How to setup Shipbuilding and Ship breaking business in Bangladesh

by Barrister Tahmidur Rahman | Nov 8, 2022 | 2024, Law

How to setup Shipbuilding and Ship breaking business in Bangladesh

Demand for ships on the international market in Bangladesh is directly related to the economy because ships are used for commercial purposes.Bangladeshi shipbuilding industry has been seeking export market prospects in the specific segment of small vessels.Shipbuilding yards in Bangladesh has been exporting small and medium-sized vessel for the extremely competitive European market.

The Bangladesh shipbuilding industry is a rising contender in the global market for small and medium-sized vessels. In spite of the fact that the industry primarily serves the domestic market, exports have increased satisfactorily over the past decade. Bangladeshi companies have exported ro-ro vessels, multipurpose container vessels, tug boats, landing crafts, bulk carriers, patrol vessels, catamaran water taxis, ferries, oily waste collection vessels, and passenger vessels to numerous European, African, and Asian countries.

There are currently over 100 shipbuilders and over 120 registered shipyards of varying sizes, the majority of which are situated along riverbanks. Almost 90% of fuels, 70% of cargoes, and 35% of passengers are transported via waterways in Bangladesh, resulting in a substantial domestic demand for vessels.

The number of locally registered vessels has increased by an average of 5.39 percent per year due to steady economic and trade growth and the activation of infrastructure projects. The annual market value of the local shipbuilding industry is currently estimated to be around $1 billion, and demand growth is anticipated to remain consistent with economic expansion. Current estimates place the annual building capacity for export orders at more than 20 vessels. MPVs, containers, bulkers, tankers, dredgers, tugs, and passenger ferries, ranging from 1,000 to 20,000 dwt, are built locally for domestic use.

The industry has begun to accumulate a record of building orders from foreign ship owners. In 2017-18, the value of exports increased to $30 million from $5.8 million.

On the other hand, the ship-breaking industry has taken control of the global market by dismantling approximately 47.2% of world vessels. According to the UNCTAD report, Bangladesh, India, and Pakistan account for 70–80 percent of the international recycling market for ocean-going vessels. In recent years, Bangladesh’s rapidly expanding shipbuilding and ship-breaking industry has become a significant source of foreign revenue.

This high-potential industry has garnered a positive reputation on the global competitive market in a short amount of time.

There are currently approximately 200 shipbuilding companies in Bangladesh, ranging in size from large to medium. The most well-known ship breaking yard is the Chittagong Ship Breaking Yard.

Shipbuilding and shipbreaking are likely the most lucrative export-oriented industries in our country. Bangladesh is a lucrative destination in this market, as there has been a rise in demand for various types of vessels worldwide. Additionally, the shipbuilding and shipbreaking industries are experiencing a rise in demand as a result of the enormous profits they generate annually. As Bangladesh has proven to be a new and favorable destination for this business, numerous foreign investors are showing interest in this industry.

Ship Building and Ship Recycling Board Authority:

Ship Building and Ship Recycling Board (SBSRB) is a designated authority under the Ministry of Industries that offers a one-stop shop for Ship Building and Ship Recycling.

Bangladesh has competitively-priced skilled engineers and semi-skilled workers, as well as training opportunity for shipbuilding and breaking, which is operated under the cooperation of the government and industry association, thus providing job opportunities for thousands of workers.This Industry is a sophisticated, high-tech industry with the promise of substantial economic and social benefits.

This sector offers substantial employment opportunities, industrial development, a steady flow of foreign revenues, and numerous other opportunities for the industrial sector to attract foreign investors. Bangladesh Ship Recycling Act of 2018; The Ship Breaking and Recycling Rules of 2011; Hazardous Waste and Ship breaking waste management rules of 2011; Inland Shipping Ordinance of 1976; Bangladesh Shipping Corporation Order of 1972; Merchant Shipping Ordinance of 1983; and National Industry Policy of 2016 are the primary laws governing this industry.

