Reducing The Cost of Doing Business In Bangladesh - Local ...

ForewordIn recent years Bangladesh has attracted considerable praise for its macro-economic andsocial indicators, the reduction of poverty, its micro credit programmes, the ready-madegarment industry and the employment of millions of women. It was against thisbackdrop, combined with the nation’s gas discoveries and its cheap labour, that foreignanalysts were extremely bullish about the investment outlook for Bangladesh just adecade ago. Some even went to the extent of referring to Bangladesh as the Kuwait ofSouth Asia, the country likely to attract the largest amount of FDI per capita in theregion.But several recent studies in Bangladesh tell a somewhat different story. The BEI-WorldBank Investment Climate report indicates that compared to China, India and Pakistan,Bangladesh is falling behind. The incidence of corruption is far greater, the quality ofinfrastructure poorer and the performance of key government departments or agenciesless satisfactory. Added together, the cost of doing business in Bangladesh todaycompared to other countries in the region is considerably higher.Bangladesh can ill afford these additional costs. It has become imperative that a seriousconcerted effort is undertaken jointly by the government and the private sector, to makeBangladeshi products much more competitive, if we are to expand our exports while atthe same time face the competition from imported goods in our own market. Equallyimportant is the need to create a more congenial investment climate in order to attractmore FDI into the country.One obvious way of improving the investment climate would be to substantially reducethe cost of doing business in Bangladesh by eliminating or reducing corruption in keygovernment departments or agencies and introducing changes, which would eliminatedelays and provide for greater transparency.This is the context in which the Bangladesh Enterprise Institute (BEI) undertook a projectto investigate the hidden costs of doing business in Bangladesh. We selected eight keyareas or sectors of critical importance to doing business in Bangladesh. The study focusedon the ways that the business costs can be reduced and rationalised.During visits to Malaysia, Singapore, India and Pakistan we came across severalinitiatives taken by the governments in each of these countries, which had producedimpressive results. The office of Tax Ombudsman in Pakistan had been a great success;the introduction of e-government in different departments in India, Malaysia andSingapore has on the whole been very successful. Special importance was also given totraining and the programmes at INTAN, in the principal training institution for civilservants in Malaysia, were very impressive. Singapore’s very successful governmentagency for combating corruption is clearly an example we can try and follow. There aremany lessons and examples from which Bangladesh can benefit.Reducing The Cost Of Doing Business In Bangladesh 3

We have prepared detailed recommendations, which we hope will receive carefulconsideration of the relevant persons in the government. Practically all therecommendations have been formulated on the basis of extensive consultation with therelevant persons both inside and outside the government. We are confident that theimplementation of even some of these recommendations will help in reducing the cost ofdoing business in BangladeshThroughout the project we received strong support and encouragement. This extended toseveral cabinet Ministers who attended our workshops as well as a host of others both ingovernment and in the private sector.I would like to thank The Royal Danish Embassy in Dhaka for their support for theproject. I would also like to thank my colleagues at BEI, in particular Mustafa FaruqueMohammed, Shafiullah and Zahid Hossain, for their contribution to this project.Farooq SobhanPresident, BEI andChief Project CoordinatorReducing The Cost Of Doing Business In Bangladesh 4

LIST OF ABBREVIATIONSACABDRBEIBGSLBOIBRTABTLBTTBCIICPACPICRFDESADESCOEPZICRGICSINTANJGTDSLLTUMIDANABNWDPDBPSIPSUsREBTGTDCLTITIBTIITQMVATAnti-Corruption Agency (Malaysia)Bangladesh Defense RiflesBangladesh Enterprise InstituteBakhrabad Gas System LtdBoard of Investment (Bangladesh)Bangladesh Rural Telecommunications AuthorityBangladesh Telecommunications LimitedBangladesh Telephone and Telegraph BoardConfederation of Indian IndustryChittagong Port AuthorityCorruption Perceptions IndexClean Report FindingDhaka Electric Supply AuthorityDhaka Electric Supply CompanyExport Processing ZoneInternational Country Risk GuideInvestment Climate SurveyNational Institute of Public Administration (Malaysia)Jalalabad Gas Transmission and Distribution System LtdLarge Taxpayer UnitMalaysian Industrial Development AuthorityNational Accountability Bureau (Pakistan)Nationwide DialingPower Development Board (Bangladesh)Pre-Shipment InspectionPublic Sector UndertakingsRural Electrification Board (Bangladesh)Titas Gas Transmission and Distribution Company LtdTransparency InternationalTransparency International BangladeshTransparency International IndiaTotal Quality ManagementValue Added TaxReducing The Cost Of Doing Business In Bangladesh 5

EXECUTIVE SUMMARYI. INTRODUCTIONIt is clear from a review of the available literature that Bangladesh has a severe problemwith corruption, as perceived by international and domestic observers. In theTransparency International Corruption Perceptions Index (CPI) 2002, Bangladesh wasranked as the most corrupt country in the survey of 102 nations, scoring 1.2 out of apossible score of 10. Bangladesh has consistently been ranked among the most corruptcountries in the world in Transparency International surveys, and other surveys andrankings show a similar picture.It is also clear, from this and other studies, that investment and economic growth wouldincrease if Bangladesh could reduce corruption. Using regression analysis, World Bankresearchers found that if Bangladesh had been able to achieve a corruption ranking akinto Hungary or Poland over the period 1990 to 1997, Bangladesh’s annual GNP per capitagrowth rate would have been 5.5% per annum instead of 3.4% during this period. Inother words, with a lower level of corruption, Bangladesh’s GNP per capita could havebeen $413 by 1997 rather than $350. 1 The analysis provides statistical support for thepremise of this project – that by reducing corruption, Bangladesh can improve itseconomic growth.Moreover, by studying and adopting best practices from other countries in the region, andSouth East Asia, with lower corruption indicators, Bangladesh may be able to achieveconsiderable success in reducing corruption and other hidden costs of doing business,thereby attracting greater investment.This study, therefore, focuses on the ways that the cost of doing business in Bangladeshcan be reduced and rationalized. Tackling this problem is a necessary first step inbecoming more competitive in the world market and attracting foreign direct investment.The belief of the BEI team is that the investment climate and economy can benefit greatlyby targeting specific measures in particular sectors where the cost of doing business inBangladesh can conceivably be reduced.First, the existing literature on corruption and transparency in Bangladesh, with particularemphasis on business has been reviewed. Second, the current state of services providedby the following eight sectors of the Bangladesh government have been examined: LawEnforcement, the Judicial System, Board of Investment (BOI), Power, Gas,Telecommunications, Customs and Taxation and Ports and Shipping. Each sector wasanalysed, mainly through a series of consultative workshops, for impediments toefficiency, poor quality of service, time-consuming procedures or undue harassment byofficials. Third, examples of successful reforms from India, Pakistan, Malaysia, andSingapore have been explored. Finally, recommendations for reforms have been made.In some cases the mode of implementation has also been suggested.1 ibid.Reducing The Cost Of Doing Business In Bangladesh 6

II. THE COSTS OF DOING BUSINESSThe ‘Cost of Doing Business in Bangladesh’ can be summarized into three main types ofcost: Direct costsIndirect costsCosts accrued from the time required to complete a transactionDirect costs include those of inputs, labour, and the official fees for regulatoryrequirements. Bangladesh has numerous advantages in the comparative direct cost oflabour and inputs to the production process. However, other investment costs remainhigh.Indirect costs most often increase the cost of doing business in Bangladesh. Theseinclude the costs of securing adequate infrastructure, obtaining the necessary licenses andpermits, dealing with government bureaucracy, transporting goods, importing orexporting goods, and ensuring security of property and personnel. Although these costsare understood to be an integral part of doing business in Bangladesh, their exact extent isunknown and they must be negotiated unofficially. It is these unofficial costs that causethe greatest problems for businesses. Unofficial costs are difficult to estimate and planfor and may not always yield the desired outcome. Furthermore, sustainable economicgrowth requires a stable regulatory environment, which is at odds with the personaldiscretionary system currently in place in Bangladesh.Finally, the cost of doing business in Bangladesh has increased due to the time requiredto complete transactions and deal with an inefficient bureaucracy. In the arena ofinternational investment, time spent is equivalent to money being spent. Actual monetarycosts combined with the time required to complete transactions can turn an otherwisesound investment into one that is uneconomical.III. SECTORAL ANALYSESi) CustomsCustoms services play a key role in the export and import transactions in Bangladesh, butcurrently the procedures are time consuming and cumbersome, entailing significantopportunities for bureaucratic discretion. Customs procedures at ports require many moredocuments and take longer than customs procedures at other regional ports. Lengthycustoms procedures result in extra costs and delays to importers and exporters.Main Costs° Overall, the cost of loading and unloading containers at Chittagong or Chalnaports is two to three times the cost in Bangkok and Singapore.° Customs procedures at airports are similarly fraught with multiple requirementsfor documents and approvals.° The sheer number of steps in port procedures allows opportunities forbureaucratic discretion and delays.Recommendations:° The operations of the Customs authorities should be made more transparent andReducing The Cost Of Doing Business In Bangladesh 7

efficient. Options, such as a Green Channel or one-stop clearance, should also beprovided to allow exporters and importers to quickly fulfil their legalrequirements with less harassment and difficulty.° An initiative to reduce the number of approvals and documents required byCustoms should be initiated to bring the ports in line with standards at regionalports.° A taskforce should be formed, headed by NBR, with the representatives ofFBCCI, MCCI, CCCI, Customs, Port Authorities, Health, BOI, Immigration,Environment, Bangladesh Bank, and the exporters and importers themselves tofind ways to dispense with unnecessary permissions and licenses to help takequick decisions in clearing and forwarding consignments, thereby reducing thecost of long delays.Trade unions in the port sector have been found to be a particularly severe obstacle toimposing discipline on the lower functionaries who are primarily responsible for theunfavourable image of the Customs and other public services. Efforts should therefore bemade to de-link the trade unions from the political party line to restore public confidence.The leaders of the trade unions may be sent to visit users friendly ports like Singaporeand Malaysia to acquaint themselves of their real job.ii)TaxationBEI survey research found that most businesses were not concerned about the rate oftaxes paid in Bangladesh, but had experienced considerable difficulty with taxadministration.Main Costs:° It was observed that the tax filing and payment procedures were by and largetedious and cumbersome and many rulings were made arbitrarily by the taxauthorities, which forces taxpayers to take recourse to appeal to courts at a furthercost of time and money. The time consuming process just adds to the cost ofproduction and becomes one of the elements that make Bangladeshi manufacturesless competitive in the world market.° Many tax provisions are loosely worded, leaving room for a wide exercise ofdiscretion by the tax officials and therefore scope for corruption. The presenttaxation system lacks simplicity and transparency and provides too manyloopholes to evade taxes.Recommendations:° One possible reform effort that could begin to address the difficulties thattaxpayers face in dealing with the tax authorities is a tax ombudsman, whosefunction would be to represent taxpayers in the administration and investigatetaxpayer complaints. Pakistan, for example, has successfully established theoffice of Tax Ombudsman.° Tax rates, forms, procedures for filing tax returns, possible modes of payment andall other relevant information should be published on the web site as well as inprint media and handbooks, for wide dissemination of information for publicknowledge and transparency. This is also necessary to safeguard the interest ofthe taxpayers from the clutches of the unscrupulous section of the tax advisers.Reducing The Cost Of Doing Business In Bangladesh 8

In Bangladesh the rate of tax evasion is very high. It is also very high among taxpayers ofthe higher bracket. What is needed is close supervision and inspection of the tax officersat all levels. The Inspection section in the department has been failing to fulfill itsmandate. Both the Customs and Tax administration would greatly benefit from greatertransparency, which can best be provided by a variety of on-line services.iii) Board of InvestmentAs per the mandate of the organisation, the Board of Investment (BOI) is designed to bethe focal point of the investment process, and was established as a single point of deliveryfor all services to investors. However, BOI does not have the ability to actually provideall the services with which it is tasked. In most cases, the power ostensibly rests withBOI staff to procure the necessary license or approval, but in reality the staff does nothave the power to do so.Main Obstacles:° The main problem is that in the transition from a government department to aninvestment promotion agency, the philosophy and outlook of the personnel hasnot changed sufficiently.° In addition, the agency is not provided with sufficient power in the governmentalstructure to cut through the bureaucracy and deliver services to investors.Recommendations:° BOI personnel should be provided training in investment promotion, investmentanalysis, and management.° The powers vested in the BOI should be re-examined with an eye towards makingit a truly effective one-stop service centre. In this connection the recent decisionto provide various BOI services on-line is a welcome step in the right direction.° Specifically, BOI should become a division of the Prime Minister’s Office withthe ability to allocate available land and approve foreign loans; the executive headof BOI should have cabinet rank and status to make the organization morepowerful, effective and a quick service delivery institution.° BOI should have the power to issue all licenses and certificates for Trade, such as,Import/Export Registration certificate, VAT registration, etc.° Industrial parks should be established throughout the country either under theauthority of BOI or by private sector entrepreneurs with full backing and supportof BOI.Finally, in order to make BOI really effective and efficient, the committee, formed someyears ago with the PM’s Office, Foreign Office, Information, Commerce and FinanceMinistries, may be replaced by a new committee chaired by the Prime Minister herself,with the Finance, Commerce and Industries Ministers, which will meet once a week toresolve all urgent investment related problems and give on the spot binding decisionsiv) Utilities: Gas, Power and TelecommunicationThe utilities section of the report focuses on three sectors: gas, power, andtelecommunications. Each sector has unique problems and solutions, but some generalpoints common to all utilities were highlighted.Common Costs:° To begin, it is difficult and expensive to obtain a utility connection. OnceReducing The Cost Of Doing Business In Bangladesh 9

obtained, billing irregularities and requests for personal payments make itcomplex and costly to maintain the connection.° A primary problem in the utility sector is that current infrastructure is insufficientto meet current demand. Furthermore, inefficiency in the management of theutility companies has led to high system losses and low cost recovery. Costrecovery continues to be low due both to pricing of utility tariffs and poor billingand revenue collection systems. High system losses or system inefficiency weretraced to a combination of deteriorating infrastructure, unofficial utilityconnections, and theft.Common Recommendations:° Improvement in billing and revenue collection systems, primarily throughcomputerisation.° In all utilities sectors, private investment is needed and should be facilitatedthrough government policy and an independent regulatory agency. A regulatorycommission has already been set up in respect of telecommunications while a lawhas been enacted for setting up of a regulatory commission for energy.° A major problem being the distribution of gas and power, following thesuccessful experiences of some other countries, meter reading, bill preparationand distribution may be contracted out to the private sector on an area basis, toensure competition.Other Issues:Trade union activities in both the gas and power sector have mostly grown along negativelines. Pressure is exerted by trade unions to avoid punishment for delinquent customers,obtain transfers and connections, and ignore power theft. Basically, a pollutedatmosphere has been created where good work cannot be rewarded and bad work cannotbe punished.oThe only possible remedy lies in depoliticising the trade unions; their activitiesmust be confined to staff welfare only and interference in the daily administrationand operations should be dealt with strictly and promptly.In Bangladesh like other countries liberalisation of the telecommunication sector iscrucial to mobilise the capital and technology needed to meet the massive backlog ofunmet demand for telephone services. Deferring the full liberalisation of the sector couldmean that Bangladesh would miss out the opportunities and benefits created by therevolution in telecommunications technology and global liberalisation of the sector.ooLiberalisation must be encouraged through expansion of the phone network,reduction of the phone charges to competitive levels and improvement in qualityof services.Above all, politicians and bureaucrats must be convinced that information andcommunications technology can transform government to serve its people better(e-governance, online applications and internet voting etc.)v) Judicial System and Law EnforcementAmong elements that add to the cost of doing business in Bangladesh mention isinvariably made of the inordinate delay in the disposal of cases, by the lower courts inparticular, and the indifference or incapacity of the police in enforcing law and order.Reducing The Cost Of Doing Business In Bangladesh 10

Main Costs:o It is commonly alleged that to get things done one has often to make unscheduledand unspecified payments to these public agencies.Because such payments are unavoidable whenever recourse is taken to either the courtsof law or the law enforcement agency, most businessmen are not averse to making thepayments as long as they are convinced that the opportunity cost otherwise would beprohibitive. There is, however, a strong desire on their part to avoid both the lowercourts and police, if they can.Recommendations:ooooooooEfforts should be immediately undertaken to build the capacity of the judiciary toprocess cases more efficiently. For quick dispensation of cases there should bebetter court management, and decentralisation of the lower judiciary should alsobe considered. This may be done by setting up courts at the village, union andupazila levels as means of alternative dispute resolution.Judges should be better trained and paid and the judge-population ratio increased.The judiciary should be independent of the executive.There should be a mechanism to ensure judicial accountability and courtproceedings should be made transparent.Overall, judicial reforms should aim to simplify the rules and procedures so thatthe general population can understand and comply with the law.It is also recognised that the police force should be modernised and the quality ofofficers and personnel improved through better training and orientation to make itequal to the task.In order to insulate the police from extraneous political pressure and influence, allrecruitment, postings, promotion and transfers should be merit based and madethrough an independent commission.The police-population ratio should be increased, their working conditions shouldbe improved and salaries raised.In sum, by a radical restructuring of the police department it may be possible to controlcorruption in the department and to enhance its efficiency in improve the law and ordersituation in the country. Therefore, the real task before the government is to demonstratethe requisite political will to do the job. Police reforms should basically aim at restoringpopular faith and respect for the force and at the same time improving their performanceand efficiency:vi) Ports and ShippingDue to weak infrastructure facilities and inefficient operations at the Chittagong PortAuthority (CPA), six to nine days turn around time is required to service a regularcontainer vessel.Major Costs:oooThe turn around time is far higher than other regional ports.One major factor in the operations of Chittagong port is the powerful labourunions. The unions have enforced wage and facility-fee increases every twoyears.In addition, workers demand additional payments even for a job done withinregular duty hours. If the shipping agents do not make the additional payments,Reducing The Cost Of Doing Business In Bangladesh 11

the labourers go slowly, and, in extreme cases, loading and unloading is totallystopped.o A further problem with the Chittagong port is the inadequate equipment andinfrastructure that slow down the port’s operations. The case is almost the same ifnot worse, in respect of the service delivery and management of the Chalna Port.Recommendations:o As a first step to improving the situation at the port, the ports should be madefully autonomous and decentralised.o To gain control over the labour situation at the ports, the Dock WorkerManagement Board should be abolished.o Ports, which are the backbone of the nation’s economic survival, should also bedeclared an essential service so that workers cannot strike.o It is further suggested that private sector involvement could be encouraged as apartner of Port Authorities to invest in and improve the port’s infrastructuralfacilities.o For improving the efficiency of the port operation, installation of Quay GantryCranes, RTG and RMG is essential without loss of time. More ContainerTerminals in both the public and private sector, under the BOT concept, are alsoneeded to meet the ever-increasing need of both export and import businesses.IV. REGIONAL REPORTSi) PakistanPakistan has a number of recently implemented initiatives in the areas of tax reforms.Interviews with businesses identified the self-assessment of income tax as the one reformthat has reduced corruption the most. A second major area of reform in Pakistan is thedevolution of governance being carried out through Local Government Order 2001. In2000, Pakistan instituted an office of the Federal Tax Ombudsman to serve as an avenueof complaint for taxpayers and to serve as a watchdog body for the Revenue Division.ii) Malaysia and SingaporeMalaysia and Singapore are particularly good examples for Bangladesh to follow inattempting to reduce the cost of doing business and increase the transparency andaccountability of government. Both countries have over the years, developed anextremely efficient system of governance which has sought to eliminate delays, inparticular in relation to dealings with the private sector. Considerable attention has alsobeen given to making systemic changes to help the private sector by introducing greatertransparency and efficiency in key government departments.iii) IndiaDuring the last few years, numerous reform measures have also been undertaken in Indiato minimise the delays and corruption in the fields of government services, taxadministration, and the judiciary. A notable reform with respect to the method ofdelivery of government services is the introduction of a customer-service focusedapproach.Reducing The Cost Of Doing Business In Bangladesh 12

V. CROSS-SECTORAL RECOMMENDATIONSThe sectoral analyses of the processes that increase the cost of doing business inBangladesh, and a review of the reforms and initiatives implemented in other countries ofthe region, shows clearly that Bangladesh must reduce corruption and concentrate onreducing the cost of doing business to maintain and increase its competitiveness inregional and international markets. Each of the eight sectoral studies has providedspecific sectoral recommendations.However, by taking a broader view of the sectoral studies, and of the various reformsbeing undertaken in India, Pakistan, Malaysia, and Singapore that are addressing thesame problems that are facing Bangladesh, a number of more general or overarchingrecommendations can also been made.BEI believes that even if a few of the recommendations from this study, including justone from below, are fully implemented, it could go a long way towards reducing the costof doing business and encouraging investment in Bangladesh.1. Two types of independent agencies should be established to identify and prosecutecorruption and represent the interests of citizens. The first is an independent anticorruptionagency, which could be modelled on the successful example in Malaysia.The second is an ombudsman agency to pursue specific complaints by citizens andalso serve as a watchdog for government agencies. A tax ombudsman, as Pakistanhas established, would be an excellent first step, but other agencies, like, energy,customs and power, could use a similar model to address consumers’ concerns andsubstantially reduce corruption.2. Private participation should be encouraged and facilitated in any and all relevantsectors, particularly utilities and ports. Private participation can increase efficiencyby providing competition to government services as well as reducing the scope forpersonal discretion in transactions. Privatisation is the preferred method by whichprivate entities can participate in areas currently dominated by the government.However, as an interim measure, private investment should be allowed andfacilitated. To facilitate private investment in the utility sector, government policymust be clear, transparent, and consistent. Furthermore, independent regulatoryagencies should be established, if they do not already exist, for each utility sector.3. Computerisation of records, procedures, and information should be completedwherever possible. The use of on-line procedures for government services can reducebureaucratic delays and discretion, as well as increase speed and consistency ofservice. In addition, through interactive websites, information data and forms can bemade available to businesses, the public, and investors. The dissemination ofinformation regarding applications, fees, government services, and complaintprocedures can be a powerful tool for self-empowerment. After government agencieshave begun to use computer systems internally, the necessary next step is toReducing The Cost Of Doing Business In Bangladesh 13

computerise decisions and processes through the use of the internet and other tools ofe-governance. The use of e-governance in trade and the judicial system in Singaporeare excellent examples of such ideas at work. By automating decisions on-line, thediscretion and potential for unofficial costs can be reduced significantly.4. There is a need for more training of government employees in their respective fieldsas well as on concepts like customer service. Malaysia’s civil service traininginstitute is a particularly good example for Bangladesh to follow in this respect.Especially with regard to business and investment, government employees shouldfunction as facilitators and not barriers in the name of regulators. In almost everysector analysed in this report, training was identified as a method by which theefficiency and the professionalism of the sector could be improved. In service trainingand visits abroad for the CBA leaders for acquiring first hand knowledge and joborientationmay also be organised.5. Human resources management and the compensation practices in the public sectorshould be modernised. The wage scale of public sector workers is extremely low andevery effort should be made to improve it. However, pay should also be based onperformance and performance should be measured against the goals of transparencyand accountability. Bonuses and incentives should also be provided on the basis ofperformance. Furthermore, merit should determine promotion. These modernpractices for the development of human resources, combined with more intensivetraining, could begin to attract and retain a higher calibre of civil servants, whilesimultaneously improving the provision of government services.Reducing The Cost Of Doing Business In Bangladesh 14

METHODOLOGYThe project used literature review and field interviews as primary research tools. Anational seminar followed by sectoral workshops were held at successive stages of thestudy, which presented opportunities for detailed analysis of each sector and to gatherrecommendations for reform from a wide range of stakeholders.For the first stage report, the research focused on existing literature. Surveys carried outby Transparency International (TI) had identified a number of sectors in which corruptionwas shown to be most prevalent in Bangladesh. The next step was to analyse eightspecific sectors: Customs and Taxation; Investment Promotion; Telecommunications;Gas; Power; the Legal System and Law Enforcement; Ports and Shipping.Last year’s Investment Climate Survey (ICS), a collaborative project with the WorldBank (WB) 2 , provided material data and experiences that were also used in the presentstudy. On the basis of the preliminary findings of the ICS, the research team approachedconcerned businessmen, officials and other representatives of the sectors under study.The first stage of the project, therefore, concluded with the presentation of a combinedreport on the initial findings from all eight sectors, which also drew upon examples ofsuccessful governance reforms in regional countries to make general recommendationsfor Bangladesh. A national seminar was held with relevant stakeholders from governmentagencies, the business community and civil society organisations for the presentation ofthe report. The national seminar gathered further detailed recommendations from personsinvolved in the focus sectors, and also built a constituency of support for future reforms.The second phase of the project, following the national seminar, was to revise and finetunethe recommendations in each sector. Separate sectoral reports were prepared,incorporating the national seminar’s recommendations, which were then presented at aseries of eight sectoral workshops. At this point, detailed discussion of recommendationsincluded possible modes of implementation and monitoring programmes for futurereform initiatives. The BEI team simultaneously worked with key officials whose supportwould be critical to the success of such reform efforts.With regard to the other Asian countries, field interviews were carried out in Malaysia,Singapore, Pakistan, and India with government officials, prominent policy makers andstakeholders 3 . The interviews provided examples of successful reforms to reduce the costof doing business. The focus in these interviews was on the same eight problem areasidentified for Bangladesh.2 For the ICS, 1,000 individual firms were interviewed in depth about their business operations andexperiences with government services.3 A list of the interviews conducted, and participants at the national seminar and sectoral workshops, areprovided as Appendices.Reducing The Cost Of Doing Business In Bangladesh 15

LITERATURE REVIEWExisting literature on accountability, transparency, and corruption in Bangladeshconsistently highlights the entrenched nature of the problem. Corruption has becomepervasive through all sectors of society and is widely accepted. The status quo is atequilibrium where there are few internal or external motivations for reform. In addition,parties with vested interests block efforts for reform. The World Bank summarises theproblem saying that “policy and service delivery failures are common in Bangladesh inlarge measure because those responsible receive few or no rewards for efficient policyand service delivery, and they receive substantial benefits from inefficient policy anddistorted service delivery.” 4Surveys undertaken by Transparency International (TI) in Bangladesh have identifiedspecific sectors where corruption is most prevalent in Bangladesh. In each survey, lawenforcement and the police were consistently identified as the most corrupt sector. Abuseof power, extortion, and bribery are reported to be common practices by the police. TheTI surveys show that corruption is a recognised problem by the majority of the populationand that its causes are also widely recognised. When survey respondents were askedabout the facilitating factors to corruption, the answers were universally ‘lack ofaccountability’ and ‘discretionary power’ of the policy makers and the bureaucrats.I. INTERNATIONAL PERCEPTION OF CORRUPTION IN BANGLADESHAlthough this report focuses on corruption in particular sectors that impact businesses inBangladesh, corruption is prevalent in many sectors of the economy. A review of theavailable literature provides a broad understanding of the situation in the country and theinternational perception of corruption in Bangladesh.In the Transparency International Corruption Perceptions Index (CPI) 2002, Bangladeshwas ranked as the most corrupt country in the survey of 102 nations, scoring 1.2 out of apossible score of 10. The Corruption Perceptions Index uses various polls, which reflectthe perceptions of business people and country analysts, both within and outside acountry. 5 Most indices measuring corruption use a similar perception indicator and theresults are consistent between different indices. The World Bank’s International CountryRisk Guide (ICRG) also ranks Bangladesh as having a high level of country risk.Bangladesh has consistently been ranked among the most corrupt countries in the worldin Transparency International surveys and other rankings.World Bank researchers use a perception index called the International Country RiskGuide, which is prepared by the World Bank’s Political Risk Services Group, to identifythe comparative political, financial, and economic risks of operating in, investing in, orlending in a particular country. Countries are assigned an average ICRG score between 1and 6, with the higher values indicating lower levels of corruption. Bangladesh receives4 World Bank. Taming Leviathan: Reforming Governance in Bangladesh, March 2002. p 106.5 Transparency International, Press Release, August 28, 2002. www.ti-bangladesh.org/news/CPI02Reducing The Cost Of Doing Business In Bangladesh 16

a score of 1.76, making it the sixth most corruption nation in the ICRG survey of 123countries. A table of the comparative ranks of the countries examined in this report isprovided below. (See Table 1) 6Table 1: Select Countries’ Score and Rank in Corruption IndicesTransparency InternationalCountry Corruption Perceptions Index2002Score1—101=mostcorruptRank1—1021=mostcorruptWorld Bank International CountryRisk Guide Corruption Index1991-1997 averageScore1—61=mostcorruptRank1—123,1=mostcorruptBangladesh 1.2 102 1.76 6India 2.7 71 2.71 26Pakistan 2.6 77 2.13 19Malaysia 4.9 33 4.00 84-88 *Singapore 9.3 5 4.00 84-88 **Note: If values for the ICRG index were equal, the countries were assigned an interval rank.Source: Transparency International; Estimating the Effects of Corruption, WorldBank Policy Research Working Paper 2479.International observers in Bangladesh tend to agree with the results of the corruptionperception indices. A guide prepared by the U.S. Embassy in Dhaka for U.S. businessesinvesting or working in Bangladesh states that “corruption at all levels in the bureaucracyis rampant.” 7 Business people report the need for extra fees in basic government services(connection of telephone lines, post office boxes, electricity connections, etc.) as well asirregularities in the award of public and private tenders. Foreign investors also report thatpoliticians and public officials regularly solicit bribes. On a more fundamental level,information about regulations is difficult to come by and is rarely consistent or reliable.Difficulty dealing with public officials, which is necessary for almost any businesstransaction, increases the time and cost of investment in Bangladesh. “Businesses mustalways turn to civil servants to get action, yet may not receive any, even with the supportof higher political levels.” 8The recently published SHOKO-KAI Report of the Japanese Commerce and IndustryAssociation in Dhaka has made the following observation “Underhand money isdemanded openly in the government offices. There are companies, which were asked topay underhand money for getting Visas (from Ministry of Home Affairs), Work Permits6 Rahman, Aminur, Gregory Kisunko, and Kapil Kapoor. Estimating the Effects of Corruption, WorldBank Policy Research Working Paper 2479, November 2000.www.worldbank.org/research/workingpapers7 American Embassy Dhaka. Bangladesh Country Commercial Guide 2002-2003. United States TradeCenter, July 2002. p 39.8 ibid. p 38.Reducing The Cost Of Doing Business In Bangladesh 17

(from the Ministry of Industries) and permission for selling a product (at BSTI:Bangladesh Standards and Testing Institution) 9The project report on “ Improving the Investment Climate in Bangladesh” jointly done bythe World Bank and Bangladesh Enterprise Institute says, “ A large regulatory burdenoften means corruption-with inspectors and other officials demanding payments-andindeed, more than half of all firms in the sample reported that corruption was either amajor or very severe obstacle to their growth.” 10The Country Commercial Guide of the U.S Trade Centre, Dhaka, 2003-2004 whilereferring to the existing corruption in Bangladesh said, “ corruption at all levels in thebureaucracy is rampant, and should be taken into account by foreign investorsconsidering business in Bangladesh. Local and foreign businesspersons often report theirexperiences with petty corruption such as paying extra fees “ for obtaining governmentservices. But complaints of higher level corruption in the fair awarding of public andprivate tenders are frequent as are allegations of insider trading in the stock market”. 11The World Development Report, 2004 has observed that the attitude of public servants,who are mainly involved in rent seeking and the “Poverty of institutions” with acentralized bureaucracy left over from colonial times. 12II. COSTS OF CORRUPTIONWorld Bank researchers have used regression analysis to test the relationship betweeneconomic growth and corruption, between domestic investment and corruption, andbetween foreign direct investment and corruption. The analysis provides an estimate ofthe level of economic growth and investment that Bangladesh would have experienced inthe 1990’s if levels of corruption had been lower. Using the regression analysis results,World Bank researchers found that if Bangladesh had been able to achieve an ICRGcorruption index value akin to Hungary or Poland (5.0 versus 1.76 for Bangladesh)Bangladesh’s annual GNP per capita growth rate would have been 5.5% per annuminstead of 3.4% during this period. In other words, with a lower level of corruption,Bangladesh’s GNP per capita could have been $413 by 1997 rather than $350. 13Further exploring the correlation between perceived corruption and investment, theWorld Bank found that a reduction in corruption levels to the level of Hungary or Polandwould have increased the gross domestic investment-GDP ratio from 5.3% to 6.4%, anincrease of 1.1%. Since foreign investment is more sensitive to corruption than domesticinvestment, the effect on foreign direct investment would be even more pronounced; evena slight improvement in the level of corruption to that of India (ICRG score of 2.71)would have increased foreign direct investment by US$300 million per year. 149 The SHOKO-KAI Report, 28 July, 200310 Improving the Investment Climate in Bangladesh, June, 200311 Country Commercial Guide, 2003-2004, U.S. Trade Centre, Dhaka12 The World Development Report 2004 published on September 21, 200313 ibid.14 ibid.Reducing The Cost Of Doing Business In Bangladesh 18

