BOI UPBEAT ON POSSIBLE MEGA-FOREIGN INVESTMENTS

C O N F I D E N T I A L SECTION 01 OF 02 DHAKA 001150

SIPDIS

E.O. 12958: DECL: 03/14/2015
TAGS: ETRD EPET PGOV BG
SUBJECT: BOI UPBEAT ON POSSIBLE MEGA-FOREIGN INVESTMENTS

Classified By: P/E Counselor D.C. McCullough, reason para 1.4 d.


1. (C) Summary: BOI's Rahman expressed understanding of the
postponement of the Bangladesh Road Show and reiterated his
support for the event. In reviewing several major foreign
investment proposals, Rahman noted that Bangladesh's
diversifying FDI portfolio, especially with Middle Eastern
investors, gives it new commercial and political options in
dealing with China and, for that matter, the U.S. and the EU.
End Summary.

2 (SBU) On March 14, EconOff met with Board of Investment
(BOI) Executive Chairman Mahmadur Rahman to inform him that
we have reluctantly decided to postpone until September the
Bangladesh Road Show, a three-city trade promotion event in
the U.S. originally scheduled for May. After some initial
disappointment, Rahman expressed understanding and emphasized
the need for making the show a success. Delay was a price
worth paying, he said, to ensure proper planning and
execution. U.S. corporate buy-in and involvement is
necessary to make the event a success, he observed.


3. (C) Rahman reviewed several investment projects being
pursued by the BOI. According to Rahman:

-- The Dhabi Group from UAE recently visited Bangladesh to
initiate discussions for a potential $1 billion investment.
It left with positive impressions and presented proposals for
investment in telecommunications and hospitality. According
to letters sent to BOI after the meeting, the Dhabi Group is
waiting for concrete proposals from BOI to make final
decisions. Rahman is optimistic about this deal and
suggested that this could lead to further deals from the
Middle East.

-- A Saudi business group is interested in investing $2
billion in the oil industry. Headed by a former Deputy
Minister of Labor, it is looking an building a 200,000 bpd
oil refinery. The Saudi group has offered 10% equity rights
in the refinery to the BDG in exchange for land rights and
associated incidentals. Rahman stressed that this
information is not releasable due to its premature status.

-- India's Tata Group is in the feasibility study stage of
its proposed $2 billion steel and gas project. At issue is
whether there are sufficient gas reserves to power the
project for the 20-year life cycle of the investment. Tata
wants guaranteed supplies for 20 years, while the BDG says
its proven reserves can only guarantee 15 years. although it
has 50 years of potential reserves. BDG will undertake
further exploration to find enough gas to meet Tata's
requirement. (Comment: The BDG already has 15-year gas
supply commitments to the French cement company LeFarge and
the two UK-owned AES power plants.)
Tata is expected to present its issues paper to BOI by the
end of April and begin negotiation of terms by May. Tata has
named a Country Manager for the Tata Bangladesh project and
has set-up offices in Dhaka. Group President Ratan Tata has
publicly stated that he wants to break ground on the project
by December 2005.


4. (C) Looking ahead to the April 7 visit by the Chinese
Premier, Rahman expressed skepticism that it would lead to
major new Chinese investment. The Chinese, he said, are
interested in supplier credit deals that BDG no longer needs.
Given Bangladesh's expanding and diversifying FDI portfolio,
the BDG has much more leverage to negotiate on their own
terms. (Note: During the previous Awami League (AL)
government, the Chinese negotiated two supplier credit deals
with the BDG that the BNP government, as part of their
broader suspension of AL-era contracts, did not honor. The
Chinese do not want to negotiate any further deals unless
those two deals are revived.) Rahman stated that the
primary's motive to negotiate with China is political and not
commercial since some Bangladeshis see China as a buffer
against Indian pressure.


5. (C) Comment: Mahmadur Rahman stands out as unabashedly
pro-private sector and pro-FDI. Although his optimism
sometimes gets the better of reality -- he claims BOI is
negotiating for projects worth more than $8 billion dollars
-- he is straightforward about many of the obstacles faced by
investors, particularly corruption. In his view, the BNP
government's single greatest failure is corruption. He
accurately characterizes the new Anti-Corruption Commission
as a joke. He is right to note that the diversification of
Bangladesh's growing FDI portfolio, especially with Middle
Eastern investors, gives Bangladesh new commercial and
political options in dealing with China and, for that matter,
the U.S. and the EU.
THOMAS