License and Registration method for shipbuilding business in Bangladesh:

In Bangladesh, a shipbuilding company can be formed to conduct business:

Company:

A Company duly registered in Bangladesh may engage in any business activity permitted by the Object Clause of the Company as stated in the Memorandum of Association of the Company. A company may be public or private in Bangladesh. Minimum of seven shareholders are required to establish a public company.

To incorporate a private company, however, a minimum of two shareholders is required. A private company cannot invite the public to subscribe for its shares, whereas a public company may offer the public the opportunity to acquire its shares. In practice, the private company structure is the most popular among both foreign and domestic entrepreneurs.

Regarding foreign direct investment, there are no restrictions on foreign equity participation; therefore, 100 percent foreign equity participation is permitted. Foreign investment in Bangladesh is afforded the same level of protection and safety as domestic investment. The laws of Bangladesh guarantee non-discrimination between foreign and domestic investments, as well as the repatriation of capital gains and dividends.

To create a company, the subsequent steps must be taken:

1. The Registrar of Joint Stock and Companies must issue a Name Clearance for the proposed corporation.
2. The following must be drafted and signed:

• Articles of Incorporation and Memorandum of Association;

• Form I: Company Incorporation Declaration;

• Form VI: Notification of Change of Registered Office;

• Form IX – Director’s consent to act;

• Form X: Personal Consenting to Serve as Directors List;

• Form XII: Information about directors, managers, and managing agents

3. Opening a temporary bank account for the Proposed Company at any scheduled bank in Bangladesh.
4. Transfer the amount of paid-up capital from the account of each foreign shareholder to the Bank Account of the Proposed Company in Bangladesh.
5. Obtain from the Bank of the Proposed Company an encashment certificate for each foreign transaction.
6. Provide RJSCwith all necessary documentation.
7. Pay registration fees to the government.
8. RJSCis the source of the registration certificate.

Documents Required for Company Formation in Bangladesh:

a) Copy of the Valid Name Clearance for the proposed organization;

b) A copy of the company’s executed Memorandum and Articles of Association.

c) Copy of the executed Form I: Declaration On Registration Of Company;

d) Copy of the executed Form VI: Notice Of Change Of Registered Office;

e) A copy of the executed Form IX: Consent of director to act;

f) Copy of Form X: List of Individuals Consenting to Serve as Directors, duly executed

g) A copy of the executed Form XII: Particulars of the directors, manager, and managing agents;

h) Copies of shareholders’ and directors’ national identification documents (for Bangladeshi citizens);

I Copies of TIN Certificates for shareholders and board members (for Bangladeshi nationals);

j) Passport copies of shareholders and directors (for Foreign Nationals)

k) Photos of shareholders and directors the size of a passport;

l) Bank Encashment Certificate regarding each foreign shareholder;

m) Payment of government fees has been received.

A 100% foreign-owned company can also register as a Branch Office to initiate shipbuilding business, in addition to the above-mentioned respective formats. Nevertheless, a Branch office can only perform the functions envisioned by the parent company with prior approval from the Bangladesh Investment Development Authority. Depending on the expansion/scope of the business, additional licenses or permissions may be required after the respective company has been established.

Extra Authorisations required for Ship breaking business in Bangladesh:

Listed below are the additional licenses necessary for establishing a shipbuilding industry:

• I. Trade License;
• II. TIN Certificate;
• III. VAT Registration Certificate;
• Registration of the Industrial Investment Project
• V. Approval of Factory Layout
• VI. Factory License;
• VII. Certification of Membership
• VIII. Certificate of Registration for Imports (required for Import Businesses);
• IX. Export Registration Certificate (applicable to Export Organizations);
• X. Environment Clearance Certificate;
• XI. Fire License;
• XII. Trademark Registration

Authorization for Ship Destruction

The procedure for acquiring additional licenses is described in the following section:

 Trade License for Ship breaking business in Bangladesh:

The most important requirement for establishing a business in Bangladesh is to obtain a trade license. Every business entity is required to obtain a Trade License from the appropriate local governing body. To obtain a Trade License, an application accompanied by the required documents must be submitted to the appropriate local governmental authority (i.e., City Corporation/Municipal Corporation/Union Parishad).

