US embassy cable - 05DHAKA1867

C O N F I D E N T I A L DHAKA 001867 
 
SIPDIS 
 
E.O. 12958: DECL: 04/21/2015 
TAGS: EINV, ECON, PGOV, BG 
SUBJECT: TATA FINISHES UPBEAT FEASIBILITY STUDY 
 
REF: A. DHAKA 3768 
     B. DHAKA 4018 
 
Classified By: P/E Counselor Dundas McCullough, reasons para 1.4(d). 
 
1. (C) Summary:  Indian corporate giant, Tata Group has 
finished its feasibility study and presented a Status Update 
Report to the Board of Investment for projects to produce 
power, steel and fertilizer in Bangladesh.  The BOI Executive 
Chairman expects formal negotiations to start as early as 
next week and conclude in six months.  He is optimistic that 
ground-breaking on the project will take place prior to 
November.  End Summary. 
 
2. (C) Three Tata Group companies - Tata Steel, Tata Power 
and Tata Chemicals - submitted a combined Status Update 
Report to BOI Executive Chairman Mahmudur Rahman on April 20, 
which marked the end of the six-month feasibility study. (Ref 
A)  Rahman told EconOff that he is putting pressure on Tata 
to get the deal done before his anticipated departure from 
BOI in November.  Otherwise, he said that the project will 
stall due to the effective start of campaign season for the 
2007 elections. 
 
3.  (C) The Status Update Report outlines areas for 
negotiations and requirements for the projects.  It lists the 
total capital investment by Tata at around $2.5 billion, 
significantly higher than the $1.8-$2 billion discussed in 
previous reports (Ref A), and  proposes a Urea fertilizer 
plant in Chittagong that would have a million ton per year 
capacity.  The steel plant, which is expected to have 
production capacity of 2.5 million tonnes, and a 1000 MW 
power plant are expected to be built in Ishardi in the 
underdeveloped Northwestern region of Bangladesh.  The plant 
will import iron ore from India and export the finished steel 
to India. 
 
4. (C) Following is a short list of issues that need to be 
resolved: 
 
-  According to the Tata press release on the Status Update 
report, BDG has requested Tata to consider coal as an 
alternative fuel source to gas for the power plant.  BOI told 
EconOff that this is not a serious issue as the BDG is simple 
using coal as a way to distract from public suspicions over 
gas sales to India. 
 
- Tata will use 460 MW of power produced in the 1000 MW power 
plant and sell the rest to the BDG.  Negotiations are 
underway to determine price of the surplus power.  Tata 
proposed prevailing market rates and to buy gas and coal from 
the BDG at market rates as well. 
 
- Negotiations could become heated on the gas guarantees 
requested by Tata. (Ref B).  Tata also wants a coal 
exploration license to see if coal can serve as an 
alternative or backup fuel source. 
 
- For the steel plant, Tata will import iron ore from India 
through rail lines and export steel to India through the same 
lines.  Disputes over border security and escalating border 
protection concerns could be problematic.  BOI told EconOff 
that there are serious concerns on both sides over border 
security, terrorism and shipment of illegal goods, including 
arms and drugs. 
 
5. (C) To handle the negotiations, the BDG has organized a 
Committee for the Tata Investment Proposal, which includes 
all state ministers from relevant ministries and the BOI 
Executive Chairman as the Secretary of the Committee.  The 
Committee is chaired by the Minister of Industries, Motiur 
Rahman Nizami, a leading member of Jamat Islami (JI).  The 
Tata Group Marketing Consultant in Bangladesh, M.A. Reaz, 
told us that although Nizami was opposed to the project in 
the beginning due to JI's opposition to relations with India, 
he has recently become an advocate for the project after two 
of the three proposed plants were designated for his region. 
A senior consultant at BOI told us that Nizami claims to be 
"privileged" to be heading the Committee and assisting Tata. 
THOMAS