The analysis provides statistical support for the premise of this report – that by reducingcorruption, Bangladesh can improve its economic growth. To reduce corruption, thisreport looks for specific reform initiatives from countries where the level of corruption islower than Bangladesh. Table 1 clearly shows that all of the countries whose reforms andpractices are discussed in this report exhibit a lower level of corruption in bothinternational corruption indices. By adopting the best practices from these countries,Bangladesh may be able to improve its reputation for corruption and correspondinglyincrease its level of economic growth.III. MEASURES OF CORRUPTIONTransparency International Bangladesh (TIB) has been on the forefront of tracking andreporting corruption in Bangladesh. One of its projects is a corruption database thatcollects and analyses reports of corruption published in the national and localnewspapers. “The objective of the database is to address the magnitude, depth, form ofcorruption, and media’s role in publishing corruption reports.” 15 After newspaperreports are collected, the reports are crosschecked for repetition and about 10% of thereports are corroborated for verification. The corruption database results for the periodfrom January to December 2001 found that the law enforcement sector was the mostcorrupt sector, with education close behind. Ranked by number of published reports innewspapers, local government, health, and forest and environment were the third, fourth,and fifth most corrupt sectors. (See Table 2)Table 2: Number of Newspaper Reports of Corruption by SectorLaw enforcing agencies 385Education 379Local Government 271Health 199Forest & Environment 192Communications 135Post and Telecommunications 121NGO 107Food Department 97Land Administration 88Finance 75Power 73Direct and Indirect Tax 71Water Resource 54Other Sectors * 323Total 2570*NoteOther sectors include shipping, energy & mineral resources, agriculture, Department of NarcoticsControl, Fisheries and Livestock, Passport & Immigration, Commerce & Industry, Bureau of Anti-Corruption, and Election Commission.Source: Transparency International Bangladesh, Corruption Database 200115 Transparency International Bangladesh. Executive Summary, Corruption Database 2001, July 9, 2002.Reducing The Cost Of Doing Business In Bangladesh 19

The law enforcement sector was further analysed by dividing reports into sub-sectors(police, Bangladesh Defense Rifles (BDR), and Ansar-VDP) and types of corruption.This analysis found that abuse of power, bribery and extortion were the most prevalentforms of corruption in law enforcement. Further, 92% of the reports on corruption wereabout the police force. (See Table 3)Table 3: Cases of Corruption in Law EnforcementAbuse Bribery Extortion Negligence Embezzle- Fraud Other Total %ofPowermentPolice 180 85 67 13 4 1 3 353 92BDR 10 12 2 0 0 0 0 24 6Ansar, 1 5 1 0 0 1 0 8 2VDPTotal 191 102 70 13 4 2 3 385 100% 50 26 18 3 1 1 1 100Source: Transparency International Bangladesh, Corruption Database 2001Within the local government sector, most reports of corruption were at the UnionParishad level. The Union Parishad is the locally elected administrative unit ofgovernment. The most common type of corruption at the local government level wasembezzlement, with abuse of power and fraud being the second and third most common.In local government, first or second-class officials were most likely to be accused ofcorruption.The TIB database also tracked the amounts of money reported in newspaper articles oncorruption. That information included the amount of losses the government incurred dueto corruption, the amount extorted from the public, and the amount of illegal paymentsfrom business people to government officials. First, losses to the government during2001 totalled Tk 11,256.2 crore (US$2.0 billion), which was equivalent to 4.7% of GDPfor the same fiscal year. The sector in which most losses took place was Forest andEnvironment with a loss of Tk 5,317 crore, or 47% of the total losses. Taxation,education, and local government were the other sectors with high losses. (See Table 4)Second, reports of extortion by government agents from the public totalled Tk 617.3crore (US$0.11 billion). Law enforcement officials were the primary group extortingmoney from the public. In addition, reports of illegal payments from private citizens orbusiness people to government officials totalled Tk 1480.6 crore (US$0.26 billion)although this is not included in the total figures on losses to the government.Table 4: Financial Losses to the Government Due to CorruptionSector Tk (crore) Percent of TotalForest and Environment 5,317 47%Direct and Indirect Tax 1,493 13%Education 787 7%Reducing The Cost Of Doing Business In Bangladesh 20

Local Government 729 6%Other sectors 2,930 26%Total Losses 11,256 100%Source: Transparency International Bangladesh, Corruption Database 2001The TIB Corruption Database also tracked reports of steps taken to punish acts ofcorruption. Of the total 2,570 cases of corruption reported in 2001, in only 27.4% of thecases remedial steps were reported in the newspaper. Just as law enforcement was thesector with the highest number of corruption reports, it was likewise the sector with thehighest number of actions taken against corruption.In conclusion, TIB found the highest number of instances of corruption reported innewspapers in 2001 was in the law enforcement agencies, primarily the police.Corruption in the Forest and Environment sector created the highest losses to thegovernment. The database of TIB shows that corruption is recognised and reported bynational and local newspapers, that the extent of corruption is widespread, and that thefinancial losses due to corruption are significant.A more recent TI household-level survey of India, Bangladesh, Nepal, and Pakistanprovides further information regarding the experiences of the citizens with corruption.The 2002 survey found that in Bangladesh the police were perceived to be the mostcorrupt (39% of respondents said it was the most corrupt sector), with the health and landadministration sectors being second and third most corrupt. The power and tax sectorswere also included in the interviews. In the power sector, around one-third of householdsthat use power services reported some irregularities in their connection process. Of therespondents reporting irregularities, 98% had to pay the office staff to receive aconnection. In the arena of regular interaction with the power sector, 32% reportedexperiences of corruption, including bribes paid to get power, bribes paid to reduce thebilled amount, and bribes paid to prevent disconnection of the power lines. 16The TI Household Survey also asked respondents about the key facilitating factors in thecorruption they faced. In sectors (police, tax, and power), ‘lack of accountability’ and‘discretionary power’ were identified as the main reasons that corruption occurs. In thepower sector, an important facilitating factor was also a ‘monopoly on power’. 17 Thefacilitating factors identified by households in Bangladesh are the same as the factorsidentified by the World Bank and other international groups as the root of the corruptionproblem. This illustrates that the next steps must be to identify specific reforms thataddress these problems and develop the necessary political, institutional, and societal willto implement the reforms.16 Transparency International. Corruption in South Asia, December 2002.17 ibid.Reducing The Cost Of Doing Business In Bangladesh 21

IV. WORST CASESCustoms & PortsThe American Embassy guide singles out Customs as the worst sector for extra costs tobusinesses. “Officials routinely exert their power to influence the tariff value of importsand to expedite or delay import and export processing at ports.” 18 By its nature the tariffvalue system gives authorities discretionary authority to fix a higher value to exact ahigher duty. Mandatory shipment inspection for valuation was introduced in 2001, whichwas designed to reduce discretion and reduce costs, but the valuation system is vulnerableto influence.Customs and port procedures are a significant problem for firms that export and import.Customs clearance for an export takes approximately nine days, while import clearancetakes twelve days. 19 Shipping delays at the Chittagong port are common and are oftenexacerbated by union violence and work stoppages. The World Bank estimated thathandling charges for a 20-foot container are $640 in Chittagong port compared to $220 inColumbo and $360 in Bangkok. The reasons for these price differentials will be exploredmore later in this study, but this sort of inefficiency is estimated to cost the Bangladesheconomy around $600 million annually. 20Law EnforcementAs shown by the TIB Corruption Database, law enforcement is one of the most corruptgovernment agencies. An earlier survey in 1996 by TIB found that 97% of thosequestioned had little to no confidence in the integrity of the police. 21 Police inBangladesh run one of the largest networks of extortion in the country. Vehiclestransporting goods must purchase coupons from traffic police to move from one policethana to another without harassment. The prices of these coupons depend on the type ofvehicle. The practice is widespread amongst the police all over the country; the mostlucrative routes are along the Chittagong highway, due to the arrival of goods at that port.Police thanas produce the coupons and sell them to sergeants and constables who thenresell them to vehicle drivers at a higher price. 22 The purchase of these coupons increasestransportation costs for every type of business from the smallest to the largest.The TI 2002 household survey of corruption also examined Bangladeshi’s experiencewith the police. Of the total respondents, 84% of respondents who had interaction withthe police reported some sort of corruption. Of those who experienced of corruption,96% had paid bribes for the release of a prisoner after a false arrest. Bribes were alsopaid to file a complaint by 88% of the respondents who had experienced corruption. Theaverage bribe reported in the survey was Tk 9,675 (US$160). 2318 ibid. p 39.19 World Bank. Bangladesh: Key Challenges for the Next Millenium, April 1999.20 ibid.21 World Bank. Taming Leviathan Reforming Governance in Bangladesh: An Institutional Review, March2002.22 World Bank. Bangladesh: Key Challenges for the Next Millenium, April 1999.23 Transparency International. Corruption in South Asia, December 2002. p 33-34.Reducing The Cost Of Doing Business In Bangladesh 22

Legal ReformSurveys show that public confidence in the judiciary is very low; 89% of respondents toone survey believed that it is impossible to get a speedy, fair trial without money orinfluence. 24 The World Bank has highlighted the judiciary as the key institution to beginto safeguard and protect the rights of citizens in Bangladesh. In the TI household surveyon corruption, a low number of respondents had experience with the judiciary (8%), butof those who had experience with the judiciary, 75% reported corruption in thatinteraction. The major types of corruption reported in the judiciary were bribes paid tocourt official and bribes paid to the opponent lawyer. The average amount of the bribespaid in the judicial sector was Tk 7800 (US$130). 25V. ANTI CORRUPTION MEASURESA key failing in the fight against corruption in Bangladesh is the lack of a trulyindependent anti-corruption commission. The Anti-Corruption Bureau is the governmentagency currently charged with pursuing high-level corruption. It is considered largelyineffective due to allegations of irregularities in its ranks and a lack of independence.Since the last general election in 2001, the Anti-Corruption Bureau has filed cases againstthe leader of the opposition, Sheikh Hasina, and other opposition leaders. Anindependent Anti-Corruption Commission has been proposed, but there has been littleprogress in its formation. 26Existing literature on accountability, transparency, and corruption consistently highlightsthe entrenched nature of the problem. Corruption has become pervasive through allsectors of society and is widely accepted. The status quo is at equilibrium where thereare few internal or external motivations for reform. In addition, parties with vestedinterests block efforts for reform. The World Bank summarizes the problem saying that“policy and service delivery failures are common in Bangladesh in large measure becausethose responsible receive few or no rewards for efficient policy and service delivery, andthey receive substantial benefits from inefficient policy and distorted service delivery.” 2724 ibid.25 ibid.26 ibid. p 40.27 World Bank. Taming Leviathan: Reforming Governance in Bangladesh, March 2002. p 106.Reducing The Cost Of Doing Business In Bangladesh 23

of Bangladesh to adopting some of the training programmes currently offered by INTANfor civil servants in Malaysia. Finally, the independent Anti-Corruption Agency (ACA)in Malaysia, and a similar body in Singapore, could serve as models for the proposedindependent anti-corruption commission that is being planned for Bangladesh.III. INDIADuring the last few years, numerous reform measures have also been undertaken in Indiato minimize the delays and corruption in the fields of government services, taxadministration, and the judiciary.A notable reform with respect to the method of delivery of government services is theintroduction of a customer-service focused approach in administering governmentservices. To reach this level of service, the S-governance programme, has beenintroduced in several provincial capitals (S for smart-simple, moral, accountable,responsive and transparent). In addition, the concept of Total Quality Management(TQM) is being applied to government services.In the field of taxation, a comprehensive computerization of country’s income taxationsystem has begun on a trial basis. Based on the experience of this trial, a countrywidenetwork is planned. The results so far have been encouraging; computerization of thesystem has enabled the tax department to easily detect default and tax evasion and thesystem has enhanced the tax revenue of the government.India has also made the judiciary one of the focal issues of its reform agenda starting withthe lower courts. One successful reform has been the introduction of tribunals forspecific issues, which have been successful in quickly processing cases through thesystem, being more accessible to the general population, and taking pressure off thegeneral courts.Reducing The Cost Of Doing Business In Bangladesh 25

POWER POINT PRESENTATION OF FIRST STAGE REPORTMs. Wendy WernerSenior Research Associate, BEIBarrister Rafiqul Huq,Former Attorney GeneralThe problems of the judicial system are deeply entrenched, but there are three mainissues I would like to raise:o First, the government is proposing drastic changes in the civil law for earlydisposal of cases. Court cases cannot be postponed more than three occasions.o Secondly, in the Civil Procedure Code (CPC), the present trend is mediation. Inthe place of arbitration now we have the system of mediation and conciliation.o Third the Supreme Court has been interfering in every matter of the government.One example is the container terminal issue. There have been seventy-eightmeetings of the Secretaries and the Prime Minister has given her consent to it.But now the judiciary is saying no. They have postponed everything. After somany years, after so much investment, the judiciary should not interfere in thismanner.About customs and VAT:oPeople pay more VAT to the VAT officer than to the government. The morepower is given to the officers the more corruption is generated. But how to solvethis? It is easy to say but difficult to solve, unless the whole system is changedand attitudes are changed.Mr Mujibul Huq,Former Cabinet SecretaryThere have been many, many recommendations in the past. We are a seminar-riddencountry, now. But very little gets done.oHowever, one very useful thing in theses study results are the examples fromMalaysia, India and the other countries.He spoke out in favour of a unitary form of government. But the unitary form ofgovernment doesn’t mean dictatorial governance from Dhaka. What has beenrecommended in the Power Point presentation is devolution.oDevolution means local government and the means for local government isprovided in the constitution. However, the constitution doesn’t go for more than apious wish and therefore what the country should have is real local government,constitutionally protected, transfer of subjects, and sharing of taxes.Mr Farooq Sobhan (Chair) This initiative by BEI is not to produce theoretical reports,the aim is to see how new ideas can be instilled to bring about some changes. At the endof the day, the project will be measured by its success or failure in reducing the cost ofdoing businessReducing The Cost Of Doing Business In Bangladesh 27

CHIEF GUESTMr Amir Khasru Mahmud ChowdhuryMP, Commerce MinisterThe experiences of Pakistan, Singapore, Malaysia and India could be taken into accountonce the sectors have done well. But the bottom line is good governance. Without goodgovernance nothing will fall in place. So far we have not been able to create institutions.o Number one need is good governance.Number two, the creation of institutions in this country.Number three, the institutions should be allowed to function independently.The latter is very important. An anti-corruption bureau has to be an independentoentity.Another point is the ombudsman. There is a need for a watchdog that keepsvigilant eyes on other bodies. This is again an instance of building institutions.But many such institutions have never been constituted properly.Take the Securities and Exchange Commission, institutional watchdog bodies aresupposed to perform and function properly. Some retired civil servants have been put inthis institution that don’t have a clue about the capital market, and it is a very specialisedarea. SEC has become a dumping ground. Members should know the capital market;know the background and the nitty-gritty of it.ooThe Tariff Commission in the Commerce Ministry is one of the vital king pins ofthe economic activities of the country. But it too was a dumping ground to start.Now, however, it has been restructured. For the first time a trade economist wasappointed as chairman.The private sector needs to bring in changes on its own. The private sector mustbe accountable on their own and not always have to be pushed by the government.The government and private sector look at each other with too much suspicion.The trade bodies should be more self-regulatory. How much tax is paid by theprivate sector? If tax payers are reluctant to put anything in the government howcan they expect the government to perform.Mr. Farooq Sobhan The Minister has raised some important points. I would like to alsopoint out the system of performance-based rewards, and government sector training inMalaysia and Singapore that turn public service into an efficient facilitator for the privatesector. The government and private sector need to work together in Bangladesh, andsoon. In Malaysia, Prime Minister Mahathir pioneered this concept in the Malaysiancontext. And the key to that was to get the government to function as though it was aprivate sector entity. Profit and loss applies equally to government departments as it doesto the private sector, as an important catalytic force for change, in the interest of theprivate sector, in the interest of the government and above all in the interest of thecountry.Mr Amir Khasru Mahmud ChowdhuryThe quality of civil servants has decreased so much that something has to be done Thegovernment can not establish good governance with the quality of civil servants that theynow have.Reducing The Cost Of Doing Business In Bangladesh 28

ooAs far as the Export Promotion Bureau [EPB] is concerned, 25 percent of thework force should be outsourced and paid on a contract basis. It was done in thecase of the Tariff Commission.The introduction of e-government from the Ministry to implementing agencies isa possible way out to reduce corruption and the consequential cost of doingbusiness.[The Minister was questioned by a number of participants about using outsidecontract workers specifically with respect to the pay structure, approval from theMinistry of Finance and opposition from existing staff.] Implementation of such ascheme will be very difficult. But the government should look at outsourcing as awhole, instead of doing it on a piecemeal basis.I. SESSION ON PORT, SHIPPING, CUSTOM AND TAXATIONDesignated Discussants: Mr Rafi Omar, a shipping expert; Mr N.W.Khondhaker, formerDirector General of the National Shipping Corporation; and Mr S.M.Akram, formerMember of Parliament and an ex-member of the National Board of Revenue.Ambassador M. Shafiullah, Senior Research Associate, BEI, made a brief presentationof the existing infrastructure deficiencies, trade union problems, lengthy customsprocedures and other related issues that made Chittagong Port non-competitive in theregion. A number of tentative suggestions were also made for reducing the cost andmaking the port cost-efficient for users.Mr Amir Khasru Mahmood ChowdhuryMinistry of CommerceSome of the main problems in this sector:o For a container to Europe from Bangladesh shippers pay around $2,000. From SriLanka and other countries in the region it is only $ 1,200. So one can imaginehow much Bangladesh is lagging behind on the just port costs alone. And this isnothing but inefficiency of the port, because the turn around time of the port ishigher.o Yet there is a legal ban on the establishment of an SSA container terminal in theprivate sector that is harming the national interest. This is nothing but obstructionagainst the building of a facility that would greatly aid the export/import business.This is a damaging decision for the nation. The sooner the country can have thisterminal functioning in the way that businessmen want, the better for the nation asit will reduce the cost of doing business.o A competing port is also a necessity.Mr Anis Ud Dowla,Chairman and Managing Director, ACIo English language skills of the executives engaged in trade, business, investmentand in the government sectors need to be enhanced. Lack of communication skillhas been standing in the way to FDI.o The environmental element should have been addressed in the report, as this is avery sensitive issue in port and shipping and in investment. He found the MinistryReducing The Cost Of Doing Business In Bangladesh 29

ooof Environment has no expertise but puts unnecessary impediments in the way toinvestment and trade.His experience of shipment of chemical and medical ingredients through air cargoproved hazardous. Expensive raw materials for chemicals and pharmaceuticals areroutinely opened and replaced. Cold chain products must remain at a constanttemperature but the airport cargo unit does not operate properly thus causeingconsiderable loss to manufacturers.It is necessary to declare the port services as essential so that port workers cannotstrike, but the problem is that the people working at the ports are still politicallymotivated.Mr Mushfiqur RahmanMP and a Former Secretaryo Ports in Bangladesh are suffering basically from management problems. Ports arein the hands of political powers.o Currently Chittagong port has a monopoly and there is a strong need for privateparticipation in this vital sector of the economy. The Port Trust enjoyed morepower during the Pakistan era and was a more effective body then.o There should be a study of the current system in Pakistan, which may be relevantto Bangladesh. We should find out whether ports like Madras or Bombay hadsimilar labor problems as Bangladesh. BEI should also ascertain whether there isa Dock Labour Management Board in Bangkok or in Penang ports.Mr Rafi Omar,Managing Director of Kuehne and Nagel Ltdo For the cost savings at Chittagong port efficiency is paramount. Factors that couldhelp to achieve the goal are the requisite infrastructure, free from labor troubleand collaboration of the private sectors port users.o Container service has taken over the general cargo. Turnaround has not improvedbecause of lack of shore gantry cranes, consequently longer turnaround isincreasing business costs.o Several National Board of Revenue (NBR) regulations which a vessel has to gothrough for arrival and departing take much time at Chittagong Port but in otherregional ports these are done immediately saving substantial time for the vessels.o At the private Container Freight Station (CFS) exporters are allowed off-dockfacility but the importers have no access. If the same facility is allowed toimporters he is sure that would ease the congestions in the port container yard thatforce the CPA to impose quadruple storage charges. The added cost to shipping isalso emanating from the system that forces the stevedores to choose the laborfrom Dock Management Board at a dictated rate.o Shipping lines are scared to sail to Bangladesh because of frequent ship arrests,which add to cost of operation. Local magistrates have jurisdiction over shipping.Jurisdiction should be given to the High Court to avoid rampant ship arrest.Shippers are also afraid to operate in Chittagong due to high incidence of piracyand rampant pilfering in the port.Reducing The Cost Of Doing Business In Bangladesh 30

oThe establishment of alternative private terminals as proposed by the SSA. Thereis a misunderstanding that the SSA is about to set up a private port but in fact it isa private terminal. I suspect vested interests are behind the labor union’s effortsagainst a private terminal to protect the monopoly.Mr N.W.Khandaker,Former Managing Director, Bangladesh Shipping CorporationAll the problems of Chittagong Port are succinctly summarised in the BEI draft report.The Chittagong Port Authority (CPA) has power but is unable to exercise it because ofthe Dock Labor Management Board. Lower courts issue injunctions on ships on flimsycomplaints. Now shipping is containerised, therefore, commissioning of shore craneswould improve the turnaround time.o A CPA fleet of draggers should be fully utilised to dredge the seabed to enablevessels of a higher draft to enter the port without waiting at high sea thusincurring extra cost.o Strict implementation of the existing laws are necessary but even the Navy seniorofficial at the head of CPA is unable to implement the regulations because ofdictation and outside interference.o Labour unions impose rates according to the urgency of the exporter/importer toclear the consignment.o Port service has already been declared essential service, but the CPA finds itdifficult to enforce and the provision is renewed on a month to month basis.Brig. Gen. M. Mofizur Rahman (Rtd),Chairman, BEPZAo Ships should carry their own crane, which would facilitate quickloading/unloading as an effective way to cut down cost at ports.o There could be the introduction of chopper services between port and shipsanchored at high seas. Chopper services were made available on commercial basisto the users of EPZs.o To obviate labor dispute the services of professional counselor for effectivecommunication between the labor union and port users could reducemisunderstanding and may prevent work stoppage.o CPA should be registered with the Stock Exchange. 49 percent of the shares maybe off-loaded so that CPA has private shareholders at the stock exchange toenhance more transparency and public accountability.o It is practical to have immigration, customs and other relevant agencies under oneauthority in EPZs. All relevant agencies should be under the Chairman of theChittagong Port Authority for efficient management to cut down cost.o As in the EPZs, containers while entering/departing should be checked at onepoint instead of the current several points in the port.o Women workers should be trained and put to work in various capacities in thePort Authority. My experience at the EPZs is that women worker are moredisciplined than men.Reducing The Cost Of Doing Business In Bangladesh 31

Mr Syed Mahmudul Haque,A leading user of Chittagong PortWith the opening of Asian High way the volume of trade will increase with consequentimpact on Chittagong Port.o An integrated transport policy is necessary for linking road, rail and port to avoidcongestion at the port.o CPA should be a regulatory body and not an operational entity.oooCPA should be turn into a corporation with government and private equity.With diversification of trade and manufacturing, Customs officials need trainingto determine which products are on the negative list or the positive one. Themanual needs updating to reflect new lists permitting export/import of newcommodities. Customs is an integral part of port efficiency.It must be in tune to meet the requirement of quick entry /departure of vessels.Mr A. K. Faizul Haque,Former Jute MinisterHigh interest on loans in Bangladesh is also adding to the cost of doing business. It isimperative to bring down the interest rate to regional standard.Mr G.M.Khursid Alam,World Bank, DhakaIn the post-MFA era ports would come into more focus. Chittagong Port is falling behindin Customs procedures, as the latter is undergoing automation in other countries.He suggested better incentives for Dockworkers would promote a congenial work culturein the port.II. SESSION ON CUSTOMSMr S.M.Akram, Former Member,NBR & Former MPo Two kinds of unofficial payments are made by businessmen to Customs officials:[1] speed money is paid to save cost on ware house rent, damage at open yard andbank interest. [2] evasion of duty and taxes benefiting the trader. In the processthe government sustains huge revenue losses. How much ‘benefit’ is actuallyderived by the businessman at the expense of the government revenue out of theabove two payments could be a subject of a separate and detailed study. But, it isthe businessmen who corrupt the officials rather than the other way round.o In the port clearance, either sea or air, a large number of forms are used andpapers need to be signed by a large number of officials. This is because the wholesystem is based on mistrust. Number of documents could be reduced by properstudy and close supervision.o Because of high rate of bank interest the borrower resorts to bribing the Customsofficial to speed up the process of loading/unloading to cut down cost of bankinterest.o Private wharves and warehouses are necessary to stop pilferage. The insurancecompanies could provide service to private warehouses.o The green channel and bonded warehouse, both facilities were widely misused byReducing The Cost Of Doing Business In Bangladesh 32

usinessmen in collusion with a section of officials. Even the PSI facility wasmisused by bribing the officials at foreign ports.III. SESSION ON TAXATIONMr Amir Khasru Mahmood ChowdhuryThe private sector must show their accountability by paying tax. In this field there ismutual suspicion between the government and the private sector. Taxation is a part offair trade practice that is self-regulatory. Private sector must come under self-regulationin this area.Mr Mujibul Haq,Former Cabinet Secretary,Ombudsman would be flooded with complaints without much remedy. However, shouldnevertheless introduce the system for experience.Mr S.M.Akramo Government is too heavily dependent on indirect taxes to meet too many socialobjectives. Objectives should be set on the basis of priority and focussed.o There are so many tax regulations and they too are subject to frequent changesthat businessmen cannot keep track. There is a need for a body to streamline thesystem.Mr Farooq SobhanCiting the examples of Malaysia and Singapore, said that the answer to all these problemslies in the introduction of e-governance.Ms Rokeya A. Rhaman,Leading Entrepreneur and Adviser to the last Caretaker GovernmentA Tax Holiday is necessary for an industry in the initial years because an entrepreneurhas to pay so much and in so many places to set up an enterprise.IV. SESSION ON GAS, POWER, TELECOM AND BOIA. Utility Services-Gas, Power and TelecommunicationDiscussants: Mr. Faizur Razzaque, former Chairman of Power Development Board,former Energy Secretary, and present Managing Director of Grameen Fund; and Mr. S.D.Khan, Former T&T secretary.Mr. Zahid Hossain, Senior Research Associate, BEI, made a presentation on the presentstate of Utility Services –Gas, Power and Telecommunication– in Bangladesh. In hispaper Mr. Hossain pinpointed the inadequate supply of these services causingunnecessary delays and thereby extra costs for businessmen.The common problems in all these three utility sectors are:a) Inadequacy in the service provisioningReducing The Cost Of Doing Business In Bangladesh 33

) Non-technical system lossc) Irrational tariff structure (Subsidy in some cases)d) Lack of accountability ande) Lack of good governanceMr Faizur RazzaqueManaging Director, Grameen FundIt is true that the users of these services have to pay directly or indirectly from the firstcontact especially for gas and power. However, some blame has to be taken by thebusiness people who, if not more, are equally responsible for underhand dealings andcorrupt practices now very much in place in the country. According to my calculation, inthe power sector (PDB and DESA only) 1 percent system loss involves a loss of Tk 20cores for the organisation.These are some of my observations:a) Some power generating units are old resulting in generation shortfall,b) More often than not full generation efficiency not achieved,c) Gas wells worked to the level beyond technically permitted,d) Gas transmission line faulty ande) In Power, high-tension generation is usually trouble free but most problems arewith faulty distribution line.As a result, supply gets reduced in an already acute short supply scenario, creating furthershortfalls and thereby raising the cost of doing business.o Higher priced IOC and IPP products and Petrobangla/PDB products could beconsidered.o Similarly cross subsidisation of prices for items like fertilizer may also beconsidered, provided overall there is a margin left after meeting costs.o Downloading forms from a website should be available and the facility to appealto the Regulatory Body if no decision on connection or denial within specifiedtime should be in placeBill Paymento The ledger entry after payment should be automated and computerised and eachsucceeding bill must show the previous outstanding, if any, as is done by mobilephone companies. No claim from consumer for bills three years or more oldshould be as failure of the respective utility company and its employees.Distributiono Gas production and transmission, power generation and transmission arerelatively trouble free. The problem area is distribution. Meter reading, billpreparation and distribution may be contracted out to private sector on an areabasis to ensure quality competitionOutstanding utility bills of the government departmentso Inter-utility and government department’s default was very high. The governmentmakes budget allocations, even then high default rate occurs. Therefore, everydepartment must produce evidence of utility bill payment every quarter beforeFinance Ministry releases development budget.Trade UnionisationReducing The Cost Of Doing Business In Bangladesh 34

ooTrade unions in the gas and power sectors have mostly grown along negativelines. Pressure is exerted to avoid punishment for delinquents, cause transfers,etc., and they indirectly/sometimes directly encourage pilferage, wrongconnections etc. Basically an atmosphere is created where good work cannot berewarded or bad work punished. Trade uniosn had become so politicised that itwas really difficult to take punitive action against the offenders. This unhealthytrade unionization was constantly adding cost to utility services.Efforts should be taken to depoliticise the union activities in these utility sectors,and for separating generation, transmission and distribution. Transforming PDBand DESA into commercial entities was simplistic and would be resisted severely.PDB should rather be unbundled, that is to place generation and distribution atseveral places.Mr S.D. Khan,Former T&T SecretaryCellular ServicesThough there is no tariff control by the regulator for the cellular operators due toadequate competition (four operators for similar services), there is need for review of thecurrent tariff structure. There does not seem to be a rational in continuation ofTk.4/minute of airtime by all the cellular operation when the capital cost of switchingequipment has come down from $1500 in 1997 to $150 in 2002-3. However, The claimof BTTB that they would be able to provide the same if not better cellular service withonly Tk.1/minute of airtime is to be viewed very carefully. BTRC has to ensure thatBTTB do not subsidise this service with other services and put the current operators indifficulty.BTTB Fixed Line MonopolyTo address the scarcity issue the monopoly of BTTB the provider in provision of fixedline, NLD & ILD services should be abolished. The sector should be open for all telecomservices for the sake of competition and expansion and resulting reduction of cost tocustomers. BTTB as a government entity has only been able to install 689,000 telephonesduring the last 31 years. Whereas the private sector put on ground 1 million phones in aperiod of 7 years and has plans for further expansion of 1 million by 2005. This is an eyeopener for the government. Therefore government should open up all the sectors oftelecom to the private sector for competition.InterconnectionOne of the recent studies indicate that right now there is a conservative demand ofadditional 1.2 million telephones in the country and at least 7 operators could be licensedfor this purpose on competitive basis. However interconnection is the major issue forinvestors. GOB/BTRC has to pro-actively resolve this issue if they really want to bringFDI in the country in this sector.Warning: No investor will come to invest in this country unless the interconnection issueis resolved or the new licenses are also given option to install their National LongDistance and International Long Distance gateways.What needs to be done:o Open the sector for all serviceso Separate network and servicesReducing The Cost Of Doing Business In Bangladesh 35

o Implement rational tariff structure based on cost, no cross subsidyo Proactive review of cellular tariff by the regulatoro Resolve interconnection issueo Address convergence issueso Reform BTTB structurally so that it can compete with private sectoro Consider BTTB as not a “ cash cow” but a starved cowo Politicians and bureaucrats must be convinced that ICT can transformgovernment to serve its people bettero Take Advantage of this technology and start implementing E-Governance as much as possible. (Delivering E govt. services to the publicelectronically through Internet, and other application technology.)o We should look forward to a period when we will exercise digitaldemocracy by voting through Internet.Mr. Anis Ud Dawla,Managing Director and Chairman ACI,In this observation Mr. Dawla pointed out that before anything else, we must change theold laws must be changed, which are the real obstacles in the way to FDI in Bangladesh.Dr. Tawfique-E Elahi Chowdhury,Former Energy SecretaryAs the Energy Secretary, tried to minimise the administrative steps for getting gas andpower connections, but could not do it because of pressure from the unions.o Should give full authority to the management of the utility services like gas andpower.o Attempts have been made earlier also to outsource meter reading, billing andmaintenance of sub-stations through competitive bidding to reduce the cost ofservices and to reduce dependence of single entity. But such attempts did notsucceed because of vested interest groups.oAbout client’s protection, he took initiative to draft a law where, among otherthings, clients would be protected against bills, which are due more than fiveyears. The idea was that the utility must be able to make that claim to the clientwithin five years. Possibly the cabinet did not approve it.The report of the IT Task Force headed by the Prime Minister might be implemented forredressing such matters.B. Board of InvestmentMr. Farooq Sobhan, President, BEI, briefly narrated the present state of the Board ofInvestment where he worked as Executive Chairman for some time. Mr. Sobhan pointedout that the amount of FDI has declined substantially in the recent past and the Board ofInvestment must work hard to find out the reasons as well as to work out the strategies forattracting more FDI in the country.Such an organisation must have sufficient power and authority to aid investors both localand foreign when required to. The one stop service of the organisation should be reallyeffective and instrumental in making the life of investors easy and comfortable.Reducing The Cost Of Doing Business In Bangladesh 36

