Gas, Power Crisis Pushes Tannery Industry to Brink as Production Slumps 70pc

Bangladesh's leather industry is teetering on the edge of a major collapse as an acute gas and electricity crisis has slashed production by up to 70 per cent, prompting tannery owners to warn that most factories could shut within a month unless urgent government intervention is forthcoming.

Despite repeated government assurances of uninterrupted energy supplies, tannery owners say prolonged gas shortages and erratic electricity have crippled manufacturing operations, threatening one of the country's largest export-oriented industries.

"We are facing an unprecedented crisis. If the current situation continues, almost all tanneries will be forced to close within a month," Md Shaheen Ahmed, President of the Bangladesh Tanners Association (BTA), told The Daily Observer in an exclusive interview at his office in Jigatola on Tuesday.

He said severe gas shortages have paralysed crucial production processes, particularly dyeing, reducing overall factory output by between 60 and 70 per cent and pushing many businesses to the verge of bankruptcy.

Bangladesh's leather industry possesses enormous export potential and could become a significant source of foreign exchange earnings, but inadequate policy support and persistent regulatory barriers are preventing the sector from realizing that potential.

The energy crisis has compounded a host of longstanding structural problems facing the sector, including high import duties on industrial chemicals, customs bottlenecks, environmental compliance failures, mounting bank debts and an acute shortage of working capital.

Ahmed said that while 35 tanneries operating under bonded warehouse facilities enjoy duty advantages, the remaining Cottage, Micro, Small and Medium Enterprises (CMSMEs) are burdened with a Total Tax Incidence (TTI) of up to 35 per cent on imported chemicals, including customs duties and VAT.

"This has become an unbearable cost for small and medium-sized tanneries and is severely undermining their competitiveness," he said.

Exporters are also grappling with lengthy customs delays at Chattogram Port, where disputes over Harmonised System (HS) codes and Dangerous Goods (DG) classifications hold up container clearance for up to 20 days.

Transport costs have also doubled, as exporters are often forced to use two trucks instead of one to carry a single 20-foot container because of regulatory restrictions.

To revive the industry, the BTA chief urged the government to reduce duties on imported chemicals for CMSMEs, simplify customs and port procedures, and introduce dedicated cash incentives similar to those enjoyed by the ready-made garment (RMG) sector.

He said Bangladesh's leather industry possesses enormous export potential and could become a significant source of foreign exchange earnings, but inadequate policy support and persistent regulatory barriers are preventing the sector from realising that potential.

Ahmed identified environmental non-compliance as one of the industry's biggest internal challenges.

"Because our factories have failed to meet international environmental standards, exporters are losing buyers in premium markets such as Europe, the United States, Japan and South Korea. As a result, many are forced to sell leather at discounted prices to non-compliant Chinese buyers," he said.

Referring to the relocation of tanneries from Hazaribagh to the Savar Leather Industrial Park, Ahmed said the government's promise of establishing an environmentally compliant industrial zone has yet to materialise.

He alleged that the Central Effluent Treatment Plant (CETP) and solid-liquid waste management facilities remain largely ineffective despite billions of taka being invested in the project. Consequently, factories equipped with modern machinery have been unable to secure internationally recognised environmental certification.

The sector is also facing mounting financial distress, BTA president said.

Ahmed said many tanneries became loan defaulters after relocating to Savar before 2017, while those that remained operational financed new factories through their own resources and bank borrowings but failed to receive promised refinancing support. 

"As a result, almost all tanneries, except around 10 to 12, have become loan defaulters over the past two years," he said.

According to the BTA, outstanding bank exposure to the leather sector now stands at around Tk 8,000 crore, comprising Tk 3,000 crore in principal and Tk 5,000 crore in accumulated interest. The association has urged the government to consider waiving interest on a case-by-case basis and introducing an "Exit Policy" for entrepreneurs seeking to leave the sector.

Tannery owners are also pinning their hopes on the government's recently announced Tk 61,000 crore stimulus package for distressed industries.

Ahmed said the leather industry was largely excluded from the Tk 100,000 crore COVID-19 stimulus programme, with most assistance directed towards the RMG sector.

He called for low-interest soft loans and between Tk 1,000 crore and Tk 2,000 crore in working capital support to help factories install their own Effluent Treatment Plants (ETPs), improve compliance and restore production.

The association also expressed concern over the collapse of this year's raw hide market during Eid-ul-Adha, which normally supplies nearly half of the country's annual raw hide requirement.

Ahmed attributed the market failure to a severe shortage of working capital, poor preservation practices and widespread livestock disease.

Before 2017, a single raw hide fetched between Tk 2,000 and Tk 4,000. However, following the relocation to Savar, inadequate processing capacity-"particularly for goat and castrated goat skins-"resulted in significant wastage and falling prices.

He said tanneries require around Tk 1,500 crore in seasonal financing to purchase raw hides during Eid-ul-Adha.

While banks previously provided nearly Tk 500 crore in seasonal credit, they reportedly disbursed only Tk 70-80 crore this year, leaving the industry unable to buy sufficient hides.

Ahmed further blamed poor preservation techniques for the deterioration in hide quality.

Raw hides begin to decay within hours if not properly salted, while inexperienced butchers frequently damage skins through excessive knife cuts during slaughter.

He also claimed that inadequate livestock vaccination campaigns had left between 20 and 25 per cent of hides infected with Lumpy Skin Disease (LSD), rendering them unsuitable for producing premium-quality leather.

To address these longstanding challenges, the BTA has submitted a series of recommendations to an inter-ministerial committee involving the Ministries of Commerce, Industries, Fisheries and Livestock, along with Bangladesh Bank.

Among its key proposals is the nationwide distribution of quality salt directly to livestock farmers and sacrificial animal buyers before Eid-ul-Adha to ensure immediate preservation of raw hides and minimise post-slaughter losses.