Dungsam dream still doable

Despite initial expectations being belied, there’s optimism about the corporation’s future

DDCL: More than three decades ago, a plan was conceived to start a mega cement plant in South East Bhutan.  It would enhance revenue for the government, develop a town in isolated Nganglam, and generate employment.

Despite several bottlenecks, the Dungsam Cement Corporation ltd (DCCL) was formally inaugurated in October last year.  Production began much earlier.  With a capacity to produce 1MMT (million metric tonnes) of clinker and 1.36MMT of cement in a year, a lot of hope was pinned on the plant.

The economy was expected to improve, as the plant was expected to contribute three times more than what Penden Cement was contributing.  It was expected to fund the huge fiscal gap left by the civil servant pay revision, albeit drawing criticism from the upper house that the government was “counting chickens even before they were hatched.”

A year into production, DCCL is riding a rough ride in the southern heat.  The company is shrouded in an embezzlement case, involving about Nu 21M.  Sales are not picking up as expected, and competition has become stiffer with the major market, northeast India, seeing their own cement plants.

The local market absorbs between 15 to 20 percent of what the plant is generating.  A big foreign construction company, that could easily absorb a substantial amount of Dragon cement, has DCCL over a barrel.

Is the country’s largest cement plant about to hit the panic button?

No, says the chairman of the Druk Holding and Investment, the parent company of DCCL, Dasho Sangay Khandu.  The chairman said he understood the huge expectation of Dungsam cement and that, when it was not met; people felt there was a crisis. “This is not true and I don’t think there’s a need for everybody to be alarmed,” he said.

The chairman, who recently returned from Nganglam, said DCCL borrowed money from Druk Green Power Corporation, not to fund overhead cost, as rumoured, but to service debt.  This arrangement, he said, was cheaper than borrowing from financial institutions.

DGPC, he said, had some funds, which were not getting any interest because financial institutions were not accepting any short term deposits from corporate bodies, and also because they (banks) have access liquidity. “While, on the other hand, our own company was borrowing working capital loan from banks at 14 percent interest. DGPC loaned money to DCCL at 5 percent interest rate. This is an inter-corporate borrowing approved by the DHI board and this is reducing the cost of borrowing,” he said.

DCCL’s managing director, Dorji Norbu, in an e-mail interview, said that the accusation of corrupt practices turned out to be baseless on investigations by relevant authorities. “It was the DCCL management, who detected the recent fraud case in December 2014, and we requested the Royal Audit Authority for in-depth auditing. The report highlighted Nu 21.39 million that appears to have possible elements of fraud.”

DCCL was expected to earn gross revenue of Nu 6B (billion) annually, out of which around Nu 2B was to be used for loan repayment.  But unable to capture the targeted market, the plant earned revenue of Nu 1.61B in the first complete year of production, 2014.  While the managing director said DCCL was fast picking up sales volumes every succeeding month in the regional market, Dasho Sangay Khandu said DCCL had to compete with industries that were supported by the government in the neighbouring states.

For instance, he said that the GoI provides a transportation subsidy of Rs 6,000 for transporting a truckload of cement from Arunachal Pradesh, Nagaland, and Meghalaya to Assam and Bengal.  The only way to compete is either by bringing down prices or increasing production.

Dungsam Cement has brought down the price, yet even selling to the domestic market has become a hurdle.  Big construction companies, building the ongoing hydro projects, are expected as a ready market, but while many are buying Dragon Cement, DCCL or DHI couldn’t convince Larsen and Toubro (L&T).

Punatsangchu hydropower project-I  (PHPA-I)dam will require about 325,000MT of cement, according to rough estimation officials made.  Construction of the PHPA-I dam and de-silting cambers are carried out by L&T.  Dasho Sangay Khandu said DHI had been in talks with the project management, the economic affairs ministry and the contractor, but admitted that DHI was not successful in convincing them to buy.

Kuensel learnt that the decision to buy cement from India and not from DCCL was a commercial decision taken by L&T head office in Chennai, India.  L&T wants to buy cement, about 10,000MT from Dungsam, but there are conditions attached.  The construction company had demanded 120 days, or three months of credit, days after the DCCL board with much difficulty allowed 60 credit days.

The intergovernmental agreement signed between Bhutan and India says that all equipment and machineries, goods and services for the construction of hydropower projects should be sourced from Bhutan and India and, all factors being equal, Bhutanese suppliers should get preferences.

However, when it comes to cement, it was learnt L&T was forcing more conditions on DCCL. “We’ve requested the Punatsangchu management to call tenders. If we aren’t competitive, we have no problem,” Dasho Sangay Khandu said.

Managing director Dorji Norbu said several meetings, including correspondence, were carried out. “There are a few points L&T agreed and DCCL agreed, however, some issues are still unresolved.”

DCCL management expects better business in 2015.  While another round of bonds will be floated to raise money and service debt portion, sales are picking up.  Sales last month increased by 30 percent, according to Dorji Norbu.

“DCCL has some operational and financing issues, which are normal for any young and capital intensive company, but we aren’t entering into a crisis.”

 

By Ugyen Penjore

 

Additional reporting by Dawa Gyelmo in Wangdue

0 replies

Leave a Reply

Want to join the discussion?
Feel free to contribute!

Leave a Reply