Dr. Tawfiq-e-Elahi Chowdhury,Former Secretary and Executive Chairman, Board of Investment.Any organisation whose agenda has changed must be restructured and reformed, whichwas not done in the case of BOI. This should be addressed right now without furtherdelay. BOI is now a promotional organisation whereas it used to be the office of theDirector General of Industries, a completely regulatory body, and the employees are stillin their old mind set while their goal and agenda have changed. And that’s why clients ofBOI meet a lot of hurdles as the organisation in most cases is still working like aregulator.o They should re-concentrate more on removing bottlenecks of business, trying toreduce the cost of doing business and the essence of being able to do that is toopromote deregulation.Introducing competition and deregulation should be the focus of BOI. A law wasdrafted for allowing private sector export processing zone to operate inBangladesh, which was made law through the parliament. There are plans at BOIfor setting up both an industrial park and IT park.[He ended by narrating his experience at the Ministry of Energy relating to gasconnection, which takes 20 or more signatures. It could be done with 5 to reduce time,but Titas always must drag their foot on such proposals because the more signatures areneeded, the more doors are to be opened and the more money has to be spent by client]Waliur Rahman Bhuiyan,President Foreign Chambers of Commerce and Industryo There must be posting of appropriate persons at the top posts of the organisationfor bringing in dynamism. Once the right persons were placed at the right places,the efficiency and speed of the organisation would automatically be increased.Mr. Rahman expressed dissatisfaction at the way the existing foreign investors werebeing treated and harassed by different government agencies.o If the existing foreign investors are properly treated and if they are happy with thepresent state of things, new investors will automatically come and invest theirmoney here.o About the accountability of the personnel working at different levels of BOI, eachand every worker should properly follow the rules and regulations and they mustdo their assigned jobs in time. He said that BOI must deliver goods speedily andunnecessary delays in issuing work permits and registrations in most cases causeharassment and extra cost for the investors.o Every officer working in such an important organisation must have propertraining especially on how to handle a foreigner. Their English language andspeaking power should also be at least moderately good so that they are able tohandle foreign investors properly.o At the same time, the salary and other benefits of the BOI officials should bereasonably higher so that they themselves can maintain a good standard of life. Ifthey are better paid, their standard and efficiency will definitely be better.o In order to make BOI more effective and service oriented he suggested postingsome dynamic management personnel from the private sector to this organisationReducing The Cost Of Doing Business In Bangladesh 37

with sufficient power and authority for timely implemention of governmentdecisions. If proper implementations of the government decisions are made,investors both foreign and local will come forward to invest here.V. LAW ENFORCEMENT AND THE LEGAL SYSTEM; CONCLUDING SESSIONDiscussants: Mr. Azizul Huq, former Inspector General of Police (IGP), Bangladesh; Mr.Maurice Geiger, US Attorney at Law and Head of the World Bank Project on Legal andJudicial Capacity Building in Bangladesh; Mr. Mujibul Huq, former Cabinet Secretary;Minister of Law, Justice and Parliamentary Affairs, Mr. Moudud Ahmed.Ambassador Mostafa Faruque Mohammed of BEI presented the paper on LawEnforcement and the Legal System in the concluding session of the National Seminar.Mr Azizul Huq,Former Inspector General of Policeo On the question of corruption it was unfair to expect that the police would remaininsulated from the pervasive corruption existing in society. It was because ofcorruption in the police and the resulting popular distrust of them that attempts atpolice reforms had been made in the past. A number of police reformscommissions had been set up which had submitted their reports andrecommendations. There was however very little follow up actions. This wasbecause of the lack of political will and determination on the part of successivegovernments of the country to bring about genuine reforms in the police.o Reforms were called for in all areas of the police hierarchy, starting from thehighest down to the lowest for corruption has afflicted all strata of the force. Itwas difficult, to affirm if there was even one honest officer amongst the policeforce.o The number of police per thousand of population in Bangladesh was one of thelowest in the world. They have to do a very difficult job and their remunerationsis paltry. They have to literally work twenty-four hours a day in conditions ofextreme uncertainty and danger, at times pitted against organised and lethallyarmed adversaries.o Police must be given a ‘living wage’ that would help them maintain a decentstandard of life and thus keep them from falling prey to temptations.Mr Maurice Geiger,World Bank, DhakaSince time is money for any business activity the courts in Bangladesh as at present doadd avoidable costs to business in this country, particularly for businesses that have totake recourse to courts of law to settle disputes, etc. A civil case that should take fourmonths to resolve takes five years on an average.o While one could not say that judges were being swayed by lawyers or litigantspaying them money, there was nevertheless ample evidence of the unethicalinfluence of money determining the pace or lack of it of cases moving in thecourts of law, especially in the lower courts.Reducing The Cost Of Doing Business In Bangladesh 38

ooThe lawyers dominated the court system in Bangladesh only and the system wasnot client-friendly. The lawyers would exploit the chaos in the courts created bythe constant churning of cases for making money. It is they who would determinein collaboration of corrupt court officials whether cases should move in the courtor not.There was also over scheduling of cases in most of the courts without a realisticassessment of how many cases could a court handle on a given day. This createsan environment of expectation that the cases will be heard and disposed of. Asthis does not happen people lose their faith in judiciary. Mr. Geiger, therefore,suggested that there should be a mechanism to take a continuous inventory ofcases and prevent useless and over crowded scheduling of cases in any court.The indiscipline in the court and the delay suffered by the people seeking justiceadversely impacts on the capacity of the courts to identify and resolve the problems.Mr Mujibul Huq,Former Cabinet SecretaryIt is a regrettable but incontrovertible fact that the country is engulfed by corruption.Countless seminars have been held producing, if anything, a long list of prescriptions toimprove the situation. There has not been any serious effort at implementing thesemeasures. There is a rat race to make it and there has been no one to bell the cat. Underthe circumstances it must be the responsibility of the Government and by extension of thetwo major political parties of the country to take serious measures to eradicate corruption.o The Constitution does provide for the appointment of an Ombudsman but would itturn out to be another excuse for delay and result in added misery for the people?Barr. Moudud Ahmed,Minister of Law, Justice and Parliamentary AffairsThe legal system in the country is basically all right. There was no problem with laws andlegislation either. The problem lies in the implementation. The Constitution of thecountry has guaranteed the right to speedy trial, but the courts are not in a position todeliver.o Meanwhile the police wield too much power.o They exercise extensive discretion in recording the FIRs, conductinginvestigations and then preparing charge sheets, etc.o To complicate the matter the trial judges and magistrates lack legal training andoare not accountable to the judiciary but to the executive.In the long term, the best way to ensure a corruption-free society is to strengthenthe economy and eradicate poverty.After all, poverty was the core reason for corruption; and as in any society based onclient-patron relationships corruption becomes inherent. Of course, there is the need forthe separation of the judiciary from the executive and the present judicial system is oldand archaic and has long outlived its relevance to the requirement of the changing times.But as the economy develops things will improve. Moreover, the government is fullyabreast of many of the problems and has already set up a Monitoring Cell to monitor theprogress of the disposal of cases in courts.Reducing The Cost Of Doing Business In Bangladesh 39

oooooHowever, there are additional changes that should be brought about in to thesystem. Alternative dispute resolution practices should be introduced and activelyencouraged to reduce pressure on the courts.Moreover, in the present system one case has often to travel quite a large numberof court levels from sub-district to district to further higher courts before finalresolution. The number of court levels should be reduced.There is a tendency on the part of certain litigants to obtain dilatory injunctionsand then not to proceed further with the trial. Injunctions should not be grantedwithout hearing both sides in the case and whosoever gets an injunction shouldpay a security deposit so that he cannot walk away without completing the trialand thus keeping the case hanging unresolved.As to the practice of obtaining adjournments for hearing of cases under trail, nomore than three adjournments should be granted in one trial. In case a party seeksmore than three adjournments it has to pay and bear the additional cost incurreddue to the adjournment.Too often summons are not properly delivered. It must be ensure that summonsare duly delivered to those they are addressed to.In conclusion, according to the Minister, the government was aware of the problems thatare being encountered and has either taken or is contemplating taking ameliorativemeasures. He referred to the establishment of the Speedy Trial courts and pointed out thatthese courts are doing very well by resolving a number of criminal cases in short time. Healso mentioned the Money Loan Courts, which have records of expeditious conclusion ofcases.Reducing The Cost Of Doing Business In Bangladesh 40

SECTORAL WORKSHOPSEight Sectoral workshops were organised during the period from June, 2003 toSeptember 2003 to finalise the sectoral recommendations and the mode ofimplementations. A number of discussion meetings were also held with the concernedofficials of the respective Ministries and other relevant departments of the sector beforefinalising the sectoral recommendations.The series of sectoral workshops started with the one on Port and Shipping. It wasattended, among others, by the Secretary of the Port and Shipping Ministry, and theChairmen of both Chittagong Port Authority and Chalna Port Authority. Representativesof private sector stakeholders in this sector also took part in the discussion.The next workshop was on the Gas sector which was attended, among others, by the StateMinister for Energy and Mineral Resources, Mr. A.K.M. Mosharraf Hossain. TheChairman of Petrobangla and other senior government officials also took part in thediscussion. Private sector representatives and academicians also presented their views inthe workshop.The workshop on Telecommunication was attended by a large number of professionalsin this sector, including two former Secretaries to the government in charge of theTelecommunication Ministry. The Chairman of the country’s newly set upTelecommunication Regulatory Body and the Commissioner of the body were alsopresent. A number of new issues came up for discussion before the recommendationswere finalisedThe State Minister for Power, Mr. Iqbal Hasan Mahmood, was present as the Chief Guestin the workshop on Power. The heads of several private sector power generatingcompanies were also present and took part in the discussion which highlighted the majorissues and problems of this sector. The State Minister was in agreement with almost all ofthe recommendations adopted at the workshop.The workshop on the Board of Investment had participants that included the ChiefExecutive Officers of the multinational companies: British American Tobacco, Singer(BD) Ltd and BOC (BD) Ltd. The Executive Chairman of the Board of Investment, Mr.Mahmudur Rahman, was present as Chief Guest. Although Mr Rahman did not agreewith some of the issues of existing corruption raised in the workshop, he did present a listof reform measures` undertaken during his tenure so far at the BOI, to remove obstaclesto the flow of FDI into the country. The heads of various trade chambers present raised anumber of issues that according to them need were of absolute priority to attract newinvestment in the country.Justice ® Saleem Akhtar, the Tax Ombudsman of Pakistan, visited Dhaka to present apaper at the workshop on Customs and Taxation. The State Minister for Finance. Mr.Shah Abul Hossain, was present on the occasion as Chief Guest. Senior officials of theReducing The Cost Of Doing Business In Bangladesh 41

Customs and Taxation departments were also present. In his presentation the PakistaniTax Ombudsman explained how and to what extent the anomalies of the tax system inPakistan had improved after the introduction of th institution of Tax Ombudsman.The much talked about law and order problem of Bangladesh these days was the subjectfor discussion in the workshop on Law Enforcement. Major (Retd) M.A. Mannan , M.P,Chairman of the Parliamentary Standing Committee on Home Ministry was the ChiefGuest. Three former Home Secretaries, Mr. M. Mujibul Huq, Mr. Manzoor–ul-Karim andMr. M.M. Reza, and three former Inspector Generals of Police, Mr. Azizul Huq, Mr.Nurul Huda and Mr. Ismail Hussain, took part in the discussion. Two former Ministers,Mr. A.B.M. Ghulam Mostafa and Mr. A.M.A. Muhith, also presented their views andsuggestions for the improvement of the present unwieldy state of affairs in this sector.The last workshop was on the Legal System, which was attended by the Minister for Lawand Parliamentary Affairs, Barrister Moudud Ahmed. Two former Chief Justices, JusticeMostafa Kamal and Justice Moinur Reza Chowdhury, also took part in the discussion.Several legal practitioners were also present and gave their views on legal reforms,particularly relating to trade, investment and industry.Reducing The Cost Of Doing Business In Bangladesh 42

I. LAW ENFORCEMENTThe law and order situation in Bangladesh is not good. Inter alia, it acts to thedetriment of the growth of business in the country. A cursory glance at the daily pressany day will reveal the situation.In its firm level Investment Climate Survey in collaboration with World Bank in2002 Bangladesh Enterprise Institute administered a questionnaire to the ManagingDirectors of a cross section of industrial units in the country which had two specificquestions in Part C: Legal Environment and Security, aimed at eliciting how their assessprevailing the legal environment and the law and order and security affecting theirdecision making. Besides, there were about half a dozen other questions that had director indirect bearing on the industry’s attitude to the judicial system, courts, police etc.Widespread indifference or outright incapacity of the police in maintaining lawand order was often mentioned among factors that contribute to the cost of doing businessin Bangladesh. It was claimed that one had often to make unscheduled and unspecifiedpayments of “protection money” to these public agencies. Because such payments areunavoidable, most businessmen are not averse in making the payments as long as they areconvinced that the opportunity cost otherwise will be prohibitive. There is a strong desireon their part to avoid police, if they can.It was also found that no firms reported any incidents of theft, robbery, vandalism,etc., to the police. The reason attributed informally was that no purpose would be servedby reporting these incidents to the police except that it would mean quite a few follow upvisits by the police, involving unnecessary expenditure, often exceeding the actual losscaused by the incidents. Underpaid as they are, the police themselves are liable to becomeinvolved with or easily manipulated by criminal elements. Hand and glove with thepolice it becomes easy for these elements to escape the net of the law, whilst the policeare often mentioned as roadside extortionists and at times named in outright robbery.Among the public in general, the police are little trusted and even less respected.Transparency International has described the agency to be the most corrupt of theinstitutions in Bangladesh having to deal with the public. A survey carried out in 2001 28also showed that more than 80 percent of those surveyed believe that the police are themost corrupt institution in Bangladesh. There is no end to public complaints against thepolice, they are corrupt and brutal; they are partisan and politicised; they beat and bullythe poor, are indifferent to popular sentiments and they lack professional competence.The abuse of authority by the police has seriously undermined the image of theinstitution.There have been studies and dialogues in Bangladesh to ascertain the reasonsthereof and suggest ameliorative measures. 29 The reasons lie mostly in the system and in28 Mohammed Bin Kashem. Op cit29 Mohammed bin Kashem. “Public Confidence in Police”, Department of Sociology, ChittagongReducing The Cost Of Doing Business In Bangladesh 43

of money. Drivers of properly maintained vehicles also pay bribes to the traffic police toavoid delays in producing fitness documents.A variety of reasons may be ascribed for the high rate of police corruption in thecountry. Among them are the low standards of personnel recruitment, poor education,low ethical standards during training 31 , extremely low pay for “line” officers and aboveall undue political influence on the police administration. In the case of traffic relatedcorruption the corrupt transaction benefits the vehicle owners also and thus leaves noimmediate victim-complainant to call attention to it. Senior level officers argue that giventhe low wages of the police constables a vast majority of them are involved in corruptionsimply to maintain their families. They thus protect and even encourage dishonesty on thepart of the rank and file and often the “line” officers also use low wages as therationalisation for corruption.Thus in the present form corruption is highly organised and in the majority ofcases it is ignored by the internal control system. The success of internal control systemdepends on information on corrupt activities and for that the police department relies, forthe most part, on citizen complaints against corruption. One of the major weaknesses ofthe system is that many victims of police corruption do not report it, fearing furthervictimisation by the police.Overall, police wield too much power. They exercise extreme discretion inrecording FIRs, conducting investigations, preparing charge sheets, etc. They may evenchoose to proceed wrongly in any of these areas. Investigations of police misconduct areentirely internal. There are no citizen review procedures in Bangladesh to investigatereports of police misconduct or corruption. Reports of corruption are sometimespublished in the press, but it is also observed that crime reporters maintain close contactswith the police stations on their beats. According to the statistics available, at the PoliceSecurity Cell, Police Headquarters, Dhaka, of disciplinary actions against policepersonnel accused of corruption charges during 1995-2000, out of a total of 1489receiving punishment an overwhelming majority (1153 or 77.4 percent) were constables.Only one SP and 4 ASPs were among those punished. The statistics are self explanatory.There is no denying that all of the above complaints have genuine grounds, all ofthem corrupt pratcices ocurring at one time or another, some more often than others. Butas admitted by no less than a former IG, the malaise runs deep in society and police beinga part of the whole cannot be expected to be immune, particularly when they are sopoorly paid and assume that practically speaking they are themselves ‘above the law.’There are, of course, trained motivated service-minded professionals among them,who know their job and like their counterparts anywhere in the world want to do it to thebest tradition of service – provided they also have reasonable hours of work, a livingwage commensurate with the strenuous job they have to do, and that they are free from31 Article: “Cadets learn how to exchange bribes inside the Police Academy” by Kamrul Hasan,Janakantha, April 30, 2000.Reducing The Cost Of Doing Business In Bangladesh 45

extraneous influences or “commands from above” and are fully accountable for their actsand omissions.Those who actually control and run the system, however, have abused it beyondrepair and they are the ones largely responsible for the great number of ills that beset thesystem. Police reforms should, therefore, aim at the outset, to insulate the police fromillegitimate outside control, pressure and influence.It has also been found that leaders of political parties, especially the party inpower, not only interfere with police functions but also victimise non-pliant policeofficers through transfers to hardship posts and promotion delays. In this connection avery pertinent comment by the High Court can be quoted: “A bad political culture hasdeveloped in the country whereby political rivals of the party in power are handled bypolice by implicating them in criminal cases. It was done during the previous governmentand is also the trend today. The credibility of the police is at an all time low, Integrityhonesty and efficiency of the police are under fire and even men in authority doubt theaction of the police. Very often the fundamental rights of the citizens are denied by thepolice and in doing so the police get the blessing of the executive. The executiveauthorities must find out some devise to the save citizens from misrule and policetorture” 32 .The prevailing political environment could be seen as the leading explanation forhigh-level police corruption in Bangladesh. In many ways it is politicians who determinewho will occupy key positions within the police department and this in turn makes themembers of the force beholden to the politicians. For instance, the appointment of IGP isa political appointment..It has also been a persistent civil society complaint that there are a record numberof instances of abuse of political power by police in the country. Successive rulingquarters over the last decade have used Section 54 of the Criminal Procedure Code(CrPC) to harass political opponents and the practice continues 33 . There is a perceptionthat the human rights record of the police force is dismal. Police should, therefore, haveadequate legal training especially in matters of human rights. In addition the police forceshould be modernised and the quality of officers and men improved through bettertraining and orientation to make them equal to the task they are required to perform.Thereal task before the government is to demonstrate the requisite political will to bringabout reforms within the police force. If they compromise for fear of hurting powerfullobbies and vested interests standing in the way of better law enforcement and crimecontrol the government will ultimately be failing the nation.The matters of police reforms have been gone into by a number of commissions inthe past. An ex-IG of Police is on record as having said that a number of reports andrecommendations of these commissions are already available with very little follow-up32 The Daily Star: 9 August 200333 The Daily Star Dialogue “Arrest and Police Remand”. 10 April 2002Reducing The Cost Of Doing Business In Bangladesh 46

action, obviously due to lack of political will and determination to bring about genuinereforms in the police lest the force should have its own mind to serve the peopleimpartially rather than in a partisan manner. Time and again it has been recognised thatpartisan interference has more often than not resulted in non-enforcement of laws,inferior service and the general decline of police prestige among the population.Moreover, politicians and bureaucrats have developed vested interest in retaining controland superintendence over the police organisation. These quarters will resist as strongly asthey can the idea of police reforms.The former IGP minced no words in stressing that reforms were called for in allareas of police hierarchy, starting from the most senior down to the lowest ranks forcorruption has afflicted all levels of the force. He also observed that the police-populationratio in Bangladesh was one of the lowest in the world. They have to do a very difficultjob and their remunerations paltry. They have to work literally twenty-four hours a day inconditions of extreme uncertainty and danger, at times pitted against organisedadversaries who are not guided by any law or regulations and are often lethally armed. Hestrongly advocated for giving the police a “living wage” that would help them maintain adecent standard of life and thus keep them from falling prey to temptations.On police reforms, especially in the context of police abuse of law and violationof human rights of the citizens, addressing the Daily Star Dialogue on 11 th April 2002,Advocate Sigma Huda, a noted Human Rights activist, had called for independence of thejudiciary, for separation of police from the executive and for taking police under thejudiciary for impartial delivery of service, because the police force is often exploited bythe Party in power 34 . It has however been contended by experts that the subordination ofthe police to the judiciary will create a multitude of administrative and operationalproblems and nullify the expected benefits of impartial service delivery, if any. Dr.Shahdeen Malik, Advocate of the Supreme Court, had underscored the need for theformation of a ‘police ombudsman’ to bring an end to police excesses.The police force is by far the most important public agency responsible formaintaining law and order in society. Police reforms should aim at restoring popular faithand respect for the force and at the same improving their performance and efficiency.Only by a radical restructuring of police department it may be possible to controlcorruption and improve the law and order situation in the country.:Summary of Major Recommendentions:1. The police-population ratio should be increased.2. The recruitment, training, postings, transfers, and all administrativematters relating to the police, should be transparent and merit-based.3. There should be better training facilities, and training curricula should layemphasis on (i) the law; (ii) police ethics; (iii) constitutional/legal/humanrights of all citizens.34 The Daily Star Dialogue “Arrest and Police Remand” 10 April 2002Reducing The Cost Of Doing Business In Bangladesh 47

4. Short intensive training courses abroad should be available to policerecruits, as well as to mid level officers.5. Pay scales and perks of the police personnel must be raised inconsideration of the hardship of the job performed.6. Police department should be insulated from political interference.7. The performance of police should be reviewed from time to time by animpartial body comprising representatives of the police, the civil societyand the judiciary.8. Any infringements on the part of the police should also be dealt withstrongly by impartial authorityII. LEGAL REFORMSSuccessive governments in Bangladesh, mindful of the importance of investmentin ensuring economic and social development, have not only enacted laws and approvedregulations to encourage both indigenous and foreign investment, but have also updatedand amended them from time to time to meet the evolving needs of investment andbusiness. 35 Bangladesh has also signed bilateral investment promotion and protectionagreements with 21 countries 36 , while such further agreements are in the pipeline. Theseagreements and the corresponding enabling legislation are designed to treat foreign anddomestic investments alike with regard to investment incentives and import and exportpolicies. There is also an iron-clad guarantee against nationalisation. Besides, the traderegime in the country is highly liberalised, non-tariff restrictions reduced, tariff ratesrationalised and export incentives improved. Import procedures have also beenprogressively streamlined and simplified.Regulatory complications and controls in the industrial sector have been reducedto a great extent. The role of the private sector has been recognised as pivotal. Privateforeign investment, including 100 per cent foreign ownership or as joint ventures withlocal private sponsors or with the public sector has been allowed except in a limitednumber of excluded sectors. The process of transferring government owned industries tothe private sector has been strengthened. Many SOEs or State Owned Enterprises,especially those incurring losses, have either been disinvested already or are in theprocess of being so. All in all Bangladesh does have an excellent package of investmentfriendly laws and incentives that should be promoting business in the country.35 Foreign Private Investment (Promotion and Protection ) Act 1980;Bangladesh Export Processing Zones Authority Act 1980;The Industrial Policy 1999;The Companies Act 1994;Guide to Investment in Bangladesh.36 The countries are, Belgium, Canada, France, Germany, Holland, Hungary, Indonesia, Iran, Italy, Japan,Malaysia, Pakistan, Philippines, Poland, Romania, South Korea, Switzerland, Thailand, Turkey, UnitedKingdom and United States of America.Reducing The Cost Of Doing Business In Bangladesh 48

However, despite the congenial legal framework which stands testimony to theintent of successive governments, the manner in which and the extent to which these lawsare complied with leave a lot to be desired. The general law and order situation in thecountry has deteriorated greatly in recent years. Kidnapping of people for ransom hasbecome almost a daily occurrence. Joint venture projects are subjected to visits by armedthugs who demand money or ransack their premises. This has obviously shaken theconfidence of the business community in the security environment and no amount ofgood laws and lucrative incentives is going to restore their confidence any time soon.The Japanese Commerce and Business Association, Shoo-Koo-Kai, in Dhaka hasidentified several legal and policy impediments to doing business in Bangladesh. Amongthem are:a. lack of reliability and continuity in the national policy, the succeedinggovernment changing or rejecting the policy decisions of the precedinggovernment;b. lack of coordination among agencies like BEPZA and BOI which deal withforeign investment;c. pressure from politicians to get involved in the business;d. lack of adequate mechanism for quick arbitration of disputes, especiallyagainst a government department. 37The discrepancy between the enlightened intent of successive governments andstark reality on the ground is the classic situation facing most underdeveloped societiestoday that have, on the one hand, a competent, well-meaning but often ‘ivory-towered’elite to draft their laws and, on the other, a population which lacks the basic socialinfrastructure to ensure their implementation, like even access to basic education orawareness about individual civic rights and responsibilities. Good laws in a poorimplementation environment tend often to be an impediment rather than an advantage forbusiness.Although regulatory controls have been greatly relaxed in recent years, it has notbeen politically feasible or expedient to implement many of the reforms, despitegovernment commitment, due to powerful influences. For example, memberships of thecountry’s Chambers of Commerce comprise, inter alia, manufacturers in protectedindustries. They are for privatisation, but they also want protection and subsidies tocontinue. The reasoning behind policies and regulations are not properly disseminated forpublic knowledge. Underpaid civil servants, envious of the big money being made bybusinesses, demand their various pay-offs before fulfilling their duties. It is no secret thatofficials dealing with foreign investors openly ask for bribes for services they aresupposed to render free of charge or at a stated fee. 38 This often makes the start up costsand risks ouweigh investment incentives. Despite laws defining their responsibilities,customs and excise personnel are often further troublemakers. According to the US37 Impediments for doing business in Bangladesh (summary) by Japanese Commerce and IndustryAssociation in Dhaka, 28 July 2003.38 DittoReducing The Cost Of Doing Business In Bangladesh 49

Department of State, “Policy and regulations in Bangladesh are often not clear, consistentor publicised. Generally, the civil service, business professionals, trade unions andpolitical parties have vested interests in a system in which confidentiality is used as anexcuse for lack of transparency. Accounts from foreign investors of solicitation of bribesby public officials and politicians are common.” 39As part of its 2002 firm level Investment Climate Survey, in collaboration with WorldBank, Bangladesh Enterprise Institute administered a questionnaire to the ManagingDirectors of a cross section of industrial units in the country which had two specificquestions in Part C: Legal Environment and Security, aimed at establishing how theyassess the efficacy of the legal system and the security agencies in the specific area oftheir concern. Besides, there were about half a dozen other questions that had direct orindirect bearing on the industry’s attitude to the judicial system, courts, police etc.Most respondents were evasive in their replies to the question about faith in thelegal system of the country. Quite a few, on the other hand, maintained that if pittedagainst powerful opponents their legitimate commercial rights were not likely to beupheld by the legal system of the country. Mention has also been made of the inordinatedelay in the disposal of cases, by the lower courts in particular, and the indifference orincapacity of the law enforcing agencies to do their job, as factors adding to the cost ofdoing business in Bangladesh. There is a strong desire to avoid both the lower courts andpolice, if possible. Most firms therefore reported that they did not take any disputes withclients or with competitors to the courts of law for resolution because they wereapprehensive of the long delays involved in the resolution of their cases. Instead theypreferred out of court settlement through negotiations.On the predictability of the laws and regulations that would materially affect theoperation and growth of their business most respondents also furnished non-committalreplies. Some firms again felt that any legislation having a substantial impact on theirbusiness are enacted through the influence of dominant firms and conglomerates and ofindividuals with close personal ties to political leaders. This implies that theserespondents have little faith in the legal system in general. A large number of respondentsreplied that their firms had not been to court within the last three years to resolve a legaldispute because neither they nor their opponents took recourse to the courts of law. It wasnot just a matter of slow disposal of cases, however; they did not believe the courts wouldbe able to enforce their decisions. It is a widespread belief among businessmen that thecommercial or business laws of Bangladesh do nothing to protect private contracts.The judicial system, especially the lower judiciary at the district and sub-districtlevels, and the police have, therefore, long been identified as among factors that impedethe growth of business in Bangladesh. The lower judiciary is blamed for excessivedelays, the high cost of litigation, political bias and undue extraneous interferenceaccentuated by the lack of specialised training on the part of the judges, motivation andcommitment on the part of the legal practitioners. This has led to the US Department of39 Bangladesh Country Commercial Guide 2002-2003 United States Trade Center, US Embassy, DhakaReducing The Cost Of Doing Business In Bangladesh 50

Reforms should also aim at giving citizens irrespective of their social status theopportunity to assert their individual rights. Improved access to justice empowers thepoor, the women and the underprivileged to enforce their rights and helps them overcomethe economic, psychological, informational and physical barriers faced by those whoneed its services. There should, therefore, be extensive dissemination of knowledge of thelaw among the population and the legal aid services should be widely available.Judicial reforms should also aim at simplifying rules and procedures that thepeople at large would understand and comply with. Outdated laws and laws that are nolonger possible to implement be should be repealed. In some cases this has already beenunderway. Drafts of updates are available, although some pf the drafts are already adecade old and need to be rewritten. Resource constraints in the Ministry of law pose areal problem. One may seek donor funds and outside expertise to help in this regard.Insolvency laws, which mainly apply to individual insolvency, are not being usedbecause of a web of falsified assets and uncollectable losses and indebtedness claimed bythe insolvent banks and companies. A new bankruptcy act was enacted in the 1997 butthe same has not been put to the test yet. Land laws are in chaos as well. Legislationrecords are unreliable. People avoid registering mortgages, liens, etc., because the dutiesand charges are prohibitive. Instruments take effect from the date of execution, not ofregistration, so a bona fide purchase cannot be certain of title. A new Law Commissionshould, therefore, be set up without delay to update and rewrite, as appropriate, thevarious laws of the land including the CPC and the CrPC.There should also be a mechanism to ensure judicial accountability and courtproceedings should be made transparent. Delay in the justice delivery system invariableimpairs the process of establishment of the rule of law in the country. At the same time isfelt that alternative dispute resolution practices should be introduced wherever possibleand should be actively encouraged to reduce pressure on the courts. In the existingsystem one case has often to travel a large number of court levels from sub-district todistrict to further higher courts before final resolution. It is necessary that these courtlevels should be reduced. There is also a noticeable tendency on the part of certainlitigants to obtain dilatory injunctions from courts and not to proceed further with thetrial. To do away with this type of dilatory manipulations it is suggested that injunctionsshould not be granted without hearing both sides in the case and that whosoever shouldget an injunction should pay a security deposit so that he can not go away withoutsticking around for the trial and thus keeping the case hanging unresolved. There areoften a considerable number of frivolous cases adding to the case backlog.The legal system has no mechanism to enforce decisions. Court decisions areregularly flouted if they go against the big guns for contempt of court cases are hardlybrought against the powerful. Public Interest Litigation is yet to become an acceptedrecourse for social justice. In the same way, the system can not enforce commercialcontracts in case of breach. Ten years can easily pass before a case is resolved. Graftsand bribery are said to play havoc with the integrity of lower judiciary. Since theGovernment controls the judiciary there are no checks and balances. .Reducing The Cost Of Doing Business In Bangladesh 53

