Discriminating industries

Excised steel

Today’s steel prices:

A ton of 10 mm TMT bar manufactured in Bhutan (by Karma Steel, for example) costs Nu 39,000 in Phuentsholing.

A ton of similar grade (Fe415) 10 mm TMT bar manufactured in India (by SRMB, for example) costs Nu 42,900 in Jaigon, outside Phuentsholing.

    If you were a contractor, which steel would you buy? Bhutanese steel, right? All else being the same, TMT bars manufactured in Bhutan would be cheaper by Nu 3,900 per ton.

    But Punatsangchu Hydropower Project Authority contractors prefer Indian steel. Why? Because for PHPA, the government refunds the excise duty levied on Indian steel (collected in India by the Indian government, then transferred to the Bhutanese government). The excise rate for steel is 10.3%. And that seems to be enough to make PHPA contractors prefer TMT bars manufactured in India over those produced in Bhutan.

    PHPA’s demand for steel is huge. And that demand will get even bigger – much bigger – as construction on the other hydropower projects also begin.

    This massive surge in demand for steel should come as good news for our industries. It doesn’t. Instead, our steel manufacturers are disappointed.

    I am disappointed too. And I am confused.

    Ideally, our government should favour our own industries over foreign ones. That, in fact, is what every country tries to do. But if, for whatever reason, that isn’t possible, our government should at least not discriminate between goods produced in our country and those that are imported.

    And under no condition – no matter what – should our government discriminate against national companies by favouring foreign products. But that, unfortunately, seems to be what’s happening at PHPA.

    Our government refunds the excise duty paid on Indian steel. But it does not refund the excise duty paid on Bhutanese steel. (Bhutanese manufacturers pay excise duty in India when buying raw material.) So Indian steel becomes much more competitive. And our own manufacturers lose out.

    If our government must refund the excise duty levied on steel manufactured in India, it should also refund the excise duty levied on the raw material that is purchased by domestic steel manufacturers. Only then will the playing field be level. Otherwise, our manufacturers don’t stand a chance. And they may eventually go out of business.

    That won’t be good for the promoters – they’d lose money.

    That won’t be good for the employees – they’d lose their jobs.

    That won’t be good for the banks – they’d lose their investments.

    That won’t be good for the government – they’d lose revenue from business and personal income taxes.

    And that won’t be good for our economy.

    But that precisely is what’s happening. Bhutan Concast is almost bankrupt. They’ve shut their factories. They’ve let go of most of their workers.  And they may be forced to default on their loans.

    I’m disappointed. And I am confused.

     

    Facebook Comments:

    Comments

    1. http://www.kuenselonline.com/2010/modules.php?name=News&file=article&sid=17908

      You assume that only price differentiates the steel manufactured in Bhutan against those that are manufactured in India.

      What about product quality, track record, and financial health of the supplier?

    2. Sorry, I think this is a matter of personal choice/preference and nobody can dictate where one should buy from just because of pricing.

      Yes, this could be because of excise etc. but who knows, maybe the company is willing to put up with that for reasons that they prefer that steel from India. So if we were to imply that this is unfair, then every business in Bhutan should have an issue.

      I think this whole excise thing not only affects steel but every business in Bhutan. No better example than the dried up businesses in Phuentsholing while Jaigaon booms. The ministry of trade and industry does a disservice to Bhutanese pvt entrepreneurs by overlooking this discrepancy.

    3. Are you sure that the steel quality is the same or are you just assuming it is the same. If both are of the same quality, you must take up this issue till the wrong is righted. If the indian steel is superior quality you have no case and must admit it in this blog.

    4. I think the OL has raised some credible issues here, but as always, some people are trying to misunderstand it.

      It is not about whether the prices of our steels are higher or not. It is not about whether the quality of our steel is poorer or not. But the point the OL is raising is, what is our government doing to protect our own industries. That’s the point.

      OK, as someone said, may be the company prefers to buy the steel from India because of cheaper price and better quality. The question remains: why not make our own steel industries produce the quality required at reasonable prices? This is the point. And I think it it not about our steel industries inability to produce such steels but our goverment’s reluctance to do it.

      Right now it is steel. We neither feel the direct repercussions of buying steel from India nor understand our steel industries are going bankrupt. But imagine this: what will happen when people will “prefer” to buy red rice from Thailand, apples from Washington, bamboo products from Indonesia, and etc etc. Our own farmers and our local entrepreneurs will die!! They can not compete with the free-trades.

      Just a thought.

    5. If we are talking about the punatsnagchu project the quality of steel is definitely an issue.

      there are a couple of issues in the post and we cannot block out others and focus only on what you think he is raising. As responsible citizens, implications and consequences of issues raised and opinions given must be taken into account.Otherwise we are guilty of ‘tunnel vision’ and all its attendant problems.

