Energy sector issues and an open mind

S. Nazrul Islam argues for a wide-ranging national debate

Bangladesh Environment Network (BEN), a global network of non-resident Bangladeshis, is taking particular interest in the draft coal policy because extraction and use of coal have a more profound effect on the environment than most other sources of energy. BEN, therefore, welcomed the opportunity provided by the coal policy review committee to offer comments on the draft coal policy. Accordingly, BEN has sent a 5-page comment on the draft. I reproduce below the 10-point recommendation offered in that document:

1) Unequivocally rule out the coal export option.
2) Express full commitment to development and use of national capability for coal exploration and extraction.

3) Within national capability, place coal mining production in the public sector; Suggest creation of an appropriate managerial and incentive framework so that the public sector coal companies (under the proposed Coal Bangla) can be effective, and not turn into loss making bodies; learn from the Indian experience about how to conduct coal business under public sector.

4) Allow the possibility for national private companies to participate in coal use (for generation of electricity and other purposes).

5) Avoid open-pit coal mining; explore and use other methods of coal extraction, including closed-pit, liquefaction, gasification, etc. The mining method should be chosen taking the socio-economic, geologic, and environmental settings into consideration.

6) Do not allow open-pit coal mining without full consent of the local people, and without taking all measures for protection of the environment and the interests of the affected people.

7) Spell out a specific timeframe for formulating the legal framework and necessary rules, regulations, acts, and laws pertinent to all phases of coal mining. In developing the legal framework, draw upon international experience to avoid mistakes and environmental degradation. Spell out the role of the regulatory institutions, and specify the nature of penalties to be paid for violation of the rules and regulations:

8) Ensure adequate environmental protection in using coal for all purposes. Emphasise that coal is a dirty fuel, and electricity generation using coal is one of main sources of air pollution and global warming. Spell out the environmental rules and regulations to be observed in using coal, specify the role of various agencies in ensuring compliance, and point out the nature of penalties to be paid for violation of the rules and regulations.

9) Revise data cited in the document and in the appendices to remove discrepancies and inaccuracies.

10) Indicate ways to integrate the coal policy with an overall national energy policy that will ensure the ways to secure energy security for the next 50 years. Suggest exploration and use of renewable energy resources, including bio-fuels that are suitable for Bangladesh agriculture, so that coal-dependence can be avoided.

Open-pit coal mining
BEN commends The Daily Star and its reporter Sharier Khan for his recent two-part article entitled: "Keeping an open mind on open-pit mining" published in The Daily Star on August 27 and 28.

In his article, Mr. Khan has responded to many issues raised by BEN Energy Panel members regarding his earlier article on the lessons of the German open-pit coal mining experience for Bangladesh, published in The Daily Star of August 4-6.

The purpose of this Forum article is to further this healthy debate begun on the pages of The Daily Star by responding to some general issues that have cropped up in the exchange.

The difference between BEN and Mr. Khan seems to lie mainly in the views regarding the suitability of open-pit mining in Bangladesh. In this regard, BEN welcomes Mr. Khan's recent statement: "I am not a supporter of open-pit coal mining" per se. BEN would like to be more cautious in endorsing open-pit coal mining on the basis of German experience.

BEN is worried about the fundamental differences between Bangladesh and Germany with respect to geological conditions, socio-economic settings, and quality of institutions. While Bangladesh is mostly a delta with rivers crisscrossing the country, Germany comprises mainly of highland with one or two major rivers. The average precipitation (rainfall) in Bangladesh is five times more than in Germany. Also, Bangladesh is characterised by a wide-spread underground water table, something that is not equally true for Germany. As Mr. Khan himself notes, with coal mining: "[T]he damage is mainly done in handling the underground water tables. If carelessly discharged, the water from any coal mine will have some negative effect."

