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Tata's investment proposal and the connections
Nuruddin Mahmud Kamal

          POST-independence economic relations with our neighbours, in general, remained a complex one, fluctuating between being very close and intimate at certain times or not so close at certain other times or in some other issues. For obvious reasons, people's views on some of these matters were along and our feelings and emotions ran very high because of a nine-month long War of Liberation against Pakistan in 1971. Thirty five years later our generation might strive for objectivity and a dispassionate look at the past, while some others might think that the overall situation still persists. Indeed, many of us have now forgotten what happened behind the scenes in the course of decision-making process then. Glimpses of the past brings remembrances of the seventies-particularly into the role of personalities and individuals who tried to influence the collective thinking of the country.
An interesting anecdote might reveal how delicate and complex was the environment and how easily some wrong perceptions did develop. A senior Indian official, who was a member of the Indian Prime Minister Indira Gandhi's core team of advisers, once remarked that a particular relationship was, from the Indian point of view, a 'no-win' situation. Yet, India, according to him, was accused of patronising and throwing her weight around like a big brother or ignoring and even discriminating against Bangladesh (Making a Nation. Bangladesh -- An Economist's Tale, p-315, Prof Nurul Islam, Deputy Chairman, Planning commission, Bangladesh).
Unfortunately, the Indian official, in the present author's opinion, perhaps did not visualise the real extent and magnitude of the relationship between the two sovereign countries. Some people even today wonder, whether the attitude of such people has changed for the better?
The principal areas of economic cooperation between the two countries were identified by the Indo-Bangladesh-Friendship Treaty of 1972, as follows:
"Mutual cooperation would be developed in the fields of trade, transport, and communications on the basis of the principles of equity, mutual benefit and most favoured nation's treatment. Joint studies would be made and joint action taken in the fields of flood control, river basin development, and development of hydroelectric power and irrigation."
Attempts were also made to formulate trade relations between the two countries based on a mutually agreed framework i.e. state to state basis. This was to preempt a role for the monopoly position under conditions of acute scarcity. Moreover, Bangladesh had earlier decided through it's policy of nationalisation that the state, not the private sector, would play the dominant role in industry and trade -- trade however is not a subject matter of discussion in this article.
Two important areas for long-term cooperation were agreed upon at the May 1973 meeting: first, establishment of joint industrial ventures; and second, cooperation in respect of flood control and irrigation In respect of joint ventures, four projects were identified, as follows:
l expansion of cement production in Chhatak (Bangladesh) with limestone supplied from Meghalaya (India);
l a clinker plant in Meghalaya for supplying clinker to Bangladesh;
l a gas based sponge iron plant for production of steel in Bangladesh using ore imported from India; and
l a gas based fertiliser plant in Bangladesh for export of its output to India on a long-term basis.
[Meanwhile, a gas export proposal from India was turned down by Bangladesh]
One may recall in this context that an agreement was also made to initiate joint feasibility studies to evaluate each individual project. Planning commission, known as super ministry then, was assigned with the responsibility of conducting feasibility studies jointly with the Indian counterparts with or without the assistance of foreign expertees. Thirty three years can be small phase in the history of time, but not in the foundation laying of a newly born country (Bangladesh). As we look back, we find ourselves into a tumult of passion or confusion on some issues in our journey since the early seventies. Unfortunately, we have not been able to set up many good examples -- good traditions -- that could guide us in our present steps. In a push back to the beginning of the journey in 1972, we feel sad that may road blocks retarded our progress. No wonder, the memory of the above economic cooperation proposals reappeared in our mind.
Incidentally, at least two similar project proposals have re-emerged under a new and shining similar project proposals have re-emerged under a new and shining wrapping paper cover (of Tata Group) in 2005 that deserves a thorough scrutiny. Along with the main project proposals, the issue of coal mining by the Tata Group has lately been incorporated in their so-called US$ 2.5 billion investment package, the breakdown of which is missing or misleading in the Tata sponsored study entitled, "An Economic Impact study of proposed Investment by Tata Group in Bangladesh," prepared by the Economist Intelligence Unit, UK in October 2005, amazingly one year after the submission and secret negotiation between the Tata Executives and some spurious Bangladeshis.
From the various media reports, it appears that the Bangladesh authorities never felt the need for a proper evaluation by Bangladeshi experts or independent consultants of repute. People allege that except Mr Mahmudur Rahman, the Board of Investment (BOI) chief no Bangladeshi apparently knows what is going on in the name of negotiations with Tata.
The rumour goes that Tata furnishes the documents in closed envelops written on top: "For your eyes only" ! Suddenly, last month a Draft Coal Policy, formulated by the IIFC consultants (version-2, 23rd January, 2006) appeared to some limited (chosen) persons as a new gingivities -- that should be dealt with great care and caution to avoid causing harm to the already inflamed debate on Tata's proposal.