    6. Seems that the OL has been roped in by the steel magnates of Bhutan to do their bidding. Strangely, he completely overlooks the fact that the only competitive edge our steel industries have over their Indian counterparts is the cheaper energy prices. Come to think of it, the same energy that could be sold to India or Bangladesh to earn huge revenues for the benefit of all Bhutanese citizens is actually lining the pockets of a few of our very rich steel entrepreneurs and I am willing to bet that some of the steel factories are just fronts for some Marwari living in Siliguri or Jaigaon.

      Maybe, OL can actually direct the DGPC to do a study on how much money the national exchequer would earn if they exported the subsidized power that is presently being provided to the steel industries in Bhutan and compare it with the money the steel companies pay as tax. If the findings show that the government would be earning far more money by just exporting it, then maybe it is time to stop the subsidized power rates given to this power guzzling industry. If they have to shut down, well and good, at least, this way there would be less pollution in the vicinity of Phuntsholing, making the quality of life much better for its residents. This goes for other industries in Pasakha that also survive or make money on subsidized power rates.

      The bottom line is that people are not happy with these industries and their owners who make tonnes of money and then flaunt it. Some of them even behave as if they are the most successful business men in Bhutan. When at the end of the day, all they are doing is making money from power that actually belongs to all of us.

    7. I fail to see how a dissenting view can be construed as a “misunderstanding”.

      And as far as I can tell, the one-sided argument presented here is clear to everyone.

    8. This time I must disagree with OL. I understand that protecting our industries is an important recognition but the quality of hydro project is far more important. Hydropower projects are the biggest income generator it creates jobs for Bhutanese in addition to revenue it generates for the exchequer. Hence, we cannot compromise on the quality of steel used. However, if the quality of steel produced in Bhutan by Bhutanese companies is better than the Indian companies then OL’s argument is strong. Price should not be the only factor.

      Another thing; PM’s sister in law Aum Damcho is owner of one of the steel companies in Bhutan. Is her company also affected by the choice made by our government to buy Indian steel?

      I have no sympathy for Bhutanese business houses. There are very few who have good ideas and creates REAL employment for BHUTANESE. Most of these businesses employ Indians and can only survive because of the cheaper electricity price like someone above put it. Electricity is one of the major unit cost for producing steel – hence many Bhutanese set up the business. This business model is no different to those who make money by relying on tax difference and favourable tax agreement we have with India. It is a short-sighted business model and therefore when the going gets tough, I am afraid they have to bite it. It is a shame that few years ago our Government decided to bail these businesses (some of it) when the company was making huge losses due to price of steel falling too low. There are companies in Bhutan who made so much money by using this business model. Our government has always turned a blind eye to it because (I think) they must have benefited from it. Most steel producers use such business models. It is a high-risk high-return model and in good times you make lots of money and in bad time you lose. But, in Bhutan in good times the companies want to keep it all and in bad times they want government to create market for their products and also bail them out financially. What a joke.

    9. BhutanGuy says:

      This is something I have always failed to understand with the Bhutanese system. In other countries, as OL rightly pointed out, they would choose a product produced in their own country to give it opportunity to grow while dictating its terms and quality. However in Bhutan no matter what happens, be it consultancy services, business opportunities, construction opportunities, it seems like foreigners are preferred over our Bhutanese counterparts. I have thought about it and come to two conclusion:

      1. We either do not trust ourselves and our countrymen, or
      2. We are plain jealous that a fellow Bhutanese might make it big and better than ourselves.

      AND we call ourselves Buddhist!!!

    10. If quality is a problem, that is as much the responsibility of the govt. to monitor it. Private sector has been repeatedly, said to be the back bone of not only the economic growth of the country but also, a sector that can produce mass employment to all the needy young people in the country.
      And that’s why it is important to support and buy from our own Bhutanese.
      while, they make loads of money they also work very hard at the same time and risk a lot. If the Govt. provides subsidy they also pay taxes and lots of it to the govt.
      I hope that, instead of always begging for funds and money from others Govt. will find a way to be sustainable and I think private sector, be it big, medium or small is the way to do it. If we are really determined, with good policy and collaboration, i believe that will happen.

    11. Anonymuse says:

      To those advocating an almost reverse discriminatory aka protectionistic policy to favour local companies, you forget who is Bhutan’s biggest export and development partner.

      There is no free lunch.

    12. Disgusted says:

      All he’s advocating is to treat our industries on par with Indian ones. He’s not making the case that the quality of the product should be ignored, all he’s saying is that the excise duty should be refunded to Bhutanese companies just as it is being to foreign ones.

      This will provide a level playing field for Bhutanese companies…. (odd that in Bhutan, bhutanese companies have to ask for a level playing field).