It may also be necessary to extensively decentralize the lower judiciary. This maybe done by placing more sub-ordinate judges with sufficient jurisdiction to try cases thatare at present meant for adjudication by the district judges only. In the same vein trialcourts may be set up at the village, union and Thana levels. In the initial stages this maylead to a spate of local level litigations. However, after a while things will settle downand the flow of cases will become manageable and further piling up of cases will cease.Judge - population ratio in the country is too low and should be increased by appointingmore judges. The laws and the legal system in the country are basically alright. There isno problem with laws as such, the problem lies in their implementation. The Constitutionof the country has guaranteed the right to speedy trial, but courts are not in a position todeliver. Trial judges and magistrates lack necessary legal training and are not accountableto judiciary, but to the executive. However, once the State has ensured separation of thejudiciary from its executive organs as enjoined upon it by the Constitution under Article22: Fundamental Principles of the State Policy, it is expected that the situation willimprove.The executive authorities in the country should set an example of showing duerespect to the courts of law in abiding by the decisions of the courts. Only then thepeople will be respectful to the courts and the legal system. There have been someunfortunate instances of the government disregarding higher judicial directives.The courts and, for that matter for judiciary, must share responsibility to createawareness that compliance with law is for the good of the individual as well as for thesociety. It is also for the courts and the judiciary at all levels to uphold the dignity of theinstitution to command respect of the citizens and hence ensure their compliance with thedecisions of the courts. In case of breach of law it also becomes of the courts to imposestipulated punishments to the perpetrators. Unfortunately, courts do not have anyenforcement mechanism at their disposal.The courts should be free to ask the Government to look into and rectify a certainmatter even though nobody has brought before the courts a case or a petition related to it.This type of “judicial activism” may sometimes cause some friction between courts andparliament, but in greater interest there should not be any show-down. The SupremeCourt had in the past annulled a Constitutional amendment (8 TH amendment) passed bythe Parliament.Summary of Recommandations:(i) Case management to reduce workload of the judges and speed up thejudicial process, to improve court room facilities, court administrationinvolving creation of policies and structures to enable judiciary to assumeresponsibility for its own policy making and administration, to freeing itfrom dependence on the executive for personnel, facilities, financialmanagement and planning.,Reducing The Cost Of Doing Business In Bangladesh 54

(ii) To give citizens irrespective of their social status the opportunity toassert their individual rights through an extensive dissemination ofknowledge of the law among the population and the legal aid servicesshould be widely available.(iii) Aim at simplifying rules and procedures that the people at large wouldunderstand and comply with. Outdated laws and laws that are no longerpossible to implement be should be repealed. In some cases this hasalready been underway. There should also be a mechanism to ensurejudicial accountability and court proceedings should be made transparent.(iv) Introduce and encourage alternative dispute resolution practiceswherever possible to reduce pressure on the courts. Active encouragementshould be given to promote out of court settlement of disputes, includingat village level assemblies of elders, thus reducing pressure on courts ;(v) It may also be necessary to extensively decentralize the lowerjudiciary. Judge - population ratio in the country is too low and should beincreased by appointing more judges. In case of India it has beenrecommended for India that there should be 17 judges for one millionpeople. In the same ratio for 140 million people of Bangladesh thereshould be 15000 judges. I do not know the present strength, but can safelysay that it is no where near the required figure.(vi) Merit, i.e. qualification, caliber, competence character and integrityshould be the only criteria for selection of judges. Training at inductionand regular in service training programs should be introduced.(vii) There should regular inspection of lower courts by HighCourt/Supreme Court Judges(viii) A comprehensive system of judicial Ombudsman should be adopted.(ix) A Code of ethics for lawyers should be formulated by the Bar Councilstipulating inter alia that no lawyer should encourage avoidable litigationsor avoidable appeals, or seek adjournments on flimsy or paltry grounds .(x) To clear the backlog of cases it is recommended that the services ofretired judges in good heath should be utilized at all levels for clearing thearrears.(xi) Outdated laws should be weeded out and outdated proceduresdiscontinuedReducing The Cost Of Doing Business In Bangladesh 55

(xii) The number and scope of special purpose courts and tribunals likeConsumer courts, Family courts, Tribunals etc should be enlarged so thatthe inflow of litigations in general courts is reduced.(xiii) The present system of police investigations and prosecutions isdilatory, corrupt and cruel (at times resulting in custodial deaths) andshould be radically reformed and pending that dispensed with.(xiv) To do away with this type of dilatory manipulations injunctionsshould not be granted without hearing both sides and whosoever shouldget an injunction should pay a security deposit so that he can not go awaywithout sticking around for the trial and thus keeping the case hangingunresolved.(xv) Monitoring measures should be taken to follow up whether laws arebeing strictly observed or not.(xvi) Independence of the judiciary should be ensured at all levels;judiciary must be separated from the executive, and all extraneousinfluences and interferences, especially political interferences on judiciarymust be eliminated;III. POWERA consistent and regular electricity supply is a prerequisite for economic developmentand also integration into the global economy. In Bangladesh, according to the Worldbank and other sources only 18% of the population has access to electricity and thosewho have power connections normally receive an unreliable supply of poor qualitypower, 43 although Power Division of the Ministry of Energy and Mineral Resourcesclaims it to be 32% 44 . The inadequate and unreliable power supply has an adverse impacton economic activities and constrains economic growth. Extensive load shedding fromtime to time, particularly during peak hours, normally disrupts industrial production, thusaffecting the country’s external competitiveness. Entrepreneurs have been forced toinvest in stand-by generators, which raise production costs. Captive generation by theprivate sector has gone up considerably, reportedly to around 600-700 MW. In the faceof the significant power shortage, which has become acute during peak hours, thegovernment has allowed duty free import of power generators. According to a WorldBank report, power shortages reduce industrial output by an estimated US$1billion a yearand GDP growth by 0.5 percentage points a year 45 .According to one study, only 13% of the rural population have access to electricity and if43 World Bank. Bangladesh: Review of Public Enterprise Performance and Strategy, November 2002.44 Bangladesh Power Sector: Progress in the last one year and future development plan, October, 200245 ibidReducing The Cost Of Doing Business In Bangladesh 56

the current rate of rural electrification continues, 80% of them will remain withoutelectricity until 2010. At present, an average of 200,000 new connections are establishedin the rural areas each year. If the annual rate of new connections were doubled, stillonly half the rural population could expect to have access to electricity in the next 25years.The Investment Climate Survey conducted by BEI in collaboration with the World Banksays that the power sector in Bangladesh is plagued by mismanagement, system loss ortheft of electricity, and corruption. Power outages have become a routine affair.According a report published in The Daily Independent in January 2003 in an averagemonth in 2002, 169 hours of load shedding were recorded. It is estimated that thecountry suffered an accumulated loss, including industrial losses, to the tune of US$60million annually on account of load shedding. The installed capacity of public powerplants at present is no more than 3,300 MW, but actual daily generation is around 2,400MW. This level of generation is insufficient to meet demand, and therefore poweroutages and load shedding are common.Structure of the Power SectorThe Dhaka Electric Supply Authority carries out the distribution and commercialoperation in Dhaka city and its adjoining areas except Mirpur area, where the operationare done by a company named Dhaka Electric Supply Company (DESCO). The RuralElectrification Board (REB) carries out these functions for the rural areas of the countryand PDB does this for cities and towns including a portion of the rural areas. 46According to a World Bank report, the crux of the poor financial performance of PowerDevelopment Board (PDB) and Dhaka Electricity Supply Authority (DESA) is thesignificant proportion of revenue leakage on account of high non-technical losses, due inlarge part to power pilferage and poor revenue collection. The report added that thecombined net system loss of these two entities has averaged 18% of power supply in thelast three years. Because of shortfalls in billing and collection, revenue has not beencollected on 27% of the net power supplied. 47However, the Power Development Board claims that the main reason behind the poorfinancial performance is the lower electricity tariff compared to the cost of power supply.In addition unfavourable terms and conditions of the loan is equally responsible for theloss, the PDB said. Two illustrations are given below:Purchase and Selling Price of REBFiscal YearPurchasePrice(TK/KWh)AverageTariff(TK/KWh)1999-2000 1.78 3.182000-2001 1.83 3.212001-2002 1.90 3.1846 Board of Investment. Bangladesh Investment Handbook, November 2002.47 ibid.Reducing The Cost Of Doing Business In Bangladesh 57

Average Cost and Tariff of BPDBItem FY 2000-01TK/KWhAverage cost of BPDB 2.57 2.65Average Tariff of BPDB 2.25 2.31FY 2001-2002TK/KWhObtaining and Maintaining an Electricity ConnectionThe difficulties for an electricity consumer start at the beginning of their contact with theelectricity company. According to a publication of the Board of Investment an industrialconsumer who wants electricity connection must submit two copies of an applicationalong with a number of documents. Required documents include a complete set of plansfor the proposed industry, comprehensive drawings of the electrical installation andequipment, and the proposed connection of sub-station and lines up to the delivery point.The BOI publication says that an applicant can obtain the letter of consent from therespective PDB/DESA within 15 working days from the date of submission of a completeapplication. In reality the story is far different, as was revealed by our research. After anapplication is submitted, queries and requests for supplementary information continue formany months, which delays approval and impose a significant financial cost on theapplicant.The real hassle for the applicant seeking a permanent electricity connection starts after anapplication has been accepted. At that point, the applicant must show proof of a securitydeposit in the bank, proven by a paid copy of a demand note. The BOI InvestmentHandbook shows that the applicant should get a permanent electric connection withinfive working days from the submission of proof of the security deposit through the BOI’sone-stop service centre. 48 However, entrepreneurs who were interviewed by BEI in theInvestment Climate Survey (ICS) told a different story. Most narrated stories of delay,harassment and unnecessary queries by PDB/DESA personnel, designed mainly to extortmoney. The root of the problem is a lack of coordination between personnel approvingapplications for connections and those who have the ability to allocate connections. Theperson at the approval stage does not actually know how many connections are availableor how long it will take to get a power connection. Moreover, allegations of requests forpersonal payment arrangements prior to providing a regular connection are common atthe field level.While admitting about the existence of the problem of unnecessary delay and harassmentfor the applicants seeking power connection, the PDB has termed the problem as a “ deeprooted” one. “ But in some cases, the consumers are also involved in the malpractices”,PDB asserts.Concerns of the PublicAs part of its observation of the ways in which public enterprises have been working in48 ibid.Reducing The Cost Of Doing Business In Bangladesh 58

Bangladesh, The Daily Independent newspaper about two years sought to gauge opinionthrough a survey on the power sector. A fundamental objective behind the survey was toascertain the degree of receptivity to the idea of power sector reform in the country. Theresponses reflect the problems and worries of electricity consumers.Close to 55% of respondents stated that extra payments were required to obtain newelectricity connections at their residence. For 30% of respondents, there were noproblems in setting up electricity connections. In response to a question on the quality ofelectricity received, 65% said it was poor or very poor. Just 15% said the quality was ofan acceptable standard, while the remaining 20% were of the opinion that the quality ofelectricity was good.As to the question of complaints about power disruption being attended to in reasonabletime, the answers were even, with 50% saying there was a reasonable response and 50%stating that there was no response to complaints. Fifty-five percent of respondentsthought the tariff rate was high in the country. Where the issue was one of system loss inthe electricity sector, 65% believed that a major reason behind the problem was thedishonesty and corruption of people working in the power sector.Newspapers have also highlighted the problem of power quality, which is manifestprimarily through voltage instability. Voltage fluctuation is now a source of great worryto business owners who use electric appliances and computers. Such equipment caneasily be damaged when there is regular fluctuation of voltage. Businesses that rely onelectrical equipment must either invest in auxiliary power systems that regulate voltage orstop operating equipment during periods when the power supply is fluctuating. About thequality of power the DESA officials have said that the supply of power is not adequatewhile the PDB bosses believe that there is something wrong with the distribution system.The truth of the matter is not known, but what is clear is that the consumers are sufferingand apparently little is being done to set things right. 49The general public perception of the power sector is that corruption is rampant. FormerEnergy Secretary, Akmal Hossain, is of the view that 65% of people believe that the PDBpeople are dishonest, corrupt and inefficient.However, the findings of the Investment Climate Survey indicated that theunderdeveloped power sector is a serious constraint on business operations and growth inBangladesh. Only 4 percent of enterprises reported that electricity posed no constraint onbusiness operation and growth, fewer than in either Pakistan or China. In Bangladesh, themedian estimate of lost sales due to power outages was 1 Percent, compared to 0 percentin China. Whereas 72 percent of the enterprises reported that they had a generator , only71 percent of firms in India, 42 percent of firms in Pakistan and 27 percent of enterprisesin China reported the same.The ICS survey also found that enterprises under study reported that they experiencepower outages and surges about 250 days per year, on average ( with many firms49 The Independent, November 6, 2001.Reducing The Cost Of Doing Business In Bangladesh 59

eporting outages and surges every day they operate). These power problems impose realcosts on firmsRegression results demonstrate that even controlling for industry’s fixed effects and firmcharacteristics, sales and investment both suffer as the number of power disruptionsincreases. “ Indeed, an average firms report losing more than three percent of theirproduction due to problems from the electricity grid”, the survey added.Reported loss of production, however, seriously understates the actual cost of the poorelectric grid. Losses from power outages are not higher because firms expect theseoutages and plan accordingly. The primary way to minimize disruptions in a productionschedule is to purchase a generator, which nearly 72 percent of the firms in the sampledo. Relying on generators, however, is costly, while firms report paying about four takaper Kilowatt-hour (Kw/h) from the electricity grid, they plan more than six taka per Kw/hto use their own generators-nearly fifty percent more than for electricity from the grid.Moreover, generators are not cheap: firms tend to pay more than $ 20,000 for theirgenerators, though some firms buy very small generators for under $ 1000 and a fewreport purchasing extremely powerful generators for more than $ 500,000.Thus, even if direct losses from power outages amount to only three percent ofproduction, it is clear that the true costs of a poorly-performing grid are much higher. Tomaintain production, firms spend large sums both on ensuring that they have their owngeneration capacity and on using it. These backup systems impose costs on firms thatfirms in few other countries must bear, quickly undermining cost advantages that theymight otherwise enjoy.Payment DelinquencyRevenue collection in the power sector is another area where there is potential forimprovement. The accounts receivables of PDB and DESA have deterioratedsignificantly. Accounts receivables for PDB are currently around Tk 37 billion,equivalent to almost 12 months’ sales revenue. DESA alone accounts for 74% of PDB’saccounts receivable. 50 Private consumers account for 69% of DESA’s accountsreceivable. Thus the collection inefficiency of the power sector will require a majoraction plan to recover arrears from delinquent consumers in the public and private sectorsalike.The World Bank sponsored ICS survey findings have indicated that due to the pooradministrative and financial state of DESA/PDB, businesses have to endure a lack ofsufficient electricity supply, frequent electricity outage, long waits for an electricityconnection and corrupt billing methods. As industries rely increasingly on electricpower, the weak power infrastructure exacts a significant cost. Entrepreneurs have beenclamouring about frequent outages, consequent stoppage of work, increases in productioncosts and the loss of their competitive advantage.Theft and Unauthorized Connections50 World Bank. Bangladesh: Review of Public Enterprise Performance and Strategy, November 2002.Reducing The Cost Of Doing Business In Bangladesh 60

Official documents of the Power Division of the Ministry of Energy and MineralResources say that pilferage, theft and unauthorized use regularly deprive the PDB andDESA of a huge amount of revenue. One primary way this occurs is through connectionsthat are not officially recorded with the power companies. These unauthorizedconnections often receive better service than authorized users. As proof that the powercompanies can function efficiently when provided with the proper incentives, whenunauthorized connections are disconnected they are usually restored overnight. The usersof unauthorized connections are mostly residents of slum areas and densely populatedunplanned localities of the capital city.As an example, a unique case of power burglary was recently discovered in Dhaka. Fouremployees of Hanif Steel Mills were arrested for the heist that caused a loss of Tk 80,000daily to DESA for seven months. The Mill management set up a 2,500 Kv transformer inJune last year inside a closed room. Bypassing the underground high-pressure cables,they used to steal 14,500 units of electricity each day using the imported transformer. 51Local newspapers have also run stories about the lifestyles of meter readers of PDB andthe wealth they have accumulated over a short period of time. One senior DESA officialhas confirmed that if the underhand dealings and malpractices of the meter readers can bechecked, a major portion of system loss in the power distribution can be reduced.The Daily Financial Express in a write-up on Power Sector in Bangladesh on May 31,2003 pointed out that proper use and conservation of power for the benefit of itslegitimate users was another important aspect of this sector. There are many in Dhakacity and elsewhere in the country who take illegal and unrecorded connections fromoverhead electricity supply lines to run small workshops, operate rice mills, flour mills,etc. Such operators make good profits from their activities but they pay nothing to thegovernment in the form of taxes. They evade payment of municipal tax, income tax andother tariffs because in most cases their businesses are conducted in grabbed governmentlands without proper registration of ownership.The activities of these people mean huge unauthorised consumption of power by themthat lead to shortfall in distributing power to their legitimate users who pay, every month,dutifully the electricity bills. But such dutiful rate payers of electricity find their homespoorly lightened because much power is drawn away illegally by these clandestine usersof power. The government increases the rates for the consumption of electricity to coverup losses on account of such thefts and the unjustified extra charges have to be painfulborne by the rightful or legal users of power.Such injustice must not go on and it was inspirational to see a drive launched recentlyagainst the illegal users of power. But that drive appears to have ceased because, as theManaging Director of a big manufacturing company recently told the sectoral workshopon power that some employees of the PDB and DESA reportedly receive regular bribesfrom these illegal users of power. Therefore, effective monitoring should be there fromthe top to ensure that these corrupt employees are exposed and the drive is renewed withenthusiasm to realise the objectives.51 The IndependentReducing The Cost Of Doing Business In Bangladesh 61

Justice Latifur Rahman, the former Chief Adviser to the Caretaker Government, in hisbook, The Days of Caretaker Government and My Views, presented a dismal picture ofthe power sector in the country. During his tenure as Chief Advisor, he ordered a linedisconnection drive for defaulters and illegal users. A total of 8,474 lines weredisconnected in the DESA area alone during the period from August to October 2001, ofwhich 6,094 were illegal users and 2,380 were defaulters. During the disconnectiondrive, Tk 1.5 million was collected in fines and Tk 8.6 million was collected for past dueamounts. As a result, the revenue income of DESA increased by Tk 1.1 billion (110crore) during July to October 2001. 52According to a study conducted by Japan International Cooperation Agency (JICA), thePower Development Board is incurring a staggering Tk several billion loss every yeardue to pilferage and a faulty transmission and distribution system, which is the cause ofhigh system loss. The findings of the study say that transmission and distribution lossesof PDB now stand at around 40-45%, although PDB claims that the system loss isrunning at 5-6% in transmission and 25% in the distribution system. Despite havingskilled technical manpower, the PDB is incurring the losses due to faulty metering andbilling systems. 53The study suggested that there was scope for improving the performance of PDB and itneeded to undertake a plan identifying major problems in distribution sector and definingthe priorities immediately. The study suggested that the PDB can reduce its system lossconsiderably even with its existing manpower through introducing Total QualityManagement systems (TQM). After introducing a TQM system at Jamalpur and Bogra,system loss was reduced from 38% to 18% and 28% to 15%, respectively. In addition, itsaid that multiple metering has increased the scope for power pilferage because internalnetworks do not belong to PDB. The study recommended that by relocating the metersoutside and gradually replacing them with calibrated meters, PDB can overcome thisproblem.The study noted that there were some technical disadvantages encouraging pilferage inpower sector. A dilapidated and overloaded distribution network, substandard conductorsand unplanned extension of High Voltage and Low Voltage connections, substandardjoints, overloaded transformers, generation shortage and old power plants were impedingsmooth power supply in the country.But, actions on the worst component that is the distribution aspect still do not findpriority in implementation schedule. As part of its long-term strategy, the distributionsegments may be operated and managed by separate corporate entities after properunbundling. The sole focus of BPDB should be electricity generation under a holdingcorporation concept ( similar to Bangladesh Petroleum Corporation created in 1977) andcorporation of distribution companies under companies law. These will not only make a52 Justice Latifur Rahman, The Days of Caretaker Government and My Views (Bengali) July 2002.53 Suggestion by the Japanese Commerce and Industry Association in Dhaka to Promote Foreign DirectInvestment in Bangladesh, November 5, 1997.Reducing The Cost Of Doing Business In Bangladesh 62

major departure in the BPDB’s functioning; it will also become a significant achievementin light of the Government’s Vision 2000.Supply ConstraintsSudden interruptions of power supply under unplanned outages cause a significant levelof momentary loss, which dominates the cost figures associated with such outages. Thisis mainly because the consumers are not prepared for such interruptions, particularly theindustrial sector, which depends heavily on the continuity of electricity supply. While theconsumers can adjust their usage patterns to minimise the adverse impacts of plannedoutages, they cannot do so in the cases of unplanned outages. In fact, unplanned outagesare always costlier to the consumers than planned outages. Moreover, advancedindustries such as semi conductor industry require not only continuous electricity supplybut also high quality supply where the voltage and frequency of supply are properlymaintained. Although reliable estimates are not available, but various manufacturesassociation indicate that production could be about 10 percent higher if power supply wasavailable without disturbances or load shedding. Losses to due to planned and unplannedsupply outages have been estimated by a World Bank Study Team as US$ 1 billion in onedecade in Bangladesh 54 .At its root, many power sector issues are supply problems. The power generation of thecountry has not increased in commensurate with the ever-increasing demand for powerboth for domestic consumption and for industrial and commercial purposes. Moreover,because of the old, worn out supply lines and mismanagement in power generation, loadshedding has risen enormously. The price of electricity per unit has also gone up. Theconsumers are paying more but the supply situation has deteriorated continuously. As aresult, the costs of doing business in Bangladesh are going up, which especially affectsthe productivity of the manufacturing sector.Evidence gathered through the 2000 Household Income and Expenditure Surveyindicates that about 31 percent of households now have access to electricity (80 percenturban, 19 percent rural), compared with 21 percent in 1995-96 (73 percent urban, 10percent rural). The richest 20 percent of the urban population is more than twice as likelyto have an electricity connection than the poorest 20 percent-and the richest 20 percent ofthe rural population is 15 percent as likely to have a connection.The survey added that together BPDB and DESA have been estimated to incur an annualcash shortfall in the vicinity of $ 180 million. As a result these organizations are unableto operate, maintain, and expand their grids in line with the requirements of the market.The potential for private sector involvement in distribution has not been exploited, partlybecause of the absence of a coherent strategy and because of strong opposition by variousstakeholders. The underdevelopment of the energy sector represents a major obstacle toBangladesh’s economic growth. The Fifth Five-Year Plan (1997-2002) rightly envisageda minimum growth rate of electricity supply at a multiple of 1.5 of GDP growth. Hence,54 Energy Strategy Note: The World Bank, 1998Reducing The Cost Of Doing Business In Bangladesh 63

unless bold decisions are made, the sector will continue to be a significant impediment toBangladesh’s economy. “The failure in the sector over the years is largely attributable tohigh system losses, poor financial management (inadequate pricing, poor billing andcollection), and ineffective or unresponsive governance”, the survey said.High system losses due to power pilferage and theft are almost rampant: In recent yearsthe combined system losses of BPDB and DESA have been around 35 percent of grossgeneration and power purchase; Only 90 percent of billing has been collected.Inadequate tariffs:Power tariff rates for domestic, industrial, and commercial use have been raised by 4-5percent a year in nominal terms since the mid-1990s. The existing formula for tariffadjustments is deficient and does not fully capture the revisions needed to attain costrecovery. In FY00 BPDB’s average power tariff was 6 percent below the long runmarginal cost (LRMC) of power. Power supplied to agriculture was subsidized at a levelof 48 percent of LRMC and domestic power consumption at 36 percent in that year.Interestingly, urban households have benefited from lower tariffs than their ruralcounterparts. Moreover, the first block of the tariff structure, reduced recently from 300to 100 Kilowatt-hours, is still high by developing country standards.Poor investment choices:Examples of bad investments include opting for coal-fired, rather than gas-fired plantsand using supplier credits for public power generation rather than using concessionallending.Management Efficiency for DistributionThe Power Development Board has, however, recognised that distribution within theelectricity industry in Bangladesh is the weakest link with unsatisfactory commercialperformance. Hence, ensuring management efficiency for distribution sector is vital forachieving the overall viability of the power sector. The steps already taken/being taken byBPDB for enhancing management efficiency in distribution are:o West Zone Power Distribution Company has been formed and top managementprofessional has been appointed.o Restructuring the distribution function by creating 23 Strategic Business Units (SBU).o Management and staff are being motivated to perform through effective incentivepackages.o Introducing computerised billing and accounting system.o Consumer Service Desk has been opened in each Electric Supply Unit ( ESU) toaddress their complains instantly.o BPDB’s fixed assets and store inventory are being computerised under a specialproject (IVVR)o Performance Target Agreement (PTA) for Bogra SBU has been signed.The demand for electricity in Bangladesh is expected to grow at about 8 to 10 per centper annum over the next one decade. The response to this increasing demand mustinclude efforts to improve end-use efficiency and, more importantly, reduction ofReducing The Cost Of Doing Business In Bangladesh 64

wastage and system loss. Otherwise, it would become almost impossible to meet therising demand. Energy efficiency efforts are needed not just to ensure that the gapbetween demand and supply is minimised but also because of high cost of supplyingenergy.According to a study on “Electricity Generation Prices in South Asia”, prices ofelectricity generated by independent power producers ( IPP) in Bangladesh are low byregional and international standards. Bangladesh IPP prices are low due to competitionand project support, but not for low gas tariffs. “Bangladesh’s IPP procurement process isvery competitive and transparent”, the study observed adding that Bhutan’s IPP prices arealso low, but it is due to capital subsidies. It also said that the wholesale IPP prices ofthree South Asian countries: Bangladesh, Nepal and Sri-Lanka are similar to wholesaletariffs of new government power plants in the region. Among the key conclusions of thestudy was that public generation projects were not cheaper than new private IPPs whencapital subsidies, cost and time overruns are considered. “Benchmark indicate thatgovernment projects, on the average, have cost overruns of 23 percent and time overrunsof 30 percent”, the report added.Thus, to introduce competition, attract foreign capital and augment power supply, thePrivate sector power General policy was adopted in late 1996.Under this policyframework a number of Independent Power producers (IPPs) were ushered in to thecountry. In the same year, the Power Grid Company of Bangladesh (PGOB) was createdto take over the entire transmission business of PDB and DESA. The country’s averagepower generation capacity has increased one and a half times since mid 1996 yet the loadshedding persists mostly due to non-technical loss and higher demand for Power.Barge-mounted Power Plant:The advantages of the power generation through barge-mounted plant are more ascompared to that of onshore or coastal platform power installations. The barge-mountedpower plants can be built in less time than most conventional power plants. As a result,power can be brought online more quickly, reducing costs incurred through interest onfinancing costs. They are quicker to build, easier to site and cheaper to finance thancomparable land-based plants. For power-hungry areas where topography is tough forlocating onshore power plant barge mounted power plants are perfect answers. Such unitsare also handy in meeting power supply on an urgent basis until long-gestation on-shorepower plants are put on stream. In Bangladesh several barge-mounted power plants haveso far been installed. These have been commissioned on Built-Own-Operate (BOO) basisfor 15 years at Haripur, Khulna, and Baghabari.Recommendations for the Power SectorWe share the views of the World Bank and the Asian Development Bank (BangladeshPublic Expenditure Review) that some Indian experiences in the power sector mightprovide the closest parallel to the problems and possible reforms in Bangladesh. Theirproblems and reforms strategies demonstrate that significant legal, institutional andregulatory reforms are possible in a country that shares many of Bangladesh’s problemsand institutional history. India has suffered the same power shortages and poor financialReducing The Cost Of Doing Business In Bangladesh 65

performance as in Bangladesh.According to the Public Expenditure Review the lessons from Indian reform in this sectorare mixed. Privatisation of both existing generation plant and distribution has been shownto be possible, with distribution assets sold for 140% of book value. However, Gridco,still in State ownership, is essentially bankrupt, largely because it was not financiallyrestructured and retains past accumulated losses on its former sales to distributioncompanies. It does not help relations between Gridco and the distribution companies thatGridco still retains 49% of the shares of the distribution companies.The review also pointed out that the distribution companies have been more effective indealing with theft control, including disconnections of those who do not pay, evenmunicipalities of main cities. Thy are addressing employee issues (recruitment and theemployee culture) and dealing better with rural electricity committees. Customer serviceis improving , and so is metering , and the system regulation is making progress.o Transform PDB and DESA into commercialised entitiesIn the power sector of Bangladesh poor cost recovery, poor revenue collection, and weakaccounting for system losses are the crux of the problem. One possible solution may beto transform PDB and DESA into commercialised entities so that there is moremotivation to improve accounting, cost recovery, and revenue collection. This reformeffort might be severely resisted by the staff Collective Bargaining Agents (CBA) andofficers associations, but if PDB and DESA can be unbundled by relocating generation,distribution and billing entities at different places, things are likely to be much easier. Theexperiences of India and some other countries show that Public-private partnerships andefficient private companies offer greater promise for improving the efficiency of urbanpower distribution. To facilitate private participation in the power sector, an independentregulatory commission has been quite effective in India to oversee power generation anddistribution. The government of Bangladesh is currently in the process of establishingsuch an independent Energy Regulatory Commission. A bill was recently passed in theParliament and a six-member steering committee has already been formed to assist thegovernment in the establishment of the commission.o Full Authority for the ERCIn this matter our recommendation is that the organization must have clear mandate tofunction and for better out put committed professionals should be hired to render servicesif necessary on contract basis. The manpower to be attached to this body should be givenproper incentives for carrying out their assigned tasks and they must be given fullauthority to implement their programme properly.o Private Contracts for DistributionIn this sector, generation and transmission are relatively trouble-free. The real problemarea is distribution. Following the successful experiences of some other countries meterreading, bill preparation and distribution may be contracted out to private sector on anarea basis, to ensure quality competition. Though the private sector has made inroads ingeneration, the real return on private sector involvement will come when the distributionReducing The Cost Of Doing Business In Bangladesh 66

networks are privatised or the new private licenses are given for new or green field areasto provide services. Private sector participation can begin with contracts for specificservices like meter reading and bill preparation.o Computerised Billing SystemAs in case of the gas sector, ledger entry after payment should be automated andcomputerised in Power Sector as well and each succeeding bill must show previousoutstanding, if any. As in case of gas, no claim should be made from consumers foramounts outstanding more than three years. A time limit on bill collection should lead tomore prompt collection action by power companies. Inter-utility and governmentdepartments’ default to the power companies is very high. Normally government makesbudget allocations for power bill, but even so default by such agencies is common. Toavoid such practices, every department should produce evidence of utility bill paymentevery quarter before the Finance Ministry releases the department’s development budget.o Depoliticise Trade UnionsTrade union activities in both the gas and power sector have mostly grown along negativelines. Pressure is exerted by trade unions to avoid punishment for delinquent customers,obtain transfers and connections, and ignore power theft. Basically, a pollutedatmosphere has been created where good work cannot be rewarded and bad work cannotbe punished. The only possible remedy lies in depoliticising the trade unions and theiractivities must be confined to staff welfare only and no interference in the day to dayadministrative and operational matters. On the other hand, the trade unions may bemotivated and inspired to work harder with dedication and a sense of “oneness” byproviding some incentives for their good work in the form of additional bonuses like 5%or 10% of the profits if any or when earned. This may possibly help improving thepresent CBA-management conflicting situation turning the trade union into a moreproductive and catalytic agent for increasing efficiency and production capacity.o Peak-Hour and Non-Peak Hour UseAnother possible way of lessening the existing load-shedding problem is to straighten theload cut by urging the people to run their industries/factories late at night or dividing theworking hours or load conveniently. But in that case effective and workable arrangementshould be worked out either by installing separate meter for peak hours use and non-peakhour use so that consumers of power of non-peak hours load can get the benefit of loweror discounted tariff rates, thereby turning night into day and the day into night.o Regional and Sub-regional CooperationRegional and Sub-regional cooperation in the power sector has enormous potentialparticularly in so far as hydro power is concerned, whether from Nepal, Bhutan andNorth Eastern part of India. Like ASEAN Grid and North American Grid, we mayseriously examine to form a South-East Asian Grid connecting countries like Bangladesh,India, Bhutan and Nepal. A study by the World Bank and USAID shows that Bhutan hasa commercially exploitational hydropower capability of 16000 mw, Nepal 28000 mw andIndia 84000 mw. If this amount of power could be harnessed, the need for entire regioncould be met benefiting all the involved partners. Therefore, our recommendation is toReducing The Cost Of Doing Business In Bangladesh 67

initiate immediate dialogue for regional cooperation in this sector looking on its ownmerit and not linking with other areas or issues.o Shops and Market Places to be Closed by 8:00 PMThe commercial organizations, shops, market places and such other installations may beeffectively kept closed by 7 or 8 Pm instead of allowing them to continue to operate tillmidnight. There is virtually no need of keeping market places and shops open till late atnight and most of the countries of the world follow this practice. This will save lot ofpower, which can be effectively used in production sector like runningindustries/factories in the night shifts. This will also route out lawlessness, burglaries,theft and other such activities to many extent.o Energy Efficiency LabelAt present, the total daily power generation is around 3500 MW, 41 percent of which isconsumed by residential users. A USAID sponsored seminar on “ Energy EfficiencyStandard Setting and Labeling. (EESSL) of End-use Appliances held recently in Dhakawas of the view that energy saving electrical home appliances can save up to 400 mwpower daily. Therefore, the power experts stress the need for encouraging the use ofenergy saving home appliances in a country like Bangladesh where power shortage is anacute problem. Government should make it mandatory for local electrical productmanufactures and importers to attach “ efficiency labels” on their goods.o Solar PowerIn the backdrop of constraints facing power production in the conventional way, othermethods may be tried. One such very promising area is solar power. The availability ofelectricity is still very insufficient in the greater part of the rural areas where more than80 per cent of the people of the country have their homes.Solar power is very well suited for rural Bangladesh because it does not involveexpending so much resources on wires, poles and other equipment. Users need to makeonly a one time investment in solar panels that last decades with good maintenance. Theydo not have to pay bills and are not harassed by regular periods of power shut-off of thetype suffered by REB users. Solar power has proved to be much cheaper and moreefficient than conventional electricity in all assessments made so far. Good and almostcontinuous sunshine is almost guaranteed round the year in Bangladesh. Solar energy isvery clean and very environment friendly unlike coal or fuel oil.Government patronage of solar power schemes can speed up the use of solar electricity inthe rural areas. It can take the form of loans distributed by the nationalized commercialbanks (NCBs) to buy the solar panels on easy terms and conditions, adequate publicitiesin the mass media to make people aware of the benefits of solar power, reduction of taxeson the import of the solar panels so that these can be marketed substantially cheaper andextending other facilities to the private developers of solar power.Summary of Recommendations:• Remove inadequacy in service provisioning either through public or privateReducing The Cost Of Doing Business In Bangladesh 68

participation in generation• Try peaking plant to meet peak hour needs through IPP• Develop rational tariff structure• Reduce non-technical loss through improved technical means• Bring private sector in the distribution network• Impart exemplary punishment to corrupt officials• Billing system needs to be changed and private sector may be engaged for that• Trade Union activities should be restricted to only staff welfare and nointerference into management and operational issues.• CBAs may be motivated and inspired to put hard work and dedication byproviding additional incentives like 5% to 10% bonus of the profit earned.• PDB and DESA may be transformed into commercialised entities for improvingefficiency and to run like commercial organizations for which managementprofessionals from private sector may be hired.• Peak-hour and non-peak hour use of power and clear-cut provisions of reducetariff rates for non-peak hour use of power should be in place.• Regional and Sub-regional cooperation in the power sector particularly in so faras hydro power is concerned-whether from Nepal, Bhutan or from India.• Power users may be motivated to use energy saving home appliances to save atleast 400 mw power daily.• Govt. Patronage of solar power schemes can speed up the use of solar electricityin the rural areas.IV. TELECOMMUNICATIONIn Bangladesh, restricted access to telephone connections, uncompetitive pricing andpoor quality of services due to the inefficiency of telephone exchanges and transmissionlinks, public sector monopoly in fixed phone line connections and, above all, corruptionat different levels of the telephone sector impose a high cost on the economy. It hasconsequently constrained growth, reduced consumer welfare and raised the cost of doingbusiness.BTTB has a virtual monopoly on domestic fixed phone lines and on international lines.Bangladesh is possibly one of very few countries where the national operator is agovernment department with all revenues accruing to the government and all costs beingborne by the government. In the late eighties one operator, the Bangladesh RuralTelecommunications Authority (BRTA), was licensed to operate a digital telephoneexchange in rural areas while another, Bangladesh Telecommunications Limited (BTL),was licensed to provide paging, radio trunking and riverine telecommunication services.With the entry of private operators in this sector four private operators have so far beenpermitted to operate cellular telephone services.Reducing The Cost Of Doing Business In Bangladesh 69

