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Dhaka Monday,  Apr 22, 2019

Phulbari an unnecessary tragedy

Forrest Cookson:

On August 26, 2006 in the Phulbari are of Dinajpur a clash between the security forces and rioters resulted in people being injured and the death of three persons shot by the security forces. This was an unnecessary tragedy.

The riots took place at a time when the “Oil and Gas Protection Committee” (OGPC) was organizing demonstration against the mine. This organization has always circulated incorrect information about the Phulbari mine project. In addition to the deaths and injuries, agitators led the mob to destroy Asia Energy property and to loot and burn property belonging to Asia Energy employees. Despite this killing and destruction of private property no attempt has been made to identify and punish those responsible. Police and intelligence reports have never been released. The OGPC then sponsored an agreement between the Government represented by the Mayor of Rajshahi [who has never provided the basis for his authority] and the OGPC who appointed themselves as representatives of the people of Phulbari. Ever since 2006 the OGPC has claimed this agreement as having legal standing when it clearly does not.

Agitation against the mine has been supported by NGOs in the UK, Australia and Japan by pickets demonstrating again Global Coal Management the mother company of Asia Energy, by posting materials against the project on their websites, and by launching claims of human rights violation to OECD.

Not developing the Phulbari mine has been costly for Bangladesh. If approved at the time the proposal was sent to the Government and if power plants were constructed as the mine was developed there would now be 4,000 MW of coal fired, low cost generating capacity. The number of high cost rental projects would be small. Electricity for western Bangladesh would reach nearly 90% of the population and a large number of industrial jobs would have been created in Dinajpur.

There are difficult issues in the Phulbari coal mine project that require thought and consideration. This is a project requiring an investment of $3 billion and generating gross revenues of $1.2 billion per year. The objections trumpeted by the OGPC are not important issues but misstatements of fact.

False statements about the Phulbari coal mine project issued by the OGPC continue to circulate. In this article some of false statements to the project are reviewed.

“If the Project goes ahead the Government will receive only 6% of the revenues earned by the mine.” The true situation is much different: If the total revenue is 100 the direct costs of producing a tonne of coal are about 50% (These include depreciation, labor, management, fuel, materials, resettlement and environmental protection costs). Taxes and fees come to 25% of revenue and another 25% are capital costs (interest about half and return to equity about half of capital costs.) The costs of production including interest (12.5%) is about 62.5%. Of the remaining 37.5% the Government takes 25% (2/3s) and the owners 12% (1/3).

This if the Government does not participate in financing the mine then the total payments to Government are estimated at 25% of the revenues (including the 6% royalty). If the Government participates by financing some of the Project’s equity, then the Government’s share of revenue will increase. When final agreement is reached then the magnitude of Government revenue will be clearly known. How much goes to foreigners depends on the Government’s interest in owning part of the project and the volume of shares that may be sold through the share market in Bangladesh.

“The mine will turn large areas of Phulbari into a desert.” This is a wild, unscientific claim having no basis in fact. The water table in Phulbari would indeed fall locally, but even without any remedial action, this water would recharge the downstream aquifers. However, the design of the mine requires that water flowing into the open pit will be pumped out and used to recharge the aquifers near the mine. In addition the water will serve for village and town water supplies and abundant pumped irrigation water to enhance agriculture production, improve food security and increase returns for farmers.

Open pit mines correctly constructed handle the water table issues through this type of recharge. Modern engineering and pumping equipment can achieve an acceptable result. I am confident those critical of the Phulbari Project for causing emergence of deserts have not bothered to study the careful work that has been done. If there are problems in the water management scheme these should be revised by better engineering design not by scrapping the Project.

“The local community will be damaged” This is a rather odd argument. Everyone in Phulbari understands the mine means jobs, growth of manufacturing and improved electricity and water supply. Indeed the local community is clamoring to build the mine. When Phulbari mine is constructed and operating, there will be a tremendous boost to the local economy providing not only higher household incomes but much improved community facilities. The population increasingly wants the mine built and rejects the claims of the OGPC. While some 50,000 people will be relocated resources from mine revenue will insure all relocated persons are at least as well off financially after the mine is built, in addition to having new housing with amenities. It must be remembered that the mine is a long-term development, i.e. running for over 35-years. Unlike other large resettlement programs in Bangladesh, such as that for the Jamuna Bridge, the company will continue to work closely with the local community for 35+ years.

