Coal policy: National interest comes first

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Shahiduzzaman Khan
The first meeting of the advisory committee formed by the caretaker government to review the draft coal policy decided to post the latest draft on the web site in order to elicit public comments and ensure transparency. The government expects that the public comments and feedbacks on the 6th version of the draft will help improve the final policy.
The draft policy, as was reported in the FE this week, gave top priority on ensuring the domestic energy security for at least 50 years and mainly relies on the public sector in coalmine development. The amount of coal exports will not exceed the use of the mineral in the mandatory power plants at mine mouth. The ratio of coal exports and coal use in power plants will be 1:1. The draft has also made it clear that national interest will be given the topmost priority while attracting foreign direct investments in the coal sector.
The chief of the advisory committee viewed that the coal should not be allowed to be exported, as the country needs energy resource to generate electricity. Primarily, the government agencies would develop the coalmines. Although the mining method remains the stickiest point in regulations, the draft policy does not provide any preferred method and gives the percentage of coal to be extracted through both open pit and underground mining. The draft targets 10-15 million tonnes of annual coal production by 2016 and 30 million tonnes by 2026.
Given the energy security, the policy notes that private sector power generation must be encouraged (IPPs) to set up coal-based power stations in the vicinity of coalmines. As far as the government royalty is concerned, it suggested that a lessee would pay the fees on a quarterly basis, either as cash or in the form of mineral itself. The policy has set a number of targets to be chased between July 2007 and June 2010. It also stipulates formulation of a Coal Sector Master Plan, identification of coal zones and strengthening the public agencies such as the Geological Survey of Bangladesh and the Bureau of Mineral Resources.
About export, the policy explains that if any company exports one tonne of coal it has to use or sell one tonne of coal in the country. The companies, which will extract coal, should be encouraged to set up coal-based power plants, or the government should take initiatives to set up coal-based power plants to ensure the energy security of the country. About 90 per cent of the country's power plants now are gas-based and thus put pressure on the country's energy security.
Giving its reactions to the first few drafts of the coal policy, the investment banking division of Barclays Group, Barclays Capital, said the provisions of 'coal export' and 'mandatory power stations' in the revised draft coal policy will hinder increased investment in Bangladesh's coal industry. These clauses represent risks to the stated aim of attracting foreign investment and could potentially deter investment in the nascent coal industry, it said.
Barclays said clarity surrounding the responsibility of both public and private sectors in developing the mining industry including the capacity to implement and manage these responsibilities is important to woo large-scale investment required by the sector. The investment bank welcomed the change in provisions regarding 'ownership of assets' and 'production sharing contract' terming these amendments highly positive and saying these will help achieve the stated goal of attracting FDI. Barclays also reviewed the variable royalty system on coal sales, as proposed in the draft policy that has already raised debate among the energy experts. Terming the variable component of the royalty calculation 'awkward and cumbersome', Barclays Capital said the royalty structure, as currently proposed, would "act as a deterrent to mining companies considering investment in Bangladesh".
The Asia Energy Corporation (AEC) was most vocal in criticising the earlier draft policy. Its chief executive officer (CEO) expressed concern that the policy is going to be 'over regulated,' 'too restrictive,' 'not sufficiently driven by market forces,' etc. He also found problems with mandatory mine site power plants, disliked tagging export to local market development, variable royalty provision, and payment in taka for domestic sales. Some other international coal experts criticised the draft policy saying that the new royalty rate, mandatory setting up of power plant and coal export restriction would discourage foreign investment. As coal mining requires billions of dollars, the government has no option but to rely on foreign investment.
Based on the experience of the oil and gas sector, the draft coal policy proposes a number of energy security measures. The USA, despite the fact that the country has huge domestic deposits of oil and gas, depends mostly on imports as part of energy security policy. Country's gas resources are dwindling fast. Gas was supposed to be exported as international pressure mounted. The matter of energy security was not under focus at that time. There were massive flaws in gas policy planning.
Bangladesh taka is the currency for local market sales as stipulated in
the draft policy. This is a good proposition. Anyone who is familiar with the problem of paying international power and gas producers whose contracts mention sales prices in US dollars will find this more practical. Unlike electricity or gas, coal will be sold to a number of distributors across the country, and taka being the currency of the country should naturally be the legal tender.
The proposed policy has been prepared by a team of local experts and professionals. There is no denying that they have done a commendable job. Still, there may be improvement and it is only natural that a national policy such as this one will be subjected to scrutiny -- both positively and negatively. But one thing should be kept in mind that the authorities should not let such good initiative succumb to international pressure. The government and relevant agencies should guard against possible manipulation. szkhan@thefinancialexpress-bd.com