On the socio-economic side, Bangladesh's per capita income is about sixty times lower than that of Germany. On the other hand, the density of population in Bangladesh is more than five times higher than it is in Germany. Also, Germany's urbanisation rate is more than 75 percent, so that less than 25 percent of the population resides in rural areas. More importantly, agriculture contributes less than one percent (0.9 percent) of German GDP, and employs only about 1 percent of the German labour force. The reader can easily compare these statistics with those of Bangladesh, which I need not repeat here.

The contrast is even more striking with regard to institutions. Germany is one of the most educated and law abiding societies in the world. In contrast, we have in Bangladesh a society where even the finance minister does not pay taxes and the home minister frees murder suspects in exchanges of bribe. Can Bangladesh hope to replicate the German experience of institutional control of the damages caused by open-pit mining?

The Daily Star would perhaps have done better if it had instead sent Mr. Khan to neighbouring India, with which Bangladesh has much more similarity. Indeed, as Mr. Khan correctly notes, the Rajmahal coal basin of India is very close to Bangladesh and is, in fact, part of the same geological formation extending across the border. Bangladesh can, therefore, learn much from the experience of open-pit coal mining in the Rajmahal basin.

Unfortunately, no such comparative studies seem to be available. Authorities should commission such studies before deciding on the method of coal mining. In this regard, it needs to be noted that, alongside the similarities, there are many dissimilarities between Jharkhand (where the Rajmahal basin is located) and Bangladesh's coal basin area. The dissimilarities pertain to population density, importance of agriculture in the region, and proximity of rivers and other surface water bodies, etc. Thus, what has been appropriate for Rajmahal may not be so for the Bangladesh coal basin.

Moreover, it is not an issue of technical feasibility only. The resolution of the issues also requires detailed economic analysis. Bangladesh has many fine economists who can perform such analyses if appropriately commissioned. Such studies may be made available on the web for scrutiny by all.

Mr. Khan mentions that in order to approve the Barapukuria project its internal rate of return (IRR) was inflated from 13 to 39 percent. Thus, it is difficult to trust cost-benefit or environmental impact analyses conducted by interested parties, and even by government agencies susceptible to influence and bribe. Honest, independent, analyses and reviews are necessary.

Until such analyses are available, one is obliged to keep an open mind about the method of mining, and that is exactly what BEN has. As recommendation Nos. 5 and 6 of the list above show, BEN does not dogmatically rule out open-pit mining. However, in view of its undisputedly greater disruption of the environment, and life and livelihood of the people of the area, BEN suggests avoiding open-pit coal mining and urges thorough exploration of other methods.

More importantly, BEN points to the necessity of obtaining the consent of the local people who are to be displaced before open-pit mining can be allowed. Community concerns, and the issue of rights over land and access to it, have to be dealt with carefully. This is all the more important in view of the fact that there is already a written agreement between the government and the Phulbari people about not allowing open-pit coal mining. Permission for open-pit coal mining in Phulbari would, therefore, imply reneging on that agreement, entailing potentially serious consequences.

No matter where you want to conduct open-pit coal mining, uprooting thousands of families, the consent of the local people will be necessary. The issue is more sensitive because part of the coal basin area is inhabited by some of Bangladesh's ethnic minorities (adibashis). UN recognised treaties and conventions enjoin Bangladesh to take extra care in the protection of the rights of adibashis.

The considerations above suggest that one cannot approach the issue of mining method in a cavalier manner. As BEN Energy Panel's Daily Star op-ed of June 23 notes: "Bangladesh must develop a national consensus and obtain the consent of the local people who will be uprooted, before contemplating coal extraction, particularly through open-pit coal mining."

It further notes: "The people may accept the human costs of being uprooted from ancestral homelands only when they, in addition to being appropriately compensated and resettled, are convinced that their sufferings will serve the greater national interests. The rest of the nation will also have to be convinced on this point before they can ask the people of the affected areas to sacrifice."