“Coal must not be exported.” There is no real dispute here but one should examine the facts:

Everyone is agreed that most of the coal should be used for generating electricity. 1000 MW at an 80% load factor (i.e. how much of the time the plant operates) requires 3 million mt of coal a year (Phulbari quality). The coal resources of Phulbari and Barapukuria will sustain capacity of 10,000 MW for the next 30 years. Currently Bangladesh generates a peak load of 7,000 MW. The domestic coal will provide much of the fuel for the power supply for the next decade. The cost of the domestic coal at the power plant is much lower than imported coal.

Some of the coal is a semi-soft coking coal (used in steel plants). This coking coal has a higher economic value than the thermal coal and constitutes about 15-20% of the Phulbari coal resources. One can export this coal and import the same amount thermal coal at a lower price and make an economic gain. It is silly to deny the export of high quality coal which will generate enough income to import thermal coal of the same amount as was exported and still leave the country better off. The international currency earned from this semi-soft coking coal will also help to offset the foreign currency payments the mine must make for large mining equipment and associated supplies.

Currently Bangladesh imports about 6 million mt of very low quality coal (low energy, very high Sulfur and ash content) from India. This coal does not meet Bangladesh environmental standards but every year the Government gives a waiver to permit this coal to be imported and used.

This imported dirty coal is one of the main sources of air pollution. Using coal from Barapukuria or Phulbari to replace the dirty coal imports would improve air quality and reduce lung disease. The OGPC is promoting air pollution by their policy of blocking the mine development.

“Food security will be reduced.” Wrong! The design of the project by returning irrigation water to farmers will enable an agricultural revolution growing a wider range of summer crops using low cost irrigation water. In addition major expansion of fish farming will be possible from the greater control over water. The Phulbari mine development provides resources for these improvements.

The area of the mine provides a value added in agricultural production of $10-15 million per annum. The mine produces value added to Bangladeshi from the mine of $800 million. Common sense suggests better to have $800 million than $15 million.

The opposition to the mine is partly xenophobic. “We can build this project ourselves; we do not need a foreign company.” To build and manage any large project requires two things: Very Specific Management and Technical skills, and a lot of upfront and on-going Capital.

There are few Bangladeshis with experience operating a coal mine of the size proposed for Phulbari. Of course once the mine is in production most of the jobs will be held by Bangladeshi. But in the short run engineers and managers need time to learn and gain experience. In the garment sector we still see a large number of foreigners working in critical jobs such as quality control or merchandizing. CEOs for major manufacturing companies learn from experience with small projects and then increase the size of the establishment as demand rises. As for large government operated projects the record in Bangladesh is not good; Bangladesh Railway, Biman, Government operated power plants and gas fields. All are sad examples of mismanagement. This arises from interference in management by politicians demanding their people be hired and that privileges be given to Government officials. There are many cases of world class management in Bangladesh but these are all found in the private sector or NGOs. The Government has no successful cases to highlight. To expect an efficient Government operated major coal mine is a dream. As for hiring experienced foreign experts for a Government owned facility please take Biman as an example.

The energy sector in Bangladesh faces a difficult long run transition with the reversal of the policy of using domestic sources of fuel and insisting on using imports for most future production. This is a risky approach and unusual approach. Why does OGPC want Bangladeshis to pay a high price for electricity when this is not necessary? The attack on using domestic coal will raise electricity costs by shifting to imported coal, imported gas or heavy fuel oil, all more expensive than domestic coal. It will also impede the expansion of electricity production, slowing Bangladesh’s economic growth.

(Forrest Cookson-an American living in Bangladesh is a retired economic consultant. He has done a detailed benefit-cost analysis of the Phulbari project for Asia Energy, carried out a socio-economic survey of the Phulbari area using both a population survey and a number of Focus Groups concentrating on agricultural opportunities and problems. He was President of American chamber of Commerce-AMCHAM.)

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