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How will draft coal policy fit into Nat'l Energy Policy?
Nuruddin Mahmud Kamal
3/13/2006
The Draft Coal Policy (Version I) has been prepared by the Infrastructure Investment Facilities Centre (IIFC) in December 2005 and duly submitted to the Ministry of Energy. Six in-house meetings were held between December 12, 2005 and January 16, 2006. Version 2 was submitted on January 23, 2006. A consultative workshop organised by the Energy Division, attended by the selected officials and media persons, was held on February 8, 2006. The outcome of the discussions/meetings has not been made public. The comments and analysis made here is based on the Annexure-1 "Major Concepts in Coal Policy" (version 2, 8th February 2006) as well as the draft coal policy dated 23rd January 2006.
We may initiate the discussions keeping in mind some vital provisions of the Constitution of the People's Republic of Bangladesh, which provides..
At article 7(l): all powers in the Republic belong to the people, and their exercise on behalf of the people shall be affected only under, and by the authority of, this Constitution
At Article 143(l) There shall vest in the Republic, in addition to any other land and property lawfully vested;
(a) All minerals and other things of value underlying any land of Bangladesh,
We consider that there are reasons to bring the relevant articles of the constitution at the forefront because the draft coal policy has a basic conceptual approach of developing the coal reserves underground through awarding the coal fields to foreign investors under the royalty basis. This royalty applies to the fact that ownership of coal which by constitutional provision has been vested to the people of Bangladesh is being transferred to a foreign company. This has serious constitutional implications.
[The provision of ROYALTY in the draft policy paper (DPP) infact violates the provision of the constitution because through application of royalty clause the "ownership" of the property under article 143(l) will get jeopardised].
Now let us come to the DPP itself. The DPP has two parts: Part-A deals with the vision statement, while part-B the coal policy. Apparently, it has several shortcomings and doubtful data/information and some of these are:
Part-A: i. DPP is shown as a stand-alone policy having no connection with the National Energy Policy (NEP), 1995 (or its updated version 2004) or the Power System Master Plan (PSMP), 1995 or even the Gas System Master Plan (GSMP), 2006;
ii. The DPP is basically export-based, no domestic demand exercise has been incorporated (as was done in the energy policy). Unless total energy supply demand balance is made, non-judicious utilisation of any of the available commercial energy resource is bound to cause serious impact in the mid and long term energy policy of the country.
iii. The country is already energy deficient, heavily dependent on natural gas arid is dwindling (the present proven reserve is likely to exhaust by 2015, if not earlier). Coal development is therefore a welcome relief.
iv. The total estimated recoverable reserve of coal is shown as 1400 million ton representing approximately 37 tcf of natural gas (in terms of heat value). This is, however, a debatable point.
Part-B
i. If the coal production and export as stated in the DPP is encouraged, the domestic consumption will suffer.
ii. The Bureau of Mineral Development has been shown as the approving authority for export and also an authority for issuance of 'coal export certificate' based on a formula of coal export ratio at 1:2 during the initial development period, and 1:1 thereafter (3.2 and 3.3). This formula appears to be biased towards export of coal; which in the reality of energy problems in the country needs further examinations,
iii. Promotion of coal as an alternative fuel cannot be the responsibility of the lessees or exporter (3.5.1); rather this responsibility lies with the government. The government must share the policy perceptions with the people and integrate the agreed contents of the DPP with the existing National Energy Policy (NEP).
iv. The expression that long term sustainable energy security in the country is expected to be achieved through the maximum recovery of coal appears to have been tied with export of coal (5.1) Unless an acceptable demand forecast of coal has been prepared, optimum utilisation of the same cannot be ensured.
v. Method of mining gives some wrong signal. For instance, the decision on extraction is to be taken by the investor (5.2) irrespective of the method of mining (underground or open pit). Method of mining must be approved by the government based on the techno economic study and also with reference to other social, environmental and economical issues which are related to method of mining.
vi. A coal production projection based on the estimated reserve (Annex-A) cannot be a part of the policy document. Such projection must be deleted from the DPP.
vii. Coal prices determination by lessee (Annex-B) is an unheard proposal. This must be through a consultative process based on say Sydney coal market etc.
Indeed a coal policy which is vital for Bangladesh must have clear conceptions as to the way forward. From this point of view the following issues also need to be clarified and redrafted.
A. Concepts and definitions B. Vision statement C. Objectives (Seems to be missing in the DPP) D. Strategies for development (seems to be missing in the DPP) E. What coal policy means for Bangladesh F. Pricing issues G. Royalty.
An unambiguous recommendation should be included in the DPP.