According to the World Bank report BTTB’s installed capacity reached only 689,000fixed lines in FY01. At least half of those lines have been added to BTTB’s networksince the mid-nineties. According to one study the number of fixed lines in actualoperation has grown 12% annually since the mid-nineties and stood at around 565,000 or18% below installed capacity (689,000) at the end of FY01. The use of telephone linesby the public sector, which has much easier access to new connections, has recentlybecome a subject for public discussion mainly because of huge amount of unpaidoutstanding telephone bills ( Ministers, MPs and high officials of different Ministries andDepartments) . Furthermore, the regional distribution of the telephone network isskewed, with almost half of the fixed lines being in Dhaka alone, and the rest beingdispersed sparsely around the country.Although Bangladesh was the first country in South Asia to allow private participation inthe telecommunications sector in late eighties but since then its implementation ofreforms has not been rapid, and the country has fallen behind most of its neighbours inthis sector, according to a World Bank study. (Daily Independent, July 19, 2003)The study said Bangladesh’s National Telecommunications Policy of 1998 reflectsinternational best practice. But delay in its implementation barred entry of private sectorand delayed investment.“ As a result, the availability and quality of telecommunication services in Bangladeshlags international and regional benchmarks,” said the Bank’s draft Country FrameworkReport for Private Participation in Infrastructure.However, teledensity had reached only 0.79 by the year 2002, the study said, thistranslates to more than 70 percent of the population without telephone access. It is notsurprising, therefore, Bangladesh ranks lowest in telephone access as compared to itsneighbours.”When only 0.79 people out of 100 in Bangladesh have the main line telephone, it is 24.98for China, 3.94 for India, 6.17 for Indonesia, 49.9 for Malaysia, 1.34 for Nepal, 2.9 forPakistan and 4.4 for Sri Lanka.The study found that teledensity might not be relevant for a country like Bangladesh,rather India could be a good example in providing tele access through public call offices(PCOs)With a teledensity of just around 4, India reached telephone access to 70 percent of itspopulation through 1 Million PCOs, 400,000 of which are located in rural areas.In contrast, Bangladesh has only a little over 4,000 PCOs (1 PCO per 32,000 populationagainst India’s 1 PCO per 1,000), resulting in more than 70 percent of the populationhaving no access to a telephone.According to a recent study conducted by the Infrastructure Investment FacilitationCentre (IIFC), at present the country has a market for 3.5 million fixed line telephoneReducing The Cost Of Doing Business In Bangladesh 70

subscribers and it is growing at a rapid rate. Currently, the country’s fixed line teledensityis eight per thousand, much below the World average of 100 per 1000.One indicator of inefficiency in our telephone system is the low rate of successful calls.The rate of successful calls in Bangladesh is two per ten calls in comparison to nine inEU, eight in China and six in India and Pakistan. Only four residents out of 1,000Bangladeshis have a telephone, as opposed to ten in Sri Lanka, eleven in India andsixteen in Pakistan. 55In spite of the potential for improvement in the situation, private investment intelecommunications in Bangladesh has been almost entirely in the mobile phone subsector,with little private investment in fixed phones. An MOU was signed in August2001 between the government and World Tel for installing and operating 300,000 fixedtelephone lines in the Dhaka Metropolitan area. No license has been issued orinterconnection agreement signed as yet. This amply illustrates how slowly things aremoving in such a vital sector especially when thousands of applicants have been waitingfor fixed phone connection in the capital city.Telephone TariffsBecause of monopoly pricing, charges for new connections, nationwide dialling (NWD)and international calls have been among the highest in Bangladesh for many years inaddition to unofficial rents and transaction costs for customers. The recently reducedcharge for a new phone connection is Tk 10,000 (US$167), considerably higher than inother countries. In Sri Lanka, for instance, the charge for phone connection has variedfrom US$101-US$127. Until financial year 2001, the charge for domestic long distancecalls through nationwide dialling within Bangladesh has been much higher than globallycompetitive rates. The general NWD charge varies from Tk 3.00 ( Us $ 0.05) peak hourand Tk 2.25 ( US $ 0.0375) non peak hour per minute for a distance of less than 50 miles,Tk 6.0 ( US $ 0.1) peak hour and Tk 4.50 ( US $ 0.075) non peak hour per minute for adistance of less than 100 miles and Tk ten ( US $ 0.16) peak hour and Tk 7.50 ( US $0.125) non peak hour per minute for a distance exceeding 100 miles. This is many timeshigher than the charge for a similar call in most countries. The charge for internationalcalls also has been much higher than competitive tariffs in other countries. Thus thesehigher rates of telephone calls in Bangladesh create a negative impact in the mind ofprospective investors and businessmen.Quality of ServiceAlthough it is difficult to accurately assess the quality of service, quality also appears to aproblem in Bangladesh. For Example, in the most recent year for which data wereavailable, there were 208 faults for every 100 mainlines in Bangladesh. In comparison,there were 203 faults per 100 mainlines in India, 99 in Pakistan, 38 in Malaysia, 29 in thePhilippine, 15 in Sri Lanka, and 13 in Indonesia. It also appears to be relatively difficultto get a telephone connection in Bangladesh. As part of the investment climate survey,55 World Bank. Bangladesh: Review of Public Enterprise Performance and Strategy,November 2002.Reducing The Cost Of Doing Business In Bangladesh 71

enterprises in Bangladesh who had got a telephone connection within the previous twoyears were asked how long they had to wait before being connected. The median wait inBangladesh, which was 90 days, was considerably longer than the median waits inPakistan ( 18 days) and China ( 7 days). 56Demand for Phone ServicesThe magnitude of unmet demand for fixed telephone services is quite significant.According to one analysis access to fixed phones in Bangladesh has been limited to aslow as 12% of potential demand. This implies that if the telecommunication sector wassufficiently liberalized and access was not restricted, the country’s teledensity could havebeen around 2.9 in 1998, which is almost nine times the actual teledensity at that time(0.33). On the basis of these results, the gap between the potential and actual teledensityfor the country appears to be far higher than the official estimate of pending demand,which was about 199,000 in FY01. 57Considering lack of telecom facilities in the rural areas of the country, the BangladeshComputer Telecom Society, the forum of engineers of T & T Board recently urged thegovernment for allowing installation of 1000 small telephone exchanges in rural andremote areas by the Board before it is corporatised fearing that the private sector mightnot be interested to invest in extending service in remote corners for less return.Mobile PhonesAlthough the private sector operators have done considerably good job in extendingmobile phone network throughout the country, still Bangladesh has lagged significantlybehind most other countries in the coverage of mobile phones. The expansion of thenetwork of private mobile phones has been constrained largely by BTTB’s failure toprovide adequate interconnection facilities despite strong demand. Private operators saythat they have been willing to invest in interconnections but it could not do it due to theabsence of an agreement. The mobile operators have so far achieved a customer base ofaround 900,000, despite constraints on interconnections with the BTTB phone network.According to one study around 15% of mobile phone customers can currently accessboth incoming and outgoing calls through the BTTB network. An additional 7% canaccess only incoming calls from the BTTB network. The remaining 78% can only accesscalls to and from other mobile phones. BTTB’s interconnection capacity has not beenable to respond to the strong demand for interconnection facilities. Consequently,Bangladesh’s teledensity of mobile phones was just 0.1 in 1999 – one of the lowestamong developing countries – compared to an average of 3.2 for all developingcountries. 58 However, the BTTB is going to start mobile phone operation next June as hasrecently been announced by the Prime Minister and with this country’s teledensity ofmobile phones is expected to go up substantially. In February 2003 the ECNEC56 The fault rate is calculated by dividing the total number of reported faults for the year by the totalnumber of main lines in operation and multiplying by 100. The definition of “fault” can vary. Data is fromthe International Telecommunications Union.57 ibid.58 ibid.Reducing The Cost Of Doing Business In Bangladesh 72

ecommended that mobile services be produced by a new government company.Establishing and Maintaining Phone ServiceThe procedures for obtaining telephone connection for industrial projects as has been laiddown in the Board of Investment publication on Utility Services and Environmentalclearance say that an applicant who wants a telephone connection/connections shouldsubmit two copies of filled in application for each connection in the prescribed form ofBTTB along with BOI registration letter, four copies of passport size photographs and theone hundred taka postal order. The BOI publication says that submission of the abovedocuments will enable the applicant to get demand note for telephone connection within15 working days from the date of receiving the complete application. According to theBOI publication depositing the amount mentioned in the demand note into bank/postoffice will enable the applicant to obtain a telephone connection within 15 working daysfrom the date of submission of the copy of the demand note duly signed by the bank.The practical experiences of the businessmen in obtaining telephone connections say adifferent story and getting a demand note within 15 days time in normal way is rarelypossible. In the same way getting a phone connection within 15 days after depositing thedemand note money normally does not happen unless and until some tadbir ( request) ismade from influential sources or extra money is given to the relevant T&T people.The Investment Climate Survey (ICS) of 1000 enterprises of the country conducted byBangladesh Enterprise Institute and World Bank provides ample evidence and manyanecdotal examples of the cost and delay that businesses must contend with to establishand maintain phone service. A textile mill located at Gazipur had to wait 16 months toget a telephone connection and that was possible only after paying about Tk 15,000 to amiddleman. “In spite of our persistent efforts, including a request [tadbir] by the localMP and some other influential people, we did not get the telephone connection even afterpaying the fee for the demand note for more than six months.” The Managing Directorangrily stated that a shortage of cable line was blamed for the delay, although aneighbouring factory received a telephone connection within a week’s time by paying afixed amount to an employee of the telephone board.It is reported that several thousand new phone connections are pending. Numerous linetransfer cases are also pending. Although exact figures could not be ascertained, it canconfidently be stated that the number of transfer cases are in thousands. Upon thecompletion of all official procedures, including paperwork and payment of fees, a clienthas to wait indefinitely for the connection, be it new or transfer. It took a cementcompany (as reported in the ICS survey) two years before they could transfer twotelephone lines to their Gulshan headquarters office. Upon application, usually nospecific waiting time is provided to applicants. So subscribers have to relentlessly pursuethe concerned official. Those who insist on getting the connection by official means aretrapped in a ‘one-month syndrome.’ At every visit they are told to return again nextmonth.Besides the official charges and delays, unofficial charges are also required for phoneconnections. While conducting the ICS survey, it was learnt that the unofficial charge oneReducing The Cost Of Doing Business In Bangladesh 73

has to pay for a new telephone connection of the BTTB normally depends on the urgencyof the phone connection. The case is almost the same regarding transferring connection.Delay in getting a new connection and shifting an old line increases the cost of doingbusiness in Bangladesh. But even the unofficial charges are not consistent; responding tothe ICS questionnaire, a garments manufacturer said that he had to pay a bribe ofsubstantial amount for a new telephone connection.The payments do not end once a connection has been established or transferred.Executives of several enterprises surveyed by BEI frankly admitted that they have to paya fixed amount every month to the lineman to keep the phone in order. “Otherwise mostof our telephones remain out of order almost regularly,” one executive told theinterviewer. The story is slightly different with regard to residential telephones. There isa general complaint that the linemen, in order to extract extra money from the telephonesubscribers, make the phones out of order under different pretexts immediately beforelong vacations or important national holidays like Eid or Puja.According to an editorial comment of The Daily Ittefaq Published on July 19 2003 underthe heading ‘Unwieldy State of Affairs in T&T’, “the other reasons of present unwieldystate of affairs are, among others, theft of under ground cable along the road from theswitch board to the cabinet, resetting of the cable, setting up of fake cable from thecabinet up to the set of the customers and cutting off the cable line at the time of diggingthe roads and kept it unprepared for a longer time worth mentioning…It is true that withthe introduction of digital telephone customers got some relief from fictitious bills andharassment of the linemen, but suffering remain in respect of keeping the telephone lineout of order for even months together inspite of repeated complaint to the T&Tauthorities”In addition to high telephone connection costs, difficulties in obtaining a connection andthe upward trend in telephone tariffs and billing procedures are subject to manydifficulties. During the ICS, a multinational cement company recounted that theirtelephone lines were disconnected at the beginning of a particular month for non-paymenteven before the bills were issued. A leading pharmaceutical company received atelephone bill for Tk 511,163 for the month of September 2000. The average bill for thistelephone line had been around Tk 5,000 in the past. On the September bill calls weremade to Saudi Arabia, where the company has no business connections, and the majorityof the calls were made at four o’clock in the morning, when commercial offices remainclosed. The Chairman said the phone was in his room and there are 15 armed securitymen to guard the office when it is closed. After receiving the bill, the companycomplained to BTTB and refused to pay the bill, but requested that the line not be cut off.Despite the protests, the phone line was disconnected on November 23, 2000 and thenautomatically restored on December 12, 2000. The Chairman of the company stated thatthis caused a huge business loss.Manual Billing and ArrearsAccording to a report published in the Financial Express on July 20, 2003, over 800,000fixed phone subscribers across the country are facing untold hassles due to the “manuallyReducing The Cost Of Doing Business In Bangladesh 74

un” billing and accounts keeping system. Of the subscribers, 60 percent reside in thecapital city. Due to manual billing and revenue registration in ledgers by the authority,thousands of subscribers fall victim to harassment and are often forced to make payoffs tosolve the problems arising from the same, the report added A number of departments inthe Bangladesh Telegraph and Telephone Board (BTTB) are entrusted with the job ofrunning the entire procedure. But the revenue department carries out of the majorfunction including registering bills and revenue collection by maintaining PersonalLedgers ( PLs). There are seven revenue officers spread over the North and South zonesof Dhaka city-equipped with nearly 1000 staffs for the job. Besides, the zonal offices alsogive clearance for shifting, reconnection and ownership change and issue duplicate copiesof bills.Saiful Islam, an employee of a buying house and also a BTTB telephone subscriber, saidhe was visiting the PL Section to get clearance for reconnection. “My phone line wasdisconnected as there were two months’ arrear bills. Though I have already cleared theoutstanding bills, the officials are dilly-dallying in issuing the clearance”, he alleged.Fearing further harassment, Saiful said without mentioning his telephone number,officials responsible for issuing the clearance are demanding a “handsome” amount forthe job. There are thousands of subscribers like Saiful who face innumerable odds andhassles in different revenue offices.Shahnaz Begum, a subscriber under Sher-e Bangla Nagar, Dhaka, said she found that herline was disconnected after the authority found some unpaid bills dating back to at leastsix years. It is impossible for me to keep copies of bills for so many years and presentthem during such situations”, she said. But a section of T&T people are forcing thesubscribers to keep the copies as documents to be provided whenever asked, manysubscribers like Shahnaz Begum say.“I never forget to visit the revenue office soon after I pay the bill and make sure that thePL is maintained regularly”, said another subscriber under the Nilkhet area. He admittedthat he did not know whether it was the rule or not. Nevertheless, he regularly took theperils of cross-verification just to avoid harassment by the all powerful ledger keepers.BTTB General Manager (Finance) said the authority could never ask subscribers to keepcopies or present those as documents. Acknowledging incidents of harassment by BTTBofficials, he said ledger keepers should not be blamed solely for lapses. “In the lastseveral years, the number of ledger keepers did not increase although the number oftelephone subscribers has gone up”, he said. According to him, a ledger keeper has tomaintain piles of PLs of subscribers. Lapses in ledger keeping are not unusual whendifferent banks fail to send copies of bills on time, he added. Taking such lapses intoactive consideration, he said the BTTB has already proposed to the government to bringabout changes in the manual ledger keeping system.Introduction of an automated ledger keeping system, which is now under considerationby the Post and Telecommunications Ministry, will greatly minimize troubles andharassments faced by the subscribers, several subscribers told us during the ICS survey.Reducing The Cost Of Doing Business In Bangladesh 75

Annual Clearance CertificateIn the meantime the T&T authorities have recently introduced a good system of issuingan annual clearance certificate for each year from January to December showing thepayment position of each and every telephone subscriber including arrear bills if anyindicating year-wise dues. If any subscriber has got any objection to the bill sent by T&T,they have to make a written objection to the T&T within 21 days after the receipt of theletter. The relevant office of the T&T will resolve the issue within 21 days after thereceipt of the written objection.If the subscriber has any objection to the revised bill given by T&T, he/she can submit aprayer to BTRC within 21 days after the receipt of the letter paying 20% of the bill. TheBTRC will resolve the issue within 45 days and their decision will be final. This effort ofthe T&T authorities is expected to resolve the issue of outstanding bills, which sometimescauses lot of sufferings for the subscribers including unnecessary disconnection oftelephone.BTTB LossesA special audit conducted in Dhaka, Chittagong, Khulna and Rajshahi by the office of theController and Auditor General found that at least Tk 2.6 billion was lost due tocorruption and malpractice by officials and employees of Bangladesh Telegraph andTelephone Board (BTTB) during 1991 to 1997. Irregularities and malpractice detectedincluded purchasing redundant material, embezzlement of huge sums of revenues in thename of “correcting” subscribers’ telephone bills, giving fake telephone connections,non-adjustment of revenues and administrative inaction and negligence. Part of the losses(Tk 74 million) came from BTTB engineers reducing numerous telephone bills “throughmisuse of power” in the name of ‘reconsideration’. BTTB also suffered a loss of Tk 195million from the purchase of 130,000 digital telephones. The telephone sets wereprocured for distribution at Tk 1,500 each, but they were not distributed to subscribers. 59Another source of loss to BTTB is from unauthorised connections accessed by phone-faxshops that have proliferated to meet the unmet demand for telecommunications servicesin the general population. According to a well-placed source in BTTB, some 6,000phone-fax shops are now operating in the country, mostly in the capital city. Dhaka cityhas 3,000 of these shops Chittagong has 2,000 and the rest are in other cities and towns.Few of these shops have proper licenses from BTTB. It is alleged that these shopsillegally (and secretly) use telephone lines belonging to both public and private sectorswhich cause loss to government exchequer as well as to the private phone subscribers.However, according to media reports the Government is going to allow fixed line phones(land) in the private sector very soon as several companies have lined up to increaseteledensity in the country. Sources in the Bangladesh Telecommunication ReulatoryCommission (BTRC) has disclosed that govt. has agreed to open up the PSTN (PublicSwiss Telecom Network) and expression of interest would be sought from the privatecompanies by August this year.The Telephone Regulatory Commission has planned to59 “BTTB’s Tk 263 Cr Rip-off,” The Independent, June 17, 1999.Reducing The Cost Of Doing Business In Bangladesh 76

introduce open licensing system for the fixed- line telephone sector to ensure arrival of asmany private sector players as possible. Under the system any private telecom companycan get a license to operate public switched telephone network (PSTN) in the country if itmeets all the criteria set by the BTRC.According to BTRC source the World Tel a USbased company which got the approval to lay lines for 3 lac phones few years back andhad later came under the scrutiny of the Anti Corruption Bureau, would also be allowedto invest in the sector.Recommendations for the Telecommunications SectorIn Bangladesh, restricted access to telephone connections, uncompetitive pricing andunsatisfactory quality of services linked to public monopoly in fixed lines have imposed ahigh cost on households, entrepreneurs and other economic agents. This has raised thecost of doing business, constrained growth and reduced consumer welfare. The prospectsfor addressing the backlog of demand for telephone services will depend on the pace ofliberalization of the sector policy regime supported by effective regulation.Constraints on interconnection facilities have limited the expansion of the mobiletelephone network and it is imperative that the relevant issues are resolved and therequired investments are undertaken without much delay.Tight public sector budgets have prompted most countries to turn to private investmentfor network expansion and modernization, and to reform legal and regulatory frameworksto promote private participation. Introducing competitive markets is the best way toincrease access to telecommunications services and improve their quality andaffordability. In Bangladesh like other countries liberalization of the telecommunicationssector is crucial to mobilize the capital and technology needed to meet the massivebacklog of unmet demand for telephone services, through expansion of the telephonenetwork, reduction of telephone charges to competitive levels and improvement in qualityof services. Deferring the full liberalisation of the sector could mean that Bangladeshwill miss out the opportunities and benefits created by the revolution intelecommunications technology and global liberalisation of the sector. While the NationalTelecommunications Policy provides for competition and private sector participation, inpractice there are still obstacles. Government policy should reaffirm the separation ofresponsibilities for policymaking, regulation and operations. Furthermore, a policy withtime bound action plans will send a clear signal to both implementation agencies and themarket that the government is making a commitment to sector reform.Deregulating government control on international gateways will help attract privateinvestment. BTTB needs to be restructured so as to create a level playing field for allservice providers and create a truly competitive environment. The evolutionary path formost countries has been to transform a telecom department into a wholly governmentownedparasitical enterprise, and finally a commercialised (or partially privatised)company. Given the backlog of sector underdevelopment, Bangladesh might considercorporatizing BTTB directly into a public limited company with some Governmentownership. However, to minimize the impact on the exchequer such areas could beauctioned to small operators and thereby working efficiency can be increased throughReducing The Cost Of Doing Business In Bangladesh 77

competition which will also help reducing the scope for corruption, inefficiency anddelay.BTTB as a government entity has only been able to install 689,000 telephones in a spanof time spread over several decades. Whereas the private sector put in the ground 1million phones in a period of seven years and has plans for further expansion of 1 millionby 2005. This is an eye opener for the government. Therefore, government as hasalready been announced should open up all the sectors of telecom to private competitionas soon as possible. This will increase efficiency and reduce scope for corruption.One recent private sector study indicates that there is a conservative demand for anadditional 1.2 million telephones in the country and at least seven operators could belicensed for this purpose on competitive basis. However interconnection is the majorissue for investors. GOB/BTRC has to actively resolve this issue if they really want toattract foreign direct investment, or domestic private investment, in this sector. Noinvestor will invest in the sector unless the interconnection issue is resolved or the newlicenses are also given the option to install private national and international longdistance gateways.A study by the International Telecommunication Union (ITU), a Geneva-based UN body,has found that addition of single telephone in a developing country contributes up to US$6,000 to a country’s GDP. Investment in telecom sector will have a multiplier effect.The return on capital invested in fixed phone sector is also very high due to limitedcapital and prospect of very high growth of telecom sector in Bangladesh. The presenceof efficient fixed phone line system will accelerate development of IT-related sectors(hardware, software, communication equipment, and IT services) that will generate hugejob opportunities. In addition, the government will earn a significant amount of revenuefrom emergence of strong IT sector. The inclusion of software and data processingservices in the export basket can help us to achieve our strategy of export diversification.The deregulation of fixed phone market will create an enabling environment for theinvestors to build an IT park where the exportable IT products can be developed.Telecommunication deregulation is required under country's commitment to the WorldTrade Organisation. WTO Members have to manage their telecom business involvingtelecom products and services according to WTO basic telecom agreement. The WTOtelecom agreements aim to provide international telecom service providers access tointernational and regional markets. As member of WTO and signatory of the WTO BasicTelecom Agreement, the government of Bangladesh has to take initiatives necessary tomake their commitments effective, including promoting competition in thetelecommunications market by facilitating entry of private and foreign service providersand investors.Along with measures to increase investment in the telecommunications sector, both thegovernment and private sectors should take initiatives to meet the need for qualifiedprofessionals in the telecom sector. According to IT experts, the telecommunicationsector and the quality of service cannot be developed if human resources are not managedReducing The Cost Of Doing Business In Bangladesh 78

and developed accordingly. Therefore, initiatives regarding human resourcedevelopment in the telecom sector are necessary. One such initiative could be a telecomtechnology college, utilising distance learning concepts to draw on internationalresources.Although there is no tariff control by the regulator for the cellular operators due toadequate competition (four operators for similar services), there is a need for review ofthe current tariff structure. There does not seem to be a rational in continuation ofpresent high tariffs by cellular operators when the capital cost of switching equipment hascome down from US$ 1,500 in 1997 to US$ 150 in 2002-2003. The claim of BTTB thatthey would be able to provide the same if not better cellular service with only Tk2/minute of airtime needs to be implemented soon.The Public Sector entry into the mobile market, however, should be conducted in a procompetition manner putting in place an enabling environment for full private sectorparticipation. A uniform and non-discriminatory regulation by BTRC for mobileoperators be followed to ensure competition and healthy growth of the sector.Finally the state-run BTTB should be granted autonomy and be allowed to use its ownrevenue borrowing from the financial markets without government permission andguarantee its smooth operation through expanding its activities. The existing BangladeshTelecommunication Act 2001 should be amended making the BangladeshTelecommunication Regulatory Commission (BTRC) accountable to parliament througha parliamentary committee. The BRTC should be converted into communicationsCommission which, as the recently held CPD Forum also recommended, would regulatethree areas-telecom, ICT and broadcastingSummary of Recommendations:• Open the sector for competition in all services• Separate network and services• Implement rational tariff structure based on cost, no cross subsidy• Proactive review of cellular tariff by the regulator• Resolve interconnection issues• Address convergence issues• Reform BTTB structurally so that it can compete with private sector. For this theyeed to be given autonomy and to use its own revenues.• Politicians and bureaucrats must be convinced that information andcommunications technology can transform government to serve its people better(e-governance, online applications, and internet voting, etc.).Reducing The Cost Of Doing Business In Bangladesh 79

V. BOARD OF INVESTMENTThe Daily Star editorial on May 9, 2003 under the heading ‘Governance, the Achilles’Heel’ concluded with the observation, “ we have perhaps the best package of incentivesfor investment in the world. But that alone may not do the trick. Unless the country offerspolitical, social and economic stability that the prospective investors look for beforetaking a plunge no significant headway can be made in the area.”The Ambassador of Sweden in Bangladesh Mr. Borje Mattsson addressing the monthlymeeting of the Foreign Investors Chamber of Commerce and Industry last month said,“To stay in the race for FDIs Bangladesh may have to develop its competitivenessfurther. Simple and transparent rules and regulations, an efficient bureaucracy, developedinfrastructure, a good law and order situation are all factors that matter a lot”.The above two observations made very recently possibly reflect a real picture of thepresent FDI related scenario in Bangladesh.However, the latest news from the Board of Investment (BOI) is that direct foreigninvestment in the country has marked an up trend with $300 million received in 2002compared to only $ 72 million in the previous year. But the statistical impression does notin any way establish that FDIs in the expected amounts are flowing into the country. Thiscan only happen possibly after each of the factors that affect the flow of foreigninvestment is identified proportionately.In reality many of the investment proposals registered with BOI could not go beyond thepaper stage and, therefore, were devoid of any value as far as the country’s economy isconcerned. “The proposals either did not materialise due to a variety of factors or theproposers backed off or just could not materialise their projects in the face of the existingdifficulties and roadblocks after going some way”, said the Chief Executive Officer of amultinational company, who was also actively associated with the Foreign Chamberduring the Investment Climate Survey last year.Many things need to be done to materialise foreign investment proposals. First of all, theBOI itself should go all out to keep its long reiterated commitment that it stands ready toprovide all kinds of services to foreign investors ranging from land acquisition to utilityconnections. The bureaucratic hassles involved in getting permissions from differentgovernment departments were aimed to be shortened with the BOI providing theseservices under one roof and under its own auspices.The Financial Express, in a write-up titled Addressing the grievances of ForeignInvestors published on August 27, 2003, mentioned that the Embassies of the UnitedStates and Japan, the two leading foreign investors recently handed over reports to thegovernment of Bangladesh in which they expressed their dissatisfaction with theenvironment for foreign investments. The reports further underscored the gulf betweengovernment policy and reality. “The pledged one stop service at the Board Investment(BOI) is still not a reality.” “Foreign investors have to run from department to departmentReducing The Cost Of Doing Business In Bangladesh 80

of the government and face all sorts of delaying and frustrating bureaucracies and rentseeking that undermine their interest to invest,” the article further added.Why has this objective, among others, not seen fruition even after 13 years of setting upof the Board of Investment, the one stop centre for delivering all services to investors?The issue must be addressed, the question is a priority in understanding the reasons forthe deficiencies of this key government agency. “We must also work out whether weneed to re-organise BOI to effectively discharge the job and deliver the services properlyand in time,” a textile mill MD told the ICS survey team.The Board of Investment (BOI) was established in 1989 to promote and facilitateinvestment in the private sector from both domestic and overseas sources with a view tocontributing to the socio-economic development of the country. But experiences of someentrepreneurs, as have been reflected in the ICS survey, both foreign and local, with theBoard of Investment during the last thirteen years indicate that the performance of thecountry’s investment promotion agency need to more efficient and action-oriented.The draft GHERZI Report prepared by the World Bank under the Sponsorship of theMinistry of Commerce has made some commenst on the performance of the BOI saying,"The reality is something very different. Re-named by industry as the One Stop Shop theBOI has, it is widely reported, become an autocratic bureaucracy that takes unilateraldecisions affecting companies without entering into meaningful dialogues. The BOI doesnot, therefore, fulfill the very tasks it was set up to undertake.” The report has alsomentioned some of the difficulties complained of including:o Excessive times for giving permission for investments to be made. Local investorsmay be patient and wait as they have few other options. Foreign investors will notwait, as delays in giving investment licences (up to 12 months are not unknown)are indicative of additional potential bureaucratic problems in the future thatresult in investors going to other, less problematical, locations.o The investment statistics provided by BOI are only of limited relevance to theactual investments made in the country, as they show investors’ proposed projectsand not the actual investments made. Consequently, there is no record available ofthe actual investments made by sector or location or local/foreign investor. Nofollow up calls or visits to investors’ enquiries are recorded and follow up visits tocompleted projects by BOI officials are also not recorded, so that no informationis available of completed or part completed projects – or their subsequent results.oObtaining work permits continues to be problematical for expatriate workers andyet it is their skills that the RMG (and PTS) Sectors are in serious need of, toimprove competitiveness. It is surprising that the BOI can reject applications forexpatriate personnel unilaterally, as reported by a number of companies, withoutdiscussing the situation with the companies concerned.The FDI flow has continued to shy away from the country over the last few years.Available data indicate that a meagre US$16 million was received by Bangladesh as netFDI inflow during the months of July-December FY03, which is 55.6 percent less thanReducing The Cost Of Doing Business In Bangladesh 81

the comparable figure for FY02. FDI flow in July-March 2003 was only US$28 million.Thus, in spite of all the proactive policy pronouncements and expensive road-shows,foreign investment continues to stay clear of Bangladesh, said a report prepared by theCentre for Policy Dialogue published recently. It also said no targeted measures toencourage and support foreign input has been arrested among the budgetary measures 60 .Analysing proposed measures related to investment the CPD report said that from theL/C opening and settlement figures it was observed that the investment stagnancycontinues whilst there are disparate signs of recovery. The Financial Express in a recentwrite-up (July 16, 2003) under the title “Improving the Investment Climate” has echoedmore or less the same saying, “Lack of coordination among government agencies whichact on investment proposals, rent seeking and delaying bureaucracies at variousgovernment departments, are also complained as discouraging factors by potentialinvestors. The frequently assured one stop service at the Board of Investment (BOI) toovercome these problems remains still more a proposal and not a reality. Therefore, realimprovement in the overall investment climate is not likely to occur till the governmentactually decides to address each of these problems with the seriousness it deserves”. TheCountry Commercial Guide of the US Trade Centre in Dhaka Compiled in July 2003identified poor implementation of the country’s liberal investment Policy as the maindrawback for the declining FDI.Among a myriad of bottlenecks, the report said, the Board of Investment (BOI) has notproved to be an effective advocate for foreign investors as a one-stop shop as is touted bythe government. According to the report foreign direct investment declined sharplybetween 2001 and 2002 from $ 78.1 million to $ 45 million. Amid country’s search forclues to the real reasons for the declining FDI, the report identified poor implementationof the country’s liberal investment policy as the main drawback.As per the mandate of the organization, BOI is designed to be the focal point of theinvestment process and was established as a single point of delivery for all services toinvestors. In keeping with the “one-stop service centre” approach, BOI has recently beenstaffed by representatives from nine different organizations: Bangladesh Bank, BTTB,Water and Sewerage Authority, Power Development Board, Rural Electrification Board,Dhaka Electric Supply, Environment Directorate, and the National Board of Revenue.“Given the number of agencies represented, questions have been raised about theeffectiveness and capability to deliver the desired services to the investors,” theChairman of a newly set up Food and Food Processing company told the ICS surveyteam claiming that his representative has to visit BOI Utility Service Centre quite off andon.According to the Bangladesh Investment Handbook published by the BOI in 2002, oncean investor decides to invest and forms a company, BOI provides following specificfacilities and comprehensive services: 6160 Daily Independent, July 14, 200361 Board of Investment. Bangladesh Investment Handbook, November 2002.Reducing The Cost Of Doing Business In Bangladesh 82

