The Japan International Cooperation Agency (Jica) has committed a $50-million loan to private sector firm BSRM Steels Limited for the construction of an environmentally sustainable steel plant, marking the first instance of Jica’s loans to a private sector manufacturing company in Bangladesh.

This investment is a strategic move aimed at rejuvenating Bangladesh’s private sector, as emphasised by Jica in a statement published on its website.

Jica signed the loan agreement on 4 October. A ceremony to commemorate the signing was held in Mirsharai of Chattogram on 17 October.

Jica, Bangladesh’s largest bilateral development partner, has historically supported various infrastructure ventures, including the MRT-6 (metro rail), the Matarbari deep seaport and many more. In a significant move earlier this year, Jica extended a $100-million loan to Brac Bank for initiatives related to green manufacturing, renewable energy, energy and resource efficiency, and efficient waste management.

However, the ground-breaking aspect of this agreement lies in Jica’s debut investment in Bangladesh’s private sector manufacturing sphere, potentially ushering in a new avenue for cost-effective financing opportunities within the private sector.

As per information from BSRM Steels, the Jica loan comes with a 12-year term and carries an interest rate of three months’ Secured Overnight Financing Rate (SOFR) plus 3.50% per annum. Based on the prevailing SOFR rate, the cost of this loan stands at approximately 9%.

The project will be co-financed by Standard Chartered Bank and the Export-Import Bank of India, among other institutions.

The new steel plant to be set up in Mirsharai will raise the annual capacity of BSRM Steels by 6 lakh tonnes to reach 14 lakh tonnes.

Aameir Alihussain, the managing director of BSRM Limited, told The Business Standard on Saturday, “We are the first-ever private sector company who got a Jica loan. It is very prestigious for us. And this loan agreement has created a new path for Jica to finance the private sector. They will now be keen to finance other projects as well.”

Explaining the reason for the investment, he said, “Jica is interested in investing after seeing our governance and compliance. And this time, getting a loan in the dollars will make our project implementation much easier.”

Aameir Alihussain said the steel plant is expected to start operation by the mid of 2024. The billet plant already commenced operation in June this year, he added.

Jica said it financed the steel factory through the Export-Import Bank of India.

“I am glad to announce that this is the first co-financing project with India Exim Bank. We look forward to exploring additional joint projects with India Exim Bank in third countries,” SAITO Mitsunori, chief representative of Jica India, said.

The Jica statement said steel products like rebar are essential materials for the construction of such infrastructure, and going forward, the demand for steel in Bangladesh is expected to grow at an annual rate of 15-20%. “On the other hand, Bangladesh relies on imports for some steel products, and there are concerns that the increase in imports associated with the above growth will have a negative impact on the country’s trade balance. In addition, emissions of environmental pollutants and greenhouse gases from steel plants are a major challenge,” it said.

According to the Bangladesh Steel Manufacturers Association, the country currently has an annual demand for 70-75 lakh tonnes of MS rods. About 55 auto steel re-rolling mills and more than 100 semi-auto and manual mills in the country supply these rods, though a few large companies dominate the market of higher-grade quality steel products gradually reducing import dependence.

This loan will promote environmental friendliness and reduce greenhouse gas emissions in the steel industry in Bangladesh through the introduction of solar power generation facilities, air pollutant management systems, and water treatment and reuse plants as ancillary facilities to the plant, the Jica statement added.

At present, BSRM Steels has a rolling plant at Fouzderhat Industrial Estate and two billet plants at Nasirabad Industrial Estate and in Mirsharai.

BSRM Steels’ revenue grew by 26% to Tk8,452 crore in the fiscal year 2022-23 compared to the previous fiscal year.