 TIN Certificate:

Individuals and businesses can obtain a TIN Certificate from the government of Bangladesh in order to monitor tax payments. TIN Certificates may only be issued by the National Board of Revenue (NBR). The NBR must receive an online application for the TIN Certificate before issuing the certificate.

 VAT Certificate:

A Business Identification Number (BIN) is required for operation by every business (BIN). By registering for VAT with the National Board of Revenue, it is possible to obtain a BIN. Every organization is required to obtain a VAT registration certificate. In order to obtain a VAT Certificate, the NBR must receive an online application accompanied by all required documentation.

Project Registration for Industrial Investment:

Industrial enterprises in Bangladesh must register with the Bangladesh Investment Development Authority, whether they are domestic or international (BIDA). To register a project for industrial investment, the BIDA must receive a completed application along with all required documentation.

Approval of Plant Layout:

Department of Inspection for Factories and Establishments (DIFE) approval must be obtained prior to the use, modification, or expansion of any house, structure, or property as a factory. The DIFE must receive a completed application with all required supporting documentation in order to approve the layout.

Factory Licensing:

Each owner or occupant must submit an application for registration and license of factory to the Department of Inspection for Factories and Establishments (DIFE) within thirty (30) days prior to the factory’s commencement of operations.

Membership Certification:

After establishing the respective enterprise, the entrepreneur must join a local Chamber of Commerce and Industry or pertinent Trade Association. The application for membership is available at the office of the applicable Chamber of Commerce or Trade Association.

Certificate of Registration for Import and Certificate of Registration for Export:

An importer who possesses an Import Registration Certificate (IRC) and an exporter who possesses an Export Registration Certificate (ERC) are able to import and export any permissible item without any value or quantity restrictions, as well as without permission from any authority. Office of the Chief Controller of Imports and Exports (CCI&E) issues Import Registration Certificate and Export Registration Certificate to applicants who qualify. To obtain the IRC or ERC, the CCI&E must receive an online application accompanied by all required supporting documentation.

 Environment Clearance Certificate

The Environment Clearance Certificate (ECC) is one of the necessary permits for launching an industrial unit or a project in Bangladesh. To obtain this Certificate, the concerned entrepreneur of the industrial unit or project must submit a request to the Department of Environment, along with the required documentation.

 Fire License

Buildings and business organizations are required to obtain a fire license due to environmental concerns and to ensure the safety of the establishment and its employees. It is issued by the Bangladeshi Fire Service and Civil Defense (FSCD) authority operating under the Ministry of Home Affairs. To obtain such a license, the concerned entrepreneur of the industrial unit or project must submit a request to the FSCD along with the required documentation.

Trademark Registration

After the registration of the entity, it may apply to the Department of Patents, Designs and Trademarks (DPDT), which is operated by the Ministry of Industries, for the registration of its trademarks and/or other Intellectual Property in order to protect its trademarks and other IP-related matters. A trademark registration application must be submitted to the Trademark Registry Wing of the DPDT in the prescribed manner and with all required documentation.

Allowance for Ship Destruction:

To conduct a Ship Breaking/recycling business in Bangladesh, permission must be obtained from the “Ship Building and Ship Recycling Board” (SBSRB), which is under the Ministry of Industries.

First, a NOC or No Objection Certificate must be obtained from the SBSRB in order to import the vessel for scrapping or recycling within Bangladesh. SBSRB grants NOC to facilitate letter of credit for import of scrap vessel by evaluating and examining Ship’s detail, MOU, and inventory of Hazardous Waste as per import policy order of the government.

In order to inspect the ship, the SBSRB and the customs department visit the vessel at its outer anchorage to inspect its inventory. If the department determines that the vessel does not carry any cargo or items prohibited by Bangladeshi law, it grants demolition permission. The ship is evaluated by the surveyors.