Considering the major concepts in coal policy (Annexure-1), the following analysis is made:
i. Coal zone has been proposed. But merely terming an area as a zone will not be enough unless the activities to be initiated in the zone are focused. Development of infrastructures, roads, railways or similar facilities that are needed for the coal mines will not be implemented by mere declaration of the coal zone. What happened with industrial estates or in some EPZs? So simple inclusion of coal zone in the policy may not serve the purpose unless a development policy of the sub-sectoral projects in the said zone is also framed.
ii. Coal policy cannot be formulated in isolation from the Energy Policy of Bangladesh. Coal, petroleum products, natural gas, hydroelectricity etc., are the primary commercial energy sources of the country. Electricity is the major secondary energy which has a vital impact on the national economy. As such framing of coal policy without having a linkage and relationship with other energy resources will not be practical. The present policy has not given any direction as to how the coal policy will fit into the National Energy Policy (NEP).
iii. Energy security in Bangladesh is overwhelmingly dependent on finding alternate resources of energy in the country including making provision for import of energy in long term at competitive price. But when coal export is talked about with much stress in the policy, the energy security takes a back seat. Such contradictions need to be removed from the policy.
iv. Mandatory power stations are good ideas. But it needs to be seen whether it will be an appropriate approach in engaging a mining company for developing a power station. It may prove to be a futile exercise rather; keep the mine to the miners. It can be assumed easily that coal will automatically find its way to the power station boilers as there is no other feasible customer in Bangladesh to use coal at least in a foreseeable future. Foreign investor may find it as a non-incentive.
v. Institutional aspects to develop coal sector are important. But importance should be given to those which are directly related to coal mine and its safety. It will be appropriate to keep the government at a distance as far as practicable from the operational aspects; on the contrary the GOB should exert its presence through regulatory process and inspectorate for the safe operations of the coal mines.
vi. Coal fund is good idea. But modus operandi of the said fund needs to be drawn out upfront. However, the Geological Survey of Bangladesh (GSB) may find it extremely difficult to utilise the said fund because the organisation does not have a commercial outlook. To discover new coal fields, incentives may also be given to local private sector operators so that they are able to utilise risk fund to discover new fields which they can trade with later on.
vii. Coal sector development committee may create more problems than solving them. There are similar committees in other sectors, some of which even failed to meet in years. The idea of the committee should therefore be deleted.
viii. Environmental aspects have been dealt with a built-in bias in the proposed coal policy. No analysis has been made if open cut mining will jeopardise the environmental aspects of the north western Bangladesh. The DPP is more inclined to open pit mining as could be observed from different provisions in terms of rehabilitations, and reclamation of land. But the crux of the issue is the open pit mine might distort the geological and hydrological balance of the area concerned. It is not likely that the refilling of the excavated area will make it possible the ecological issues return to its near original position in future. These have not been addressed adequately in the policy. If agriculture / hydrology in the area of coal mines and the land mass thereon itself becomes useless after coal has been taken away, then why one should take the trouble of going into coal mining. The cost benefit analyses of coal extraction versus the total losses need to be seriously carried out by professionals including hydrological and agricultural experts conducting onsite pilot tests.
ix. Commercial aspects as embodied in the policy are too premature. Fixing coal price upfront may riot be ideal way of attracting foreign investors. Six per cent royalty has already been termed as too low by many experts and economists. If we get such a low return for the country from this vital resource then what is the use of extracting coal right now? To make some foreign investor rich! They can wait.
x. Coal export can only be accommodated when the domestic demand of energy has been met. Coal export is only possible if open pit mining is allowed. That may lead to disaster and the whole north western region may have to be discarded from economic activities. These serious implications need to be examined thoroughly before any decision on coal mining by open pit method is given for the sake of coal export.
xi. Solicitation of award for mining lease must be transparent. It is not only the upfront payment by the bidder to get the award, the method of mining and other related issues must also be compared while evaluating the bids. While formulating the parameters of solicitations, it must also be ensured that level playing grounds are available to all participants upfront. No conditions which may be bent later on should exist and all conditions must be made public prior to solicitations of bids. At the same time the cases that are still pending should be dealt appropriately in the light of the DPP provisions.
xii. The policy has not mentioned any things about liability of the foreign investors. We have had some bad or night mare experiences with negligence of the foreign operators in the energy fields. DPP must have some provisions to deal with the defaulting operators that may be instrumental in causing national losses.
Along with royalty, profit sharing or production sharing may also be considered with foreign investors. The policy should have dealt such aspects along with government local private and foreign ventures.
The draft coal policy should incorporate all the relevant factors or implications as discussed above with active participation by miners, engineers, geologists, hydrologists, agriculturists and last not the least by the economists.
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The writer is a former Chairman, Power Development Board
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