Bangladesh: New coal policy eyes higher royalty, environmental safety; installation of power plans a

Bangladesh: New coal policy eyes higher royalty, environmental safety; installation of power plans a must for mine developers

by Sharier Khan, The Daily Star (Bangladesh)

9th February 2006

A new coal policy, now undergoing revisions, will seek a flexible higher royalty from mine developers, bond from them for environment protection and make it mandatory for them to set up at least one power plant near a mine.
Side by side, the government is formulating an attractive financial incentive package for mine developers.

Unlike the existing coal policy, the new one accommodates open cut mining and recognises the need to export coal to ensure faster return of investment. The policy however makes it mandatory that developers sell one third of the coal production locally and export the rest in the initial period and fifty-fifty afterwards.

It also emphasises development of the railroads in the western region of the country and developing a deep-sea port near Mongla to facilitate bulk transport and export of coal.

The draft of the policy, likely to be finalised within six weeks, ambitiously targets achieving 10-15 million tonnes of coal production annually by 2016 and 30 million tonnes by 2026.

Besides, the policy will mark the northern areas known to have coal deposits as 'coal zones', giving the localities and settlements a different treatment alongside special treatment for investors.

International coal experts are criticising the draft policy saying that the new royalty rate, mandatory setting up of power plant and coal export restriction will discourage foreign investment.

As coal mining requires billions of dollars, the government has no option but to rely on foreign investment.
But coal experts of the energy ministry and Petrobangla say the new policy is being revised again and again to accommodate the latest and best international practices.

New issues

The existing coal policy asks for a meagre 6 percent royalty irrespective of the international price of coal. In the context of the present high price of petroleum and also the upcoming massive open-cut mining project of Asia Energy in Phulbari, local experts have been hammering on increasing the royalty.
The draft policy spells out a formula in which 6 percent royalty will be applicable when coal price remains below $ 25 per tonne. The royalty will increase in case of higher coal price. If coal price is $50 a tonne in line with the Asia Energy proposal, royalty will be around 16 percent.

"The old policy was framed when oil price hovered around 10 to 18 dollars and coal price was very low in global market. The context has changed and the new policy will address the realities of international and local markets as well as provide enough incentives for foreign investors," said an expert involved in the revision of the policy.

"In the past, coal was a cheap energy source in many countries. As a result, the governments sought fixed royalty rates. But this has changed in many countries, including Australia. They now use a formula in which higher coal price in the market demands higher royalty rate because that is rational in business," he noted.

The draft policy aims at raising coal-fired power production to 20 percent of the total power generation by 2015 from zero production now.

"It is simply because power sector heavily relies on gas sector. Within 10 years, we anticipate a serious gas crisis as the demand for it will shoot up three times that at present. To cover this shortcoming, we must tap alternative sources," said one source.

"If mandatory setting up of power plant at a mine site makes a developer feel uncomfortable, we can always revise our plans. But we think it is in our best interest that we emphasise this strategy," he added.

Moreover, the nation has to meet its millennium development goals by 2015 and electricity for all by 2020, which require higher energy consumption.

On restricted coal exports, he said, "This is needed in view of the realities. Before we make export an unrestricted area, we must improve our rail and port infrastructure to make export viable and attractive. The existing railroad is not suitable for bulk transport, and Mongla port cannot entertain loading of heavy cargo. We have identified Akram Point --20-25 km off Mongla-- as a potential deep-sea port that will allow transport of 70,000- 80,000 tonnes of coal in one ship.

But Bangladesh needs time to develop these infrastructures. Meanwhile, coal mine development may go on keeping the local market in view."

The policy will also seek an environmental mitigation bond from a developer, as is practised in Australia. Coal mining poses high environmental risks.

"For instance, if mining requires a long-term expenditure of 20 million dollars for environmental mitigation, a developer submits the bond to the government. As the developer completes environmental tasks in parts, the government returns equivalent funds from the bond to the developer. This way the quality of environmental work is ensured," the source pointed out.