Energy & Power

FDI

Tata Investment in Quick Sand

EP Analysis

Cheap gas, cheap labor, weak and corrupt government supervisory agencies were perhaps the driving motive of Indian industrial conglomerate Tata to propose about 4 billion dollar worth of investment in 4 mega ventures in investment-starved Bangladesh. When the proposal was tabled last year the Executive Chairman of Board of Investment (BOI) Mahmudur Rahman sounded very optimistic during signing of expression of interest in presence of Tata Chairman Rantan Tata and Finance Minister Saifur Rahman. Mahmud told the media time and again that required multidimensional negotiations will be expeditiously concluded facilitating signing of agreements between the parties within November 2005 so that groundbreaking can be done within March 2006. It is March 2006. The latest statement that Mahmud made after last round of talks that some critical issues remain unresolved. Tata will make a revised package proposal, which may be placed to cabinet to discuss some contentions issues, which requires political decision.

It may be mentioned here that the Tata proposal included the following:
a. 2.4 million tons/year capacity hot rolled coil producing steel plant
b. 10 lakh tons/year capacity urea fertilizer plant
c. 2x500 MW/day capacity power plant
d. Develop a 5-6 tons/year capacity coal mine

The proposed investment apparently looked rosy and attractive. EP branded it thorny rose. Tata formed highly skilled and professional negotiation groups to discuss, analyze and conclude individual, subcomponents with counterpart committees comprising mostly bureaucrats. Needless to mention that Bangladesh does have very little capacity to negotiate such gigantic project proposals in the government sector alone. Bangladesh could have sought assistance of expatriate Bangladeshis living aboard --economists, engineers, contract lawyers -- or request multilateral donors and development partners to assist in the negotiations through funding for consultants. But that did not happen. Tata insisted for long-term guarantee of natural gas supply for their fertilizer and steel plants, offered to provide a gas price which is well below the well head purchase price, proposed to sale power at much higher price than the price of IPPs. The hard negotiators of Tata appeared unrealistic at times. It was a double standard for Bangladesh government agencies to commit 20-15 years guarantee for uninterrupted gas supply as the Petrobangla projection indicate the proven gas to run out by 2015.

The Tata-proposed gas price is ridiculous as the world natural gas market price, which is very much linked with crude oil market is way above. For a 20-25 years uninterrupted supply, Tata proposed a gas price, which is even less than government is getting from local industrial consumers. Then why government should buy power at premium price from Tata after offering them various fiscal incentives. The talks almost came to a deadlock. But both the sides endeavored to narrow down the issues of disaccord. Tata agreed to submit a revised package proposal on unresolved issues, which Mahmud as kingpin stated to place to cabinet for review and ponder. He of course stated that political decision was essential to break the ice. It is sheer irony that the BOI executive chairman, a technocrat turned bureaucrats, could not help resolve the issues.

Energy experts, economists, industrialists and business leaders have sharply differing views on Tata investment. Does Bangladesh need such a giant steel plant? Does Bangladesh have enough gas to commit for a giant steel plant the end product of which will be mostly exported? Is it value addition or value destruction of our precious natural gas? How the heap of ash generating from the steel plant will be disposed of?

The proposed urea plant will be set up at Chittagong, which is already suffering from acute gas shortage. Situation will continue to go from bad to worse until some new discovery development and evacuation of significant additional gas. Extensive use of urea has undoubtedly supplemented our crop yield but it also has a telling effect on our fish resources and other aquatic animals, birds and environment. World is fast moving to green fertilizers. Bangladesh itself struggled with proposed Shahjalal Fertilizer Factory for several years now. Other proposed urea plants at Sirajganj, Bhola etc. were possibly shelved to pave the way for Tata proposed plants .

Bangladesh does have acute shortage of power. The predominantly mono fuel based power generation in Bangladesh is in a diabolic state due to abysmal performance of power sector and multidimensional interference and freestyle corruption. If Bangladesh can have a positive mindset to exploit its substantial high quality coal reserve it cannot only diversify its fuel mix but also earn substantial force, which is so essential for its expected GDP. But why Bangladesh should allow Tata the mining right at Barapukuria without even judging whether some other developers offer better deal. Why should Tata proposed power tariff for Bangladesh market be much higher?

The author presumes that Tata proposal has finally bogged down in quick sand. The government does not have the stomach to take political decision on contentious issues. But one must also consider that many potential investors are closely monitoring the developments of Tata investment proposal. Negative signal will emanate if it dies at this stage. Why Bangladesh did not commission a feasibility study group comprising line professionals to examine and analyze the financial and economic benefits as well as long term impact of the investment on trade, commerce, industry and economy of Bangladesh?

The development of Bibiyana gas, ADB-funded Gas Transmission Development projects are among others targeted for Tata investment. If it does not kick off, the economics of all these will be changed. But that does not mean Bangladesh has to commit further scandals like KAFCO, which is still bleeding our gas sector.

Country Report: Japan NGV

EP Desk

As of the end of September, 2005, there are more than 25,000 natural gas vehicles (NGVs) in Japan, supported by 289 natural gas refueling stations, 29 of which are service fleet and bus operators exclusively, as well as 686 vehicle refueling appliances (VRAs).

NGV’s have primarily been promoted due to the solution of the air pollution problem and to promote alternatives to crude oil derived energy. As a result, NGV’s have become popular among heavy vehicles, trucks and buses, where the diesel substitution produces the greater air quality benefits.

In recent years, the social interest in greenhouse gas reduction has risen with the coming into force of the Kyoto Protocol. Due to the CO2 benefits of natural gas vehicles, this has resulted in an increased interest in NGVs for gasoline substitution, particularly among passenger cars and light to medium duty vans.

Due to Japanese Government policy on the reduction of the greenhouse gas, in addition to the existing green house gas reduction law, the law concerning the rationalization of the energy use will be revised from April, 2006. The main point of this revision is that the control subject of this law expands into the transportation field (the transportation business and the consignor ) from the conventional factories. The revision of this law has been decided in the Diet (Japanese Parliament) and the Japanese Government is reviewing the detailed standard which is necessary to operate this law.

From the viewpoint of energy security, natural gas is playing an important role to decrease petroleum dependence. With crude oil prices increasing substantially in the past year, this has become especially important. These price rises, along with the added advantage of relative price stability, have made natural gas competitive in relation to gasoline and diesel. Japan imports natural gas as LNG (liquefied natural gas) and the pricing structures and longer-term contracts make LNG pricing less volatile, thus making LNG an attractive alternative to crude oil and its derivatives. In Japan fuel price depends on the contract between the filling stations and the users, but prices currently average around 125 yen/l of gasoline, 100 yen/l of diesel, and 70 yen /m3 of CNG.

Japan’s strong automotive manufacturing sector produces a large number of OEM (original equipment manufacturers) natural gas vehicles, The presence of OEM NGVs in Japan means engine and emissions performance is of an exceptional standard. Unfortunately, this also means that the price differential between natural gas and diesel or gasoline vehicles is relatively high. While mass market penetration of NGVs would bring prices down, reaching that stage remains a problem for the industry

Despite the above challenge, by effectively using the policy of Japanese Government concerning energy security and the global warming problem, the NGV industry members in Japan are confident that natural gas vehicles in Japan will increase in popularity in coming years.

Source: Japan Gas Association