1. Registration of the company2. Obtaining an industrial plot3. Obtaining a utility connection4. Registration/Approval of foreign loan, supplier’s credit, PAYE Scheme etc.5. Import of Machinery and Raw Materials6. Obtaining work permit7. Remittance of Royalties, Technical Know-How and Technical Assistance FeesHowever, in practice BOI does not have the ability to actually provide many of theservices with which it is tasked. In most cases, the power ostensibly rests with BOI toprocure the necessary license or approval, but in reality the organization does not havethe power to do so. The Bangladesh Country Commercial Guide published by theAmerican Embassy Dhaka states, “although BOI is housed organizationally in the PrimeMinisters Office, regulatory and administrative powers remain vested in the lineministries, and thus the BOI has not proven to be an effective advocate for foreigninvestors.” 62First, registration of companies with the Board of Investment is more or less mandatory,as no company would be allowed to enjoy the financial incentives and other facilitiesgiven to the investors without BOI registration. BOI authorities claim that theregistration form has been simplified and other formalities have been reduced. Aregistration certificate should be issued within seven days of application, as per the BOIInvestment Handbook. However, investors have many complaints regarding theregistration form and the documents required. Entrepreneurs say that BOI registration isnot always possible within seven days. “Only a few cases have been completed withinthe specified time and only with pressure from higher authorities”, said an official ofBeximco Group of Companies. The general impression is that even in some cases wheresome papers are lacking BOI registration can be obtained by spending some extra money.Second, any prospective investor must have an appropriate plot of land for setting up theproposed industry. Since BOI does not have any industrial land under their control, theycannot help entrepreneurs in this respect. BOI normally sends a recommendation to theappropriate authorities, the Capital Development Authority (RAJUK) or the Ministry ofLand, to allot a plot of land in the name of the application registered with BOI. TheBoard of Investment was unable to furnish the exact figure or percentage of successfulentrepreneurs who received the required land from the government agencies with theirrecommendation. According to ICS survey, different chamber bodies and industrialentrepreneurs generally complain that in most cases the entrepreneurs have to buy the“recommendation” at a huge cost. Furthermore, BOI cannot be bypassed; “we have toobtain the recommendations as it is mandatory for getting an industrial plot,” onepharmaceutical company Managing Director told the ICS survey team.Various business organisations and chamber bodies have relayed that the Board ofInvestment has so far not been very helpful in procuring industrial plots for62 United States Trade Center. Bangladesh: Country Commercial Guide, AmericanEmbassy Dhaka, July 2002.Reducing The Cost Of Doing Business In Bangladesh 83

entrepreneurs. Even a Member of Parliament who was previously a state minister couldnot procure a small plot of government land at Gazipur adjacent to his textile mill forexpansion work of his mill, despite full backing of BOI because he did not pay a bribe tothe other government agencies. A large foreign investor told BEI that a BOIrecommendation was not of much help in procuring the required land in Chittagong andfinally they had to manage it through other means. Even a very large cement companyhad to spend two years and a huge amount to procure the land to set up their plant. Therecommendation and the correspondences of BOI to some local authorities achievedlittle. “Finally we had to yield to the unlawful pressure and pay them a handsomeamount,” the source told us.Third, although the Board of Investment claims that their utility service cell has beensignificantly strengthened with placement of senior officials from the utility serviceproviders, particularly it is not always possible for BOI to procure utility connections forinvestors. When the available utility services like telephone, electricity and gas arelimited and the demands are enormous, there is very little that the officials posted at theBOI service cell can do to procure scarce connections. In securing utility connections,with or without the assistance of BOI, bribes and underhand dealings have become asystemic problem rather than an isolated example, as it was revealed to the ICS surveyteam.Fourth, the ability to approve foreign loans has been shifted, through an executive order,to a committee headed by the Governor of Bangladesh Bank. With the introduction ofthis new system, the foreign loan procurement process has been further complicated.Committee meetings are usually held every six months and applicants cannot gainapproval outside a committee meeting. The long delay in the approval process candiscourage prospective investors. The Bangladesh Bank committee has also beeninterventionist in the approval of foreign loans. One local investor had a foreign partnerwilling to invest in a textile sector project under government-announced terms andconditions. But, as he told us, when the committee suggested new terms and conditionsin the loan agreement, the foreign investor immediately withdrew his offer. Thiscombination of approval difficulties and delays make the financial side of an investmentdifficult to complete.The other areas of service provided by BOI also receive complaints. Some local investorswho have to visit BOI office regularly in connection with different office jobs are of theview that the organization has not been able to change some of the corrupt practices thatwere common when the organisation existed as a regulatory body under the Departmentof Industries thirteen years ago. In the transition from a government department to aninvestment promotion agency, the philosophy and outlook of the personnel has notchanged sufficiently. BOI was created in 1989 on abolition of the Department ofIndustries. Although new organization was set up with a different purpose and goal, itsorganogram remained as a conventional one for a government department withtraditional designations and job descriptions. The organogram, surprisingly, did notprovide for any emphasis on activities related to research and analysis of investment,operation of a data bank, and most importantly investment promotional work. InReducing The Cost Of Doing Business In Bangladesh 84

addition, the organisational structure of BOI under the Office of Prime Minister does notinstil the organisation with sufficient power to carry out its mandate. Although BOI fallsunder the Office of the Prime Minister, neither the status and power of the ExecutiveChairman has been defined nor the official position of the office has been clearly spelledout. As a result, it takes longer time for taking decisions on important matters of financialand administrative implications.In his paper on “Attracting FDI to Bangladesh” Mr. Chanin Khaochan SeniorInvestment Promotion officer of the Board of Investment of Royal Thai Governmentwhose services were hired by BOI a few years back advised the Government ofBangladesh to do deregulation on giving permission of visas and work permit to investorsand their technicians. Because, he said , “ this is the first important step for investors tocome to set up or study to invest in Bangladesh”. To solve this problem he advised theBoard of Investment to set up the Intelligence Service Team for giving impressive serviceto investors with exclusive information and help them in every way in setting up theirindustries here.He listed the following reasons as to why investors do not come to invest in Bangladesh:1. Investors do not get information about Bangladesh that means less efficiency in thefield of promotional work,2. Investors do not get enough information to make decision that means informationservices are not good enough,3. Investors have to face many inconveniences in getting permission and services frompublic agencies. Things are not transparent and exact procedures are not followed andalso have not fixed time frame or they do not implement the set procedures, implyingthat the services from public sectors are not easily available to the investors,4. Quality of labors are not good and it becomes difficult to make them fit for businessas well as industry through training,5. Harassment by the public officers and bad services from public agencies makeinvestor’s life more difficult to do business , not to speak of motivating new investorsor in new investment by the existing investors and6. Lack of facilities for comfortable living by foreigners who stay in the country.Work PermitThe issue of issuing work permit to the foreign nationals working in Bangladesh is yetanother problem area. At present work permits are issued from several offices-BEPZAfor the workers working in the BEPZA projects, Industry Ministry for the ForeignNationals working in trading and liaison offices and BOI for the workers engaged in BOIregistered enterprises. Foreign nationals working here with work permits generallycomplain that they have to wait for a longer time for obtaining the permit. They have toundergo lots of harassment and in some cases pay extra money for getting it in time, asthe Managing Director of a foreign company told the ICS survey team.On the other hand, as for the foreign workers, there is a general trend that they show theirsalary level very low in order to evade income tax. They also receive additional amountas allowances and transfer money out of the country through “illegal means”. “Some ofReducing The Cost Of Doing Business In Bangladesh 85

such foreign workers who come here as a technical experts and professional hands are notreally qualified as such” a BOI official said. However, appropriate means should beworked out to properly check the relevant information of the foreign nationals workinghere including their fringe benefits and work permit should be issued to them withinspecified time.As the Board of Investment has already been assigned to work out how to simplify themodalities and procedures on this subject, the work permit for all the foreign nationalsworking in the country may be issued from one place preferably BOI as has beenmentioned in the case 7 (i) of the Investment Board Act, 1989. If there is anyinvolvement of any other department or agency (for example Education Ministry foreducationist, Health Ministry for Doctors, BEPZA for workers working in the BEPZAprojects) recommendation of the respective Ministry/Department/Agency may beobtained. But in any case work permit should be issued to the foreign workers within amaximum period of seven days after the proper submission of the application.Setting up of Industrial ParkBangladesh is a country with land scarcity, inadequate infrastructure, bureaucratic inertia,and poor law and order situation. It is very problematic for an investor to procure landand arrange all the infrastructure and utility services. Development of Industrial Parkcould be very suitable in this regard. Availability of ready infrastructure along with somesecurity support may attract the foreign investor to invest in profitable ventures. If BOI isempowered to allocate plots to investors based on their national needs, then BOI canreally provide all the services needed by investors. Coexistence of foreign and localinvestment in the same industrial park may generate spillover benefit and vibrantcompetition. Abandoned land and infrastructure at Adamjee Jute mill at Narayanganj andsome other SOEs provide an wonderful scope in this regard as all the infrastructurealready exist there. Many of the BSCIC industrial estates that have remained unused sofar may be transformed into industrial park. Other new areas can also be considered forsetting up of industrial park with all modern facilities In case of privately developedindustrial estates/parks, BOI should have all the information pertaining to available plotsin its data bank for the use of prospective investors.Bangladesh Investment and Trade CentreMalaysia, Singapore and some other countries have been quite successful in their effort towoo foreign investment through their investment promotion centres set up in thestrategically important business locations. Bangladesh set up a similar office in Londonfew years back but that effort did not bring about any good result in the promotion oftrade and investment. The 15 th Board meeting of the Board of Investment held in July2002 decided to open two new BITCs-one at Dubai and the other at Frankfurt under theMinistry of Commerce for promotion of trade and investment. On the other hand therecently announced budget document said that new trade units would be opened atSydney, Paris, Berlin and Los Angeles Missions to expand the markets of Bangladeshiproducts.Reducing The Cost Of Doing Business In Bangladesh 86

Thus apparently it appears that coordination is lacking among the relevant Govt.Ministries/Department . No investment and trade promotion centre can work successfullywithout the whole hearted cooperation and collaboration of the country’s Embassy orHigh Commission located there or at a nearby place. As such it is recommended thatproper and regular consultation and active collaboration of the relevant Govt. agencies isvery much essential for determining the aspect of strategic and economic importance ofany particular place, especially in the context of attracting foreign investment andpromoting Bangladeshi products. Moreover, the direct involvement of the Ministry ofForeign Affairs and the Ministry of Commerce is very much essential for effective andsmooth functioning of such an office. Above all, the person to be selected to run thoseoffices whether from public sector or from private sector, will be the real key factor inmaking it a success. In this context, if the Economic or Trade wings of the BangladeshMissions abroad are manned by appropriate and competent persons with professional andbusiness background, opening up of separate Business and Trade. Centres at those placeswill not be needed at all. In any case, only those places or countries should be selected forsetting up BITCs which had been major investors and/or have potential for investment inBangladesh.Investment Board Act, 1989The investment Board Act, 1989 has identified 14 functions for Board of Investmentwhich include among other things, creation of infrastructural facilities for industries inthe Private Sector, providing of necessary assistance for rehabilitation of sickly industriesin the private sector, financing and providing of assistance in the financing of importantnew industries in the private sector and adoption of necessary measures for creation ofcapital for investment in industry in the private sector. But it appears from availableinformation that no efforts have so far been undertaken for creation of capital by BOI forinvestment in industries nor for creation of infrastructural facilities.Improving the Image of the CountryBangladesh has some negative image in the international arena. However, it is true wehave earned a lot of success as well. Many of the perceived negative image are either nottrue any more or they have positive counter part as well. All these positive factors mustbe promoted through our missions abroad to minimize the negative image. For, example,it is true that infrastructure is yet to be developed, huge amount of private and publicinvestment is already there to improve infrastructure. Land transport network hasdeveloped a lot. Jamuna Bridge is now operative and work on Padma Bridge will alsostart soon. A number of EPZs have already been constructed and few others includingprivate sector EPZS are under construction. All these facts must be properly publicized toremove the negative image of the country to the foreigners.Therefore, in order to attract the foreign investors, the Board of Investment shouldundertake short-term and a long-term motivational and publicity campaign incollaboration with the Foreign Ministry particularly the Bangladesh Missions/Embassiesin the respective areas. A worldwide campaign to enhance the image of Bangladeshshould be launched. A leading international public relation firm should be hired for thisReducing The Cost Of Doing Business In Bangladesh 87

purpose. Its work should be jointly supervised by the Ministry of Foreign Affairs andExecutive Chairman BOI with the active involvement of all our missions abroadWeak and Slow Legal SystemThe existing legal provisions for dispute resolution are not sufficient enough to convincethe foreign investors about the strict implementation of contractual obligations betweenthe parties as has been complained by some multinational companies now working inBangladesh (President, Foreign Investors Chamber at the sectoral workshop on July 3,2003). The US Trade Guide, 2003 also identified Bangladesh’s dispute settlementmechanism as a fundamental impediment to foreign investment. It observed that a weakand slow legal system with uncertain enforceability of contracts, lack of interest paymentin tort Judgments and rampant corruption in lower courts are some of the majordrawbacks of the “ flawed” judicial system. Dispute settlement is also hampered by shortcomings in accounting practices and registration of real property” the report added.The report also pointed out that weak protection of property rights, lack of transparencyin regulatory system, corruption and political violence have all contributed to theinvestment flow to the country. The report accused the government of not striving toreduce impediments to investment by suitable laws and regulations.Continuation of Policy RegimeFinally the continuation of policy regime and true enforcement of the contractualobligations are generally considered as sine-qua-non for earning the confidence of theinvestors both local and foreign. Specially foreign investment related contractualobligations and agreements signed during the time of a particular government must behonoured and respected by the successive government and breach of any such agreementor contractual obligation by the successive government is bound to work negatively andwill have adverse impact in the minds of the investors.Recommendations for BOIAlthough the BOI Act provides the necessary legal backing and authority for BOI to actas one stop shop, the BOI service centre’s one stop service leaves much to be desired.Unfortunately even the name of the one stop service centre has recently been changed asutility service centre. However, the following measures could improve BOI.First, to address the orientation of the BOI officials towards investment promotion,officers should be posted to BOI who have a promotional outlook and have a greaterdegree of authority and responsibility. They should also be provided with training ininvestment promotion, investment analysis, and management. BOI should also beallowed to hire staff from the private sector. Second, to begin to address theorganisational issues, BOI could be transformed into a division of the Prime Minister’sOffice. The secretary of the division will then become the ex-officio Executive Chairmanof BOI like the Chairman of National Bureau of Revenue who is also the secretary of theInternal Resource Division of the Ministry of Finance. In that case the Executivechairman of BOI could exercise the full power of a secretary and report directly to thePrime Minister, both formally and informally. To make the organization more powerful,effective and a quick service delivery institutions, the Executive Chairman may be givenReducing The Cost Of Doing Business In Bangladesh 88

the status of a cabinet Minister. The committee formed few years back with PM officewith principal Secretary as the Chairman may be replaced by a committee chaired byPrime Minister herself. This committee will include finance, commerce, industriesMinisters and BOI Executive Chairman which will meet once a week to resolve allinvestment related problems and give on the spot binding decisions.Investment promotion agencies (BOI, MIDA, etc.) in countries like Thailand andMalaysia are vested with special power, authorities and privileges in respect of all matterrelating to investment. These powers include determining the promotional status to begiven to an industry in respect of tax holiday and determining the rate of import duty oncapital machinery, raw materials, etc. The investment agency in many countries can alsoarrange and allot plots of land to investors for setting up their industrial units. InThailand, their BOI and the Industrial Estate Authority of Thailand work in tandem sothat investors do not generally have to scout for land themselves, unless they want to. InBangladesh the powers vested in the BOI should be re-examined with an eye towardsmaking it a truly effective one-stop service centre. Specifically, BOI’s ability to allocateavailable land and approve foreign loans should be studied and appropriate action may betaken to make BOI really effective and useful organisation for the investors.Several Industrial Parks should be established throughout the country. In this respect BOIshould procure land and make necessary arrangement with a private sector for providingnecessary facilities under some agreement with the government. Adamjee Jute Mills,Bangladesh Machine Tool Factory Gazipur, Chittagong Steel Mill and others loss makingSOEs should be converted into Industrial Parks under BOI.Being the gateway of investment in the industrial sector of Bangladesh, BOI mustprovide one stop service. BOI should have the authority for issuing all the licenses like:Trade License, IRC, ERC, Bond License, VAT Registration, Fire License, Etc, throughsome special circular for expansion of industrial sector. BOI service centre must bedeveloped and updated with required information and data especially on trade,investment and economy related sectors.Foreign investors, specially those who require big land for their factory, outside the EPZarea have to face serious problem to purchase land. It is quite difficult for a foreigner tocheck the genuinity of a land seller and to purchase a dispute free land. It is also difficultto get a big land with one owner. BOI should help directly to these foreign investors topurchase land for their factory.The system of approving foreign loans and supplier credits, as well as the system ofpayment on account of Royalty, Technical Know-How Fee, and Technical Services Feesshould be simplified. No approval should be needed for such arrangements if the termsare within prescribed limits. This will automatically lessen the discretion exercised bythe officers and staff of BOI and the investors will be free from administrative hassle,unnecessary delay and extra, unofficial costs.Reducing The Cost Of Doing Business In Bangladesh 89

Board of Investment should undertake regular motivational campaign at least at districtlevels to motivate and inspire local investors and once local investors come forward in abig way, FDI flow will automatically increase. Aggressive Campaign should beundertaken to attract and motivate NRBs to invest their savings in the country as well asto utilize their professional knowledge and technical know-how here in some newareas/products having export prospects. For this, provisions for special incentives for theNRBs should be in place in the country’s investment/industrial policy as has been done inIndia.The Board of Investment in collaboration with the newly set up Ministry of ExpatriateWelfare and Overseas Employment and The Ministry of Foreign Affairs shouldformulate policies and incentives to attract the NRBs investing their savings in thecountry. The NRBs may be motivated and inspired to utilize their technical knowledgeand professional skill in the development efforts of the country. One or two commercialbanks may be permitted to launch a special web banking targeted at NRBs- to allow themto open an account online, avail of easy transfer of funds to the country as well as earnhigher interest rates as part of a special package.Special efforts have to be mounted for augmenting FDI inflow in an unreserved manner.It is clear that foreign investors are more interested in economic openness, goodgovernance which permits hassle free functioning and well working economicinfrastructure as well as low cost of doing business rather than lucrative items ofinvestment offered by the host country. Bangladesh is not likely to attain overnightperfection about the above conditions, hence in addition to what the Government is tryingto do through its missions abroad, active assistance of the private sector institutions, (e.g.various chambers and trade associations) also should be enlisted to generate theconfidence of the overseas investors. In order to do that, our private sector institutionsneed to be strengthened in many ways towards which Government should contribute inan unreserved manner until they become stronger and can command more resources.Summary of RecommendationsBOI should be strengthened and given the full authority and enforcementauthority as well to serve as an effective one stop service centreProper training in investment promotion, investment analysis and management forBOI officials should be made mandatoryFor making BOI more effective, it may be made a Division of PM’s office.Executive Chairman may be given the rank and status of a cabinet minister tomake it more effective and powerful.This will enable the Executive Chairman to have direct contact with PMofficially.Like Thailand BOI and MIDA, officials working with BOI should be vested withspecial powers and authority in all matters relating to investment.BOI should have the power for issuing all licenses like Trade license,Import/Export Registration certificate, license, VAT registration, fire license etc.Reducing The Cost Of Doing Business In Bangladesh 90

Several industrial parks should be established throughout the country either underthe authority of BOI or by private sector entrepreneurs with full backing andsupport of BOI. Adamjee Jute Mills, Bangladesh Machine Tool Factory Gazipur, Chittagong SteelMill and others loss making SOEs should be converted into industrial Parks underBOI. Special tribunals or courts should be established to dispose off all cases within 30days relating to foreign investment. Committee formed few years back with PM office, Foreign office, InformationMinistry, BOI, Commerce Ministry and Finance may be replaced by a committeechaired by Prime Ministers herself, with Finance, Commerce and IndustriesMinisters, which will meet once a week to resolve all investment related problemsand give on the spot binding decisions In order to simplify the procedure for issuing work permit to the foreign nationalsworking here, it should be issued from one place preferably from BOI and workpermit should be issued within a maximum period of seven days after submissionof the application. A worldwide campaign to enhance the image of Bangladesh should be launched.A leading international public relation firm should be hired for this purpose. Itswork should be jointly supervised by the Ministry of Foreign Affairs andExecutive Chairman BOI with the active involvement of all our missions abroad. Board of Investment should undertake regular motivational campaign at least atdistrict levels to motivate and inspire local investors and once local investorscome forward in a big way, FDI flow will automatically increase. Aggressive Campaign should be undertaken to attract and motivate NRBs toinvest their savings in the country as well as to utilise their professionalknowledge and technical know-how here in some new areas/products havingexport prospects. For this, provisions for special incentives for the NRBs shouldbe in place in the country’s investment/industrial policy as has been done in India.VI. GASWhile the issue of gas export and its economic benefit to the country is fiercely beingdebated, access to domestic gas, particularly for entrepreneurs in the manufacturingsector, leaves much to be desired. Inefficient gas sector operations and corruption atdifferent levels impose a high cost on manufacturers, for whom gas is a key input in theproduction process.According to one analysis conducted by the World Bank, access to gas in Bangladesh islimited to 9% of households, mostly in urban areas. Nationwide, gas is used mostly forpower generation, an application that is economically justified given the low capital costand high efficiency of combined cycle plants. Gas is also used to produce fertilizer. Incontrast to electricity generation, the low fertilizer prices on international markets raisequestions about using gas for this purpose. Residential use of natural gas is alsoReducing The Cost Of Doing Business In Bangladesh 91

problematic, because of the low specific consumption of households together with thehigh fixed cost, and because of irrational pricing of gas, the subsidy accrues to highincomegroups.Difficulties in Obtaining Gas ConnectionBusinesses encounter many difficulties in obtaining gas connections. Procedures toreceive a connection are lengthy, not very transparent and sometimes. An industrialconsumer who wants gas connection for a project is required to submit two copies of theprescribed forms along with as many as 14 documents. 63 These documents includeregistration, boiler certificate and bank solvency certificate. The procurement of eachdocument serves to multiply the hassle, expense and delay that businesses face.The Investment Climate Survey (ICS) conducted by Bangladesh Enterprise Institute incollaboration with World Bank yielded many stories of harassment and expense inprocuring and maintaining gas supplies. The Operating Director of one enterprise angrilypointed out that in spite of his best efforts for one year and after spending over Tk 60,000it had not been possible for the company to convert a residential gas connection at arented house into an industrial connection. Even the residential gas connection that wasbeing used for trial production was cut off because the gas company said it was beingused for industrial purposes. Although the enterprise had followed procedure in applyingfor a change in the type of service since industrial production was in the trial stage, in theend they were punished for doing so and were left with no gas connection. Gas companypersonnel asked for a bribe to restart service, which resulting in a disruption of trialproduction operations. “As a result, I had to incur a huge loss and it was a set back in myinitial planning,” the Director added.Another entrepreneur with a manufacturing plant at Savar, 20 miles from the capital city,told interviewers a similar story. “It took 23 months to complete the formalities for a gasconnection at the factory for trial production, which was a big setback for our plannedoperations and a heavy financial loss at the beginning,” he ruefully told the interviewers.According to a newspaper report published in December 2002, as many as 150 Industrialunits who have set up plants in the industrial belt of Ashulia, about fifteen miles from thecapital city, have been attempting to procure gas connections with a hope to develop theirplants. Titas Gas Transmission and Distribution Company stated that they could notprovide the connections because they would require a system expansion and they do nothave any authority to initiate a large-scale expansion plan without the PlanningMinistry’s approval, which requires a prolonged process. Failing to convince Titas Gas,the sufferers raised the issue straight to the Prime Minister.However, Titas gas as interim arrangements has approved to connect the industries alongthe Jirabo section of the Tongi-Ashulia road with the provision to switch- over theseindustries when the installation of the gas station and construction of distribution network63 Board of Investment. Utility Services and Environmental Clearance, Prime Minister’s Office, January2001.Reducing The Cost Of Doing Business In Bangladesh 92

are complete. As a result of this interim arrangement few industrial units have alreadybeen supplied with gas and some more industries are about to complete their portion ofthe work to be commissioned with gas.Gas Sales ProcedurePetrobangla has adopted a uniform policy entitled Gas Sales Procedure to ease theproblem of submission of documents and the number of documents have been reduced to10 as bare minimum for an industrial gas connection. Titas Gas has, however, thefollowing version, “at the time of submission of application for gas connection, if anapplicant submits all necessary documents and information like hourly gas consumption,daily and monthly operation, and if the industry locates to near the gas distributionsource, then no delay occurs in processing application for gas connection”.But Titas Gas claims that the applicant hardly submits all documents and informationcorrectly at a time; rather they are quite indifferent in this respect. They have alsomentioned that good numbers of industrial enterprises procure used boilers recoveredfrom old and obsolete ships at the ship break-yard without any technical catalogue. Touse those boilers, certificates from the Boiler Inspectorate cannot be overruled. It has alsobeen experienced that quite a good number of industrial enterprises imported oldelectronic generators, which were more than 30 years old. Sometimes these types of oldgas appliances do pose serious problem to ascertain the gas requirement includingconversion. Moreover, such old appliances have low thermal efficiency that causesincreased gas consumption and the increased gas consumption attributes to inefficientbusiness operation of such enterprises, which brings conflicts between the gas companyand the consumer. Titas Gas sources added that the gas companies have little to do whenthe Department of Environment asks for environmental clearance certificate for theindustrial unit that without their permission gas cannot be supplied/commissioned there.ICS SurveyIn addition to the connection procedures, the billing system for gas supply also comesunder attack from businesses. In the ICS, very few enterprises did not complain aboutthe billing practices of the gas authorities. According to the survey findings there is anorganized system for extracting extra money from commercial and industrial users of gas,forcing them to spend extra money just to maintain their gas connection and continuetheir regular production processes. One entrepreneur told interviewers that they were notsupplied with any bill for nine months and had to come to an unofficial arrangement withthe officers of Gas Company to settle the outstanding bills, which amounted to severalhundred thousand taka. “This extra amount was not included in the initial planning of theproduction scheme,” he added.From the gas companies’ point of view, it may be mentioned that there are manycustomers who prefer to make some private ‘deal’ with the gas company officials and getsome advantages in the procurement of gas supply. Many gas connections in and aroundthe industrial belt have been unearthed by Titas in which the meters have been bypassedto get free gas. Many domestic customers have been using the facility to manufactureproducts of commercial values. A number of industrial customers have been willfullyReducing The Cost Of Doing Business In Bangladesh 93

damaging the gas meters to take benefit of average gas bill to be calculated on the basisof lower capacity declaration of the boiler. There are instances when Titas gas could notdisconnect gas supply to a defaulting customer who arranged a court injunction therebyensuring gas supply without making payment. Many gas users resort to lengthy legalbattles to delay payment to Titas. The number of such consumers is so large that theycompel the gas companies to be on defensive position to avert any financial loss in thegas supply.System LossAccording one study, gas system loss was 6.9% of total production in FY 2002 comparedto 5.3% in the early nineties. This effectively represents a 24% system loss on non-bulkdistribution that is to industrial, commercial and domestic users, which are rather high,compared to other countries. High system losses are partly due to administrativeinefficiency and corrupt practices. During the ICS survey it was found that somecommercial and industrial users of gas make arrangements with gas officials. As a result,revenue earnings of the gas company come down to a substantial extent of what it shouldbe. This loss is normally accounted for as system loss. The state Minister for Energy andMineral Resources has, however, recently claimed that the system loss has come down to1.5% ( CPD dialogue held on June, 2003).Lack of CoordinationIn any case the lack of coordination between the billing section and accounts sectionresponsible for bill collection is an essential part of the problem.Gas sector entities generally exhibit a low level of operational efficiency, which can beblamed on a variety of factors. The major indicators of performance are high systemlosses and poor cost recovery. Low operational efficiency of gas distribution, particularlyfor power and also for non-bulk gas supply is due to high system losses linked to theftand pilferage, inadequate maintenance and repair and inadequate application of efficientcommercial practices. Poor cost recovery occurs partly because of low administeredtariffs for some categories of gas users. Tariffs are misaligned considerably fromeconomic or competitive levels. In addition, cost recovery is low because ofunsatisfactory billing and collection of revenue, as manifested by high and risingaccounts receivable due from both public and private consumers.For instance, according to newspaper reports, nearly 200,000 illegal domesticconnections are contributing to system loss of more than 10% for Titas Gas Transmissionand Distribution Company. At least one third of the domestic users are illegally usingdouble burner gas ovens while official records show that they pay bills for single burners.According to a former Chairman of Petrobangla, Titas Gas has the experience and proofthat a section of domestic customers are un-authorisedly using their gas supply facilitiesfor commercial purposes. Many people are using to make confectioneries, pickles andother types of industrial products, which are not meant to be done from this two burnerconnections. To talk about the industrial customers, Titas has a number of examples,where the customer is by-passing the meters. They are taking gas directly from the lineReducing The Cost Of Doing Business In Bangladesh 94

