The Asian Development Bank (ADB) has advised the government to continue negotiations with the Indian corporate goliath, Tata Group, to help shape up its $ 3.0 billion investment proposal, notwithstanding the possible political risks.
But the Manila-based development lender has warned that if Bangladesh provides facilities to the Indian conglomerate going beyond the existing regulations, it might antagonise other foreign investors.
The observations were made in an ADB-commissioned report on "Economic impact analysis of the Tata's investment proposal", submitted to the Energy Division Sunday.
Calling the negotiation "critical", head of the study team, David, suggested the government negotiators should handle their counterparts of Tata carefully.
The team leader said that if finalised, Tata's investment would galvanise other flagship global corporations into investing in Bangladesh in a big way.
By international standards, he said, the country is still one of the lowest recipients of foreign direct investment (FDI), despite the surge in inflows in recent years.
Bangladesh netted FDI worth $800 million last year, while it received the $460 million and $268 million of the same in 2004 and 2003 respectively, according to official figures.
The ADB report lauded the country's sustained economic growth rate averaging five percent in the last decade.
"This year, the growth rate is expected to pick up steam further touching the level of 6.0 percent," the report maintained.
Taking the low FDI flow and growth rate into account, the country needs to attract flagship FDI from corporate giants like Tata, it added.
The Tata's investment would also help the country improve its yawning trade imbalance with India estimated at more than $1.5 billion, thus fostering regional cooperation, the study report hoped.
"It (Tata's investment) will also bring about maturity of the local economy," it remarked.
Dwelling on the incentive package, the report said the government should refrain from providing extra incentives to Tata Group so that it does not irk the existing foreign investors, particularly those in the industrial parks.
If the government creates such a precedent, the investors of the export processing zones (EPZs) would relocate their industrial units to other areas, the team leader pointed out.
Official sources said the government had requested the ADB to carry out an economic impact analysis on one of the largest investment proposals ever made by an overseas investor.
The leader of the consulting team presented the draft report at a meeting with Adviser to the Energy and Mineral Resources Division and Executive Chairman of the Board of Investment Mahmudur Rahman in the chair.
In his observation, Rahman said the government would attach priority to the national interest.
"We're aware of the concerns of local investors who are involved in steel, fertiliser and coal mining sectors," a meeting insider quoted Rahman as saying.
But Rahman acknowledged that a debate was still on the tax holiday issue.
"How can we compete with our rivals who provide tax holiday facility to foreign investors up to 50 years," he said, citing the example of Morocco.
But he said Tata has shown its flexibility as far as the demand of gas supply is concerned.
"We'll get $3.0 billion over the next three years … it will help make the Bangladesh economy mature," the BoI chief quipped.
Country representative and the deputy country representative of the ADB also took part in the discussion.
Secretaries from the Communications, Industries, Shipping, Law, Home and Foreign ministries were present at the meeting. Representatives from the National Board of Revenue (NBR) and the Board of Investment (BoI) also attended the meeting.
The Indian conglomerate is moving ahead with its plan to invest in Bangladesh for setting up steel, power and fertiliser plants and explore coal.
The two sides are entering the final round of negotiations today, according to sources.
Gas pricing for Tata projects, power tariff and lease of a coalmine are the major issues to be put on the table during the talks, sources added.
The Indian company launched talks with the government following the submission of a formal proposal in April last. Earlier, it inked an expression of interest (EoI) with the BoI in October 2004.