Bangladesh gas and coal policy |
Energy security or questionable FDI?
Dr. Mustafizur Rahman
We have so far been a mono-energy country depending solely on natural gas. The predecessor of Bangladesh Petroleum Exploration & Production Company Ltd.(BAPEX), Pakistan Oil and Gas Company discovered Haripur gas fields. It supplied gas for Fenchuganj Fertilizer factory built in late 1950s. After liberation in 1971, BAPEX successfully explored and developed a number of gas fields. Titas gas and Bakhrabad gas companies are supplying Dhaka and Chittagong with gas from some fields. We are operating six fertilizer factories and 3,600-4,000MW power plants on gas. Our transport vehicles are switching from petroleum to gas fuel with the advantage of lower emission pollution. About 400 steel and re-rolling mills employing about ten lac people are operating on gas and electricity. A number of cement factories are dependent on gas. While our living and economy are going to be dependent on gas, and we are pinning hope on it for development, we are alarmed that our extractable gas reserve may exhaust by 2011 or at the latest 2015 unless we happen to explore and discover rich reserves.
About 1560 of our sick industries are reportedly going to be dead by now. Chittagong Steel Mill, Khulna Newsprint Mill, not to speak of Adamjee Jute Mills, among others, are put out of operation and being reverted to real estate property, turning the development clock back by some fifty years. If all these important industries are rehabilitated, modernized and expanded together with new industries in relevant prospective fields, which we should do, we and our future generation will face precarious energy situation and economic disaster in the absence of urgent right steps. We cannot wait for total exhaustion of gas before we are prepared with alternative source of supply of energy.
The internationally cited present proven gas reserve of 9.2 to 10.6 trillion cubic feet (Tcf), less than 6 months' consumption of USA, is being inflated at 14 to 15 trillion cubic feet (Tcf) by some, may be, to hoodwink the policy makers. If we can find larger reserve, it is our luck. Study of energy consumption of any country that achieved at least some development reveals that energy cannot be avoided to launch tangible economic, social, technological and industrial development. We need to install electricity generation capacity of up-to 10,000MW to 20,000 MW in coming five to ten years, starting immediately. Our gas will not meet our demand if we don't start importing to prolong its use, as the energy conscious countries like USA, China, India and others are doing. We have to remain prepared to import energy with cash foreign exchange quite soon.
Policy bankruptcy and lack of technological courage: Our short-sighted anti-developmental policy of comfortably executing loosing product-sharing deal with politically and financially powerful international oil companies (IOCs), virtually marginalizing BAPEX, has in fact stripped us of all technological leeway to develop gas fields by ourselves in our own way and convenience. We could buy or induce, at our own cost, necessary technology, expertise and equipment which are available in abundance in the world at competitive arrangement. It is true, exploration, mining and production involve large finance and proven technology. The gain and importance are also immense. There is no place for penny-pinching financial management or laissez faire economic complacence without educated and innovative initiatives, if we have to launch real national development No development-oriented and aspiring nation can choose not to arrange and allocate sufficient fund for this purpose on priority basis to build own capability. Time is running out to correct all the corrigible blunder or wilful wrong-doing of the past. We are now made to buy our own gas in foreign exchange mostly earned by our wage earners and peace keeping force.
It is natural for the IOCs to sell off their share of gas, or directly or indirectly export it as quickly as possible to realise their investment and profit at the earliest. They may even promote energy-based FDI to their advantage. We have to decide whether we should allow new large local or foreign gas-based industries. If fertilizer is to be imported, we can expand production by 10 percent or so in our existing fertilizer plants which will not require any new basic infrastructure. We may set up and promote small sponge iron plants based on coal. We must withdraw tax holiday or tax incentive or concession in energy-based foreign investments. Our policy must clearly spell out that land cannot be sold to any foreign government or individual, though short-term renting may be allowed for non-polluting, high-value-adding industrial investment. Investment in energy, mine concession, basic or monopoly industry or service, railway, road, transport, port or similar infrastructure may not be recognised as foreign investment, which are forbidden or restricted or discouraged in many countries. No foreign investment shall be recognised unless entire investment fund is brought in and deposited to Bangladesh Bank.
TATA proposal: There is a fanfare, rather euphoria about TATA's gas-based indicative proposal for 1-million ton-per-year fertilizer plant, 1000 MW power plant and 420,000-ton-a-year steel plant. The alluring FDI carrot of 2.5 billion dollar is mesmerizing our smart investment promotion officials, which is a peanut for a state, particularly in energy field. TATA wants a guarantee for 2Tcf uninterrupted gas supply for 20 years. Can we guarantee something we don't have for sure? If we do guarantee, we shall have to import it at US$ 5 to even 10/Mcf over the guarantee period. If we subsidize TATA, we shall have to subsidise all our local industries. TATA wants a lower price of about US$2 or so per thousand cft. We pay IOCs US$ 2.8 per 1000cft as well-head price. Subsidizing TATA by $1 per mcf tantamounts to US$2 billion in cash offer in foreign exchange. If we have to subsidize by US$2, 3, Or 4 per mcf, our subsidy will amount to US$ 4, 6, or 8 billion. India's subsidized gas price for industry and power generation is now going to be Rs3200 /tcm (US$2.050/thousand cft), and Rs.3,600/tcm (US$2.306/mcf at the rate of US$1=Rs.44.20). The US average natural gas price for industry and power generation in 2005 was US$7.92 and about $7.0/mcf (thousand cft). When large-scale gas-based project needs to be restricted to stop quick depletion of gas, the question of guarantee for even a day, not to speak of 20 years, low price, tax holiday and vast land simply does not deserve consideration.
