Asia Energy - Coal and Power for Bangladesh

Bis says: it would seem that there are some that recognize the importance of the Phulbari coal for the future prosperity and economic development of Bangladesh



After messy gas deal, what should we do with our coal?


Gas concession and PSC: Bangladesh Petroleum Exploration Company (BAPEX) is the only organisation in Bangladesh, which gained experience in exploration, successful discovery, and exploitation of such gas field as Haripur, among others. It was however practically avoided when the International Oil Companies (IOCs) were rather stealthily and hurriedly given concessions for exploration and production sharing for different blocks after the so-called oil crisis in early 1970s, without protecting national interest and under losing terms.

The result is that we have to buy, rather virtually import, our own gas at a high cost in foreign exchange we can hardly spare. Those IOCs are also exerting pressure on the government to increase domestic consumption of gas and also to allow its export in some form or other.

Had we strengthened and developed BAPEX to a technically sound company with most modern equipment, technology and trained manpower backed with full financial support, and entered into agreement for only a block or two, particularly offshore ones with some technologically sophisticated companies to work with BAPEX or other local companies, the situation could be different. We are now in the process of deciding our course for coal, but cannot understand what trap we are going to be hoodwinked into.

Global coal reserve position vis-vis ours: The world annual coal production is over 4,030 million tonnes, which may reach 7 billion tonnes in 2030, most of which is used in the producer countries (the top five being, China, the USA, India, Australia and South Africa). Only 18 percent of hard coal production is destined for international market. China's coal reserve is about one trillion tonnes, good for about 100 years' local consumption, while India's coal reserve is about 240 billion tonnes, 250 times that of Bangladesh. Our estimated coal deposit of 390 million tonnes in Barapukuria (extractable quantity being 78 million tonnes by shaft or underground method at 20%) and 572 million tonnes (288 million tonnes is confirmed, and 216 million tones is extractable by open-pit method at 75%) in Phulbari is quite insignificant in international context. It is difficult to understand why our decision makers are trying to make a mountain out of this mole hill of coal, and are so eager to give it away for just 6 percent royalty and some personal benefit, if there is any, whereas all conscious countries want to preserve their own reserve even by acquiring as much as possible from elsewhere. Despite heavy consumption and higher price, the USA also is preserving her huge energy reserve in Alaska.

TATA is aiming at acquiring steel processing assets in other Asian countries as a part of its US$23 billion expansion programme over the next 12 to 15 years to become a global player. As Bangladesh has some coal and gas, but no apparent technical or economic clout, it is but natural for TATA to come to Bangladesh to find scope for profitable investment, under advantageous terms. The situation here may be helpful for TATA to have a deal. Bangladesh must ensure that it has a win-win deal, and not allow anything to be rammed upon it.

Barapukuria and Phulbari coal mine: It was probably a better decision for us to appoint a foreign company, in this case Chinese company CMC, to develop the mine for Barapukuria Coal Mining Company Limited (BCMCL) at US$200 million or so, of which Tk.1,600 crore was invested by Chinese bank. As the first coal mining project, it will naturally encounter various unforeseen problems which we must solve with courage to firmly enter into coal mining era.

The available quantity of about 78 million tonnes (worth US$1,014 million @US$13/tonne at the mouth of the mine, or US$3,900 million at market price of, say, US$50/tonne) may supply 1.56 million tonnes per annum for 50 years. If part of the extraction is done by open-pit method, the available quantity will be much higher.

Six-percent royalty might give us a total of just US$60.8 million or US$ 234 million depending on pricing mentioned above at the cost of our mining right. We now have control over the entire amount of US$3,900 million and full flexibility in its productive use.

The planned 250MW coal-fired power plant, consuming about 750,000 tonnes of coal a year at Barapukuria will definitely give us confidence, courage and technical experience to debut in modern low-pollution, coal-fired, high-efficiency power plant technology widely used all over the world in view of present higher oil and gas price and their future scarcity.

To equip ourselves with sponge iron manufacturing technology at the earliest, we may add, say, a 60,000-ton sponge iron or Direct Reduction Iron (DRI) plant that will use about 90,000 tonnes of coal a year. The sponge iron shall be used for steel making in Electric Arc Furnace (EAF) or Induction Furnace (IF). About 720,000 tonnes of coal may be supplied a year to domestic market to substitute import.

The expected coal production of about 216 million tones in Phulbari may supply about 3.6 million tonnes a year for 60 years. Its value may be US$2,808 million @US$13/tonne, or US$10,800 million at US$50/tonne. At 6 percent royalty, we may theoretically expect a total of just US$ 168.5 million or US$648 million depending on the pricing atUS$13 per ton or US$ 50per ton, but we would have to buy our own coal for at least US$10,800 million at present market value. The project will cause pollution, call for relocation of 50,000 people and result in virtual loss of 6,500 hectares (16,055 acres) of land and a township. It is evident that the 6-percent royalty formula or even 50-50 or better production sharing will not merit any consideration in view of social dislocation, our dearth of land and its usefulness and finally the loss of flexibility in decisions to serve our strategic national interest.

