THE government could not develop coalmines for a long time for lack of financing. But foreign companies are now showing interest in developing coalfields. They are now willing to invest in the production and marketing of coal. Sizeable foreign direct investment is expected for such operations. Foreign investors are coming forward because they want to diversify their investment in coal in place of gas and oil because of their rising prices.
There are many allegations that our gas fields have been leased out to foreign companies without properly scrutinising the contracts. This may be partly due to our limited negotiating capacity. Corruption was also responsible for awarding contract on soft terms. Since we are now entering the coal era, we should be careful from the very beginning. Necessary legal framework may be put in place so that discussions can proceed in the right direction. If necessary, the government may engage consultants for building our negotiating capacity. Officials should be trained up in coal production and management.
Bangladesh government has been trying to attract foreign investors for the last two decades for the development of coalfields but they were not successful. Rising oil and gas prices internationally are now inducing the foreign investors to invest resources in extracting and marketing coal, which is our black gold. Bangladesh will certainly benefit from foreign direct investment (FDI) in coalmines. This will beat the critics who say that the prospect of FDI in Bangladesh is bleak. It is good that Bangladesh has significant reserve of coal as an alternative source of energy.
During the last six months about twenty companies have submitted proposals for exploration of coal and gas. World famous companies are included in the list of the companies who submitted offers. Memorandum of understanding has been signed with some of the companies. It is estimated that coal reserves would ensure energy security for the country for the next 50 years. As gas reserve is limited, coal will be the next source of energy for the country.
Under the existing rules, open cast mining will bring in 6 per cent royalty and for underground mining it will be 5 per cent. After meeting the investment cost, Bangladesh will get 45 per cent of profit as tax. It is reported that the amount of royalty is low in consideration of the quality of our coal. There appears to be no system for bidding for coalmines. The government can negotiate with any company they like. Experts are of the view that if coal deposits are utilised efficiently, Bangladesh can be elevated to a middle ranking country within a decade.
Barapukuria coalmine is being developed during the last ten years with supplier's credit from China. In the meantime, project cost has more than doubled because of corruption and irregularities. This coal mine could not go into commercial production even after changing the dates five times. It is hoped that commercial production would start by next January.
The contracts for coal development already signed are being reportedly re-examined to find out the weaknesses. Coal mining rules will be revised soon. The government is thinking to frame a separate policy for coal mining. They are also exploring if production-sharing contract can be signed as in the case of gas fields. Energy adviser commented that if coal can be successfully exploited, there would be no problem of energy in the country.
Asia Energy Corporation has submitted to the government its feasibility study along with a plan to develop a $2 billion open-pit coal mine at Phulbari in Dinajpur from next year.
Development of this mine would require the company to relocate 40,000 people of 9,000 households in the mining area in different phases over a 30-year lifespan of the mine. The company will compensate the affected people.
At the same time, 6,500-hectare mine is expected to stimulate economic activities, particularly in the transport sector, railway, land and seaports and infrastructure building in the western and northern Bangladesh. The mine will directly create 10, 000 jobs. The Department of Environment has given the company environmental clearance for the open pit mine. The operating cost of the mine for 30 years will be $10 billion and it will produce coal worth $24 billion. The average price of coal has been estimated at $ 50 per ton. If the government approves of the plan, the company will start land acquisition next year, mine development in 2007 and start production from 2008.
A section of people of Phulbari are opposing the open pit mining method proposed by Asia Energy. They are also protesting eviction of people from the coal-mining site. All houses, schools, madrasas, shops and other commercial units within the mining area will face removal. It is reported that the affected people will be compensated for loss of land, property and livelihood. The government should carefully examine the pros and cons of the mining project before striking a deal with the Asia Energy Corporation.
According to Hosaf-Shandonludi, feasibility of Khalaspir coalmine is being investigated. Thereafter, development plan will be submitted to the government. Normally work is awarded to those who prepare the development plan after undertaking feasibility study at their cost. But this is not a binding obligation.
Valcan Energy, an American company has shown interest in coal mining in Bangladesh. At the initial stage they are interested in development of coalmines in the northern areas of the country and setting up coal-based power station. Recently, they have called on the government representatives and expressed their intentions. They have already visited the coal mine areas. They are willing to invest one billion dollar.
The top Indian conglomerate Tata has come forward to invest 2.5 billion dollars in coal-based power plant and steel mill. They have completed the feasibility study. It is learnt that they will utilise coal from Barapukuria field. Petrobangla has decided in principle to agree with Tata's proposal to introduce open-pit method at Barapukuris coal mine in Dinajpur for using its coal as fuel for Tata projects. The Tata officials have given a detailed presentation on the open-pit mining to Petrobangla officials. It has also been decided in principle to award a part of Barapukuria coal mine to Tata on build, own and operate basis. Negotiation with Tata appears to be advancing well.
Companies, which are now coming to Bangladesh, are considering coal as the main source of energy side by side with gas. They think that they may face problem after ten years if they are confined to gas only. Coal has, therefore, gained importance as a fuel although it was not so much in demand years ago.
It is alleged that coalmines are being handed over to foreign companies under agreements, which are not transparent as in the case of gas fields. Two committees have been set up in the petroleum and mineral resources division to look into the alleged irregularities in the work relating to feasibility study of coalmines. Meetings have also been held in this regard.
In Bangladesh gas reserve is likely to be exhausted in the not-too-distant future. At that time coal will be the main source of energy. Although investors were not available for a long time to invest in coal development, they are now coming forward. The state minister for energy had to quit with a lot of allegations. We should not rush with deals on coal as in the case of gas utilisation. Rules regarding utilisation of mineral resources need to be updated. Since the Prime Minister is in charge of energy ministry, she has added responsibility in this regard.
Coalfields should not be leased out to foreign companies without adequate preparation for safeguarding national interest and appropriate legal framework. We shall have to pay a heavy price if decisions are not taken cautiously. The authorities concerned must look into the issues relating to awarding of contracts in order to protect the interest of the nation.
The writer is a former economic minister of Bangladesh mission to UN in Geneva.