Tatas close to dropping Bangladesh plans

After more than a year of intense negotiations, the Tata Group has nearly given up on its massive investment plans in Bangladesh. The government of Bangladesh may not honour a deadline for approval set for this month.

The latest hitch is the impending general elections in Bangladesh and the present government is not very keen to proceed with the projects. There is some amount of opposition to the Tata proposals from local industrial and political groups on grounds that the Tata group is getting favourable treatment at the cost of local manufacturers.

The Tata group had proposed a nearly 2.5-million tonnes per annum steel plant, a 1,000 MW gas-based power plant and a large urea plant with 1- million tonnes per annum capacity. The projects envisaged a total investment of $2.4 billion and were proposed to be made by group companies Tata Steel, Tata Power and Tata Chemicals.

The investments were meant to exploit the huge natural gas reserves in Bangladesh. Much of the output from these projects was meant for exports to India after meeting local demand. If approved, the investment by Tatas would have exceeded the cumulative FDI received by Bangladesh since its independence.

These projects would have had a considerably impact on the domestic economy and would have significantly improved the trade balance of Bangladesh with India. A study by Economist Intelligence Unit had estimated that the Tata projects would improve the GDP growth rates of Bangladesh by as much as 2 per cent per year.

The investment proposals required the Bangladesh government to guarantee supply of natural gas at a below-market negotiated rate. The original demand by the Tatas was for supply of gas at around $1.1-per million cubic feet.

Earlier this year, the Tatas improved their offer price for natural gas to $3.1 per million cubic feet for the fertiliser project and $2.6 per million cubic feet for the steel project. They also hiked the total investment to $3 billion by including a 500 MW coal based power plant.

Indications are that the Bangladesh government would prefer to wait till the general elections scheduled for January 2007 are over and a new government is in place. It is unlikely that the Tata group would be willing to wait till then, unless the government is willing to give some assurances on the pricing of natural gas.