Embargo puts spoke in industrial wheel

  • Industrialists say capacity utilisation has come down nearly 20 percent

Dec 13, 2015-

Industries across the country are battling for survival in the wake of Tarai protests and an unofficial blockade imposed by India.

The manufacturing sector is facing multiple problems: low capacity utilisation, depleting stocks, disturbances in supply chain and risk of loan default among others. 

The government has already projected that the manufacturing sector will have a negative growth this fiscal. According to Nepal Rastra Bank (NRB)’s annual report on economic activities, average capacity utilisation of major industries stood at 52.67 percent in fiscal year 2014-15, which according to industrialists will come down massively this fiscal.

Most of industries across the major industrial corridors are already closed, and those which are in operation are struggling to run to full capacity. Pashupati Murarka, president of the Federation of Nepalese Chambers of Commerce and Industry, estimates that average capacity utilisation of the industries at the moment might be less than 20 percent.

But what is more worrisome is, said Murarka, even if the current political standoff comes to an end the blockade is lifted, capacity utilisation will not be able to cross 35 percent at the end of this fiscal. For industrialists, lack of raw materials is the single biggest problem. 

“There is not much threat of vandalism from banda enforcers these days,” said Shahil Agrawal, executive director of Shankar Group, which has major interest in the steel and cement sector. “The main problem now is shortage of raw materials that we have to import.” 

For Agrawal, steel contributes largest revenue for the Shankar Group. “Our steel plant is currently running only at 10 percent of capacity,” said Agrawal, adding that cement plant’s capacity utilisation is around 40-50 percent.

Cement industries, one of the fastest growing sectors in recent years, are struggling for want of clinkers and coal. Coal is an essential component to produce cement and almost all Nepali factories use African coal and its import has been stalled.

Industries in Bara-Parsa Industrial Corridors have been hit the worst as Birgunj-Raxual border crossing, through which 70 percent of trade between Nepal and India takes place, has remained closed for the past 76 days. Restrictions on movement of cargo and fuel trucks have disturbed the entire supply chain. 

Industrialists are incurring huge losses, as they have to pay millions of rupees as demurrage charge for their shipments have been stuck in Kolkata ports. About 50,000 tonnes of crude cooking oil has been stuck in Kolkata. About 1,000 cargo trucks are stuck in Raxaul, India, waiting for clearance, according to the FNCCI. 

Unilever Nepal Director Ravi Bhakta Shrestha said Unilever’s plant in Hetauda, which was in operation even during the protests, had to be shut after the blockade due to shortage of raw materials. “Shortage of raw materials and problems in delivering the products to the market are major problems,” said Shrestha. 

Shikhar Shoes Managing Director Ram Krishna Prasain said his three containers loaded with raw materials are struck in Kolkata for nearly two months. “I have been asked to pay demurrage charge of Rs 2.5 million,” said Prasain. 

Shikhar Shoes Industries’ Biratnagar plant was earlier closed due to protests and now due to lack of raw materials. “Our factory in Kathmandu is operating at just 30-40 percent of capacity,” said Prasain. 

Nepali footwear industries generally import raw materials from India and China. “As the market leader in footwear business, we have been able to withstand the shock to some extent, but smaller factories have been hit hard,” said Prasain.

Government officials said situation at Birgunj Dry Port is returning to normalcy with goods arriving without obstruction. “The single biggest raw material imported through the dry port is iron which is being supplied to concerned industries,” said Laxman Basnet, executive director of Nepal Intermodal Transport Development Board, the government entity that regulates the country’s only dry port. 

With the government still non-committal for stimulus package as sought by the private sector, industrialists said the government at least could provide relief by lowering loan interest. 

Bankers said they have been requested by industrialists to reschedule loan. “We’ve been getting queries from industries from Birgunj and Biratnagar about rescheduling of loan,” said Upendra Poudyal, CEO of NMB Bank.

Published: 13-12-2015 09:06

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