Wednesday, 24 December 2008

Bhutan : Move over steel, tourism’s sick too

24 December, 2008 - The sick steel industry’s hope of help from the government is set to face a serious setback with tourist operators asking for a similar aid. The operator’s contention: the financial calamity has hurt their business too.

If the government is ready to shore up the steel industry, then it’s only fair that it provide the same support to tourism, according to the association of Bhutanese tour operators (ABTO), which is planning to approach the government this week.

ABTO’s general secretary Sonam Dorji said that, already, more than 1,500 tourists have cancelled their trip to Bhutan in 2009 following the international credit crunch. More bad new may be in store. In 2007, during the initial period of recession, only 250 operators out of 400 got business.

“Even the ones coming in do not or will not stay long,” said Sonam Dorji.

The United Nations world tourism organisation has also come out with a very bleak forecast, said Sonam Dorji. It said that the credit crisis will injure Asia’s tourism more than any others, because of its distance from source, the western countries.

Besides being beneficial to communities and service industries, such as hotels, tourism employs 3,000 regular staff and about 2,500 every tourist season. In 2008, it generated US$ 40 million in royalty to the government.

ABTO is requesting “interim measures,” such as deferment of the planned tariff revision in 2009 from US$ 200 to US$ 250 till things normalise, and concession on the royalty amount and Druk Air tickets. It also wants hotels to keep a lid on their annual tariff increase.

Observers, however, think ABTO’s plan may face difficulties. Tourism is not an intensive investment business, not for the operators anyway. At any rate, said the observer, it is a more superior revenue-generating business than most, not only for the government, but also for the operators themselves, from comparably less investment.

“Our tourism industry have had it good for a long time, they should be able to ride this storm, which too will pass,” said an observer, who did not want to be named.

What about steel?
Which is not to say that there is general consensus among the officials, or even the public, that the sick steel industries should be rescued.

The Nu 1.3B steel factories in Pasakha, following the international financial crisis that led to a dip in demand for steel in the Indian market, approached the government recently for aid. They asked for additional working capital, interest rate of their loans to be reduced, interest and principal of their loans to be deferred for one year, and power and lease rates to be frozen till they recovered.

Stakeholders economic affairs ministry, finance ministry, Bhutan power corporation limited (BPC), the national environment commission (NEC), and the country’s two banks are studying the situation.

The private steel industries in Pasakha, which sell their products to India, reap the benefits of the difference in tax and cost of power, which are lower in Bhutan. BPC charges Nu 1.51 per unit to the industries, and a higher Nu 2 per unit to India.

Steel industries are power intensive. BPC has built a substation with a capacity of 189 MVA near Pasakha solely for the industries there. There are nine (operational) industries, out of which five are steel. Lhaki steel is sanctioned 20 MW of power.

“We’ve spent Nu 540 million for the substation, I don’t think we can further approve the steel industries’ proposal,” said a power official.

If BPC sold the 189 MVA of power, it would earn not less than Nu 3 million every year. From the total power sanctioned to the industries, only 40 MVA is known to be used, the rest is not withdrawn, say BPC officials. BPC recently fined five Pasakha industries Nu 11 million for not drawing power. Lhaki Steel was charged Nu 3.24 million.

Pasakha industries were also fined for exceeding the pollution standard set by NEC. The steel industry is also a heavy polluter. Besides emitting sulphur dioxide, carbon monoxide, they also contaminate water with slag (thick sootlike material), say NEC officials.

Revenue and customs officials say Pasakha industries do not have to pay corporate income tax and business tax for three years. They are also exempted from duty on import of raw materials.

“With various incentives provided, there is now no space for any fiscal measures,” say a customs official.

Record maintained by the employment department show that the five private steel industries employed 186 nationals and 296 non-nationals. The figures were given by the industries and not confirmed.

Meanwhile, Lhaki steels managing director, Tashi Wangdi, in a letter to Kuensel wrote: “The failure of the manufacturing companies in Bhutan will have a negative impact on BPC, financial institutions, present and potential employment opportunities, indirect employment derived from direct employment opportunities and trading sector in Bhutan who supplies to manufacturing sector.”

By Passang Norbu

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