in contravention of Section 16 of the Bangladesh Private EPZ Act 1996 and also Section 5 of the Foreign Private Investment (Promotion and Protection) Act, 1980. This will confine the growth of investment in KEPZ. It also implies a less favourable treatment for foreign private investments as compared to similar private investments by Bangladeshi citizens. The Chairman and the CEO of Youngone Corporation and the KEPZ has appealed to the Prime Minister for early conclusion of the DoT for the entire KEPZ land, for permitting them to set up all permissible industries consistent with the current Industrial Policy, 2010 and its Reserved List, without any restrictions, as are allowed to BEPZA EPZs and to authorise the Sponsor company to give approval to investors to set up industries in the zone as enunciated in the Bangladesh Private EPZ Act 1996. One can only hope that there will be equality of opportunity. If this does not take place, it will affect our potential to attract further investments. Another element has added uncertainty to the existing equation. It relates to availability of power. In July 1998, the PMO took the decision to supply electricity to KEPZ by the Power Development Board. Accordingly, a 132/33 KV dedicated substation for KEPZ was completed in Shahmirpur in November 2008 and a 33KV power supply line activated for KEPZ by PDB on August 14, 2012. Unfortunately, to the utter surprise of the KEPZ authorities, this electricity line was disconnected on September 13, 2012. By then the KEPZ had already spent Taka 200 million (20 crore) for construction of the related infrastructure and deposited Taka 8.4 million (84 lakh) as security money to PDB. This action on the part of PDB has resulted in the KEPZ authorities seeking a judicial decision through the Court. This arbitrary decision has not only affected existing industrial activity and production of goods but also undermined faith for other prospective investors. The relevant government agencies need to understand that unless we promote our credibility by sticking to our promises or assertions made to investors, we will eventually lose in this game of chess. Continued complications in the KEPZ have already forced Youngone to establish several industrial units in Vietnam (planned previously for the KEPZ). We have already lost thousands of jobs. We are in need of investment, not only to promote economic development but also to ensure greater employment opportunities. We must not look only at the short-term advantages but view the scenario from a wider spectrum. We have other competing emerging countries in our region encouraging foreign investors to re-locate in their territories. We need not help them by not standing by promises already made or by changing principles that have received earlier state assurances. Muhammad Zamir, a former Ambassador, is an analyst specialised in foreign affairs, right to information and good governance. mzamir@dhaka.net