The country's future energy security will be in jeopardy if the government allows a mine developer or an investor to go for the "blanket export" of coal drying up the reserves of the vital natural resource.
Besides, the idea of mandatory mine site power plants is to encourage investors to help increase the coal-fired electricity generation in the country.
"We must look at business interest, but not at the cost of national interest," Chief Executive Officer of the Infrastructure Investment Facilitation Cenrtre (IIFC) Nazrul Islam said as he defended retaining the provisions of export limit and coal-based power plants in the revised draft coal policy.
"No country in the world allows free export of coal," he said, dismissing the option of free export as demanded by the global investment bank, Barclays Capital.
"Only two countries-- Indonesia and Australia--export coal more than 50 percent of their domestic use," Islam, who led a pool of experts to draft the coal policy, told the FE Saturday. IIFC, a donor-funded public sector consulting firm, has drafted the first ever coal policy at the behest of the Energy Division.
The draft policy says coal allowed for export is to be linked to the coal being locally used in Bangladesh. A higher local coal use will allow a higher level of export coal. The coal export ratio is to be 1:2 during the first 10 years of mining while and 1:1 afterwards.
Buttressing his argument about the limit on coal export, the IIFC chief said Indonesia could afford exporting higher amount of coal, given the South-East Asian nation's availability of alternative energy resources.
"You see, Indonesia has got alternative sources of energy, including the hydro potential. It cannot export geo-thermal resources. Obviously, this factor has allowed it to go for higher coal exports," Islam said.
But Bangladesh lacks alternative energy resources, except gas and coal having extremely limited reserves, he added.
The energy-starved Bangladesh has discovered a total estimated reserve of 1400 million tonnes or equivalent to 37 tcf of gas in the country's north western part.
China, which accounts for 10 percent of the global coal reserves, does not grant free licence of coal exports, Islam said.
The cap on coal exports will also benefit the future mine developers, as they can get a robust domestic market, with virtually no competitor, he pointed out.
The IIFC executive saw no logic behind opposing the idea of mandatory power plant adjacent to the coal mines.
"I don't see any reason why the Barclays Capital is opposing this provision as the Asia Energy plans to develop a 500 MW of coal-fired power plants at Phulbari," Nazrul Islam said.
Most of the countries around the world generate more than 50 percent of their electricity by using coal, he maintained.
About the Barclays's proposal of deletion of variable royalty component, the IIFC official said the government could not rely on corporate tax, alone.
"There remains uncertainty …Multinational companies often tend to show lower profits through 'creative accounting' practice," Islam said.
Billing the variable royalty as unique, the IIFC executive said the recent unusual hike of coal prices in the international market has encouraged them to think about this mechanism.
Calling the variable component of the royalty calculation "awkward and cumbersome", the Barclays said that the royalty structure as currently proposed would "act as a deterrent to mining companies considering investment in Bangladesh".
It suggested that the policy should stress on the payment of corporate tax due to higher sales price, rather than on royalties.
On this score, the Barclays executive proposed that the variable component of the royalty stream is dropped in favour of retaining the more transparent and simpler fixed royalty system.
"The investor will get tax holiday facility. Besides, when the international price goes down, it will have to pay lower," Islam argued.
The Asia Energy Corporation (AEC), a British mine developer, is now moving ahead with a plan to plough around US$ 2.0 billion into the Phulbari coal mine project.