US embassy cable - 05DHAKA3628

C O N F I D E N T I A L DHAKA 003628 
 
SIPDIS 
 
E.O. 12958: DECL: 07/27/2015 
TAGS: ECON, EINV, ENRG, ETRD, PGOV, BG 
SUBJECT: CDA PAYS COURTESY CALL ON BOI EXECUTIVE CHAIRMAN 
 
 
Classified By: Acting Pol/Econ Counselor David Renz, reasons 1.4(d). 
 
1. (U) Summary: BOI Executive Chairman and Energy Ministry 
Advisor Mahmudur Rahman discussed his new role in the 
Ministry of Energy, Power and Natural Resources and his plans 
for reforms with CDA Chammas.  He also discussed large 
investment deals that the BDG is currently negotiating with 
Indian and U.S. investors.  End Summary. 
 
2. (U) CDA Judith Chammas met with Rahman for a courtesy call 
on July 26.  CDA was accompanied by EconOff as notetaker 
during the hour-long meeting. 
 
3. (C) Rahman said that he has been busy with reform plans 
for the whole Ministry since taking over as advisor on June 
20.  Rahman is working on a three-part reform plan that he 
intends to implement by January 2006.  He calculates that he 
only has eight months to put reforms in place before the 
campaign season hits full swing.  His goal: reduce system 
loss in the energy sector by 50 percent and reduce accounts 
receivable by 75 percent. 
 
4. (C) He told the CDA he has been approached by the World 
Bank and other donors about reforms in the archaic BDG energy 
policy.  He is preparing a new long-term energy policy to 
protect and efficiently utilize Bangladesh's vast gas and 
coal reserves.  He cited recent steps that he has taken to 
reverse systemic non-payment of gas and electric utility 
bills by commercial and industrial customers.  Recently, he 
shut down the gas supply to a factory run by a prominent 
ruling party member for failure to pay substantial 
arrearages. 
 
5. (C) In an attempt to address corruption within the 
Ministry, Rahman transferred 178 employees accused of 
corruption out of the Ministry.  He also plans to implement 
an e-governance program in the gas sector modeled after his 
successful e-governance program at the Board of Investment. 
In the oil sector, he noted that Bangladesh imports over 3.7 
million tonnes of oil per year, of which 2.3 million tonnes 
is diesel fuel oil.  The BDG subsidizes sales of diesel fuel, 
which has created a thriving resale market into India, where 
prices are higher.  Rahman recently gathered diesel 
consumption numbers from regions of the country.  Consumption 
in the border regions is two to three times higher than in 
other areas.  He plans to crack down on the dealers in those 
areas and start an inter-ministerial process to curb this 
problem.  He said that in his most conservative estimation, 
Bangladesh would save over $200 million through this 
crackdown. 
 
6. (C) On the investment front, Rahman said that the TATA 
deal is on track. There are six areas that are currently 
being negotiated.  He expects the issues of land rights, 
duration of government gas security, and licenses for coal 
mining to be resolved within a week.  He pointed out, 
however, that the price of gas sales to TATA and power 
purchase price from TATA, together with the long list of 
fiscal incentives proposed by TATA, are the three most 
critical and difficult issues to resolve.  Nevertheless, he 
is optimistic that agreements will be concluded in time for a 
November ground-breaking ceremony. 
 
7. (C) Mahmudur Rahman praised the Embassy and U.S. investors 
for their work in Bangladesh and promised continued support 
for two U.S. power generation projects.  He reiterated his 
enthusiasm and committment to the Road Show, tentatively 
scheduled for October.  He told the CDA that senior BDG 
officials and business leaders have shown keen interest in 
the Show and are optimistic that this Road Show will help 
create closer investment and trade links between the U.S. and 
Bangladesh. 
 
8. (C) Comment:  BOI Executive Chairman Mahmudur Rahman was 
appointed by the PM to the Energy Ministry as advisor 
following the removal of the State Minster for Energy due to 
corruption charges.  Rampant corruption in the gas sector and 
in the Ministry as a whole has led to public and investor 
outcry over the Ministry's operations.  Rahman's reputation 
as a non-corrupt, business friendly, private sector outsider 
could restore some credibility to the Ministry.  His attempts 
at cracking down on unpaid gas bills have grabbed significant 
media attention, but will require sustained effort in the 
face of powerful vested interest if they are to have any 
long-term impact. End Comment. 
CHAMMAS