MAC: Mines and Communities

Govt May Renegotiate Agreement With Asia Energy

Published by MAC on 2007-05-03
Source: The Daily Star, Djaka

The government may renegotiate the existing agreement with Asia Energy and consider new coal exploration proposals in the light of the new coal policy after the cabinet approves it.

A top energy ministry source said the draft policy may be placed before the cabinet sometime next month unless it needs further amendments.

"Asia Energy and Hosaf may have signed agreements earlier, which are now awaiting decisions. Many questions have now come up. We will now have to renegotiate these agreements in the light of the new coal policy," said a top energy ministry source.

"Without fixing a yard stick, we cannot renegotiate these deals," he added.

A pre-cabinet meet vital discussion on the policy is expected to be held at Petrobangla tomorrow. After this discussion, if the energy adviser is satisfied with the draft, it would then be placed before the cabinet for approval.

Some key issues addressed in this policy is a variable rate of 16 percent royalty on coal exported at $50 per tonne, the current average international price. The Asia Energy agreement gives Bangladesh a meagre six percent royalty irrespective of coal price in the international market. This poor rate was fixed decades ago when coal and energy prices globally were very low.

Other issues include provision of performance guarantee to be provided by the coal developer to the government. This guarantee may range between $10 million and 15 million to ensure that a developer does not abandon a mine all of a sudden without compensating for environmental or resource damage.

The draft policy seeks export of 60 percent of the country's coal, leaving 40 percent for domestic consumption.

The policy would also propose setting up a Coal Development Authority, which will be manned by coal sector professionals to monitor and deal with mining issues like environment, land use, ash or other hazardous elements.

The government has been working on the coal policy for nearly two years now. The draft policy has undergone many revisions on the basis of discussions with various stakeholders and experts.

"Besides, we are separately planning to strengthen the Bureau of Mineral Development (BMD), which is not equipped enough to act as the regulatory body," said the ministry source. Run with a few officials, the BMD under the energy ministry issues all licences for mines and minerals.

The new policy will not allow any more unsolicited coal deals like that with Hosaf group. The immediate past BNP-led alliance government in 2004 had awarded the contract for Khalaspir coal mine area to Hosaf, owned by the brother of a BNP lawmaker. Hosaf, which played a major role in making the government swallow the corruption-plagued and highly faulty Barapukuria coal mine deal, made a sketchy study in Khalaspir. It is now seeking government approval for development of Khalaspir mine which has a coal reserve worth billions of dollars.

While the Hosaf proposal for developing Khalaspir mine appears too sketchy and poor for any serious consideration for approval, Asia Energy's $3 billion development plan for Phulbari mine is backed by a $20 million study that determines a recoverable coal reserve of 572 million tonnes.

The Asia Energy deal remains suspended since August last year after the law enforcers killed several people who had gathered around the company's Phulbari office protesting its open pit coal mining plan.

Earlier that year, the then energy adviser Mahmudur Rahman had suddenly started saying that this deal was anti-state. Sources said a few days before he became energy adviser in mid-2005, Mahmudur Rahman had visited Phulbari mine site and was informed in details about the deal, long before he took a public position against it. The deal was originally signed by the then BNP government in 1994, and modified in 1998 by the Awami League government.

"It was very surprising that despite being the energy adviser, he ( Mahmudur) took a public stand against a deal which could be modified or amended through negotiation," commented a geological expert.

By the time Mahmudur came up with his public stand, Asia Energy had submitted its plan and there is a $20-million study that turned Phulbari mine into a solid a 25 plus billion dollar business prospect for any mining company, he pointed out.

Mining operations by Asia Energy were scheduled to start late last year with the first coal extraction in the coming year. Full production was expected to be achieved by 2013. Asia Energy had submitted its development scheme in October 2005 with the impression that the government would approve it within three months.

After the Phulbari killings, the government pacified the angry local people through signing a memorandum of understanding (MoU) that Asia Energy will not be allowed to mine in the area. But later the government just sat on the issue while Asia Energy reduced its profile to limited office activities in Dhaka.

Sources said Asia Energy has sent many letters to the government seeking decision on its scheme of development. Two weeks ago, the company was told that the matter would be discussed at the top level of the government for a decision.

Other than Asia Energy and Hosaf, a number of mining companies have submitted applications for exploring other prospective coal zones. Most of these applications however lack merit.

"But a couple of them are good. These will also be negotiated under the new policy," the energy ministry source said.

The country's present discovered recoverable coal reserves in various fields are more than 2,500 million tonnes or equivalent to more than 60 tcf gas (one pound of coal is equivalent to 11 cubic feet of gas). Besides, there are untapped coal resource potentials in the northern region of the country.

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