Handover process of KEPZ land to food ministry becomes complicated
Monday, 27 April 2009
Sheikh Shahariar Zaman
Embroiled in compensation disputes, Bangladesh Export Processing Zones Authority (BEPZA) is yet to hammer out a way to handover the 60-acre of land of Karnaphuli Export Processing Zone (KEPZ) to the food ministry.
The BEPZA board of governors led by Prime Minister Sheikh Hasina on March 22 decided to return the land, formerly used as a central storage depot (CSD), to the food ministry.
The government had signed agreements with as many as 14 foreign companies for setting up plants on the land.
"Six out of 14 companies have already sought $100 million compensation from the government and the total compensation will be much higher," a BEPZA official said.
"The handover process has become all the more complicated as BEPZA signed agreements with the foreign companies," he said.
The government signed the agreements and now if it backs off, the companies could resort to legal action in domestic and international courts, as Bangladesh is a signatory to 'Multilateral Investment Guarantee Agency' by which, the government gives guarantee to foreign investments, he explained.
The companies spent over $3 million for setting up plants and some companies even ordered machinery for their plants, he said.
When asked why the compensation is so high compared with the $3 million investment, he said the companies had signed agreements with their buyers to supply goods on stipulated dates.
"Their reputation is at stake. It will be extremely difficult for them to convince other buyers that they have the ability to honour their commitments," he said.
Jeff Chuang, managing director of Cosmos Shoes, one of the 14 companies, said, "We face an immediate loss of $8.85 million if the agreement is cancelled."
The company wanted to make an investment of $16.6 million to set up a footwear plant, which would create employment opportunity for over 3,000 workers.
"My company has already invested $2.45 million in KEPZ and ordered machinery worth $6.4 million and I have to make full payment for that in August," he said.
The company has long-term agreements with Skechers USA (major shoe brand in the US), Inditex (second largest retailer in the world), Emyco (largest shoe brand/retailer in Mexico), he added.
"We have already failed in our commitments to the buyers. If our construction work cannot be resumed by April end, we will not be able to finish our factory building by September 2009," Mr Jeff said.
Customers would cancel all orders of not only Cosmos Shoes but also of other suppliers, lamented Mr Jeff who is representing the 14 companies trying to protect their rights in Bangladesh.
"We came to Bangladesh as we thought that the 30-year lease agreement would be very secure. Let alone security, now we are in a state of panic," he said.
He urged the prime minister to give hearings to all sides before taking any decision.
BEPZA ordered the 14 companies to suspend construction of plants in the KEPZ on March 28.
The order has created uncertainty over a foreign investment of around $181 million.
It also sent a 'negative signal' to foreign investors who were queuing up in Bangladesh to relocate their factories at a time when the need for overseas investment was at its highest to stave off the negative impact of the global economic recession.
In the letter, the BEPZA has cited 'unavoidable circumstances' for the suspension order, although sources blamed the food ministry's 'dogged demand to reclaim its lost property' behind the cancellation of land allotment.
Embroiled in compensation disputes, Bangladesh Export Processing Zones Authority (BEPZA) is yet to hammer out a way to handover the 60-acre of land of Karnaphuli Export Processing Zone (KEPZ) to the food ministry.
The BEPZA board of governors led by Prime Minister Sheikh Hasina on March 22 decided to return the land, formerly used as a central storage depot (CSD), to the food ministry.
The government had signed agreements with as many as 14 foreign companies for setting up plants on the land.
"Six out of 14 companies have already sought $100 million compensation from the government and the total compensation will be much higher," a BEPZA official said.
"The handover process has become all the more complicated as BEPZA signed agreements with the foreign companies," he said.
The government signed the agreements and now if it backs off, the companies could resort to legal action in domestic and international courts, as Bangladesh is a signatory to 'Multilateral Investment Guarantee Agency' by which, the government gives guarantee to foreign investments, he explained.
The companies spent over $3 million for setting up plants and some companies even ordered machinery for their plants, he said.
When asked why the compensation is so high compared with the $3 million investment, he said the companies had signed agreements with their buyers to supply goods on stipulated dates.
"Their reputation is at stake. It will be extremely difficult for them to convince other buyers that they have the ability to honour their commitments," he said.
Jeff Chuang, managing director of Cosmos Shoes, one of the 14 companies, said, "We face an immediate loss of $8.85 million if the agreement is cancelled."
The company wanted to make an investment of $16.6 million to set up a footwear plant, which would create employment opportunity for over 3,000 workers.
"My company has already invested $2.45 million in KEPZ and ordered machinery worth $6.4 million and I have to make full payment for that in August," he said.
The company has long-term agreements with Skechers USA (major shoe brand in the US), Inditex (second largest retailer in the world), Emyco (largest shoe brand/retailer in Mexico), he added.
"We have already failed in our commitments to the buyers. If our construction work cannot be resumed by April end, we will not be able to finish our factory building by September 2009," Mr Jeff said.
Customers would cancel all orders of not only Cosmos Shoes but also of other suppliers, lamented Mr Jeff who is representing the 14 companies trying to protect their rights in Bangladesh.
"We came to Bangladesh as we thought that the 30-year lease agreement would be very secure. Let alone security, now we are in a state of panic," he said.
He urged the prime minister to give hearings to all sides before taking any decision.
BEPZA ordered the 14 companies to suspend construction of plants in the KEPZ on March 28.
The order has created uncertainty over a foreign investment of around $181 million.
It also sent a 'negative signal' to foreign investors who were queuing up in Bangladesh to relocate their factories at a time when the need for overseas investment was at its highest to stave off the negative impact of the global economic recession.
In the letter, the BEPZA has cited 'unavoidable circumstances' for the suspension order, although sources blamed the food ministry's 'dogged demand to reclaim its lost property' behind the cancellation of land allotment.