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Tata proposal needs to be debated in parliament
Syed Jamaluddin

          The government has been handling the over $2.5 billion investment proposal of Indian giant Tata with the help of the bureaucrats without much assistance from the experts. It is said that negotiations in such a fashion may not produce a win win situation. Given the present strength of the government team, the final outcome could be less favourable for Bangladesh.
Tata proposal submitted last year has undergone modifications. Their proposal has to be understood not only in technical aspects but also in respect of its socio-economic impact because of complexities of the package offer. Tata initially proposed to set up a fertilizer factory and a steel plant that would consume some two trillion cubic feet gas over a 30-year period. Now it is also negotiating for taking a part of the Barapukuria coalmine for open-cast mining and for setting up a 1,000 megawatt coal-fired power plant either in Barapukuria or in Phulbari coal mine area.
Negotiations began in April with three ministerial committees. These committees function under a main negotiating team headed by the Communications Secretary. These committees comprise only a handful of experts. Government is also seeking assistance from the World Bank and the Asian Development Bank. It is reported that there has been no real efforts to make an analysis or evaluation of the Tata proposal.
It is argued that the best of decision may not be available from the official level negotiators without being backed by technical experts. The overall package should be balanced. Tata is doing its studies but there is no study from the Bangladesh side. Tata has furnished to the government a financial impact analysis prepared by Economists Intelligence Unit of the UK, a joint venture of the Economist and the Financial Times.
The impact analysis shows an excellent impact of Tata's investment on Bangladesh economy. It has got a major long-term impact on the macro-economic indicators. It will have a positive influence on other investors. Although the investors come to make money from their project, the host country must also benefit from the venture. Tata is known for its values and ethics.
Two prime issues have remained unresolved until now -- the assurance of gas supply and a package of financial incentives for Tata. The other unresolved issues, though not as critical as the above two, are power purchase deal, land acquisition and the coal mining area. The government may develop strategic think-tanks to efficiently deal with the issues relating to the complex Tata proposals covering three projects.
It is estimated that Tata's investment could add 1.9 per cent to the gross domestic product. Half of the power to be generated by the Tata power plant will feed the national grid. The Tata steel plant will be located in the poor western region. It will generate wider economic activity in the area. Tata's role as an anchor investor will further enhance foreign direct investment. It is good that it has been decided to engage the country's leading economists to evaluate the costs and benefits of the three Tata projects for the country. A consultant of the Asian Development Bank (ADB) will also prepare an independent report.
Tata is expected to play a positive role in the economic development of Bangladesh. They will not be seen as a company taking away from Bangladesh but be a part of it and help develop the country. The company would try to overcome the impediments and would live with them. Tata Group's philosophy was to make a presence in a particular country and be a part of that country. Profit making is not the only objective of Tata proposal.
Tata has a long list of demands such as 10 years tax holiday, products sold locally have to be treated as export, tax-free salary for the staff, allotment of coal mine from which they can export after meeting demand for power plant. Supply of 2.0 trillion gas for 30 years is a difficult condition to fulfil. Exemption from taxes for 20 years is another serious condition.
Steel and re-rolling mill owners of Bangladesh have demanded that any agreement with Tata has to be made public. They fear that their interests may be hampered by Tata steel mill. They feel that there is no need to set up a mill by Tata. Their products can meet local demand. They have called upon the government to reduce import duty and VAT on their imported rawmaterials. According to them, a socio-economic impact study of Tata venture is needed before taking a decision.
Tata Group may drop its proposed $2.5 billion investment venture in Bangladesh over differences on the availability and pricing of gas. If Tata does not get the required concession from the Bangladesh government, there is hardly any chance to realise the investment plan.
Settlement of gas price will be an acid test for the local negotiating committee. Tata has placed a demand to purchase gas at the same price offered to Karnaphuli Fertilizer Company Ltd. Price of per unit of gas is about $1.00 for the KAFCO. This is an extraordinary concession. This can not be considered as a precedent for negotiation. The present situation is different. Tata expects flexibility from the government in many issues including gas pricing. Experts have suggested that the government should refrain from going out of the way to offer extra privileges to Tata. Facilities should be offered within the country's existing rules and regulations.
The fourth round of negotiations between the government and Tata on the nitty-gritty of the investment proposal ended January 8. Tata is satisfied with the achievements made so far. The latest round of talks dealt mainly with the fiscal incentives sought by the Indian company. The company officials held meetings with the NBR officials to discuss the tax regime. Both sides reportedly made some breakthrough. The NBR showed flexibility towards the proposal of the Tata group for tax breaks for a period between seven and ten years for its steel plant. At present the export-oriented industries are enjoying tax holiday for five to seven years while the investments on power generation are getting a 15 year tax-break. The NBR also showed a positive attitude to the Tata's demand for zero-duty on the import of capital machinery. Presently, industries are paying 5.0 to 7.0 per cent on the import of capital machinery while the export-oriented industries and the power generation companies are enjoying zero-duty for their capital machinery imports. Tata has suggested for zero-duty although some of their products would be marketed locally.
Tata concluded its talks on fiscal incentives and tax regime with the NBR. The next round of talks would begin around this time. when investment-related issues like land-lease, fertilizer tariffs, gas pricing, gas supply, power tariffs and coal mining would be discussed. The main crucial issues would come up in the next round. The government is framing a coal policy.
Negotiations between Tata and the government began in May, 2005 with an initial target of completion by last October but various issues have cropped up causing delay in negotiation. The Indian conglomerate is seeking special treatment and concession on the grounds of its proposed investment being capital-intensive in nature and also being the largest single investment proposal so far for Bangladesh. Top executives of Tata have said that recent rise of militancy in Bangladesh will not discourage their investment plan as terrorism is now a global problem.
Considering the complexity, the government has appointed a foreign consultant to study the Tata proposal and to help in determining the power tariff and gas pricing. A lot of issues need to be resolved/clarified before Tata proposal may be considered as acceptable. This proposal is not based on competitive bidding. The impact of Tata investment on local industries has to be studied. Possibility of environmental pollution is to be taken into account. Pricing of gas and coal has to be done on realistic basis. Products to be sold domestically and internationally has to be determined from the beginning. Employment of local and expatriate staff is to be fixed on time. It will be an excellent example if the Tata proposal is discussed in parliamentary standing committee or in parliament. The proposal has to be examined keeping in view the larger interest of the nation.
The writer is an economist and columnist


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Tata proposal needs to be debated in parliament

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