China loan blow to
Bangladeshi private shipowners
By Syed Tashfin Chowdhury

DHAKA - Bangladesh's numerous small private shipping companies have reacted angrily to a multi-million dollar preferential loan from China to help state-owned Bangladesh Shipping Corporation (BSC) buy six new ships - the company's first ship purchase in two decades.

The six Chinese-built ships, costing about US$171 million, will be funded through a preferential loan deal signed on June 15 between BSC and China National Machinery Import and Export Corporation (CMC). Two of the six ships are product carriers, two are bulk carriers and two are container ships. Each product and bulk carrier weighs around 40,000 tonnes, and the container ships

 

have a capacity of 1,200 TEUs (twenty-foot equivalent units - an industry measure).

"Following a two-year grace period, Bangladesh will have to pay up the total sum in the next 13 years at a 1% to 2% interest rate," a BSC official told Asia Times Online. After the deal signing, Mohammad Nasir Uddin Chowdhury, assistant manager of BSC, was quoted by the Daily Star as saying, "The buying process of the vessels was set out according to a government-to-government preferential loan from China to Bangladesh after CMC gave a proposal around five months ago."

The deal, although relatively small in dollar value, helps to cement China-Bangladesh ties while boosting BSC's capacity at a time when Dhaka is seeking increased access to coastal trade with India. BSC had around 38 ships in 1971, but the fleet has shrunk to 13 ships, with 10 of them more than 28 years old, the lifetime for any ship, according to BSC sources. That left BSC having to charter the services of private ships to import fuel and other goods - using up significant foreign currency in the process.

The fleet additions will boost profit by the fiscal year ending June 2014, say officials. That may come at a cost to private shipping fleets.

"The deal is unfair for the 22 private shipping companies in Bangladesh, which find it difficult to buy new ships," said an official at one of the country's leading shipping companies. Together the private shippers own around 68 ocean-going ships, including general cargo vessels, container ships and oil tankers. Their average age is between 18 and 20 years.

Shippers said the BSC loan terms are far better than what they can obtain from banks in Bangladesh. The pay-back period for loans to buy small vessels worth around $12 million is usually as short as five years. For larger vessels worth around $23 million, the loan duration is around 10 years.

Annual interest rates are between 18% and 20%, and over 24% for even larger vessels, an official of a private bank told Asia Times Online.

Private shippers, who cater to foreign charterers, local importers and exporters, fear that with new ships BSC can easily sustain and attract more clients with lower charges while penetrating routes that were earlier off limits to them. This would raise the competition at a time when private shippers are also struggling from the global recession and reduced trade due to the eurozone crisis.

Kamal Hayat, executive director of Rainbow Shipping Lines and senior vice chairman of the Bangladesh Shipping Agents Association, that if the private shipping sector is patronized it would boost the economy by earning more foreign currency and allowing "benefits to local industries including the ready-made garments sector" - the country's leading exporter.

Even stiffer competition is likely from BSC - as it intends to add a further four ships to its fleet within the next year, over and above the six favored by the loan from China. At the company's annual general meeting on June 26, Shipping Minister Shahjahan Khan said that the government has also decided to buy BSC a tanker worth $36.5 million.

BSC's profit has crashed over the past two years, falling 86% to $220,000 in the 2010-2011 fiscal year from $1.63 million in 2009-2010.

Syed Tashfin Chowdhury is the Editor of Xtra, the weekend magazine of New Age, in Bangladesh.

(Copyright 2012 Asia Times Online (Holdings) Ltd. All rights reserved. Please contact us about sales, syndication and republishing.)