Phulbari agitation: Foreign investment becomes uncertain

Phulbari agitation: Foreign investment becomes uncertain

By Staff Reporter

The New Nation

1st September 2006

The Bangladesh government appears to have denied permission for a US$1b-plus open-pit coal mine to be built in the country, in response to violent protests over the proposed project, says Economist Intelligence Unit.

Media reports indicate that Asia Energy, a UK firm, will no longer be able to develop the mine in the northern Bangladeshi town of Phulbari. If true, the abandonment of the project would mark a further blow to the country's foreign investment prospects, coming just a few weeks after Tata Group, an Indian conglomerate, suspended its plans to invest US$2.5b in steel, power and coal sectors.

"Political factors are also likely to present an obstacle to such deals going ahead," it says. The government's reported decision on Phulbari came about in response to a general strike and almost a week of demonstrations that resulted in several deaths as protesters clashed with security forces. "At the heart of the dispute are claims by opponents of the project that it would create severe environmental damage and displace over 100,000 people," the Economist Intelligence Unit said.

Asia Energy, however, has claimed that the environmental impact would be lower, that far fewer residents would be displaced and that those who were displaced would be resettled and compensated. "The irony of the situation is that the mine, if built, could generate revenue for Bangladesh.

It would also produce fuel for electricity generation that might help the country to reduce its chronic power shortages. Although Bangladesh has abundant natural gas reserves, electricity generation per head is among the lowest in the world," it said.

There is huge unmet commercial demand for energy, and the lack of reliable sources of electricity has deterred foreign investment and held back economic growth. There are frequent power cuts, and factories are often forced to run fewer shifts or to opt for their own expensive generators, driving up the cost of production.

Around 85 pc of households have no electricity, according to the report.

"Political nationalism, motivated by the approach of a general election, may be a factor behind the difficulties potential foreign investors are facing in the country.

It is relatively easy for the government's opponents to exploit popular suspicion of foreign investment in strategic resources, requiring the government to take a tough line on foreign investors to avoid being seen as selling the country out," says the report.

In the case of the proposed Tata investment, there was the added factor that the project would have involved an Indian company, making the issue doubly sensitive politically. In the Phulbari case, there has been speculation that leftwing groups orchestrated the protests against the coal-mine plans for political reasons.

Certainly, Bangladesh's political scene will be increasingly fraught as the election nears. The term of office of the coalition government, led by the Bangladesh Nationalist Party (BNP), ends in October, when it will hand over power to a non-partisan caretaker government. The caretaker government will oversee the election, which must be held within 90 days of the dissolution of parliament.

However, the run-up to the election is almost certain to be marredby controversy and by bitter rivalry between the BNP and the main opposition Awami League (AL). Campaign violence is also highly likely. Strikes will increase in frequency and duration.

The AL, in particular, will be preoccupied with efforts to broaden its support base in an attempt to secure the bulk of the popular vote, the Economist observed.