It is curious that the Tata's investment proposal(s) have so far been very secretly handled, only some TV footage and small media coverage provided to the public, more to confuse them rather than clarity the actual positions that have been removed from the public eye. Consequently, it is unclear whether the proposed projects are based on the principles of equity and Bangladesh's benefit. It also appears -- rather amazingly -- that adequate natural gas would be made available (to the tune of about 3250 billion cubic feet or about 3.25 TCF to feed: 1000 megawatt power plants, one 2.4 million (24 lakh) tonne capacity fertiliser plant and one 0.1 million (one million) ton capacity steel plant (sponge iron based) out of the existing 6220 billion cubic feet or only 6.2 trillion cubic feet "proven" gas (Nagorik Committee Report, November 2002). There are many tricky issues involved in the gas sector that hopefully would be examined in the second part of this paper later.
As noted above, the coal policy issues need to be examined very carefully. A quick glance into the Draft Coal Policy (version-2, 23rd January, 2006) would show some clear contradictions that may puzzle a rational and objective critique. The vision statement in the document on the one hand discusses about the future growth and development of the coal industry -- hopefully on the perspective of the greater interest of the people of Bangladesh, and on the other hand (at para 1.1) indicates that the utilisation of the coal resources is to be aimed at "integrated regional development" (meaning thereby "export" of coal.") It is a surprise that without substantiating the facts and, figures and supporting documents on reserves (proven), the policy paper on coal noted the total availability of coal, a fictitious number of 1400 million ton (recoverable), representing approximately 37 TCF of natural gas in terms of heat value (at page. 4) is an unreliable figure. Not only that, in Part-A vision statement of the draft policy paper, it has been stated that the total proven and probable (2p) gas reserves (November 2005) of 13.75 TCF would meet the country's projected energy (?) demand is a misnomer. It should be country's gas demand up to 2011. With a speculative reserve figure, as stated in the policy paper, a coal production schedule with some imaginary production companies (currently lobbying for "license" in Bangladesh) total achievable (tonnes) production by 2025 has been indicated. This clearly violates the very principle of a policy paper (Energy policy paper 1995 and Petroleum policy paper has been combined together in one policy paper, may be referred to). It is unknown to the people of Bangladesh where from the Infrastructure Investment Facilitation Centre (IIFC) has copied the reserve figure or they have manufactured themselves. Worse still is that, the draft policy on coal stated, "the coal fields discovered in northwestern Bangladesh is to be developed for large scale production -- 20 million tonnes per annum within the 10 years, from January 2006, and 40 million tonnes per annum within 20 years, from January 2006." These are like a crow scavenging for carrion!
This indeed is an unique policy paper on any energy reserve where a clear marketing plan has also been incorporated without a proven reserve 'certified' by any internationally reputed 'independent' consultant/company violating the coal field practice accepted and practised universally. The policy paper did not discuss any "option," nor any "strategy," "pricing" nor even the likely "production-sharing" as opposed to "royalty" (under the royalty -- ownership goes out totally from the country of discovery to the operator or operators outside Bangladesh at an estimated very low royalty payment). The existing royalty for coal in Bangladesh is unbelievably -- low only 6.0 (six) per cent of total production! Any speculative or hypothetical reserve estimate (perhaps for an ulterior motives) cannot become as integral part of any energy policy paper. Moreover, unless the parliament approves the principles such as the strategies for development (annual production from respective fields/annual depletion policy), all possible domestic uses etc., no half-baked prescription (like the present draft policy) under the name and style of even a policy paper such discussion should not be entertained.
These and many other critical issues need to be looked into before serious negotiations on issues related to the proposed investment of the Tata Group enters into an important phase.
What is very important in this case is that everything should be transparent and analytical in all respects. In the following, this write-up will devote more closely to examine the general nature of the investment package submitted to the Board of Investment (BOI), concessions asked for by Tata and a rough analysis of the author's views on Tata's proposal.
The government needs to consider a wider set of options than those being proposed by entrenched Tata Group and their consultants (Economic Intelligence Unit, October 2005). The civil society and the academics in Bangladesh must examine and evaluate the proposals and advocate coherent and viable alternatives, if any, for the greater interest of the nation. So far, no critical analysis have been made on the package proposal. One important aspect could be the question of "energy security" in relation to not only the long term development in Bangladesh, but also the impact on raw materials (gas and coal) that must be provided to Tata to implement the projects envisaged. The Tata projects expect, and very rightly so, the allocation of a substantial amount of gas during their tenure. Therefore, there has to be a wide ranging survey of the energy scene and the challenges involved in the event of large use of gas outside the domestic demand. The Tata projects envisage clearly on "indirect gas export" to the tune of over 50 per cent of the proven reserve of natural gas in the country.