Coal policy: The big energy users, despite their huge energy reserve, are importing huge energy, such as electricity, gas, coal and oil to keep sufficient stockpile for use for longest possible period.
The estimated theoretically recoverable coal reserve of Bangladesh at different depth is put at 441 million tons (worth US$ 22,050 million @ $50/ton) by underground method (estimated by government consultant) in all the 5 discovered reserve fields, including Jamalganj (reserve: 1053 million tons, where mining is already considered “not feasible”). We may now consider only Barapukuria (Estimated Reserve: 390 Million tons; depth: 119 504M; extractable: about 78 million ton by UG at about 20%) and Phulbari (estimated reserve: 426 572 million tons; depth: 140 350M; extractable : about 68 114 million by UG or 340 457million tons at 80% by open cast method).
We have to make expert decision on the method of extraction , taking into consideration the good and bad experience at Barpukuria, such as flooding, change in extraction method design, etc. and the possibilities of subsidence in case of underground method (UG). Though extracted quantity is less, we must go for the safest and most reliable method. In case of open-cast method, there are a number of foreseen and unforeseen complications of grave consequence which may not be easy, or economic or at all possible to solve.
Because of loss of agricultural land, necessity of land reclamation by importing earth or otherwise, recurring large-scale water management problem, soil liquefaction, land subsidence, expected human casualties and many unforeseen problems, it is never advisable to allow foreign investment in such low-value adding mining project to avoid almost unavoidable conflict with investors or their countries which will try to side with them. India, S. Korea and many countries either prohibit or restrict foreign investment in mining based on sound national policy and manoeuvre. Our coal policy must address this issue.
Our decision to hire a Chinese mining company to develop Barapukuria coal mine was right in that we have retained our ownership and freedom of use of the product. Our government is now going to formulate a coal policy to apparently guide systematic development of coal mine to harness coal to supplement our energy need.
It, however, remains a mystery why the projection of production shows discontinuation of Barapukuria underground mining with effect from 2011, instead of transferring the operation to Barapukuria Coal Mining Company (BCMCL),which may continue to hire experts, if so required. On the contrary , it is shown that TATA will step in Barapukuria to produce coal by open-cast method from 2010, though there is no known contract with them. If we continue UG method at Barapukuria, we may get about 78 million tons (at 20%) at the least, worth about US$3,900million, while extraction by open-cast method by foreign investor shall give us 6 percent of , say, 80 percent extract, that is, 18.7million ton at the most, worth mere US$935 million.
Phulbari coal mine is shown to be awarded to Asian Energy Co. to commence extraction by 2008, though no contract with AEC is made public. In the form of 6 percent royalty we may get 14.52 million tons, worth $726 million out of expected 242 million tons, worth US$ 12,100 million for the investor at US$50/ton. If we even extract by underground method with hired mining experts, we may get 114 million tons (at 20% yield) worth US$5,700 million. If we extract the entire extractable 441 million tons by UG method, it will worth US$22,050 million. Open-cast method may yield about 312 million ton at Barapukuria, and about 450million tons (at 80%yield) at Phulbari, worth US$38,100 million. Is this small (compared to recoverable reserve of 270 billion ton of USA, 173 billion of Russia, 126 billion of China and 101 billion tons of India with annual consumption of 1.094billion, 0.250, 1.531, and 0.430billion tons respectively) mineral resource a burden on us that we should invite some so-called foreign investor and give it away almost free? Can our 140 million hard working, not affluent people afford this luxury? Can't we arrange and invest a fund of some billions of dollars to develop the mines over some 30 to 50 years at our own initiative?
If we use about 15 million tons/year for power generation in about 5,000 MW power plants and about three million tons for steel plant and other purpose, our immediately available coal of Phulbari and Barapukuria may not last for more than 20 years, unless new extractable reserve is discovered and developed. There is simply no coal for export. It is mysterious why we are going to be trapped to buy our own coal in foreign exchange as in the case of gas. Surprisingly, this economically disastrous deal is being engineered secretly and packed in the coal policy to be hurriedly placed before cabinet to pass it without thorough technological, social, environmental and economic evaluation by multi-disciplinary experts. While the policy itself is still in draft form, one may wonder how the name of foreign investors could have a place in the policy. If we hire technologically advanced mining company, we gain technology and experience. We may spend US$ 5 to 10 billions or more for service, equipment and know-how. We can still gain billions and create good employment. Moreover, there will arise no question of export, port infrastructure, coal transportation and associated pollution. We may set up or promote setting up of power generation facilities at the mouth of the mines.
It is hard to believe that the people involved do not understand the implications, despite their occasional quip otherwise, but it is a mystery why we are dragged into loosing deals one after another, giving a damn to national interest. This will be worse than the gas deal with IOCs and shall block our very prospect of national development without even the last available source of energy after gas.
We can simply urge the leadership and people concerned to look into what is going on with coal, and protect the national interest boldly, honestly and responsibly, otherwise history may not hesitate to term the involved people as traitors some day. We have to earn our development hard way. Let us hope for the best to come and save our future.
Dr. Mustafizur Rahman is Chairman, Institute of Development Strategy, Dhaka.
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