BOI NO LONGER OPTIMISTIC ABOUT TATA INVESTMENT

C O N F I D E N T I A L DHAKA 000769 SIPDIS SIPDIS USTDA FOR CARL KRESS AND MARIAN BASSETT E.O. 12958: DECL: 02/13/2016 TAGS: EINV ETRD ECON BG SUBJECT: BOI NO LONGER OPTIMISTIC ABOUT TATA INVESTMENT TALKS Classified By: A/DCM Dundas McCullough, reason 1.4(d) ¶1. (C) Summary: BOI Executive Chairman Mahmudur Rahman says the $2.5 billion Tata project is effectively dead, thanks in part to both the ruling BNP and the opposition AL have turning it into a political football. End Summary. ¶2. (SBU) EconOff met with Board of Investment (BOI) Executive Chairman and Energy Advisor Mahmudur Rahman on February 7 to discuss prospects for a business delegation visit to the U.S. that Rahman is expected to lead. Rahman expressed confidence that the visit would greatly improve investment and trade relations between the U.S. and Bangladesh. ¶3. (C) Turning to the well-publicized $2.5 billion Tata energy and steel project, Rahman regretted that there appears to be no chance now to bring it to closure before the anticipated January 2007 election. He blamed the stalled negotiations on Tata's "unreasonable" demand for a long-term sovereign guarantee contract for gas at USD 1 per scf, which is well below cost and less than half the BDG's stated minimum. ¶4. (C) Rahman said that the Tata deal has become a political issue for both the ruling Bangladesh Nationalist Party (BNP) and the opposition Awami League (AL). The BNP is concerned about the political ramifications of appearing to be too lenient with Tata, while the AL has started accusing the BDG of giving away too much to Indian interests. Former AL Commerce Minister Tofail Ahmed criticized the BNP for making deals with foreigners that are detrimental to the country and cited Tata as the prime example. Such criticism is expected to escalate as elections near, Rahman continued. In this political climate, BNP does not have the political will to make further concessions to Tata, he said. ¶5. (C) Rahman criticized Finance Minister Saifur Rahman for many of the persisting energy and infrastructure problems that have become a major BNP liability in the run-up to the election. He accused Saifur of being too old, short-sighted, and without the vision needed to lead the country in the technology age. He said he would like to see former Central Bank Governor Dr. Fakhruddin Ahmad take on the Finance Ministry portfolio in the next (BNP) administration. ¶6. (U) Referring to the newly drafted BDG coal policy, Rahman said that the policy is comprehensive and has taken input from all stake holders. He expects it to be enacted without objection or change soon. (Note: Many private sector groups have expressed concerns over portions of this new policy, especially those related to nationalization of equipment used in coal mining.) ¶7. (C) Comment: The Tata mega-project was seen as a huge opportunity for Bangladesh to demonstrate that it is open for international business and, as the project grew in scope, to make a significant contribution to the national power grid. Its apparent collapse, at least for the time being, is a disappointment for the BDG and BOI Chairman Rahman, who had enthusiastically championed it from the outset two years ago. Politically, Tata's hardball negotiating on gas fueled a public outcry about alleged Indian designs on Bangladesh's energy resources, and its feared fallout on Bangladesh's long-term economic prospects, which left BNP with little choice but to stand down. Sniping at the Tata project from the normally India-friendly AL reflects its reflexive opposition to any BDG position or undertaking. Rahman and Finance Minister Saifur Rahman are rival technocrats aligned to different BNP factions, and Rahman's criticism of Saifur, though not without merit, should be seen in that context. CHAMMAS