How age-old govt procurement rules hold back booming heavy electric equipment industry

Infographic: TBS

Despite a decade of rapid growth fuelled by an expanding middle class, manufacturers of the country's heavy electric equipment remain locked out of major public contracts.

Producers of commercial-grade air-conditioners, industrial chillers, variable refrigerant flow (VRF) systems and elevators say they are still being sidelined from government projects due to outdated procurement regulations and the absence of a dedicated local certification framework.

Industry leaders say the mismatch between public procurement policies and the country's growing manufacturing capacity is discouraging investment, slowing technology development and increasing reliance on imported equipment, despite government efforts to boost domestic production and conserve foreign currency.

The country's electronics and electrical goods market has now exceeded Tk60,000 crore annually, while investment in the sector has crossed Tk10,000 crore over the last decade, according to industry stakeholders.

Although the Bangladesh Standards and Testing Institution (BSTI) certifies household appliances, there is no dedicated certification system for large-scale commercial equipment such as central heating, ventilation and air conditioning (HVAC) systems, industrial chillers and elevators.

As a result, government agencies continue to rely on Public Works Department (PWD) rate schedules and categorisation systems that industry representatives say favour long-established international brands.

Under the Schedule of Rates (SOR) linked to the Public Procurement Rules (PPR) 2008, electrical brands are categorised largely based on company history and global presence rather than current manufacturing capability.

American and European brands are listed as "Category A" suppliers for high-end projects, while Chinese and Japanese firms fall under "Category B". Most Bangladeshi and Indian companies remain in "Category C" or "D".

Industry representatives say companies operating for more than 60 years qualify for Category A, while those with more than 30 years of experience fall into Category B. Since most Bangladeshi manufacturers entered the market within the last decade, they remain at a disadvantage.

"Bangladesh now has three to four companies capable of manufacturing commercial-grade ACs and lifts at European or American standards. But because of the government's rate schedule, we cannot supply products to major public projects," said RN Paul, managing director of Vision Electronics.

"When private developers evaluate us, they also consider government categorisation. Since we remain under Category C, it affects our credibility even in export markets," he added.

Paul said foreign buyers recently showed strong interest in Bangladeshi products displayed at a trade exhibition in China, but concerns over certification and the lack of participation in major domestic projects weakened buyer confidence.

Import dependence despite local capacity

The issue came into focus earlier this year after reports that eight Public Works officials travelled to the United States for training linked to a central air-conditioning project.

According to media reports, the PWD signed a procurement deal with US-based Dunham-Bush for central HVAC systems at eight divisional specialised hospitals. Local manufacturers argue that similar systems are already being produced domestically.

Officials at Walton Hi-Tech Industries said at least four to five Bangladeshi companies now manufacture HVAC and industrial chiller systems, but procurement restrictions prevent them from participating in government projects.

"This creates a double loss. The country loses foreign currency while local investors who spent heavily on technology and factories remain underutilised," said a senior industry official.

Walton Group Managing Director Golam Murshed said procurement decisions should be based on technical standards rather than historical brand positioning.

"The government can bring experts from Buet or even Europe and America to test our products. If we pass the standards, we should be allowed to supply," he said.

He added that while the country's industrial policy promotes import-substituting local industries, procurement policies work in the opposite direction.

The same challenge exists in the elevator sector.

Under current PWD schedules, global brands such as OTIS, Schindler, Kone and Mitsubishi are listed as top-tier suppliers, while locally manufactured lifts remain in lower categories.

Industry leaders say this automatically excludes local firms from many government tenders despite having the technical capability.

"Higher-priced foreign brands are being treated as premium quality by default, while locally produced products with similar standards are considered lower grade simply because of categorisation," said Paul, Vision Electronics MD.

He added that current rules allow locally manufactured lifts to be supplied only to buildings up to around six floors, despite local factories having high-speed lift testing towers and experience supplying elevators to private high-rise buildings.

Mamunur Rashid, managing director of Ernest Engineering Works Ltd, said Bangladeshi companies including PRAN-RFL and Walton have already received internationally recognised European safety certifications from TÜV SÜD.

"Despite having international compliance certification, these products still cannot enter many public projects because procurement rules have not evolved," he said.

TÜV SÜD is an internationally accredited certification body that provides testing, auditing and certification services to ensure that products, systems and personnel comply with internationally recognised standards for safety, quality and sustainability.

Growing industry faces policy barrier

Industry insiders estimate Bangladesh's annual demand for elevators at 8,000 to 10,000 units. RFL currently has capacity to produce around 1,000 lifts annually, while Walton can manufacture nearly 2,000 units.

The broader air-conditioner market is also expanding rapidly, with annual demand reaching 600,000 to 700,000 units, backed by investments of around Tk5,000 crore. Local manufacturers already meet nearly 90% of residential AC demand.

However, in the advanced VRF and chiller segment, local firms account for only around 10% of the market as public and institutional projects remain heavily dependent on imports.

Market estimates suggest Bangladesh's annual demand for VRF and chiller systems stands at around 150,000 tonnes. Industry players believe localising a significant share of the market could create up to 15,000 new jobs.

Economist M Mashrur Reaz, chairman of Policy Exchange Bangladesh, said the electronics, electrical and technology sector has become one of the country's major emerging industries.

"Entrepreneurs have invested heavily over the last decade. The government now needs to provide policy support to protect those investments and sustain employment growth," he said.

He said many countries provide preference margins or equal opportunities to domestic industries in public procurement, while Bangladesh's procurement structure is making local firms less competitive against foreign brands.

When contacted, Md Saiful Islam, director (Certification Wing) of BSTI, told TBS that BSTI is the country's designated authority for testing and certifying product quality and currently provides certification for a wide range of household appliances.

"However, we do not yet have the capacity to test and certify large-scale industrial air-conditioning systems and lifts. In such cases, if manufacturers obtain internationally recognised certifications from local or international certification agencies, BSTI accepts those credentials and approves the products accordingly," he said.

Saiful added that BSTI expects the PWD to give due consideration to locally manufactured products in its procurement policy, provided they meet required quality standards and pass performance assessments.

However, industry stakeholders said the problem lies in existing regulations and will continue unless procurement rules are reformed.

PWD officials acknowledged that the current framework has become outdated.

Ashik Ahmed Shibli, supervising engineer at the PWD Procurement Unit (Reserve), said the existing policy structure dates back to 2011 and was designed based on companies' operational history and previous project experience.

"Now the time has come to revise the procurement policy. We are working on it. If local manufacturers can meet quality standards, there will be scope to include them more effectively," he said.