We may capitalise on the experience in Barapukuria and establish a company to handle Phulbari coal mining, which shall hire qualified mining engineering company at our own cost to develop the mine for extraction using underground or open-pit method as found workable.. We can set up a 500MW (250 +250MW) coal-based power plant, costing about US$450 to 500 million and burning about 1.5 million tonnes of coal, and 450,000 ton-a-year sponge iron plant, importing about 720,000 to 770,000 tonnes of iron ore (with more than 63% FE content), starting with smaller rotary kiln units (which can fuel about half of power generation for EAF or IF) with own finance or on suppliers' credit. Its yearly coal consumption may be about 650,000 tonnes. The sponge iron can be used for steel making by large or medium private and public steel makers. About one million tonnes of coal may be supplied to domestic market to replace import. All these will account for an annual coal consumption of 3.15 million tonnes at early stages, keeping provision for future increase without immediate import.

TATA and AEC proposals

TATA's package proposal is for 1000MW power plant (hopefully coal-fired) at about US$700 million; 420,000-ton steel plant at US$700 million and one million-ton-a-year fertiliser plant at US$600 million. True, this will generate enough foreign exchange for TATA to repatriate its investment and profit comfortably, but we will be left with no natural resource for our own free use for launching even partly self-reliant development in this strategically vital sector.

There are already six fertiliser plants in Bangladesh operating at excess capacity. We can expand production with suppliers' credit or by floating some shares. In view of ever-increasing consumption of gas in industries, households and transport vehicles, we should not use up our limited gas resource so quickly for power generation or fertiliser manufacture. When necessary, we can arrange finance to build plants ourselves or look for independent investment partners later. Therefore, TATA investment proposal either in fertiliser or gas should be examined from the above perspectives.

Gas-based small power plants of up-to, say, 150 MW or so may be built by local public or private companies in other parts of the country. At this stage, we simply should not encourage foreign investment in such power plants.

As an old and large steel manufacturer, TATA can at the best be given a part of a contract for sponge iron plant and for supply of raw materials on commercial terms, if found competitive in quality, technological level, price and mode of payment. We must go for advanced technology for high product quality and cannot compromise in this aspect.

We must not negotiate mining right with any foreign company, whether Asia Energy Company (AEC) or TATA or some one else. The same company shall not be chosen to work as plant suppliers and mining consultant or investor to avoid clash of interest.

If we can follow our own technical and financial plan, we can avoid any question of concession in gas pricing, guarantee of any gas supply, coal pricing, allocation of 2,000 hectares (4,940 acres) of land, refilling of excavated areas, relocation of 50,000 dislodged people, infrastructure building, internal transportation, tax holiday, special EPZ status, environment protection, etc. that might predictably lead to undesirable conflict with our neighbour India. The ownership and decision making must be with us, and we shall have to pre-empt all causes of conflicts.

The London-based AEC seems to be expecting government approval to start production of 1.5 million tonnes of coal in 2007, six million in 2008 and nine million tonnes in 2009 and finally 15 million tonnes from 2011.

Such plan as may quickly deplete our resource cannot be accepted. We must preserve some coal for about 60 years to make steel and to generate some coal-based power. It will be fatal for our economy if we are left with no coal for sponge iron before we gain strength to import it and employ our people productively.

Technology

In view of fast depletion of fossil fuel, interest in atomic energy power generation is recently reviving despite all its risk. Our old plan for Ruppur and similar atomic power plants may again be considered, along with all possible alternative power sources. We must realise the importance and necessity of heavy and sustained investment in Research & Development (R&D) to build up our own technological capability, a prerequisite for launching development.

What should be our approach

We may protect our natural resources and land, and promote strategic industries, possibly, through enactment;

We may immediately establish a multi-disciplinary advisory committee of experts, a technical committee and a planning team, which may help the government to make right, informed decisions and to take initiatives;

We may treat all the proposed projects, viz. mining, coal-based power plants and sponge iron/steel plant as separate projects;

We may enact comprehensive industrial, investment and foreign exchange control policy to guide local investment, and inward and outward foreign investment with operational details; so that no foreign investment is recognised unless full investment amount is brought in and certified by Bangladesh Bank, and no international or inter-government finance is used in Bangladesh by the investor company;

All MOUs will have a short validity period;

We may abolish or revamp our dysfunctional institutions and create effective ones to revitalise our industries, including steel industries such as Chittagong Steel Mills which can easily be brought to production;

We must decide not to sign any foreign-drafted international agreement or MOU without study and without endorsement by Bangladeshi experts, and that does not include provisions to rescind when necessary, and does not designate courts in Bangladesh as the only courts of jurisdiction to finally decide on any dispute that cannot be settled through mutual discussion;

We may encourage or even invite sophisticated financial investors for equity participation in capital- or technology-intensive manufacturing industries with high local content, such as automobile, shipbuilding, electronics and other industries, foreign-exchange-earning service sector like international civil aviation, such as BIMAN, atomic power generation venture for export of power in future through cross-country power transmission grid proposed by South Asian Association for Regional Cooperation (SAARC) and Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation (BIMSTEC) which includes India, Bangladesh, Nepal, Bhutan, Myanmar, Thailand and Sri Lanka.

I wish, our people are not short-sighted and the government too penny pinching to ultimately sacrifice national interest, and invite very predictable social, economic, political and even security problems, and inhibit national development as in last 34 years just due to lack of right initiatives or our hurried wrong decisions without homework.

Dr. Mustafizur Rahman is Chairman of The Institute of Development Strategy, Dhaka. The views expressed here are of the author's own.

Source: The Daily Star, December 10, 2005