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