Steel Engineering Corporation losing out to private peers

The financial muscle of the state-owned steel maker remains highly fragile, with most of its units failing to compete with private enterprises, officials say.

Though profitable until now, the Bangladesh Steel and Engineering Corporation might see the reversal of its fortune in the next two to three years if the units under its control continue to lose business, they said.

During the last five financial years, profit margin of the agency reduced by about 50 per cent while its liabilities kept ballooning, thus making it difficult for the corporation to maintain a healthy balance sheet.

Founded in 1976 through amalgamation of the then Bangladesh Steel Mills Corporation and the Bangladesh Engineering and Shipbuilding Corporation, it initially started functioning with 62 enterprises.

Now, the number of active enterprises has dropped to only nine and five of those are incurring losses while one - Dhaka Steel Works Limited - resumed production late last year.

The corporation used to export products after meeting local demand, but things deteriorated rapidly and it kept losing its competitive edge locally and globally.

Today, it does not export any item.

According to the official statistics, the corporation earned pre-tax profit amounting to Tk 1.07 billion during financial year 2014-2015. But that figure slipped to Tk 660 million in FY'19.

After paying tax, the net profit was estimated to be around Tk 310 million in FY'19, down by Tk 100 million from its performance in previous fiscal marking a net profit of Tk 400 million.

A senior corporation official, who preferred to remain anonymous, said only the two entities -- Pragati Industries Limited and Gazi Wires Limited -- earned profit of around Tk 1.05 billion (before tax), but five of its units incurred combined losses of around Tk 367 million, ripping a hole in its balance sheet.

Even more, the overall liabilities of the corporation soared to Tk 8.08 billion in FY'19 from Tk 7.36 billion a year ago, he said.

Over 40 per cent of the liabilities is long-term loan (Tk 3.26 billion) and it keeps increasing gradually, he said.

The official said the corporation keeps losing its market share because of the emergence of the vibrant private enterprises.

"If things go as usual in the next two or three years, the corporation will turn into another loss-making government entity for sure," he said.

The corporation's chief engineer Nazmul Haque Prodhan blamed factors like weak marketing system, reduced government orders and decades-old machinery in many units for its sorry state.

Giving examples, he said the government stopped giving gas connections to households and industries due to excessive pressure on the limited natural resource, which heavily affected production of their tubes.

"Quality is our asset. There are many private enterprises, which produce low-cost and low-quality products that we cannot do. Even, we cannot properly market our products because of many complexities," he said.

Mr Prodhan, who doubles his role as secretary, said lengthy decision making is another obstacle that hurts its operations.

"If we want to do something, we need to undergo lengthy approval process, which takes lots of time. So, taking right decision in right time is a challenge here," he said. "But the private sector does not face such complexities," he added.

"Despite numerous challenges, we're still making money, which is important," he maintained.

He said the corporation with the help of the ministry of industries has been implementing various projects to ramp up production and strengthen its financial health.

Research director at the Centre for Policy Dialogue (CPD) Khondaker Golam Moazzem said among the government corporations, the steel corporation is making profit but its margin is squeezing fast.

Excepting a few, most of its units have not been able to generate profits for the last several years.

This has prompted the corporation to cross-subsidise the loss-making units, he said.

"I think the government should consider discontinuing the production of items where the private sector has grabbed the market," he said.

The running enterprises under the corporation are Atlas Bangladesh Limited, National Tubes Ltd, Eastern Cables Ltd, Eastern Tubes Ltd, Gazi Wires Ltd, GEMCO Ltd, Bangladesh Blade Factory Ltd, Pragoti Industries Ltd and Dhaka Steel Works Limited.

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