and paying nothing to Titas Gas. Also they are tempering the meters to record lessconsumption of gas. The boilers capacity is a problem to Titas. It has been provedthrough a number of investigations that the capacity of the boiler is deliberately shownlower and then they temper the meters and pay off for the bill, which is average bill andthis is made on the basis of the lower capacity of the bill and then they continue to paythis type of bill for a long time.Reform Measures by PetrobanglaThe former Chairman has added that recently a number of reform measures have beenundertaken by Petrobangla, some of these are:o Titas gas has been subdivided into three companies with separate identityaccording to location as well as the loadso A common procedure of gas connection in all the companies of Petrobangla hasbeen finalizedo Titas union has been restrained from taking any attempt to indulge in theadministrative or commercial functions of the company; their services have beendeclared essentialo The company board has been reconstituted with members from outsideo The authority of the MD has been expended to enable him to get order only fromthe Board, it has been decided, to attract an appropriate candidate, that the salaryof the MD would be extended manifoldo To facilitate the probable investors in matters of gas connection, a GeneralManager has been deputed from Petrobangla to the Board of Investmentso Third party services are being arranged for preparation of bills, inspecting thecustomers’ premises and updating the ledgers related to gas bill payments.Titas Gas has 760,000 domestic consumers who consume 10-12% of the total gassupplied by the company. The rest is used by bulk customers like state owned powerplants, fertilizer factories and other industrial concerns in the private and public sectors.Of the domestic consumers, 391,300 (about 52%) use double burners and the rest usesingle burners, as per official record. “But 10-15% percent of the domestic consumersabide by records and the rest are illegally using double burners” a recent newspaperreport said. It added that a single burner gas oven consumes at least 56 cubic metres ofgas per month and a double burner consumes 86 cubic metres. Sources in Titas gas saidcorruption by a section of its employees and lack of proper supervision are the majorcauses for the system loss. Like other utilities in the country major cause of the systemloss lies in the existing socio-economic and political conditions. Besides the system loss,the company is also burdened with a huge amount of unrealised bills. Domesticconsumers alone owe Tk 1.2 billion in unpaid bills, according to a report submitted to theAsian Development Bank last year. When contacted, the Managing Director of TitasGas, said installation of meters has been started and this would improve the situation. 64The expansion work of gas network has been quite slow possibly because of fund64 The Daily StarReducing The Cost Of Doing Business In Bangladesh 95

constrains. Even after opening the Jamuna Bridge five years back, Govt. has not beenable to install gas network in the northern parts of the country. As a result of which noprogress in the industrialization of that area specially in the gas related agro-based sectorhas been possible. Same is the case with regards to Chittagong Hill Tract area, which hasgot enormous possibility of local resource utilization. There is ample scope for setting upof gas-based industries in that area for which availability of gas is essential.Recommendations for Gas SectorSince the operational performance in the gas sector has been affected by high system lossand to some extent by infrastructure constraints, efforts should be taken to minimize thewastage, pilferages, theft and other financial and administrative anomalies. Unauthorizedconnections are usually included in system losses and so if billing and collection areproperly monitored, gas lost through these unauthorized connections can be detected to alarge extent. Ledger entry after payment should be automated and computerised and eachsucceeding bill should show the previous outstanding amount. Furthermore, no claim forconsumer bills older than one year should be entertained. This will provide an incentivefor the company and its employees to properly pursue collections. Any amount stilloutstanding after three years should be taken as a failure of the company and itsemployees for which some sort of punitive actions may be introduced for increasingefficiency and speed. At the same time, scope for corrupt practices will be minimized.Another financial anomaly is the pricing of gas, which leads to low cost recovery.Instituting a transparent gas pricing formula under which prices could be adjusted on aquarterly basis and linked to changes in costs of supply, including gas purchase fromInternational Oil Companies under Production Sharing Contracts, transportation anddistribution costs and exchange rate adjustments, could solve this problem to someextent. Rational tariff structure should be introduced and if any subsidy is required itshould be very transparently dealt and given to the end users.National Gas Pricing Policy Formulation Committee established in 1997 recommended,among others, that tariff structure for all the commercial energy sources includingelectricity should be fixed (if possible in one go) in a coordinated manner.According to the present price setting mechanism in place: GOB fixes the gas price, nopredetermined method is followed, ad hoc mechanism is in place to make up budgetdeficit and generate fund to make payment to the production sharing contractors.To remove this adhocism, a permanent Gas Pricing Policy should be formulated keepingin mind at least next ten year development programme. This will help the prospectiveinvestors both foreign and local in this sector to have a clear picture about the state ofaffair in gas related field and likely to inspire them to invest.Another area that increases the cost of doing business is the procedure to receive a gasconnection and to maintain it. Obtaining a gas connection for commercial or industrialuses is a cumbersome and costly affair in Bangladesh, as detailed above. To helpentrepreneurs in obtaining gas connections, the procedures should be further simplifiedReducing The Cost Of Doing Business In Bangladesh 96

and gas authorities should have an official obligation to provide a gas connection within aspecific time frame after submitting the application. In any case it should not take morethan thirty days after the submission of the application. Facility to down load the form forapplication for gas connection from website should be available. The monitoring cell inthe Ministry of Energy and Mineral Resources (or in BOI) should regularly review theperformance of the gas companies in this respect. Once these measures are in place, thecost and time required to obtain a gas connection are expected to come down to a someextent. A facility for appeal to a regulatory body in the case of delay or denial of aconnection should be in place and this will have a wider impact on service delivery.Gas sector could be compared with the telephone, electricity or water utilities inBangladesh. It is only the Telephones where a respite has been provided to the needypersons through the introduction of Private sector participation in giving telephoneconnections. The environment has further been made users friendly through setting up aRegulatory Authority. But the problems with Electricity and Water remain the same. Sothe magic word may be in introduction of an element of competition to provide servicesto the customers. Telephone model may be an appropriate one which has not dislodgedthe authority of T&T officials and employees but has introduced a new field of servicesto the private operators avoiding the clash and opposition from the SOE.Similar green field operation may be introduced in the gas sector and these maycommence in all new projects of Petrobangla and the same of companies under itscontrol. These new projects could be implemented in the private sector or with initialassistance from the existing gas companies as a joint venture operator with a provision topull out by the sate owned company under an agreed time frame. Such arrangements willensure relatively peaceful transfer of technology to the domestic private sector as well asintroduce competition in dealing with the gas customer. Once such competitions arebrought in the gas sector the best service providers will only exist and the existence ofpoor performing companies will be at risk. Such competition will ensure better servicesto the customers.With the passage of Regulatory Commission bill for the Energy Sector the utilityproviders will also have adequate covers to protect themselves from the delinquentcustomers. At the same time the customers shall also be able to lodge complain with thecommission and get redress to their legitimate grievances and protect their rights.Exploration is a sine qua non in the gas sector development. Since as of now availabilityof local resource is not up to the mark; the option related to PSC was introduced, wherethe IOCs take the risk of upfront investment and dry wells. Now if it is considered thatBangladesh could arrange funds to discover new gas fields; by all means we should gofor it. But we may have to consider whether this would be at the cost of sacrificing aschool or hospital or a vital link road in the country. Again, Bangladesh is supposed toposses an international standard gas resource which could not be unfolded with one ortwo wells a year. If it is a target to reap maximum benefits from the gas resources, oneneed to invest huge amount of money to discover the gas fields and make best uses of thegas reserves to uplift the socio economic conditions of the country. Investment in gasexploration must be given due importance and high priority.Reducing The Cost Of Doing Business In Bangladesh 97

The recently introduced common procedures of Gas connections may address some of theexisting problems. These steps may be modified according to the needs of the partiesconcerned. Activities of the CBA need to be examined under the changed circumstanceswithin the country as well as elsewhere. The Regulatory body will need to be manned byappropriate technical personnel to safeguard the interests of gas companies as well as thesame of the customers. Billing should be computerized and brought under a network,which would make the subject much simpler and trouble free.Gas connections to new areas are related to techno economic viabilities, if the new areasare considered commercially lucrative; there would be many private sector aspirants tostart business in those areas. But appropriate supportive help must be given under setprinciples of privatization through which the Govt. may be assured of the same returnfrom the gas sector as it has been receiving when it controlled the business itself.CNG and related issues need to be addressed with all seriousness not only for the sake ofpromoting indigenous fuel in the transport sector of the country but also forenvironmental and social considerations. Recently it has taken a positive trend andprivate sector is showing interests to set up CNG refueling stations also in conversion ofvehicles. Meanwhile a number of steps have been taken by the GOB to popularize CNG;results of which will be manifested in near future.With the increase of gas demand from the potential investors in different fields ofeconomic activities the present business as usual attitude may be self-defeating in nearfuture. Extensive exploration activities, expansion of gas infrastructure in terms ofavailable capabilities in production and gas supply system, the existing users may be indifficulties within a short time span so far the required volume of gas and supply securitythereof are concerned. All these would demand huge investments in the gas sector andthe time frame for the same may not be too wide. Under these circumstances, the gassector must be given special attention to attract investments both from within and outsidethe country. The present state of affairs in the management of gas industry would alsocall for reform and modernizations from technical, legal and commercial point of views.A technical research team should immediately be formed by including expertsprofessionals and scientists to study the detailed technological problems of our gas sector.In the same way we must properly equip ourselves in the legal and commercial aspects ofthis sector to ensure a fair, logical and reasonable share of this vital sector specially indealing with the foreign companies and other key players of this sector.Summary of Recommendations:• Procedure for obtaining gas connection should be made straight-forward andsimple.• Since government is unable to provide sufficient service to meet demand, thesector should be opened for private participation and to bring competition in themarket.• The proposed separate transmission authority should be manned by men ofReducing The Cost Of Doing Business In Bangladesh 98

integrity so that service delivery is effectively done. Really Professional peopleshould run such a body instead of people with political consideration only.• Government should, as a priority measure, make necessary arrangement for moreinvestment for exploration before it is too late. Petrobangla as they claim iscapable to undertake exploration work if necessary fund is provided to them.• Provide information to the public as to the application procedures for connectionsand the expected waiting time for a connection by location. This will establishmore accountability.• Facility to download the form for application for connection from website shouldbe available.• Since labour union in this sector has mostly grown along negative lines , tradeunion must be depoliticised with immediate effect for which the cooperation ofthe opposition political parties is essential. The activities of the trade union (CBA)should be restricted to staff welfare only.• Facility to appeal with Regulatory Bodies if no decision on connection or denialwithin specified time should be there.• As for billing procedure, ledger entry after payment should be automated andcomputerised and each succeeding bill should show the previous outstandingamount.• No claim for consumer bills older than 3 years should be entertained. Such claimsshould be taken as failure of the company or its employees for which some sort ofpunitive actions may be introduced.• As the majority of the participants of the recently held CPD sponsored policydialogue emphasized on the imperatives of investing more governmentinvestment in exploration and development of the hydrocarbon resources, thegovernment should make immediate arrangement for installing gas network in thenorthern area as well as in the Chittagong Hill Tract area where raw materials aswell as appropriate lands are available for setting up agro-based industries. Otherdevelopment programmes may be undertaken by Petrobangla for proper use ofavailable gas.• Government should especially aid local investors interested in settting-upindustries for gas utilisation in the form of CNG cylinders. This will also give rualpeople to have access to the benefits of gas.VII. PORTSThe introduction of container service in 1977 and its subsequent growth since then madeChittagong port the main gateway for both export and import trade in Bangladesh.According to a European Commission report, over 90% of Bangladesh’s internationallytrades goods are carried by sea. Another survey by Transparency International revealsthat the country’s premier port, Chittagong, handles 75% of exports and 90% of imports.In 1999 alone 1,425 ships called at Chittagong port and volume of imports and exportstotalled 14.9 million tons. International companies account fro a bulk of the containertraffic. Local shipping companies, Bangladesh Shipping Corporation and HRC, who areReducing The Cost Of Doing Business In Bangladesh 99

mainly involved in the feeder age of containers to the to the regional transhipment port,account for less than 20% of the traffic. 65 Initially container traffic in Chittagong portarrived in small volumes on conventional break-bulk vessels. These were handled in theexisting general cargo berths and yards using impoverished and antiquated methods.In 1980, a consulting firm was engaged to study the prospect of the growth of traffic andto recommend the development of the required facilities. The consultants proposed a twophased development strategy: the first was to develop interim facilities for containerhandling in the existing break-bulk general cargo berths area of the port to meet theimmediate requirements; second, to proceed with a phased development programme todevelop container handling facilities. With IDA assistance, a 450-meter long berth wascompleted in 1986. Two-multi purpose berth development of handling and storage yards,equipment servicing and maintenance workshop, and offices were completed by 1999. 66The Chittagong Container Terminal (CCT) with annual 90,000 TUE (Twenty FootEquivalent) was opened on 18 August 1993. However, the original plan was not fullyimplemented to develop a container berth. It still lacks the necessary shore cranes. As aresult the turn around of container vessels remains high and consequent high cost to theimporters and exporters.According to the Managing Director of a leading freight forwarding and logisticmultinational company, Kuehne and Nagel Ltd., “shore gentry cranes are the life andspirit of a container port. That is why the turn around of container vessels continue[s] toremain the eye-sore of the inappropriately named multi-purpose berth and the majorcause for the high costs for the vessels operators resulting in high cost to the importersand exporters of the country.”Containers are now loaded and unloaded by the ships own crane at container terminal.CPA has been negotiating to buy 4 Quay Gantry Crane and 6 RTG crane and envisagesreducing the turn around time. Due to containerisation of international trade, Chittagongport received increase number of load .In 1990-91 from 1,05000 TEU, the number rose to2,27,000 in 1994-95. Port handled 500,000 TEU in 2001-2002. Situation had gonebeyond handling capacity rending further rise in cost. 67A paper prepared by Rafi Omar, Managing Director, Kuehne and Nagel Ltd. mentioned,“The container vessels that presently called at Chittagong have an average capacityranging from 400-600 TEUS with an average operating cost of between US$6,000-7,000per day.” 68 The absence of shore cranes and current inefficiency within the ChittagongPort Authority (CPA) requires an average container vessel anywhere between three tofive days to obtain a berth in the first place and additional three to four days to unload65 European Commission. Market Access Sectoral and Trade Barriers Database, 020009- Difficulties facedby shipping operators.66 From the speech of Chairman, Chittagong port authority delivered on the occasion of Foundation lyingceremony of New Mooring Container terminal by Prime Minister on 17 October 200267 Ibid.68 Ibid.Reducing The Cost Of Doing Business In Bangladesh 100

and load. Therefore, the average turnaround time required to service a regular containervessel ranges between six to nine days. Compare this to the average turn around in otherregional ports: Colombo, one of two days; Bangkok, two days; and Singapore, one to twodays. Chittagong’s turnaround time is far higher than other regional ports. With the fixedoperating costs of around US$6,500 or more per day and already high port changes thatare levied by the CPA, the resultant cost to the operator is far higher than other regionalports. The World Bank has estimated that for a 20-foot container handling charges areUS$640 in Chittagong compared to US$220 in Colombo and US$360 in Bangkok. Out ofUS$640 paid, US$250 is for unofficial tolls.The turnaround time in Chittagong Port is 4 days and normal waiting time is one day, butstill higher than other regional ports .The resultant cost to the operator is higher thanother regional ports. Average Dwell time of a container in Chittagong Port is about 20days where as in modern Port it ranges from 3 to 5 days. 69Under the banner of different political parties and groups, the labour unions in CPA oftengo out of control. They resort to pressure tactics and demand extra payments. InFebruary 2003 CPA dismissed 12 port Brokers including Security personal for theft. Portauthority came under undue pressure of CBA to withdraw the dismissal.There are 29 unions at the port. CPA staff has 5 and Dock management Board workersbelong to 4 unions. These 9 registered unions are direct or indirect control of CPA buthas no authority over the rest 20 unions. Elections to choose collective bargaining agentswere held only in late 2003 after a gap of seven years. As a result indiscipline crept intolabour unions. Chittagong port is spread to 5 km, 4000 trucks moves per day.30, 000labours from various agencies are engaged. In modern ports like Singapore the number ofcontainer handling gang is 2, Kelang 3 and Indian private terminal 5 labours. 70SSA, an American joint venture company proposed to build a private container terminalat an outlay of US$438 million covering an area of 200 acres land have two locations.The project across River Buriganga near Dhaka was envisaged at an investment ofUS$250 million. The other location is 8 km off Chittagong port with a cost of US$188million. The bulk of the land the company intends to purchase from private landowners.The balance would be leased from government on 38-years lease. Initial set up was underBOO (Built, Operate and Own) for 99 years but the present government., which came topower on 1st October 2001, changed it to BOT (Built, Operate and Transfer) basis. Theentire process of setting the SSA private terminals was set at rest by High Court decision‘in public interest’ on November 26, 2002. Supreme Court on 19 May 2003 upheld theHigh Court decision.69 Speech of Chairman CPA on foundation lying ceremony of New Mooring Container Terminal on 17October 200270 Porte Grande CPA publications 2002 [page 14]Reducing The Cost Of Doing Business In Bangladesh 101

The Director (Operations) of CPA who has spent a lifetime in Chittagong port serviceand recently visited a number of regional ports is optimistic that Chittagong port neededseveral private container terminals in view of growing world trade. 71Chittagong Port Authority (CPA’s) Projects in Hand:CPA funded 750 crore taka New Mooring Container Terminal foundation was laid on 17October 2002 to complete the project by December 2005. The project envisages:a) To accommodate 5 Container vessels in 5 berths of 1000 meter length.b) 2,20,000 square meter pavement for staking and handling containers.c) 2-rail track for container carrier to Dhaka ICD.d) Provisions kept for installation of Quay Gantry Crane for container handlinge) Rubber Gantry Crane for handling container in the yard.f) Provision for power sub-station, fire service, fuel service, administrative blockg) Rail mounted Gantry Crane (RMG) for loading/Unloading to railway wagon. Thenew Terminal will have capacity to handle additional 5 lac TEU container in2005-6 with addition of equipment, port will be able to handle 12.5 lac TEUcontainer in 2010-2011. The New Mooring Container Terminal would operateand manage by private firms under competitive bid. CPA would build theinfrastructure. 72The shipping agents are happy to acknowledge that recently working conditions and theturn around of feeder vessels has improved considerably. As a result of reduced arrivalsof bulk-vessels, CPA is now in a position to offer additional berths to the feeder vessels.It is learnt that this situation will remain for sometime to come. Also, CPA hascommissioned new container handling equipment that has further eased the operationalconstraints that were prevalent earlier. This situation, however, could change almostinstantaneously if there arises a critical shortage of break-bulk commodities like foodgrain,fertilizer, cement etc. Therefore, there is no room for complacent on the basis ofthe present situation.Perspective of Chittagong Port AuthorityNormally a port faces the problem of inefficiency due to out dated work practices,obsolete facilities, excessive charges or a combination of all three. Ports have tostrengthen their management services by taking some suitable measures and changing theorganisational structure and removing the aforesaid problems with a view to gain strongposition in the competitive market. A suitable measure to improve port efficiency ispossible under different strategies of private sector participation; the co-existence ofpublic and private co-operation that is called private public partnership (PPP) is moreacceptable as private sector participation in developing countries.71 Discussion with M. Mahsin Sarker, Director (operation) CPA with M. Shafiullah, Senior ResearchFellow, BEI72 Speech of chairman, CPA at the foundation lying ceremony of New Mooring container port on 17October 2002.Reducing The Cost Of Doing Business In Bangladesh 102

The advantages, which can be derived from PPP in port sector, are the following:General advantages:1. Improves the port efficiency2. Decreases the cost and prices of port services and facilities.3. Improves the quality of services.4. Increases the competition.5. Brings the changes the attitude 0f port/ terminal operators towards their usersAdministrative advantages:1. Reduces/eliminates the unfair labour practices.2. Quickens decision making by reducing the bureaucracy.3. Decreases the government monopolies.4. Introduces management-based performance.5. Reduces the size of public administration.6. Increases the private sector employment.Financial advantages:1. Decreases public expenditures.2. Attracts foreign investment.3. Reduces the commercial risks of investment from public sector.4. Increases the private sector participation in the regional and/ or nationaleconomy.Business advantages:1. Spreads the scope of port activities and facilities.2. Helps to enter into new markets.If the current legislation of the country prohibits the port’s privatisation, the legislationshould be changed to allow such privatisation from time to time so that law does notprevent the private investors from investing in port sector. 73ComputerizationCPA handled 500,000 TEU in 2001-2002. Computer is a must when annual throughputexceeds 200,000 TEU. CPA envisages to commission computer in two years time.Equipment/CranesImmediate installation of four Shore Quay Gantry Cranes, one Rail Mounted GantryCranes, Tiered Gantry Canes are necessary. CPA envisages installing the equipment intwo years time. Surplus dock labour and stevedore workers could be absorbed in privatecontainer Terminals, ICD, Private Distribution Park.Despite the fact that Singapore was the most efficient port of the world, in 1997 it wasturned into corporative. All the ports of Malaysia were handed over to privatemanagement.Govt.operated Jawaharlal Nehru Port and the Nova Sheba InternationalContainer Terminal Private Limited has been in operation side by side with equalfacilities. Jawaharlal Port Trust handles 12 containers per hour whereas private Terminalhandles 24 containers at the same time. Private terminal are known for ‘common use nondiscriminatoryTerminal’ which the business and shipping agents can chose according to73 A.M.M.Shahadat Hossain, Member [Finance] CPA, Porte Grande CPA pages 9-11Reducing The Cost Of Doing Business In Bangladesh 103

the cost. Bangladesh may profit from the experience of the realities in theneighbourhood 74 .Many countries are establishing Inland Container Depot [ICD] both private and publicsectors near the port and adjacent to cities to handle containers in sealed condition underthe supervisor of customs’ authorities. These ICDs are regarded as Customs BondedAreas. This facility is in use for both exports and import. In the distribution parkimport/export are value added for re-export or for domestic use from such parks near theport. Re-packing, assembling, palletising, grouping, labeling are done in these parks.These kinds of projects provide employment and save huge foreign exchange. 10Installation of 10-20 megawatt power generation in port area has become a paramountnecessity for uninterrupted operation of equipment, which will bring down cost from thepresent level. 10Stevedores are to engage the workers of their choice but they often deprive workers fromdue payment. The Dockworkers management Board are to look after only welfare of theworkers to safe guard interest as well as for good industrial relation. 10FCL and LCLChairman, CPA stated that besides labour problem, FCL and LCL container handlingtelling upon efficiency of the productivity of the port. Containers with imported items[FCL] are destining from one shipper to one receiver. 80% of such FCL are destine toDhaka but railway can carry only 20% and in addition, insufficient ICD near port, cargosare delivered as break-bulk by thousands of trucks after unstuffing at the container yard.Port has become the major storage centre of empty container and Dwell time rises to 20days instead of 2/3 days in other ports. Likewise 70% of exportable items are brought asbreak-bulk items inside the port area by hundreds of trucks and after stuffing bythousands of workers containers are loaded to ships hampering quick handling of cargos.Multi-model Transport DevelopmentThe two-lane Chittagong-Dhaka highway to ICD, Dhaka can carry a very limited numberof container trailers. No infrastructure was also built up to carry containers by inlandwater transport. Speedy and efficient port handling largely depended on multi-modelhinterland infrastructure development. With the global increase in the containertransportation and eventual linking of Bangladesh to the Asian High way the Pressurewould mount on Chittagong port for most efficient handling of cargo. There would be noalternative but to develop integrated transport system connecting Chittagong Port withthe rest of the country.CPA Chairman Speaks of Developments at CPAIn the Sectoral Workshop on Ports held 22 nd May 2003 the Chairman of Chittagong Portsaid that turnaround time depends not only on Port facility but also on the river dynamics.74 M.Mohsin Sarkar, Director [operation] CPA, Porte Grande 2002 Page 13-15, and discussion withM.Shafiullah, Senior Research Fellow, BEI at CPA office in March 2003.Reducing The Cost Of Doing Business In Bangladesh 104

At Chittagong ships wait for the tide for the appropriate draught as jetties are designed tocater for 9.5-meter depth ships. Vessels above this depth, therefore, wait in the outerchannel for 2-3 days with additional costs. But, dredge the channel now to 12 mete, wewill not get the benefit at the moment, because our existing jetties (16 jetties: 6 arecontainer and 10 for bulk cargoes) are partially destroyed and we are using them withdifficulties. We are creating the Newmooring terminal, with 5 jetties. It will double thepresent strength and have other facilities and this will be of course given to the privatesector for operation as decided by the Ministry.Already CPA has started night navigation; no ships will have to wait for day. Turnaround time was 7 days. Today CPA has achieved 3.5 days but we hope that time aroundtime can be brought down to one day if other infrastructure facilities are there. CPA has acapacity of about 200,000 TUs annually. But we are handling 550 thousand TUsannually. Port is over spaced, difficult for computerisation. It is not possible for furtherexpansion of the existing jetties, which are absolutely in dilapidated condition. Containercannot be put in the right place in the shortest possible time without gantry cranes. In1993, the container terminal was built, ten years have been passed away and yet we don'thave the gantry cranes. It is hoped that by the year 2005 or beginning of 2006, we willhave this new terminal ready with computerised systems and other facilities. CPA isworking towards achieving the goal of doing everything in the shortest possible time i.e.3-hour for all documentation and one-day for customs clearance etc. CPA will have one17 storied building with a tower so that ships outside can be overseen. We are to bring allfacilities in one building so that we can offer a 'one-step service'. CPA is introducing aVTS system (vessel traffic system) with close circuit TV, to observe the activities in theport. In last one year, in fact, not a single case of theft occurred in the port and not asingle day of strike.There are 30,000 people who interact everyday, about 4000 trucks interact everyday. Theproblem of Chittagong Port is very peculiar. Only 10% of the container is coming bytrain to Dhaka, remaining 80%-90% cargo are loaded in trucks, hampering otheractivities of port, slowing down the pace of work. These are supposed to be going doorto-doordestination. That infrastructure - by road, by train, by river is working veryinefficiently. Although Bangladesh is a riverine country, we have not been able to makeanything for transshipment of our containers by river routes, which is the cheapest meansof communication. Cost could be reduced greatly if this very transport route is utilized,but we have done nothing at all. There is an Ordinance, 1982 for waiver to foreignvessels and this is an ordinance for which also Chittagong port activities have sloweddown. Unless this is solved the trade will suffer.VIII. CUSTOMS AND TAXATIONBangladesh has maintained a fairly high per capita growth for the past decade; its growth,however, falls behind that of some of the regional countries. To specify the features thatReducing The Cost Of Doing Business In Bangladesh 105

impede economic growth and development, 1,000 manufacturing firms in Bangladeshwere surveyed by Bangladesh Enterprise Institute in collaboration with the World Bankbetween August and November 2002 75 . In the taxation section of the questionnairerespondents were asked to indicate on a five-point scale the severity of problem for theoperation and growth of business and trade, if any, due to tax rates and taxadministration. The respondents considered that tax rates are a moderate problem, buttax administration is a very severe obstacle.The entrepreneurs observed that the tax filing and assessment procedures were by andlarge tedious and cumbersome. Many rulings were made arbitrarily by the tax authorities,which forced taxpayers to take recourse to appeal courts at a further cost of time andmoney. The time consuming legal process just adds to the cost of production andbecomes one of the elements that make Bangladeshi manufactures less competitive in theworld market. Many tax provisions are loosely worded, leaving room for a wide exerciseof discretion by the tax officials and therefore scope for corruption. The present taxationsystem lacks simplicity and transparency and provides too many loopholes to evadetaxes.Taxes are the major source of public finance in Bangladesh and for this reason, reform ofthe sector to facilitate higher tax revenues and more efficient tax processes brooks nofurther delay. “For Bangladesh an immediate objective of any tax reform” observed in anissue of the Fiscal Frontier, a quarterly journal of the Customs Services Association,“would be to develop a tax system which is capable of generating enough resources fordevelopment activities as well as running the government. Any reform would be requiredto remove the inconsistencies and irregularities from the structure for harmonizing it withthe national socio-economic goals.” 76The professional journal also remarked that, “[The] Tax system has been subjected to [a]continuous process of changes and shuffles. A rate was increased one year on oneground and then the following year, revised down on an altogether different ground. Taxreform in Bangladesh appears to be mainly the product of bureaucratic polity who seeksto protect their position by minimizing the political cost of tax program while preventinga budget shortfall.”A draft report on Taxation was prepared on the basis of the BEI findings and placedbefore a national seminar on 9 th January 2003. The Chief Guest of the seminar observedthat private sector must bring his or her own accountability by paying tax. In this fieldthere is mutual suspicion between the government and the private sector. Paying one’staxes should be part of fair trade practices, which are self-regulatory. Private sector mustbegin to regulate itself in this regard. 7775World Bank-BEI Report’ Improving the investment climate in Bangladesh” released on 1 st September76 Chowdhury, Faizul Latif: Some Thoughts on Tax Reform in Bangladesh, Fiscal Frontiers, p 13-5477 Amir Khasru Mahmud Chowdhury, Commerce Minister.Reducing The Cost Of Doing Business In Bangladesh 106