      Punasangtshu project can then decide to buy the steel on the merit of it’s quality, either from Bhutanese or Indian companies.

      Currently, even if the quality of Bhutanese steel is equal or superior to Indian steel, the project only buys Indian steel as it is cheaper with the refund of the excise duty.

      Anyways Bhutanese industries, busisness people and therefore citizens are second class citizens in Bhutan….foreigners can own 51% of a Bank, but Bhutanese can own only 20%…..A bhutanese can own only 25 acres of land, but a foreigner has access to 20,000 acres of land (hazelnut project) and on and on. I know there are many Bhutanese companies that do fronting, export software, and jewelery, and other shady business, but one may have to ask why, is it because Bhutanese are inherently crooked, or is it because of the rules and regulations and conditions the government puts in place. After all all humans respond to incentives, only the royal government incentivises crooked behaviour, with its silly laws. Our laws are so dynamic that no one wants to actually risk their money in long term investments.

    13. The million dollar question is, for how long can the RGOB keep on providing subsidized power to these steel companies and other power intensive industries who’s only competitive edge in the market is the cheaper power they have access to? Maybe, the state needs to seriously look at nationalising these companies as they are making profits only because of cheaper electricity which is a national resource that belongs to all of us.

    14. Since OL has specifically mentioned it, does anyone know who owns Bhutan Concast and why it is the only company going under.

    15. OL& Disgusted,
      First of all, I don’t think the government is engaged in buying the steel – the contractors are buying it. Try convincing them. Secondly, whether it is from India or from Bhutan, it is the same considering that most of the factories are just Bhutanese in name. Regarding land, the hazelnut project cultivates the crop on farmers’ land on contract and do not enagage in leasing it as “dsigusted” mentions. As far as I know this option is applied to all, Bhutanese or foreigners. So don’t go about spreading rubbish and baseless allegations!

    16. @waitosa

      1. The RGoB is not buying steel, however its refusal to refund Indian collected excise -which is then repartriated to the RGoB- to Bhutanese steel companies, while refunding this to Indian steel companies selling to hydro-power projects in Bhutan seriously disadvantages Bhutanese steel companies. I’m sure all else being equal (quality, etc.) a rational individual/company would buy the cheaper steel.

      2. Your flippant remark on fronting (you imply all companies are fronts) shows your lack of understanding…. Yes there maybe a few companies which are engaged in fronting, but that does not mean we should disadvantage all Bhutanese industries. Cutting nose… to spite face comes to mind. You should realise these companies do employ Bhutanese, who pay PIT.

      3. On the Hazelnut project I’ll share a quote from the ministry of agriculture website:
      “Based on the recommendations of the Ministry of Economic Affairs, Ministry of Finance, GNH Commission and the National Land Commission there are several issues that still need to be resolved related to FDI policy, land lease and ownership rights, labor, exports and imports, and taxation. According to the Letter of Intent, upon receiving clarifications from the Cabinet, the MoA and MHV (Mountain Hazelnut Venture) will be signing a Memorandum of Understanding by the end of one month, having cleared all the issues needing to be resolved.” The weblink is http://www.moa.gov.bt/moa/news/news_detail.php?id=664.

      As I did not have access to the MoU, I assumed, based on the above quote on the MoA website that there was land being leased, or transferred on freehold or both to MHV, or why else would they invest US$30million. If you have a copy of the MoU please share to clarify our doubts, if not please do not act like you know that such things are not happening, when the MoA website itself mentions land lease and ownership rights as issues that still need to be “resolved” in reference to the hazelnut project.

      4. You did not refute my comments on the unfair policy of the RGoB which allows foreigners and foreign companies to own 51% of a Bank, but limits a bhutanese citizen to 20%, thus (re-emoahsisng what I said earlier) treating Bhutanese industries, busisness people and therefore citizens as second class citizens in our own country.

      5. I hope you’ll agree with my not unfounded allegations. If not hopefully you’ll share facts and not say “as far as I know” and spout rubbish.

    17. @ Guardian

      I think you are confused when you say for how long can the RGOB keep on providing subsidized power to these steel companies and other power intensive industries”.

      RGoB provides no subsidy to anyone in Bhutan except rural consumers in terms of power tarrif. A subsidy implies that there is some portion of the cost being borne by the govt. If that was the case then how come both the generator of power DGPC and wheeler of power BPC make record profits (dcgp weblink:http://www.dgpc.bt/Content2.aspx?c=229, unfortunately BPC does not have its yearending 2009 financial results on its website, but BPC announced that it made a profit of Nu900m+ profit on Nu2.8billion revenue (and don’t say BPC made all its profits from wheeling power to India -its total revenue from this was around Nu600milliom or less than 25% of its toatl revenue).

