DHAKA, July 4 (Reuters) Tata group is weighing pulling out of a proposed $3 billion investment in Bangladesh, which could be a further setback to the country's creaky power infrastructure and ability to attract investment.
With the deal deadline looming, the government in Dhaka has yet to approve Tata's projects, and a top company official said he was realistic about chances the approvals would come soon.
''We're still waiting for a response from the Bangladesh government,'' said Alan Rosling, executive director of Tata Sons.
''We're optimistic, but we are realistic about the situation.
On the one hand, we are disappointed that it is taking so long.
Equally, we are used to this pace,'' he said on Tuesday.
In April, the Tata group offered to increase its planned investment in power, steel, fertiliser and coal projects in the country from an earlier $2.5 billion. It also said it would set aside a 10 percent stake in local business for the Bangladesh government and list the concerns on the Dhaka stock exchange.
The Tata group plan includes a steel plant with an annual production capacity of 2.4 million tonnes, a urea factory with a 1 million tonne capacity, a 500-megawatt coal-fired power station and a 1,000 megawatt gas-fired power plant.
The projects would amount to the largest single foreign investment ever made in Bangladesh and would equal the total the country has received since 1972.
A final agreement was to be signed by July, but progress has been slow. Indian newspapers have reported that Bangladeshi business lobby groups have opposed Tata's proposals.
An analyst who covers the Tata group in India said a pull-out would have a marginally negative impact on the company's ambitious overseas plans.
Shares in Tata Power Ltd. fell 3 percent, while Tata Steel Ltd. lost nearly 2 percent and Tata Chemicals Ltd. ended 1.4 percent lower in a weak Mumbai market.
PAYING THE GAS BILL Talks between the Tatas and Dhaka had stalled in February over the price of natural gas to be used in the projects.
In April, Tata upped its offer to $3.10 per thousand cubic feet of gas, said it would set up two hospitals and two training centres for employees and asked for a 10-year tax holiday for the steel and coal projects.
The investment was expected to help attempts by New Delhi and Dhaka to boost bilateral ties that have in recent years been hurt by frequent border clashes, charges of militants being sheltered by each side and a trade imbalance.
Bangladesh's impoverished western region looked set to be a big beneficiary.
''Tata's proposed projects are complex and involve various long-term contractual arrangements,'' said Wahiduddin Mahmud, a professor of economics at the Dhaka University.
''It is not easy to take a decision even on purely economic terms, let alone the political spin-off. This is important for the credibility of the government's decision-making process regarding potential FDI (foreign direct investment),'' said Mahmud, who is evaluating Tata's proposals for the government.
Bangladeshi officials said that with general elections just months away, okaying the Tata projects was proving difficult.
''I appreciate their disappointment, but it's a reality that with only three months left before the government hands power to a caretaker authority (ahead of elections in January), it will be difficult for any party to take a decision on a major and complex investment proposal,'' said Mahmudur Rahman, energy adviser to the Bangladesh government.
Rosling said in April the deal would boost Bangladesh's GDP by 1.9 percent annually and improve its balance of payments by as much as $18 billion, besides creating jobs for 24,000 people.
The coal project would add to the energy basket of Bangladesh, where just 30 percent of its 140 million people have access to electricity.
Analysts had also said the deal would act as a catalyst for more foreign inflows into the country.
Earlier on Tuesday, Globeleq Asia Holdings Ltd., a unit of British power investment company Globeleq, sold a 24 percent stake in its two Bangladesh power projects to the IDB Infrastructure Fund L.P.
Rosling had told Reuters earlier this year Tata would move its projects elsewhere if its terms were unacceptable.
''We obviously cannot keep up the same level of commitment if the government takes more time ... there are other places we can go to,'' he said.
REUTERS DKS KP2003