In addition, the Department of Environment simultaneously inspects the ship for Hazardous Waste and material, excluding in-built hazardous and toxic materials, and may issue a certificate of environmental clearance for that particular ship.

The Department of Explosives issues two credentials.

• No gas required for human entry

• Gas-free for intense work

Prior to granting demolition or cutting permission, the yard owner must submit a Ship Recycling Plan (SRP) and a copy of the permit for the Ship Recycling Facility Plan (SRFP). The SBSRB is the authority designated to ensure compliance with all shipbreaking rules and regulations. It also oversees the production and disposal of hazardous materials and waste.

The permit will be revoked in the event of rule violation. After a thorough re-inspection of the corrective measures, the ship recycler may obtain a new license. The SRFP’s monitoring activities are conducted every six months. It may conduct additional inspections when accidents occur. The SBSRB shall issue a permit of “Ship Recycling Facility Plan” (SRFP) to every ship-breaking and recycling yard that applies for one after evaluating their facilities’ ability to dismantle and recycle ships in a manner that is safe for the environment.

Process of Import

To import a vessel for disassembly and recycling, the following documents must be submitted:

• NOC from the SBSRB

• Environment clearance certificate,

• Specifics concerning the ship,

• MOU with the purchaser and inventory of hazardous materials on board.

• A letter of credit issued by a scheduled bank

Procedure for Ship Recycling:

The Ship Recycling Plan and the Ship Recycling Facility’s Plan are the two documents necessary to initiate the ship recycling process.

The Ship Building and Ship Recycling Board (SBSRB) under the Ministry of Industry is authorized to approve the Ship Recycling Facility Plan in a prescribed format with the following document requirements:

• Application form specified in Annexes III and IV of the ship breaking and recycling regulations.
• DOE-issued authorization for the management of hazardous waste resulting from ship recycling.
• Registration as a Trade Association Member and Hazardous Waste
• Treatment, Storage, and Disposal Facility (TDSF) that will be facilitated or operated by SBSRB under Ministry of Industries.
• Permit for the storage of L.P.G, Acetylene, Carbon di oxide, Oxygen, and all other cylinders and flammable liquids.
• A map illustrating the layout of the yard and other facilities’ components.
• Obtained License and SRFP authorization from SBSRB.
• The following facilities must be included in the Ship Recycling Facility Plan:
• Storage decrease for the temporary storage of hazardous/nonhazardous waste materials
• Facility for the removal and storage of asbestos.
• Restrooms and sanitation facilities for at least 50 employees
• Provision of sufficient and clean water for consumption
• Changing and resting area for employees
• First aid facilities
• Fire suppression facility and Emergency Response System (ERS)
• Material Handling Equipment (MHE) and Personal Protective Gear (PPE)
• Compilation of a list of all skilled professions (lightening, gas cutting, waste handling, working in confine spaces, using various gadgets like oxygen and other gas detectors, crane and material handling systems etc.)
• Other required facilities as directed by Department of Environment

How to setup Shipbuilding and Ship breaking business in Bangladesh and legal Issues:

The Foreign Investment Act:

Bangladesh’s liberalized Industrial Policy and export-oriented, private sector-led growth strategy provide ample opportunities for foreign investment.

In addition to the preceding statute, the following statutes address foreign investment: the Foreign Exchange Regulations Act of 1947, the Bangladesh Export Processing Zones Authority Act of 1980, the Bangladesh Private Export Processing Zone Act of 1996, the Bangladesh Economic Zone Act of 2010 and the Bangladesh Investment Development Authority Act of 2016.

Employment Law:

Bangladesh’s employment law is primarily governed by the Labour Act of 2006. Other relevant statutes include the Labour Rules of 2015, the National Labour Policy of 2012, the Bangladesh Labour Welfare Foundation Act of 2006 and the Bangladesh Labour Welfare Foundation Rules of 2010.

Contract Law: Contractual agreement is the heart of the commercial world. It establishes the duties and responsibilities between the parties regarding the subject matter of the contract. A contract binds both parties of its all agreed and stipulated clauses, such as what would be the party’s liability in the event of committing breach of contract and to what extent shall it cover the losses of the opposite party.

