Energy & Power

FDI

Remembrance of Times Past: Thoughts on Tata’s Investment

Nuruddin Mahmud Kamal

Bangladesh-India economic relations during the early years were not outside the influence of overall relationship between the two countries. It was a period when broader relationship was evolving over a wide range of often closely interdependent issues. Successful negotiations in some areas helped in other areas and the same was true with failures.

These relations, in general, remained throughout 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. This complexity had an added dimension. Some viewed this as not very appreciative, if not ungrateful, for all the assistances provided and sacrifices made by them Indians during our War of Liberation from Pakistan in 1971.

An interesting reminiscence might reveal how delicate and sensitive was the environment then 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 to coordinate Indo-Bangladesh relations, once remarked that this relationship was, from the Indian point of view, a no-win situation. India, according to him, was accused either of patronizing and throwing her weight around like a big brother or ignoring and even discriminating against Bangladesh (“Making a Nation Bangladesh- An Economist’s Tale”, Prof Nurul Islam Deputy Chairman, planning commission, Bangladesh, 2003).

Among others, two important areas for long-term cooperation were identified in May 1973: first, establishment of joint industrial ventures; and second cooperation in respect of flood projects. They also included expansion of cement production in Chhatak (Bangladesh) with limestone supplied from Meghalaya (India); a clinker plant in Meghalaya for supplying clinker to Bangladesh; a gas based plant for production of sponge iron in Bangladesh using ore imported from India; and a gas based fertilizer plant in Bangladesh for export of its output to India on a long-term basis. Incidentally, earlier, a gas export proposal (from Bangladesh) was also pursued vigorously by the Indian government, but it was turned down politely by government of Bangladesh.

One may recall in the context of above project proposals that the GOB felt it necessary to initiate joint feasibility studies. At that time the planning commission of Bangladesh was known as a super ministry, and really it was so. If may memory do not fail me, Prof. Muzaffar Ahmed and Dr Nazrul Islam, as Division Chiefs (de facto Secretaries of the Government) of Industries and Natural Resources Division respectively of the Planning Commission were given the responsibility to organize in depth studies on behalf of the Government under the overall guidance of Prof Rehman Sobhan, member, Planning commission (with the status of State Minister). Four young professionals (Deputy Chiefs of the planning commission) such as Dr Ishaq Talukder (late), Dr. Aminul Haq, Mr. Mosharraf Hossain (all three from the Industries Division) and the author Naruddin Kamal from the Oil and Gas Division were involved directly in these studies.

I still remember how vocal Dr Talukder was in his articulation about the sponge iron project. To make the long story short, when Bangabandhu Sheikh Mujibur Rahman was convinced that the proposed projects would not derive benefit to Bangladesh, he called it a day. Now it appears that at least two senior projects have reemerged under a new and shining wrapping paper cover.

It is curious that the contents, cost benefits etc of the current three project proposals were very secretly handled by the Board of Investment /Ministry of Energy (only some TV footage were shown from time to time, hiding the actual position from the public, the reason is best known to the government). Whether any techno-economic evaluation(s) was conducted jointly or otherwise is not fully known except a Tata sponsored study entitled, “An Economic Impact Study of Proposed Investment by Tata group in Bangladesh” (by the Economist Intelligence unit in October 2005. This study is highly motivate irrelevant and bears no semblance of techno economic evaluation. Moreover, this so-called study has been conducted at a time (in October 2005) when negations between Tata Group of Executives and some spurious representatives of BOI/Ministry of Energy. It appears that the Bangladesh authorities never felt the need for a proper evaluation by any independent consultants of international repute. Except Mr Mahmudur Rahman, the BOI chief, no Bangladeshi of repute apparently knows what’s is going on?