      Of course electricty is cheaper in Bhutan….but cheaper does not mean subsidy…that is a lie that the energy sector is speading

    18. wakkawakka says:

      its nothing to do with quality or prize.
      Everything to do with corrupt practices that the contractors are famous for. they bribe the customs check point and register tonnes upon tonnes of steel into bhutan .when actually most doesnt enter the gates . want to know why?for the excise refund documents dummies!
      so we dont get the steel that should be used in our projects…..

      any guesses what happened in Tala project???
      for Bhutanese manufacturers that document is not requiredand therefore doesnot help the contractors.Ha goiga geshey dhisu!

    19. wakkawakka says:

      Someone is being paid BIG bucks to see that Bhutanese manufacturers dont supply to the projects.I am sure most of the “patriots” writing here are not involvd but for those that are,Dont allow greed to overtake your basic goodness!As for the power subsidy,Why doesnt someone do a study on it?

    20. Disgusted,

      So what was all the hue and cry about from our steel factory owners when DGPC announced some time last year that they would be increasing the rates for power supplied to them. If this is not some sort of subsidy then I don’t know the meaning of subsidy.

    21. Now we all know the proprietor of Bhutan Concast and the reason for this post from OL. Just trying to help a friend in bad times I guess.

    22. wakkawakka says:

      guardian,
      would you believe the indstries also contribute other things such as tax ,which I hear runs into millions (pays for your foreign trips lo)
      They also employ more people directly and indirectly more than the Govt.
      DONT try to divert the topic
      SOMEONE is taking BIG bucks for keeping the Bhutanese steel out of Punatsangchu I hope its not you HAHA

    23. wakkawakka says:

      Before we go ballistic over you said, I said and get nowhere,can we have a discussion over the power subsidy to the industries on BBS?Not an airy fairy one with no substance .The purpose is to get to the bottom of WHETHER THE INDUSTRIES ARE CONTRIBUTING ANYTHING TO THE COUNTRY OR NOT?
      If Not SHUT THEM DOWN and be done with it if not all those that are creating impediments in the path of economic growth should be put behind bars for anti national activities!

    24. wakkawakka says:

      1) SQCA :Are you testing the steel supplied to punatsangchu?Are you so naive and simply going by the trade mark.Do you know most trade marks can be bought?If so can you imagine the steel coming into Bhutan? Can you imagine if a national calamity takes place and the steel strength has been calculated using original steel?
      2) GOVT should procure all the steel and supply to the contractors as it is done in all major projects in India.So also Cement.
      3) Along with SQCA all the steel should be weighed near the site by govt controlled computerised weighbridge.
      4) I hear the Govt weighbridge in Phuntsholing is tampered. Do away with it immediately!Any tampering of Govt weighbridge is a felony and should be treated as such.
      5)is it true the Punatsangchu is advicing buying aggregates from India? Whats wrong with our own Stones?And if this is true, again Govt agency must procure the aggregates.
      advice to the” greedy ,holier than thou “bosses of Punatsangchu .STOP raping my country!

    25. wakawaka,

      Do you actually know what you are talking about. When the government raised power tariffs for all consumers sometime last year, there was so much of resistance from these greedy steel magnates. Since then, as far as we know, power tariffs to these power intensive industries have not been revised. It was in this connection that I questioned that for how long could the government keep on providing power on preferential rates to these industries.

      In regard to diverting the topic, I don’t know why you keep on harping that someone is making money by the contractors not buying Bhutanese steel, why they are not doing so maybe directed to them.

      Cheers.

    26. disgusted,

      The government of India refunds excise duties to the RGOB on alot of other items purchased from India apart from raw materials used in our steel mills. If the steel industries are refunded the amount paid as excise duty, then surely many other businesses will also be required to be refunded the excise duty paid by them too.

      And by the way, there is absolutely no need to feel sorry for these steel tycoons if they went on a little loss here and there. If you take a look at the business houses that own these steel factories, most or all of them will fall in the top 20 richest in Bhutan.

    27. wakkawakka says:

      Gaurdian,
      Your obvious jealousy is making you foam in the mouth!
      Y are you so obsessed only with the steel tycoons? The other industries enjoy the same power tarrifs too.I only suggested a proper study be done to see the balance. Are they only taking and not giving anything back?
      I think this is The Honoroble Opposition leaders blog.As a citizen I have the right to contact him here.I hope He will do a study and see if what I wrote is true.

    28. wakkawakka,

      Please read my first post, I mentioned all the industries that depend on preferential power tariff. Obviously, the steel industry has been highlighted here as it is the subject of our discussions.

      I have only one question for OL, is it only Bhutan Concast that is going under or are all the other steel companies suffering a similar fate because of PHPAs policy.

    Leave a Reply