Tata pulls out: Indian giant finally gives up $3b investment plan over gas guarantee

Indian industrial conglomerate Tata Group yesterday scrapped its plan for $3 billion investment in Bangladesh as it sees “no prospect” of taking the projects any further. 

“It is clear…that the government will not be in a position, in the foreseeable future, to grant the projects the natural gas commitment they would require,” Tata said in a statement yesterday.

“Consequently there is no prospect of taking these projects further,” it said, abandoning its plan after four years of endeavour to persuade Bangladesh government into ensuring a guaranteed supply of gas to its plants.

Tata Group, which made overseas acquisitions of $18 billion in the last eight years, in 2004 first proposed establishing four large steel, power and fertiliser projects in Bangladesh in the biggest foreign direct investment in the country to date and continued intensive negotiations with the government until 2006.

“At that point the group suspended further work on the projects as agreement on key issues with the government was not possible,” the Tata statement said. “Since then the Tata Group has had frequent enquiries on the status of the projects and the prospects for reviving negotiations with the government.”

“All of our four projects were based on the assured supply of gas. But Bangladesh government has not been able to give us any assurance regarding the long term gas supply,” Manzer Hussain, former resident director of Tata Group in Bangladesh, told The Daily Star over telephone from the UK.

He, however, said, “It does not mean that it is end of relationship between Tata and Bangladesh.”

The Tata Group, which has wide-ranging businesses from computer software to automobiles, had placed a proposal to the government to set up two 500MW power plants, a steel mill with an annual production capacity of 4,20,000 tonne and a fertiliser unit capable of producing one million tonne.

In April 2005, it formally submitted a $2.5 billion investment proposal and later revised it to around $3 billion.

Both sides during negotiations provisionally agreed on a 15-year guarantee of 1.25 trillion cubic feet gas and around 3 million tonnes of coal supply to Tata annually and upgrading of gas pipeline from the current 24-inch diameter to 30-inch diameter.

During the year-long series of negotiations Bangladesh agreed to allow Tata a 10-year tax holiday facility and guarantee uninterrupted gas supply. Bangladesh also agreed on awarding Tata a coal mine for exploring around 3 million tonnes of coal a year.

The then BNP-led four-party alliance government was unwilling to make a final decision before the general elections while the present caretaker government has said it has other priorities.

In the meantime, Tata has launched major investment projects in other parts of the world.

The Tata Group communicated its decision through a letter to the Board of Investment (BoI) Executive Chairman Kamaluddin Ahmed.

In the letter, it said the group has been pleased with the support and courtesies extended by the government, particularly the BoI, during the discussions. “The group has other interests in Bangladesh, which it will continue to develop,” it added.

Tata’s move to abandon the investment plan has, meanwhile, created concerns among economists who observed that it would discourage entry of large foreign investment in the country.

Centre for Policy Dialogue Executive Director Mustafizur Rahman said it is really discouraging for the country. “The Tata’s abandoning its investment plan reinforces the country’s need for a strategic energy and gas position,” he said.

The BoI executive chairman, however, said he does not see Tata’s quitting as discouraging. “If one investor leaves the country, many more will come to invest in future,” he said.

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