It is also unclear whether:
i. The proposed projects are based on the principles of equity and mutual benefit?
ii. Adequate natural gas would be available to feed the proposed 2.4 million ton plant capacity steel plant, one million ton capacity fertilizer plant, and 1,000 MW power plant for about 25/30 years based on the “proven” reserve of gas estimated at 6.2 trillion cubic feet (Nagorik committee, November, 2002). Incidentally, the latest government sponsored Gas Sector Master Plan (GSMP), have indicated a proven plus probable reserve at 10-3 Tcf in November, 2005. Two earlier study reports- one by Petrobangla in 2001 and the other by the National Gas Reserve Committee in August 2002 also indicated the proven plus probable reserve at around 15 Tcf. Deducting about 6.2 Tcf (upto June 2005) as utilized (GSMP, 2005) the remaining recoverable reserve would be about 8.8 Tcf!
iii. The total demand for gas under Tata’s investment proposal could be around 3.25 Tcf or about fifty percent of the total “proven” reserve in the country? If this amount is set aside, the remaining portion of the proven reserve would possibly last for another three to five years (daily production is over 500 Bcf in 2005) at the most. This certainly is an alarming situation.
iv. The price of gas has been negotiated based on international market price has remained a mystery. For information, the international prices now ranges between US$ 5 to 5.50 per Mcf (1,000 cubic feet). Prof. Tamim of BUET has suggested that the price negotiation should be based on international market price which is around US$ 5/Mcf. Gas price in the domestic market in USA has shown a maximum amount of US$ 14.50 /Mcf (CNN, November, 2005).

Unfortunately, the Tata’s unsolicited proposals are being negotiated secretly, outside the public eyes, perhaps at the behest of the Board of Investment (BOI). 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 undertaken (October 2005)! This is an academic research. It has shown no direct benefit in the 45 pages report, which actually makes no sense for the proposal project initiated about a year ago.

It also appears that substantial areas of divergence and disagreements have come up which has not been resolved, nor there is any attempt to do so. No independent panel of expert/professionals has evaluated the proposal so as to identify the benefits that are likely to accrue to the people of Bangladesh.

The answer to the question whether gas should be exported (even indirectly through Tata’s projects) or not depends upon the optimum rate of utilization of gas reserves (not ‘resources‘ that are universally known as speculative and hypothetical, nor potential, nor even reserves). There exists an acceptable demand-supply analysis of gas in the country that shows estimated demand of about 3.7Tcf by 2010, about 25Tcf by 2020. What is more important is that if gas is utilized in the country for home consumption, it offers financial benefit of around 13(thirteen) times more than export (Jalani Samashya: Bangladesh Prekshit, page 187, Prof. Nurul Islam, BUET).

Having discussed what I did it is now clear that the Tata’s proposed has rightly created a controversy because it is an “indirect” gas export proposal, which is outrageous. It is anti-people.

To end this story, let us assume for a moment that there is no gas available for Bangladeshis in Bangladesh after 2015, less than 9(Nine) years away from now. Only around 5 to 7 percent of the total energy need can be met through expeditious production and consumption of coal. The country does not passes any other viable source of energy that can be harnessed in a commercial scale by 2015. The citizens, living in Dhaka city in particular, would find with a great horror that there is no electricity. But, people setting in a BMW or Mercedes Benz or Pagero are traveling towards Mymensingh or Tangail or even to Chittagong Hill Tracts to collect woods and branches of trees to cook on the road side and carry the cooked food in Tiffin carriers for their families stranded on the 9th or 10th floor of an apartment building with unclean dark rooms and non operational elevators (for want of electricity). However, the big expensive cars are running since a protégé of one overenthusiastic finance minister still makes irrelevant statements but allocates enough foreign exchange to import Octane and Petrol but not diesel or furnace oil. Would such an imbalance happen to us again? Hope such a doom’s day scenario may not come, at least not in our lifetime. Nonetheless, our conscious should be clear enough that we could visualize the conspiracy and face the conspirators boldly.

Nuruddin Mahmud Kamal: former Chairman, Power Development Board