Therefore, any decision to export from (known) reserves of gas will affect the energy security of the country, so necessary for sustainable human development. In that case in future years the country may have to "import" gas to meet its long-term energy demand (National Gas Utilisation Committee Report, August 2002).
From the long term perspective, the net economic gain for the country from such export of gas will be far less in comparison to its indigenous use.
In fact, a recent analysis has shown that the domestic use of gas earns almost thirteen times more benefit (Jalani Samashya: Bangladesh Prekshit, page-187, Prof Mohammad Nurul Islam, BUET, Dhaka, 2001).
The country's stand-alone draft coal policy (related to Tata) and many of its statements are alleged to be anti-people. Unfounded information and data have been incorporated in the policy paper -- that gives wrong signal. For instance, the (proven) reserve of coal (Invitation to Workshop on Bangladesh Coal Policy, signed Mr AMM Nasiruddin, Secretary, Ministry of Power, Energy and Mineral Resources: Draft Coal Policy Version-2, 23rd January, 2006, page No 4), the unsolicited option proposes for open cast coal mining has thrown 'ghee' into the fire. Already there is a debate on Asia Energy's proposal on Phulbari coal mining proposal in the north-west Bangladesh. No techno-economic should has been carried out so far to prove the point. Indeed, a choice between the underground mining and open-cast mining shall have to be established through a techno-economic study in Bangladesh. Both the methods have merits and demerits that must be evaluated to choose an optimum procedure. Consequently, it is essential to conduct relevant studies upfront on the mining techniques, reserves and utilisations etc., plus the pricing prior to committing on the mining technique and exports etc., under the Tata's investment. Otherwise, any decision on Tata's investment would be like putting the cart before the horse. No sensible government would ever enter into a romantic project proposal, such as Tata's investment, without a thorough evaluation. The intent of this article is to elaborate on the Tata's investment proposal and obtain the likely reaction of the people the civil society etc., prior to taking a decision, not after.
Prof Mohammad Yunus (on 5th February 2006) spoke at a function to mark the anniversary of a newspaper referring to the fast growing global giants- India and China, "We must assess out best interest in building our relationship with them. It we wish to ride with them, the country needs an open door policy to make itself international investor's first choice." However, open door policy does not mean at the cost of our nation. Tata's investment proposal is overwhelming for Bangladesh. But the authorities must be very cautious to keep an eye so that it does not become a similar living example of the recent times in Bangladesh -- in which an important person in the process of becoming a very very important person (VVIP) lost his most valuable asset! The author did his best to obtain most relevant information on the Tata's proposal, particularly through the media as published from time to time. They are stated below:
A. Description of Tata's proposed investment:
i. 2.4 million ton capacity steel plant, (ii) 1000 megawatt capacity power plant, 45-50% of which to support their own project, (iii) one million ton capacity fertiliser plant, plus coal mining (open cast) from Barapukuria, where underground mining training is in progress for the past over one decade. Economic scale production is yet to start from Barapukuria.
B. Concessions asked for, include: (i) 20-year tax relief (tax holiday), iv) 25-year uninterrupted gas supply, (iii) about 6.0 (six) million tonnes annual production of coal, out of which 50% (or about 3.0 million tonnes) to be exported to India, (iv) price of natural gas should be at par with KAFCO's gas price (i.e. around US$ 1.0/MCF or less) when the Government buys at US$ 2.5/ MCF from unocal and US$ 2.9/ MCF from cairn, (v) Tata products be allowed to export or sell in the domestic market at the international price, (vi) adequate lands be provided (in reality much more than what is necessary, at nominal rates), (vii) the price of gas for Tata's project as well the price of coal should be fixed upfront and must remain fixed at that price all along during the life of the projects -- no escalation in price be entertained etc.
C. Investment package: US$ 2.5 billion (approximately)
D. Rough analysis on the investment package, as well as on A and B above: that (i) contradicts the basic principles of foreign direct investment (FDI) in Bangladesh, (ii) unusually high tax holiday asked for. Because of mix domestic and export proposal, tax relief should not exceed "three" years, (iii) in the event of a gas shortage in the country, Tata shall not suffer, instead, need be, domestic consumers supply will be disrupted (already there exists gas and electricity rationing since October, 2005 as per Energy Adviser's instruction, which is not legal as per constitutional practice since he is not an elected representative of the people), (iv) Open cast mining of coal may be harmful to the local population of north-west Bangladesh mining area, (v) large and unnecessary productive agricultural lands will be allocated to Tata at token prices for all proposed projects, (vi) about 500 megawatt power will have to be set aside for Tata projects, even the other 500MW to be sold to the people can be withdrawn for Tata's use any time with or without notice, (vii) no price negotiation for raw materials (gas or coal) and even finished products fertiliser and steel) produced by Tata has commence, (viii) price escalation is a standard clause in any contract that apparently is missing in Tata's proposal, (ix) 45-50% of electricity produced by Tata is proposed to be used by Tata (the price of which has not been fixed), and the remaining 50% may be allowed to be consumed domestically. The cost of infrastructure i.e., transmission (high voltage) has not been included in the pricing formula to be negotiated soon.
