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Tata’s Bangladesh plan in cold storage

One of the Tata Group’s biggest overseas investments has been put in cold storage by the Bangladesh government due to imminent elections in the country—implying that the projects will now face significant cost overruns.

Written by Devchatterjee | Mumbai |
June 15, 2006 11:29:19 pm

One of the Tata Group’s biggest overseas investments has been put in cold storage by the Bangladesh government due to imminent elections in the country—implying that the projects will now face significant cost overruns.

The Tatas were planning to invest close to $3 billion in a chemical, power and a steel plant. But in spite of a revised offer for Bangla gas from the Tatas, the local government decided to keep the project in limbo citing presentation of the budget in June. The Tatas were expecting some decision by the Bangladesh government by May 31.

‘‘First, the federal budget announced in early this month delayed the approval. Now we hear that the administration will be handed over to a caretaker government by August. Till the results are out we are not expecting any major decisions,’’ a Tata official said.

Tata group’s investment proposal was the largest ever FDI offer made to the South Asian nation.

The proposal included a 2.4-million tonne capacity steel plant at Ishurdi, a one million tonne per annum capacity fertiliser plant at Chittagong and a 1000 MW power plant.

A report from the Bangladesh Foreign Investment Board recommended against the project, saying the economic benefits to the country is far lower than the discounted gas to be given to the Tatas as a quid pro quo. The Tata group then resubmitted a revised proposal on May 1 that included an offer to buy natural gas in Bangladesh at $3.10 per thousand cubic feet, more than double of its previous offer.

What is worrying the local government is the opposition from the country’s two prominent steel industry associations—Bangladesh Steel Mills Owners’ Association and Bangladesh Re-rolling Mills Association—in an election year. Both associations staged a mass rally on May 29 to protest against the Tata project.

The two associations say if the Tata group is given guaranteed supply of gas for a long-term period, it will be disastrous for their companies in terms of energy security.

Though the Tatas are saying their Bangladesh plans are still on the table, Tata insiders say the top brass is fast losing patience over the delay.

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