The concept of a Tax Ombudsman generated much enthusiasm on the occasion butthought that the institution would be flooded with complains without much remedy. Theparticipants were in favour of introducing the system to test its efficiency. 78 It wasobserved that the Government is heavily dependent on indirect taxes to meet too manysocial objectives. Objectives should be set on the basis of priority and focused. There areso many Tax regulations and, that too are subject to frequent changes that businessmencannot keep track. There is need for a body to streamline the system. 79 The Malaysianand Singaporean taxation system was cited as examples where similar problems as existin Bangladesh today were solved by the introduction of e-governance. 80 Leading womanentrepreneur and Adviser to the last Caretaker Government commented that a TaxHoliday is necessary for industries in the initial years because an entrepreneur has to payso much and in so many places to set up an industry. 81Interaction with NBR on taxationThe senior officials of the National Board of Revenue provided the followingperspective.• To make filing tax return easier and as a measure of the confidence buildingbetween taxpayers and the taxation authority, self-assessment facilities wereextended to individuals and to the corporate taxpayers. Subsequent randomsample examination, however, found that full disclosures were not made in manycases. Such cases of hiding facts are subject to full realization with penalty.Businessmen by and large avoid taking advantage of the self-assessmentprocedure lest they are detected for inadequate disclosures.• Income tax return is a two-page form for the individuals. Companies are requiredto submit the form with audit report. Forms are provided free and evenphotocopies are accepted.• Assessed tax amount can be paid in bank cheques / pay order. Theses are normalmode of payments without any hassle. The Treasury challan had been used butwas discontinued from fiscal 2003-2004 in view of the detection of a number offraud cases.• The Tax rate in Bangladesh is the lowest in comparison to the region: 25% tax onpersonal income, 35% for corporate and 30% applicable to public tradedcompanies. Other countries in the region have a rate of more than 40%.• Tax on Ready Made Garments (RMG) was brought down to 10% with effect fromthe fiscal 2003-2004 from 30% previously keeping in view the phasing out ofMFA (Multi Fibre Agreement) after December 2004.• Taxes on dividends payable by the directors were waived from the fiscal 2003-2004 and provision made for the company to pay 10% instead.• The Deputy Commissioner of taxes completes assessment within a maximumtime limit of 15 months [from 2003-2004] in place of previous 9 months. Thistime is required to examine all documents submitted and the parties to re-submit78 Mujibul Huq, former Cabinet Secretary79 Mr.S.M.Akram, former Member, NBR [Customs] and ex-MP80 Farooq Sobhan, president, BEI, who visited Malaysia for this project.81 Rokeya A. Rhaman , Adviser to the last Caretaker GovernmentReducing The Cost Of Doing Business In Bangladesh 107

documents if they are incomplete.• The Appellate Commission is required to give a decision in 90 days and thedecision must be conveyed in 30 days.• The Income Tax Tribunal also works under a strict timeframe, giving its verdict in90 days.• Corporate tax payees are exempted from double payments of taxation in interstatetrade under provision of avoidance of double taxation existing with 20 countries.• The Income tax settlement commission did not work in the past and wasdisbanded• Mutual distrust between the taxpayers and the tax authority is so acute that theinstitution of Ombudsman may not be workable in Bangladesh.• Relevant information of taxation and the supplementary regulatory orders [SROs]of the National Board of Revenue [NBR] are provided in the websitewww.nbr_bd.org, however, they needed to be updated and flow of informationmust be sustained. Public awareness on taxation is minimal now.• Tax advisory centres are opened at various parts of the city during the tax-filingperiod [July-September] free of charge. Locations are publicized in the media.Normal salaried people and self-employed persons visit such centres.• Indian income tax law of 1922 and the income tax ordinance of 1984 guideBangladesh income tax law.• Instead of suspecting, an initiative should be taken to start believing the taxpayers.• Western countries take taxpayers returns in good faith but take to task anydiscrepancy that is detected in the post-audit.• Voluntary disclosures in self-assessment should be accepted at face value but atleast 20 % cases should be taken up for audit and inspection every year at random.A severe penalty should be imposed with arrears payments, if disclosures arefound wanting. This would put potential evaders on notice to comply with fulldisclosure. This would also curtail, to a large extent, the discretionary power ofthe officials and prevalent underhand dealings between taxpayers and officials.• Government set up a Revenue Reform Commission in July 2002. TheCommission submitted an interim report in January 2003. It is expected that theCommission’s findings and recommendation will address many issues of publicconcern that would help in reducing the cost of doing business in Bangladesh.The Sectoral Workshop with the State Minister for Finance 82 as Chief Guest was held on4 September 2003 which was also addressed by the Federal Tax Ombudsman ofPakistan. 83 The institution of Federal Tax Ombudsman was introduced in PakistanSeptember 2000, and BEI invited him to share the experience with Bangladesh becausethe taxation system is more or less similar between the two countries. He provided therationale and the effectiveness of the Institution.Governments in developing countries continue to tackle maladministration in theTax/Revenue departments, , according to the Ombudsman In their dealings with taxdepartments businessmen (importers, exporters, producers/manufactures etc.) fall, in a82 Minister of State for Finance Shah. M. Abul Husain MP, Justice (Rtd) Salim Akhtar83 See Appendix F for full presentation of the Tax Ombudsman, Justice (Rtd) Selim Akhter.Reducing The Cost Of Doing Business In Bangladesh 108

nmber of cases, victim to maladministration in one form or the other suffering not onlyharassment but extra costs by paying bribe or duties and taxes not legally payable.Indirect taxes like customs and excise duties form part of the price of importedgoods/materials or of those locally produced or manufactured, which are passed on to theconsumers. It is imperative for public functionaries administering indirect taxes to assessstrictly according to laws in force because any over assessment, wrong classification ofgoods, arbitrary enhancement of value or discriminatory order will increase the cost ofdoing business by affected parties. It renders affected businessmen uncompetitive in themarket. The most outstanding feature of the tax collection is the adverse relationshipbetween the taxpayers and the tax collector. The citizens mostly consider the impositionof taxes as tyrannical and instrument of terror. On the other hand the attitudes of the taxcollectors has remained bureaucratic, arrogant, non-cooperative and technical. One of thereasons of the apathy of the tax collectors can be traced to the unrealistic revenue targetsof the Government. Each year, the government sets increasing revenue targets for theNBR, which has little relevant to the tax paying capacity of the taxpayer and theeconomic realities. The tax officials concentrate more on the collection of targetedrevenues disregarding all other considerations. As a result the taxpayer has to suffer andthere is no one to listen to his owes. It is at this point of time that there arises the need forOmbudsman to oversee the government of the departments and agencies, inquire,investigate and provide relief to the aggrieved party. The main object of this institution isto protect people against violation of right, administrative excess, abuse of power,negligence and ineptitude in performance of duties, denial of justice, actions contrary tolaw, practice, rules and regulations, discrimination, unfairness, corruption, bribery,nepotism and maladministration. It intends to introduce accountability and transparencyin the administration. Independence of the Ombudsman is the corner stone of thisinstitution. The universally accepted characteristics of this institution are:a. Independence.b. Impartiality and Fairness.c. Credibility and Review Process.d. Confidentiality.The Ombudsman identified the following major irritants for Taxpayers that are similar toBEI study findings.Major irritants clearly discernable from the complaints, causing genuine discontentamong the tax payers, were found in the following areas, according to the Ombudsman:i) Improper maintenance or loss of records of taxpayers.ii) General slackness in responding to tax payer’s applications/enquiries.iii) Subversion and misuse of prescribed office procedures.iv) Lack of expertise among administrative officers and other staff in matterrelating to Government servants’ conduct, efficiency and disciplinary rules.v) Weakening of the system of periodical inspections.vi) Fear and weakness in decision-making.vii) Deficiency of knowledge and skills among the functionaries mainly exhibitedin their quasi-legal decisions.viii) Biased condu8ct towards taxpayers.Reducing The Cost Of Doing Business In Bangladesh 109

ix) Lack of training and refreshers courses for tax employees, adversely affectingtheir performance.x) Violation of rules, regulations, orders and instructions of NBR and superiorxi)courts.Law laid down by the superior courts regarding requirements for notices notfollowed, rendering all proceeding void.This invariably causes:a. Corruptionb. Delay in decisionsc. Delay in issuance of refundsWhich substantially results in:i) Loss of confidence among honest taxpayers.ii)iii)Discouragement of investors, particularly foreign investors.Loss to national exchequer.”The Ombudsman while recounting his experience of providing relief said that “Relief hasbeen not only provided to assesses against harsh, excessive and illegal assessments andorders but recommendations have been made for systemic reform for improvement in taxadministration to ensure fairness and transparency in tax procedures and administration.The tax payers have been provided an independent forum to seek fiscal justice where theycan assert their rights and voice their grievances which otherwise cannot be availedbefore departmental forums headed by revenue officers with a pro-revenue mind set.”The Ombudsman found self-assessment schemes a very effective process under the selfassessmentscheme the department could select 20 % of the returns for total audit throughrandom ballot. It was implemented and about 30,000 assesses were benefited by it.A practice had developed that without the prior approval of the IAC pre show causenotice was issued and investigation was made. This caused harassment and providedfertile ground for corruption. Recommendation was made to issue show cause notice withprior approval of IAC and all previous notices were cancelled. Thus a singlerecommendation provided collective benefit. In another case by one order customsdepartment disposed about 11,000 claims within four months which were pending formore than six years. This institution provides cost free and quick justice without anytechnical hastle. Independent observers, organizations and agencies have reported that taxemployees have become careful in passing the orders. This indicates improvement in thetax culture and behavior.It may be pointed out that the complainants have expressed their fear and apprehensionabout revenge action by the tax authorities. This is not unfounded and such apprehensionhas been expressed in other countries as well. To check this menace the American BarAssociation has recommended revenge action as an offence.In conclusion he said that the Ombudsman “It is clear the misunderstanding bring a taxfriendly culture and fiscal justice and make all concerned to realize and respects taxpayers right. We should not be disheartened by such obstacles, which are always createdReducing The Cost Of Doing Business In Bangladesh 110

when efforts to reform are made. It requires political will, resolution, conviction, faithand commitment to achieve such goals.”Now adopted in 122 countries, the Institution was strongly recommended by theOmbudsman in Bangladesh. BEI arranged a meeting with the Ministers of Finance, Law,Justice and Parliamentary affairs and the Commerce Minister where he made a strongcase in favor of the office of Ombudsman in Bangladesh, to address the following issuesA. Citizens should not be distrusted by Tax and Customs officials atevery stepsB. Tax-GDP ratio must increase as people receive services from theGovernmentC. Custom barrier must not be removed against imports to theextent of closing down local industriesD. To follow world customs organizationE. Political will of the government and the parties are must for anypositive result in the institution of OmbudsmanA complaint is normally disposed of maximum in 60 days and a complex one in 3-4months. Ombudsman faces non-major opposition from politicians. Initially Central Boardof Revenue was hostile but gradually it was re adjusting to the process of Ombudsman.Chambers of Commerce and Industries are in favor of Ombudsman and submitted tenrecommendations to strengthen the institution.The State Minister said that tariff rates have been slackeend in fiscal 2003-2004 on rawmaterials. The rate is now 15% to encourage industrialization in countries. The DhakaCustoms House is partly computerized. Nationwide network is expensive and neededskilled manpower. Therefore, it is only partly on line. Computer submission of shippingdocuments will be in place gradually. Government will study the institutionalOmbudsman, if necessary, by sending a team to Pakistan.Summary of Recommendations° Simplify tax administration° Tax Ombudsman° E-governance° Opportunity to file returns electronically.° Public awareness of tax rules and rates on media, internet and hand books tosafeguard tax payers from official and unscrupulous tax advisers° Roundtable of NBR, tax bar associations, trade bodies and segment of tax payerson TV° Close supervision of field officials° The Return of Judicial officers to the tribunal° Basis of taxation may be changed from income to expenditures which are easy toidentify° Self-assessment with 20% random audit for 5 years.Reducing The Cost Of Doing Business In Bangladesh 111

° Private sector to take responsibility for misuse of facilities.° Trust taxpayers instead of suspecting them wholesale° Visit by members of parliamentary standing committee to tax office° To obviate informal payment to get a refund by businessman refundable percentof VAT may not be realized at the first instanceReducing The Cost Of Doing Business In Bangladesh 112

APPENDIX A: FIELD INTERVIEWSIndiaDr. S.K. AgarwalHonorary Secretary, Transparency International IndiaAnand S. BhattWadia Ghandy & Co.Swapan K. BhattacharyaAssociate Professor, International Trade and CommerceIndian Institute of Public AdministrationM.C. GuptaAdviser, UNIDOSudhir JadwaniTATA Consultancy ServicesAjay KhannaDeputy Director General, Confederation of Indian IndustryS.N. MenonAdditional Secretary, Ministry of Commerce and IndustryHamid A. MoochhalaWadia Ghandy & Co.Dr. Indra Nath MukherjeeProfessor and Dean, School of International StudiesJawaharlal Nehru UniversityMr. C.M. RamakrishnanVice-Chairman, Transparency International IndiaS. SenDeputy Director General, Confederation of Indian IndustryPrabar SenguptaDirector General, Indian Institute of Foreign TradeN.K. SinghMember, Planning CommissionReducing The Cost Of Doing Business In Bangladesh 113

Daman Dev SoodTATA Consultancy ServicesProfessor Chavan D. WadhvaChief Executive, Centre for Policy ResearchPakistanJustice Saleem Akhtar (Ret.)Federal Tax OmbudsmanIrum AhsanAfridi, Shah & Minallah, Advocates and Legal ConsultantsDr. Faisal BariAssistant Professor, Lahore University of Management ScienceDr. Ali CheemaAssistant Professor, Lahore University of Management ScienceMujahid EshaiEshai and Company, Chartered AccountantsDr. Anjum NasimProfessor, Economics Department, Lahore University of Management ScienceShahid NiazBusinessmanSyed Mansoor Ali ShahAfridi, Shah & Minallah, Advocates and Legal ConsultantsMehnaz ShirazAfridi, Shah & Minallah, Advocates and Legal ConsultantsMalaysiaDatuk Zainun Aishah AhmadDirector General, Malaysian Industrial Development Authority (MIDA)Dato’ Dr. Mohd. Yusof AhmadDirector General, Institute of Diplomacy & Foreign RelationsReducing The Cost Of Doing Business In Bangladesh 114

Tunku Abdul AzizPresident, Transparency International (Malaysian Chapter)The Kuala Lumpur Society for Transparency & IntegrityTan Sri HM KhatibChairman, Hartasuma SDN.BHDDato Megat Najmuddin KhasPresident, Malaysian Institute of Corporate GovernanceMirzan MahathirPresident, Asian Strategy and Leadership InstituteProfessor Bruno R. RodrigueProject ConsultantLee Leok SoonExecutive Director, Malaysian Institute of Corporate GovernanceTan Sri Dr. Noordin SopieeChairman & CEO, Institute of Strategic and International Studies (USIS)Dato Dr. Michael O.K. YeohChief Executive Officer/Director, Asian Strategy and Leadership InstituteSingaporeAmitav AcharyaProfessor, Deputy Director & Head (Research)Institute of Defence and Strategic StudiesYap Shih ChiaSenior Officer, International OperationsInternational Enterprise SingaporeBarry DeskerDirector, Institute of Defence and Strategic StudiesAmbassador KesavapanyDirectorInstitute of South-East Asian StudiesReducing The Cost Of Doing Business In Bangladesh 115

Leon KhorSenior Vice PresidentInternational Trade Institute of Singapore (ITIS)Lawrence KockRegional Director, International BusinessCrimson Logic Pte Ltd, SingaporeTommy KohDirector, The Institute of Policy StudiesKoh Buck SongHead, Marketing CommunicationsEconomic Development BoardReducing The Cost Of Doing Business In Bangladesh 116

APPENDIX B: PORT CUSTOMS REQUIREMENTSThe following customs formalities are required to be fulfilled in Bangladeshi ports:2. Declaration of vessel to the port in a prescribed form3. Submission of IGM4. Inward Clearance from Shipping Master.5. Inward Entry application/ permission [provisional]6. Outward Entry application / permission7. Collection of ship’s documents from Master and Showing to Customs.8. Customs Officer posting application / permission9. General Working application/ permission10. Berthing information to Port Health officer and permission for on board the vessel11. Berthing information to Immigration Officer.12. Collection of store list book and submission to customs authority13. Master’s application to Customs introducing the Shipping agents and authorizingthem to do the ship-handling job in the port.14. Vessel’s working permission from Customs.15. Load Line distance declaration of Master to Customs16. Dangerous drug declaration of Master to Customs17. Declaration of the Master that vessel is not a lighter vessel.18. Deck Cargo declaration by Master authenticated by Preventative officer on board19. Customs arrival declaration20. Final Entry application / permission21. To obtain Certificate of Competency issued by Shipping Master22. Supplementary / Retention / amendment application to Customs23. Light dues payment permission24. Dock Labour Safety application / permission25. Credit advice from Bank to CPA26. No Objection Certificate from Mercantile Marine Department27. No Objection from Shipping Master officer.28. Income Tax Guarantee application to Tax Department29. Submission of Annexure ‘A’ to Income Tax Department30. Permanent Liner Term vessel declaration by Master to Customs31. Port clearance application to Customs32. Money permission from Customs if ship officials require cash33. Health return application to Port Health officer34. Marine Declaration of Health35. Obtaining Waiver Certificate under Bangladesh Fag Vessel Ordinance [whereapplicable] and submission to M.M.D36. Submission of ship’s arm and ammunition to Customs PO on board the vessel37. Night working permission from Customs38. Light House Declaration39. Submission of Health return to Customs as approved by P.H.O40. Submission of EGM41. Port Clearance from Shipping MasterReducing The Cost Of Doing Business In Bangladesh 117

APPENDIX C: AIRPORT CUSTOMS REQUIREMENTSThe following steps are required to be fulfilled for airport customs clearance:1. Rotation2. Entry Number collection from Clerk3. Computer Entry4. Entry Clerk for sign.5. Super name collect of Apprising Officer6. Apprising Officer for sign.7. Super [Examine] for name collect of Examining Officer.8. Assistant Commissioner [Freight Examine] for sign.9. Produce No Entry in Customs Register10. Biman Register for produce.11. Biman register Entry in main godown12. Goods loading in Examination Hall by Biman loader13. Goods examine by Examine officer14. Examine report by Examining officer [after examination]15. Super for Examine report sign16. Peon for seal [super & examining officer]17. Submit to Assistant Commissioner, Principal Appraiser18. Principal Appraiser to Assistant Commissioner for examine report sign19. Assistant Commissioner to Examine Super20. Examine Super to Assessment Super21. Assistant Super to Appraisal Officer for Assessment report22. Appraisal officer to Super [after report]23. Super to Clerk for Register Entry24. Clerk to Assistant Commissioner, Principal Appraiser25. Principal Appraiser to Assistant Commissioner for assessment report sign26. Assistant Commissioner to Deputy Commission, Principal Appraiser [for RegisterEntry]27. Principal Appraiser to Deputy Commissioner for Assessment report sign28. Deputy Commissioner to Joint Commissioner or Additional Commissioner,Principal Appraiser29. Principal Appraiser to Joint Commissioner or Additional Commissioner forassessment report sign30. Joint Commissioner or Additional Commissioner, Principal Appraiser31. Principal appraiser to Commissioner32. Again Commissioner to Additional Commissioner or Joint Commissioner,Additional Commissioner or Joint Commissioner to Deputy Commissioner,Deputy Commissioner to Assistant Commissioner, and Assistant Commissionerto Assessment Super33. Assessment Super to Appraiser officer for final assessment34. Appraiser officer to Super35. Super to Clerk36. Clerk to Computer print [3 section]37. Computer to Appraiser officer for final sign38. Appraiser officer to SuperReducing The Cost Of Doing Business In Bangladesh 118

39. Super to Clerk for register entry40. Clerk to Bank for payment of Taxes [3 sections]41. Bank to out pass Clerk42. Out pass Ware House for payment of Ware House Charges by Customs Escort [8sections]43. Delivery after payment of Ware House Charge [5 sections]Reducing The Cost Of Doing Business In Bangladesh 119

APPENDIX D: RESOURCESAmerican Embassy Dhaka. Bangladesh Country Commercial Guide 2002-2003. UnitedStates Trade Center, July 2002.Board of Investment. Bangladesh Investment Handbook, November 2002.Board of Investment. Utility Services and Environmental Clearance, Prime Minister’sOffice, January 2001.Chowdhury, Faizul Latif. Some Thoughts on Tax Reform in Bangladesh, Fiscal Frontiers,p 13-54.European Commission. Market Access Sectoral and Trade Barriers Database, 020009-Difficulties faced by shipping operators.Federal Tax Ombudsman’s Annual Report 2001.Khaochan, Chanin. Advisory Paper on Attracting FDI to Bangladesh for BOI. Sponsoredby the Japan International Cooperation Agency, 2001.Omar, Rafi. Keynote paper on Problems of Ports and Shipping in Matters Relating toExport, submitted to the Shipping Minister at a FBCCI seminar in October 2002.Rahman, Aminur, Gregory Kisunko, and Kapil Kapoor. Estimating the Effects ofCorruption, World Bank Policy Research Working Paper 2479, November 2000.www.worldbank.org/research/workingpapersRahman, Latifur. The Days of Caretaker Government and My Views (Bengali) July 2002.Suggestion by the Japanese Commerce and Industry Association in Dhaka to PromoteForeign Direct Investment in Bangladesh, November 5, 1997.The Heritage Foundation. 2003 Index of Economic Freedom.The Task Force on Tax Administration. Reform of Tax Administration in Pakistan:Report of the Task Force on Reform of Tax Administration, April 14, 2001.http://www.cbr.gov.pkTransparency International Bangladesh. Executive Summary, Corruption Database 2001,July 9, 2002Transparency International. Corruption in South Asia, December 2002.Transparency International. Global Corruption Report 2001.Transparency International. Pakistan’s Anti-Corruptin Program: Observations andReducing The Cost Of Doing Business In Bangladesh 120

Recommendations, May 2002. www.transparency.orgTransparency International. Press Release, August 28, 2002. www.tibangladesh.org/news/CPI02World Bank. Bangladesh: Review of Public Enterprise Performance and Strategy,November 2002.World Bank. Bangladesh: Key Challenges for the Next Millenium, April 1999.World Bank. Corruption in Bangladesh: Costs and Cures, April 7, 2002.World Bank. Reforming the Natural Gas Sector, Policy Brief #12: Natural Gas.World Bank. Taming Leviathan: Reforming Governance in Bangladesh, March 2002.Bangladesh: Public Expenditure ReviewBangladesh: Review of public enterprise performance and strategy, May,2003Sho-Ko-Kai report, Japanese commerce and industry association in Dhaka,28 July, 2003Bangladesh, Country Commercial Guide, 2003-2004, U.S. Trade Center,July 2003The World Development Bank Report, 2004Improving The Investment Climate In Bangladesh, June, 2003Address By Justice Saleem, Federal Tax Ombudsman, Pakistan, OnSeptember 4, 2003The Daily StarThe IndependentThe Financial ExpressReducing The Cost Of Doing Business In Bangladesh 121

APPENDIX E: LIST OF PARTICIPANTSAT THE NATIONAL SEMINAR AND SECTORAL WORKSHOPSDay-Long National SeminarHeld on January 9, 2003Inaugural SessionChief Guest: Mr. Amir Khosru M. Chowdhury, M.P., Minister, Ministry of CommerceClosing SessionChief Guest: Barrister Moudud Ahmed, M.P., Minister, Ministry of Law, Justice andParliamentary AffairsParticipants:1. Brig. Gen. M. Mofizur Rahman (Retd), Executive Chairman, BEPZA2. Ms. Nasreen Awal Mintoo, President, Women Entrepreneurs Association ofBangladesh3. Mr. S.D. Khan, Former T&T Secretary, Government of Bangladesh4. Mr. G.M. Khurshid Alam, World Bank5. Ms. Saima Chowdhury, Malek Spinning Mills Ltd.6. Mr. Alamgir Rahman, BGMEA7. Mr. Zulfiqur Rahman, Board Member, BEI8. Mr. S.M. Abdul Mannan, Board Member, BEI9. Syed Mahmudul Huq, Vice President, Chittagong Stock Exchange10. Mr. Rafi Omar, Managing Director, Kuchne & Nagel Ltd.11. Mr. A.K.M. Mahbub-ul-Haque, Former Additional I.G.P12. Mr. Anis ud Dowla, Chairman, ACI13. Barrister Rafique ul Huq, Former Attorney General14. Mr. Mushfiqur Rahman, MP15. Mr. N.W. Khandakar, Ex Managing Director, Bangladesh Shipping Corporation16. Mr. A.K. Faezul Huq, Former State Minister for Jute17. Mr. M. Mujibul Huq, Former Cabinet Secretary18. Mr. K.S. Nabi, Former Attorney General19. Mr. Forrest E. Cookson, Former President, American Chamber of Commerce inBangladesh20. Mr. Faizur Razzaque, Former Secretary to the Government and Managing Director,Grameen Fund21. Ms. Rokia A. Rahman, Former Adviser, Caretaker Government22. Mr. Minhajul Islam, Member, BGMEA23. Mr. Waliur Rahman Bhuiyan, President, Foreign Investors Chamber of Commerceand Industry.24. Dr. Tawfiq-e-Elahi Chowdhury, Former Secretary and Executive Chairman, Board ofInvestment25. Mr. Gholam Arshad, Advocate, Bangladesh Supreme Court26. Mr. Azizul Huq, Former IGP27. Mr. Kazi Zafarullah, MP & Chairman, Reliance Group28. Mr. Maurice D. Geiger, World Bank ConsultantReducing The Cost Of Doing Business In Bangladesh 122

List of ParticipantsSECTORAL WORKSHOP ON LEGAL REFORMHeld on September 13, 2003Chief Guest: Barrister Moudud Ahmed, M.P., Minister for Law, Justice andParliamentary AffairsParticipants:1. Mohammad Abdul Hannan Zoarder, ED, Securities and Exchange Commission2. Mr. Md. Shahed Ali, Deputy Chief Engineer, Office of the Chief Inspector ofFactories and Establishment3. Mr. Gholam Arshad, Advocate, Bangladesh Supreme Court4. Mr. Moin Ghani, Dr. Kamal Hossain and Associates5. Mr. A.S.M. Mainuddin Monem, Director, Abdul Monem Ltd6. Mr. Joshua C. Pazoul, World Bank Project, Scouts Bhaban, Dhaka7. Barrister Nihad kabir, Practicing Lawyer8. Barrister Sheela R. Rahman, Practicing Lawyer9. Mr. Jahangir Bin Alam, Secretary, Foreign Investors Chamber of Commerce andIndustry10. Ambassador M. Afsarul Qader, Former Bangladesh Ambassador to Indonesia11. Justice Mustafa Kamal, Former Chief Justice12. Justice Moinur Reza Chowdhury, Former Chief Justice13. Barrister Rafique ul Huq, Former Attorney General and a Senior Practicing Lawyer14. Mr. M. Faizur Rahman Chowdhury, Former Additional Secretary Ministry of HomeAffairsReducing The Cost Of Doing Business In Bangladesh 123

S ECTORAL W ORKSHOP ON L AW E NFORCEMENTH ELD ON A UGUST 17, 2003Chief Guest: Mr. Mujibul Huq, Former Cabinet SecretarySpecial Guest: Major (Retd) A. Mannan, MP& Chairman, Parliamentary Committee onMinistry of Home AffairsParticipants:1. Mr. Nurul Huda, Former IGP2. Ms. Munira Khan , Senior Vice President, FEMA3. A.S.M. Mainuddin Monem, Director, Abdul Monem Ltd.4. Mr. Manzoor ul Karim, Former Home Secretary5. M.M. Reza, Former Home Secretary6. Mr. Md. Ismail Husain, Former IGP7. Mr. M. Faizur Rahman Chowdhury, Former Additional Secretary Ministry of HomeAffairs8. Mr. Mainuddin Chisti, Former Additional IGP9. Mr. Anwarul Alam, Former Chairman, Rajuk10. Mr. B. Chowdhury, Manager, BATA Shoe Co ( BD) Ltd11. Mr. Azizul Haque, Former IGP12. Barrister Tania Amir, Practicing Lawyer13. Mr. A.B.M Ghulam Mustafa, Former Minister14. Mr. A.M.A Muhith, Former Finance MinisterReducing The Cost Of Doing Business In Bangladesh 124

S ECTORAL W ORKSHOP ON P ORTS AND S HIPPINGH ELD ON M AY 22, 2003Chief Guest: Zulfiqar Haider Chaudhury, Secretary, Ministry of Ports andShippingParticipants:1. Mr. Asif A. Chowdhury, Managing Director, “K” Line Bangladesh Ltd2. Mr. Emran Hossain, Director, Divine Associates3. Mr. Md. Sydur Rahman Molla, TIB4. Mr. A.S.M. Salahuddin, Sr. Deputy General Manager, HRC Shipping Ltd.5. Commodore Ghulam Rabbani, Former Chairman, Chittagong Port Authority6. Mr. Sultan Ahmed Talukder, Joint DG, Bangladesh Railway, Railway Bhaban, Dhaka7. Mr. M. Mohsin Sarker, Member, Chittagong Port Authority8. Commodore (Retd) Mohd. Khurshid Alam, Chairman, Mongla Port Authority9. Commodore Zulfiqur Ali (Retd), Chairman, Chittagong Port Authority10. Mr. Golam Rahman, Former Ports and Shipping SecretaryReducing The Cost Of Doing Business In Bangladesh 125

S ECTORAL W ORKSHOP ON T ELECOMMUNICATIONH ELD ON J UNE 22, 2003List of ParticipantsChief Guest: Mr. Marghub Morshed, Chairman, Bangladesh TelecommunicationRegulatory Commission, Government of BangladeshParticipants:1. Dr. M. Abdul Awal, Associate Professor, Department of Computer Science, NorthSouth University2. Mr. Md. Abdul Mobarak, Joint Secretary, Ministry of Post and Telecommunication3. Mr. M. Rezaul Haque, Commissioner, Bangladesh Telecommunication RegulatoryCommission4. Mr. Shah Zaman Mozumder, Chairman, Show AndTell5. Mr. Khalid Hasan, Grameen Phone6. Mr. Abu Saeed Khan, Telecom Analyst7. Mohammad Tipu Sultan, Pacific Bangladesh Telecom Ltd.8. Mr. M.H. Choudhury, Former Chairman, T&T Board9. Mr. A.R. Saber, Managing Director, Millennium Communication Ltd10. Mr. M.A. Mannan, Former Chairman, BISIC11. Mr. M.M. Reza, Former Secretary12. Dr. Sawkat Ali, Former SecretaryReducing The Cost Of Doing Business In Bangladesh 126

S ECTORAL W ORKSHOP ON G ASH ELD ON J UNE 16, 2003Chief Guest: Mr. A.K.M. Mosharraf Hossain, Minister of State for Energy and MineralResourcesParticipants:1. Mr. Azimuddin Ahmed, Former Secretary2. Mr. Mosharrof Hossain, Former Chairman, Petrobangla3. Manjur Morshed Talukder, General Manager (RSD), Titas Gas Transmission andDistribution Com.4. Mahtab Uddin Ahmed, D.G.M. FU-WANG Group5. Syed Jamaluddin, Consultant, BEI6. Azam. J. Chowdhury, managing Director, Mobil Fuels Ltd.7. Zhang Ling, Director, Fu-Wang8. Syed Noor Hossain, Former Ambassador9. Mr. A.K. Faezul Huq, Former Sate Minister for Jute10. Kabir Uddin Ahmed11. Mr. S.M. Al-Husainy, Former Secretary12. Mr. Moazzem Hossain, Editor, The Financial Express13. Mr. S.R. Osmani, Chairman, Petrobangla14. Dr. M. Abdul Awal, Associate Professor, Department of Computer Science, NorthSouth UniversityReducing The Cost Of Doing Business In Bangladesh 127

S ECTORAL W ORKSHOP ON P OWERH ELD ON J UNE 24, 2003List of ParticipantsParticipants:Chief Guest: Mr. Iqbal Hasan Mahmood, Minister of State for Energy1. Mr. Aziz Khan, Chairman & Managing Director, Summit Group2. Mr. Zahiduzzaman Faruque, Editor, Daily Arthaneeti3. Dr. Shahnawaz Ahmed, Professor, Department of Electrical Engineering, BangladeshUniversity of Engineering & Technology (BUET)4. Mr. Mufazzel Hossain, Former Secretary5. Mr. Sanjiv Mehta, Chairman & Managing Director, Lever Brothers Bangladesh Ltd6. Mr. D.M. Mohsin-Ul-Alam, Power Development Board7. Mr. G.M. Didarul Islam, Power development Board8. Mr. Khaled Kabir, Vice President, NEPC Consortium Power Ltd9. Mr. Noor Hossain, NEPC Consortium Power Ltd10. Mr. Md. Iqbal Hossain, Senior Information Officer, Power Division11. Mr. A.N.M Rizwan, Managing Director, Power Greed Company of Bangladesh12. Mr. A.K.Faezul Huq, Former State Minister for Jute13. Mr. Abdul Matlub Ahmed, Chairman, Nitol groupReducing The Cost Of Doing Business In Bangladesh 128

S ECTORAL W ORKSHOP ON B OARD OF I NVESTMENTH ELD ON J ULY 3, 2003Chief Guest: Mr. Mahmudur Rahman, Executive Chairman, Board of InvestmentSpecial Guest: Mr. Kazi Zafarullah, M.PParticipants:1. Dr. Atiur Rahman, Senior Research Fellow, Bangladesh Institute of DevelopmentStudies2. Mr. M.A. Awal , Chairman, Bangladesh Textile Mills Association3. Mr. Aminul Islam, Former Ambassador and Secretary to the Govt.4. Mr. Stephen Daintith, Managing Director, British American Tobacco Bangladesh5. Mr. Forrest E Cookson, Former President, American Chamber of Commerce inBangladesh6. Mr. Aftab-Ul- Islam, President, American Chamber of Commerce in Bangladesh7. Dr. M. Abdul Awal, Associate Professor, Department of Computer Science, NorthSouth University8. Brig Gen Mofizur Rahman, Chairman , BEPZA9. Mr. Al-Ameen Chaudhury, Former Industry Secretary10. Mr. Mahbub Jamil, Chairman and Managing Director, Singer Bangladesh Ltd.11. Mr. Ramit Budhraja, Chief Executive Officer, Holcim (Bangladesh) Ltd12. Dr. Haroonur Rashid, Former Chairman, Security Exchange Commission andSecretary to the Govt.13. Mr. Akmal Hossain, Former Energy Secretary14. Mr. Waliur Rahman Bhuiyan, President, Foreign Investors chamber of Commerceand IndustryReducing The Cost Of Doing Business In Bangladesh 129

List of ParticipantsS ECTORAL W ORKSHOP ON C USTOMS AND T AXATIONH ELD ON S EPTEMBER 4, 2003Chief Guest: Shah M. Abul Hussain, M.P, Minister of State for FinanceSpecial Guest: Justice Saleem Akhtat, Tax OmbudsmanParticipants:1. Mr. Manzoor Mannan, Member, Customs, NBR2. Mr. A.M.M. Shahadat Hossain. Chairman, Chittagong Port Authority3. Mr. Md. Khurshid Alam, Chairman, Mongla Port Authority4. Mr. Rafi Omar, Managing Director, Kuchne and Nagel Ltd.5. Mr. Sajjad Hussain, Member, Income Tax Administration, NBR6. Mr. A.S.M. Abdul Aziz7. Mr. Alamgir Rahman, Bangladesh Garment Manufacturer & Exporters Association(BGMEA)8. Commodore Ghulam Rabbani, Former Chairman, Chittagong Port Authority9. Mr. Md. Sydur Rahman Molla, Transparency International Bangladesh10. Mr. K.Z. Islam11. Mr. Faizur Rahman Chaudhury12. Mr. M. Hafizuddin Khan, Former Auditor and Comptroller General and FormerAdvise Caretaker Government13. Mr. M. Mujibul Huq, Former Cabinet Secretary14. Mr. Md. Mahbubuzzaman, Second Secretary, Custom, NBR15. Mr. Md. Moazzem Hossain, Second Secretary (Customs), NBR16. Mr. A.S.H.K. Sadique, Former Education Minister17. Mr. K.M.H. Shahidul Haque, DCCIReducing The Cost Of Doing Business In Bangladesh 130

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