It has now become clear that during the past one year (during negotiation) neither Tata Executives nor the Board of Investment (BOI)/government officials raised the issue of "provens" gas or coal reserve. This is a mystery. This is a mystery. The arithmetical numbers shown in the Draft Bangladesh Coal Policy (2006) or the Economic Impact Study of proposed investment by Tata Group in Bangladesh (October 2005) is like the old Dhaka joke of Ramzan Mia. Once Ramzan Mia was engrossed in an 'adda' (gossip) at Mahutully near the famous 'Tara Mosjid.' Suddenly, Ramzan Mia raised his right hand and argued that he saw a big chicken at Imran Mia's house Laughter come from all around on the expression of huge size.
The audience did not believe the story. Ahmed Mia shouted, if that is the size of a chicken, how big would a goat be like? Ramzan Mia blushed-appearly he was ashamed, but corrected himself by saying," Bhai, (brother) I havn't placed my left hand below" -- that's why the size of the chicken looked big. Now, in the case of Tata's proposal, who will make the corrections?
To make the long story short, it appears that almost 33 years after the first joint economic cooperation proposals between India and Bangladesh at least two similar projects have reemerged now under a new and shining wrapping paper cover. Both the projects are gas based. But it is curious that the cost-benefits of such projects are now being handled very secretly by the BOI/MPEMR officials under the overall guidance and supervision of the Energy Adviser. Who knows under whose supervision he works in the Bangladesh Government? What however appears unusual is that the Bangladesh authorities never felt the need for a proper evaluation of the Tata projects by independent consultants of international repute. Consequently, there is an allegation that except the BOI Chief, no other Bangladeshi is aware of what is going on and what has been pushed under the carpet regarding the Tata project. Moreover, it is also unclear whether:
i. the proposed projects are based on the principles of equity and mutual benefit. As Bangladeshis, we are more keen to know, more specifically, about the country's benefit;
ii. the Tata projects would require about 3.25 TCF gas over a period of at least 25-years. The Gas Sector Master Plan (GSMP) estimated a proven plus probable reserve at 10-13 TCF in November 2005, while a national study estimated the 'proven' reserve of gas at 6.2 TCF (in November 2002, Nagorik Committee Report). Deducting 3.25 TCF from the proven reserve, the reaming recoverable reserve of gas would be 2.95 TCF, likely to be consumed in the next five/six years (the present production/consumption is around 510 billion cubic feet per annum in 2005).
iii. the price of gas (under Tata) must be negotiated on international market price, which ranges between US$5.0 to 5.50/MCF as pipeline/LNG price. Very recently the domestic market price in USA has shown a marked increase, some US$ 14.50/MCF ( in New York city gate- CNN, November 2005).
Unfortunately, Tata's "unsolicited" proposals (under the investment package) are being negotiated secretly, outside the public eye, perhaps at the behest of the BOI chief. When the negotiation has reached to an almost end stage, a client Research Study (sponsored by Tata) under the title, "An Economic Impact Study of Proposed Investment of Tata Group" has been accomplished (in October 2005). This is an academic research, full of mistakes and vague assumptions and vague outcome. It has shown no direct benefit in $(dollar) terms to Bangladesh. As such the report (45 page) is simply useless.
It should also be noted that the country is neither self sufficient in energy, nor an energy security plan has been formulated for even a 20-year period, let alone a 50-year energy security plan like India, USA, China or Japan. The draft coal policy plan offers a wrong signal. It should become an integral part of the Energy Policy as petroleum policy is. Clearly, the country cannot consume 20 or 40 million tonnes of coal annually by 2020 because no plan has been formulated as yet. Consequently, there is no point in giving out major coal fields to foreign companies essentially for export: This unholy effort must be stopped forthwith.
It would not appear that the Energy Adviser is badly concussed in the collusion of his own manufactured data on gas and coal -- 30 TCF for gas and 70 TCF for coal (Prothom Alo, 14th August 2005), We wish him an early recovery from the statistics disease. Thanks Allah, it is not a virus disease.
The author is a former chairman, Power Development Board and a Retired Additional Secretary, Government of Bangladesh


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