Bhutan’s biggest industrial SEZ opens for bidders

733 acres Jigmeling to be Bhutan’s industrial heartland once it takes off

In what could be an important step in Bhutan’s industrial development DHI Infra floated a global request for proposal (RFP) for the 733 acre Jigmeling Special Economic Zone on 28th December, 2012. The last date for bid submission is April 1, 2013.

A SEZ is a special area reserved for foreign businesses and industries to come and open with all the infrastructure being provided by the host country in addition to a few years of tax breaks.

The project once complete will be Bhutan’s largest Industrial Estate and will dwarf the 267 acre Pasakha Industrial Estate of which only 50% is useable due to the steep terrain. Jigmeling will be located in Sarpang Dzongkhag 15 kilometers west of Gelephu.

The project is based on a design, build, finance, operate, own and transfer (DBFOOT) model under PPP or public private partnership. The government had to adopt this model due to lack of funds in the 10th plan for industrial estates. The ministry of Economic Affairs had originally asked for about Nu 7.367 bn for the development of the three estates, but only Nu 200mn was made available in the 10th Plan.

“Along with posting the RFP on our website we have sent out the proposals to around 200 senior people in 50 major SEZ companies based mainly in India but also in USA, Europe, South Korea, Japan, Singapore, Malaysia and the Kuwait Fund in Kuwait,” said Karma Gayley, General Manager of DHI Infra.

 

Developing Jigmeling and fiscal incentives

The RFP he explained is to invite foreign companies to develop the SEZ area with proper facilities and planning. He said DHI Infra would be requesting Nu 400 to 500 mn from the government for developing ancillary facilities like roads, power and water to the site.

As per the RFP, the understanding is that the developer will have to hand back 300 acres to the government and also at least 2 percent of the revenue.

The developer in return will get to commercially use or lease the remaining 433 acres for a period of 30 years.

An additional carrot thrown in are fiscal incentives like tax holiday till 2030 for not only the developer but also any company coming into the SEZ. The developer will also have sales tax and custom duties exempt for imported construction materials and capital goods including plant and machineries forming direct inputs for the Special Economic Zone.

Special consideration will be made for the large number of skilled and semi skilled labor required for the project. The government will also facilitate approvals for raising project finance from outside.

According to a 2006 World Bank report the cost of developing it then was Nu 4 to 5 bn which is expected to have increased now.

Karma said that if there were no initial interests from bidders then DHI Infra would put the matter to the board and the cabinet and to use government assurance and influence in certain companies like Tata, Mahindra, and ILFS etc.

 

Types of industries 

Jigmeling plans to use Bhutan’s abundant electricity output from the 10,000 MW in setting up local and FDI companies in the estate.

However, keeping in line with the GNH philosophy of Bhutan and also Bhutan’s negative FDI list, heavily polluting and harmful industries like toxic chemicals etc will not be encouraged.

Karma Gayley explained that the RFP would have 60% points of the financial bid while 40% points would be for the technical bid.

Of the 40% technical bid 30% of the points will be kept for the plans concept that is closest to GNH concepts, the 2020 vision, five year plans, environment friendliness, employment and revenue generation and also traditional architecture and overall design.

Karma said that the SEZ would have a mix of various industries as it cannot be narrowed down to just a few. He said that given Bhutan’s relative advantage in electricity he expected electricity intensive industries to be interested like mixed mineral based industries, Ferro silicone, steel industries, cement etc. He said that would also be scope for agro and service based industries if people were interested.

Karma said that once a developer was selected he would have to submit a Detailed Project Report segregating the SEZ in large scale, medium scale and small scale industries with zoning and plans.

He said that the government would use its 300 acres to promote the growth of the domestic industries.

The developer in developing the estate would also have to provide for proper waste and chemical disposal systems which is currently a problem in Pasakha.

 

JICA’s interest

In what could be an encouraging sign for the project, JICA has shown some initial interest in helping with the project especially with ancillary facilities.

Karma said that JICA had first shown interest in a June 2012 meeting in DHI set up to discuss some larger issues

This was followed by another meeting where the Director of the Bhutan and India JICA office personally came to find out more about the SEZ in terms of legal framework, policy and vision of the government and how it would help Bhutan achieve international goals like gender equality, poverty reduction and MDG Goals.

The third meeting is scheduled to take place in the end of January where a team from Japan will also be taken to the actual site in Jigmeling.

Karma said that JICA had extensive experience in developing SEZs which they had also done in Cambodia and Vietnam.

Karma said that if successful cooperation with JICA would not only lift the financial burden from the government but also come to use in case there were no bidders. He said JICA could help develop the project after which the government could either directly lease it out.

JICA’s support apart from the technical expertise would be in providing soft loans at 3 to 4 percent with a longer repayment period.

 

 Advantages

According to a 2006 World Bank report the project is a financially viable one.

Bhutan Chambers of Commerce and Industry (BCCI) Secretary General, Phub Tshering, said, “The constraint with Pasakha is that there is limited space but with Jigmeling the land is good and flat. It is also closer to a railway connection and raw materials and this will help improve productivity in the country.”

Karma said that 733 acre land had been acquired with no hassle and complaints at all with the bulk of it being government land. He said that people whose land had been acquired had to be resettled within the same area which was why partly why Jigmeling from its original 1,122 acres had to come down to 733 acres.

Jigmeling with the development of 10,000 MW will get continuous and non-stop power supply. However, Karma said that DHI Infra was asking the government not to subsidize Jigmeling’s electricity but charge it the export rate or commercial rate.

Karma said that apart from good connectivity Jigmeling being in Bhutan would have good governance, no strikes and peace. He also said that compared to other regions Jigmeling’s neighboring area was not very disturbed.

He also said that already the area had an existing Vocational Training Institute, Alstom was coming up with a Hydropower Center and a nearby Police training institute and upcoming jail would give it automatic security.

An additional advantage of Jigmeling is that no major river protection work will be required as the land rises like a plateau above the Bhur River on its eastern banks. With the ready to develop basic infrastructure like roads, electricity and water supply other developmental activities like a high school, dry port and a power sub-station have been proposed there. The Bhutan Power Corporation (BPC) has already been allotted land within the estate to come up with a power station which will help serve the industrial estate.