A force majeure event is an unusual occurrence or situation beyond the control of the contracting parties, such as an act of God, war, or natural disaster. An effective application of the force majeure clause typically relieves the parties of their respective contractual obligations and/or liability. A force majeure provision does not completely justify the non-performance of a faction, but only suspends it for a certain period.

Compliances of the business entities- Entities are required to comply with the annual filing requirements, such as updating trade license at the respective city corporation, renewing chamber membership, renewing IRC & ERC, filing taxes, updating the annual filings at the RJSC, reporting to Bangladesh Bank, NBR, etc.

Land Reform Act 2014, East Bengal Tenancy Rules 1954, The Survey Act 1875, The Non-Agricultural Tenancy Act 1949, Registration Act 1908, and Transfer of Property Act 1882 must be complied with in order to register the lease or purchase of land.

Shipbuilding Industry and its potential in Bangladesh:

An estimated 150,000 skilled and semi-skilled individuals are employed in the Bangladeshi shipbuilding industry. In 2011, production was estimated at approximately 250,000 gross tons (GT), with 185,000 GT destined for the local market. In contrast, China employed 400,000 individuals in 2,000 shipyards and related industries with a production volume of 14 million GT, whereas Vietnam employed 110,000 individuals with a production volume of 600,000 GT (WB, 2013).

Bangladeshi exporters have relied heavily on foreign experts and local employees with international experience, particularly for knowledge transfer.

The value chain for forward and reverse linkages with the shipbuilding industry has a great deal of expansion potential. When manufactured for the domestic market, the proportion of value creation other than actual construction can reach up to 25 percent. However, this proportion is typically only 1% for exported ships. The insufficient growth of linkage industries is primarily due to the relatively small size of the shipbuilding market and a lack of skills and technology.

However, there are areas where linkage industries could be developed with the assistance of foreign manufacturers. Meghna Group, City Group, Bashundhara Group, and the Delta Shipyard Limited of TK-Seacom are the industrial groups that have contributed to bringing this distinction to Bangladesh (TK Group and Seacom Group). In 2019-21, Meghna Shipbuilders and Dockyard of Meghna Group constructed 22 vessels, Khan Brothers Shipbuilding of City Group constructed 36 vessels,

Bashundhara Steel and Engineering Limited constructed 8 vessels, and Delta Shipyard constructed 7 vessels. In addition, the Akij Group intends to advance significantly in the sector.

According to industry insiders, the number of ships on coastal routes certified by the twelve member societies of the International Association of Classification Societies (IACS) is increasing rapidly. Under the supervision of renowned organizations such as Bureau Veritas and IRCLASS, ships have been constructed. Over the past three years, more than seventy of these vessels have been constructed to transport LPG, fuel, edible oil, consumer goods, and containers along coastal routes. These vessels are equipped with the necessary technical and safety features for coastal navigation.

Local shipbuilding industry’s two most viable strategies are reliance on stable domestic demand and enhancement of quality cum productivity for export. On the basis of the experiences of China, Vietnam, and other nations, there are five key success factors applicable to the Bangladesh shipbuilding industry. These include: (1) growing the industry during periods of rising demand; (2) ensuring government support; (3) attracting foreign direct investment and fostering joint ventures; (4) expanding the domestic supply industry; and (5) providing a low-cost skilled workforce through proper yard management.

The government can improve infrastructure and quality by taking the following steps:

(a) regulate the number and quality of new shipyards through the issuance of “No Objection Certificates”;

(b) rigorously enforce the Shipbuilding Industry Development Policy 2020, which was approved by the government in 2021;

(c) evaluate shipyards every five years;

(d) look out for the interests of workers through supervision on safety, work environment, and health issues; and

(e) take steps to ply the shipbuilding industry’s supply According to industry insiders, the scarcity and high cost of suitable sites pose significant obstacles to the development of large shipbuilding yards. Connections to roads, railroads, and power are also significant limitations for existing and potential yards.

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