TATA FINISHES UPBEAT FEASIBILITY STUDY

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