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May 3, 2006 2:19 am

Tata puts limit on Bangladesh negotiations

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Tata, India’s largest conglomerate, has signaled its determination not to extend negotiations over a proposed $3bn investment in Bangladesh after laying out what it has described as “the best and final case”.

Executives of the steel to telecoms conglomerate told ministers in Dhaka that additional pressure to extract “more value” would jeopardise what Tata regards as an acceptable return on its biggest overseas foray.

The India group at the weekend offered what it described as a “fair and sensible” enhancement of terms for infrastructure projects in steel, urea, power and coal, adding up to Bangladesh’s largest foreign direct investment.

Senior government officials in Dhaka portrayed the revised offer as a triumph of their negotiating strategy, citing for example, less onerous terms for Bangladesh’s sovereign guarantee.

Tata executives are demanding reciprocal benefits consistent with international projects of this size.

These include a 10-year tax holiday for the steel plant and the same fiscal sops as those awarded on a coal concession held by BHP, the Australian commodities group, seven years ago. The concession was later sold to AIM-listed Asian Energy Corporation.

The deadline for confirming the tax benefits is the end of May but with negotiations behind by several months, officials at the Indian group fear the project could become a casualty of Bangladesh’s electoral cycle, when sensitive decisions are put on hold. Bangladesh’s government led by Prime Minister Khaleda Zia effectively becomes a caretaker government in October before polls due to be held in January.

Under the new gas price offer, Tata has adjusted its product-linked formula – which at today’s price for urea, for example, would mean a better deal for Bangladesh – while also raising the floor price or minimum price guarantee by 30 per cent.

Tata has also offered a 10 per cent stake in each of the four projects to the government of Bangladesh, to be acquired via concessionary funding arranged with the World Bank.

The four companies would additionally be candidates for a listing on the local market.

Tata also confirmed its intention to build hospitals near the coal and steel plants.

“We’ve looked in-house, discussed with the government of Bangladesh and other participants such as multilateral lenders to see how we can draw out more value without sacrificing what we regard as an acceptable return,” said Alan Rosling, a Tata director leading the talks. “If there’s no return, there’s no financing and no board approval.”

He said the company was keen to sign commercial terms by June and contracts by August.

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