Such conviction will not emerge when the extracted coal is meant for export by a foreign company. It does not matter whether the royalty is 6 percent or 20 percent. How much money will the government earn from such royalties? As the experience from gas sector shows, foreign companies often find all the excuses to deprive the government of even the minimum royalty that they formally commit to pay. In any case, any such royalty will simply pale by comparison with about seven billion dollars that non-resident Bangladeshi's are now sending back to Bangladesh each year. Can the nation ask hundreds of thousands of families of the coal basin area to be uprooted so that the government can earn a dubious amount of royalty?

The sacrifice that is being asked of the people of the coal basin area can only be justified if the extracted coal serves Bangladesh's vital interests. That means that the entire amount of extracted coal has to serve the domestic economy in an efficient way; all the financial and economic benefits of coal need to accrue to the nation; and these benefits have to exceed the costs (economic and otherwise) incurred by the affected people. That is why BEN's No. 1 recommendation is to rule out export of coal. And that is why BEN recommends development of the coal sector using national capability. BEN's recommendations are based on well-knit argumentation, and

Second, Bangladesh needs to have an open mind with respect to the energy mix most suitable for the country. In this regard, she has to have an open and imaginative mind about the potential role of renewable energy sources, solar, wind, tide, mini-hydro, etc. Bangladesh may also explore the role that modern bio-fuels can play. In Brazil, for example, one-third of the fuel used in vehicles comes from bio-fuels produced from sugar cane, corn, soy beans, cornstalks, and native grasses. Unlike in Brazil, where often cultivation of such crops requires clearing of the Amazon forests and thereby causes some criticism, Bangladesh faces no such issue, and hence is freer to experiment and explore.

That is why BEN urges formulation of a comprehensive energy strategy, rather than formulation of a coal policy in isolation (see recommendation No. 10). This is because it is not possible to take correct decisions regarding coal without considering the role that other sources of energy can play, the sequence in which their relative roles should play out, the optimal geographical distribution of production, and use of different types of energy. All these issues require research and investigation with an open mind.

Third, Bangladesh also needs an open and brave mind about her potential national capability. Countries like Malaysia were behind Bangladesh in the 1960s in terms of human and technological capability. Yet, pursuing a national capability-based strategy in the area of energy, she has now public sector companies, such as Petronas, that can compete and play at the world level. By contrast, Bangladesh has let her national capability in the area of gas exploration and extraction to be degraded over time, and now is afraid even to think of developing the coal sector using national capability. A culture of foreign-dependence has become so ingrained that she wastes thousands of crores of Taka behind dubious companies such as Harbin and Niko, rather than summoning the courage to rise to the challenge herself.

Yet, extraction of coal is not building a rocket! Bangladeshi engineers and technicians can definitely master this technology. In fact, foreign companies which are eager to get hold of Bangladesh's coal deposits will ultimately be doing the job by employing mostly local engineers and technicians. Bangladesh has produced many excellent private and social entrepreneurs. If necessary, a public-private joint venture company of Bangladeshi ownership can hire from neighboring India geologists and technicians who have experience in mining in similar geologic conditions. Even foreign contractors can be hired to perform specific tasks that are beyond the capacity of the in-house expertise.

Sometimes it is argued that Bangladesh needs foreign companies in the coal sector because she lacks capital. This is again a reflection of the inability to look for strength in one's own. As Prof. Abu Ahmed of Dhaka University economics department repeatedly mentions, Bangladesh is awash with unutilised capital. There is a vast amount of excess liquidity in the country's banking sector, which is now used for financing the government's budget deficit. Similarly, there is a vast amount of excess demand for investment opportunities in Bangladesh's stock market. These domestic savings can be fruitfully channeled for investment in the coal sector under domestic ownership.

All these issues need to be considered with an open mind. The authorities should open a wide-ranging national dialogue on energy sector issues. It is only through such dialogue and discussion that the nation can arrive at a consensus about her energy strategy. BEN will be happy to participate in such a discussion, and contribute as much as possible to the process of formulation of an optimal energy strategy for Bangladesh.

Dr. S. Nazrul Islam is a Senior Economic Affairs Officer, United Nations, and Coordinator, Bangladesh Environment Network (BEN).