Incentives for tannery relocation

Stuck with no progress on the tannery hub's shift from the capital's Hazaribagh to the Savar industrial park, the government has finally decided to roll out incentives to expedite the process. The decision of the government to relocate the country's largest tannery to the site meant for it on the outskirts of Dhaka has, to recall, remained totally ignored, even unheeded by the tannery owners. Warnings, followed by threats, for stern punitive actions from none other than the ministers in charge went in vain. In the face of prolonged and stiff opposition from the tannery owners, the government is now seeking out ways in soft hands.
The incentive package for tanners to help them move their hazardous factories to the Savar industrial park will come in the form of easing out default loans, soft-term interest on loans for relocation purposes. The central bank has announced that tanners who have already moved their units or are in the process to do so will get an opportunity to shift their irregular loans into blocked accounts and will be allowed eight years for repayment, with a one-year grace period. In addition, they will be charged 10 per cent rate of interest on the loans in the blocked accounts or banks' cost of fund or whichever is lower. In its circular to the banks, the central bank instructed them to consider relaxation of the existing down payments while rescheduling old loans or sanctioning new ones. However, fresh collaterals will be required in getting new loans in case of deficit in the security money. To avail these incentives, tanners will be required to begin the process of shifting their factories within the next six months.
That both sides -- the government and the tannery owners -- have been at loggerheads for a very long time, blaming each other for being pigheaded is quite well known. Now that a solution to mitigate the stalemate does not look far-fetched, there is a sense that this time things should work. The key role here rests with the central bank in ensuring that while allowing such financial incentives to the tanners, the commercial banks should be given the legitimate discretion in exercising their objective judgment. This, in other words, implies that banks must not be held hostage to undesirable pressures.
The amount of irregular loans with the tannery sector now stands at around Tk 4.50 billion, with an accrued interest-related amount of Tk 2.50 billion. According to industry insiders, tanners will have to invest around Tk 60.00 billion to relocate the factories, set up new plants and begin commercial production. The task ahead is not very easy, although it is generally assumed that the roll-out of incentives would expedite the relocation process for a good number of factories. Some factories have already started moving to the new site, especially those which are export-oriented, because continuing with exports from Hazaribagh with no central effluent treatment plant (CETP) facility offers slim prospect, particularly in the European Union (EU) market in the near future. The EU requirement of CETP will become mandatory for export of leather and leather goods from 2015. All parties need to be cautious in order to avoid the undesirable.