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Prof. SM Mahfuzur Rahman, a former Chairman of Department of Finance at the University of Dhaka, said he would not be surprised to see in the near future that the issues resolved by the present caretaker government take a fresh start with a change in the government.
“Ours is a country of discontinuity in policies and strategies with every change in the government,” he said.
Mahfuzur Rahman made the observation in an interview with the Energy & Power on proposed coal policy, coal mining and other related energy issues. The EP Editor Mollah Amzad Hossain took the interview. Following are the excerpts:
EP: Do you think that a comprehensive energy policy should be framed or a separate coal policy?
Mahfuz: Developing a separate Coal Policy doesn’t really make sense. There is however, some justification in formulating a separate Coal Policy if someone considers that our energy balance is at high risk, we need to develop new energy resources without much delay and therefore, such a policy might work for the government as a document for use in enhancing the process of making the decision on what to do with extraction of coal reserves.
I prefer to have a comprehensive Energy Policy because coal is just one of the energy resources and we need to evaluate where actually coal stands in the perspective of the country’s energy security and the potentials of the different energy resources.
EP: Two years have been passed for drafting the coal policy. The government has now formed a committee to review the whole thing which is now working on it. How do you see the whole issue?
Mahfuz: I won’t be surprised to see in the near future that the whole issue takes a fresh start with a change in the government, which has committed to hold national elections by the end of 2008. Ours is a country of discontinuity in policies and strategies with every change in the government. The drafting of coal policy is a recent issue but efforts in exploration have started much earlier and had the policy maker in the country applied prudence in time, we could already have living coal mines, other than the one in Barapukuria at least two years ago.
Our economic management suffers from a culture of indecisions because we lack expertise in evaluating important projects, including their technical, economic, and social costs and benefits. The indecision is also a result of suspicions in an environment of corrupt practices. Sometimes consideration of personal gains from projects quickens approval and implementation of projects or causes delay in them or even abandoning the project idea. Possibly the proposed Coal Policy is not an exception.
To the frustration of many, we observe that the proposed Coal Policy has become a subject of more emotional and political review instead of technical and real social and economic evaluation. Exchange of opinion in meetings with representatives of different sections of people, as well as through website/ internet communication is a good form of participatory decision making process but too often, most opinions expressed in such media are of very general nature, have emotional contents and biases and lack specialist considerations on technical grounds.
I think that the Coal Policy Review Committee can expedite the finalization of the Draft Policy if it immediately starts looking more intensively into all the different technical issues relating to coal extraction and use available national and international experience of coal mining method under different soil and subsoil conditions, displacements and rehabilitation, management of water tables and protection of environment, various uses of coal as a source of energy, options in investment in coal mines and royalty in cases of sale in the domestic market and export.
EP: What kind of changes you will propose for the draft of the coal policy? Will you inform the review committee about it?
Mahfuz: This is a little complicated question for me. As I have said earlier, the review of the coal policy should be based on technical considerations.
Since I am not a mining engineer, and I do not have the appropriate knowledge of geology, hydrology and environment I can only make some comments on issues relating to economics and business.
The draft document is very detailed on many counts but is very brief on many others. It does not give any picture of the economic, social and technical costs and benefits under different mining methods but it is elaborate on terms and conditions for prospective leasees/ licensees. I think that all such details could be taken out of it. The Coal Policy Review Committee may recommend the government to consider these points in framing guideline for a contract with a company or in developing an operation manual.
The draft Coal Policy has repetitions and also contradictory statements on a few issues: for example, the draft says that in the backdrop of quick depletion of gas reserves in the country, it is already late now and there must be some immediate steps to explore new energy resources. The draft further, says that the country needs to immediately formulate and implement plan of establishing coal fired power plants. How can it be done, if the same document says, the extraction of coal needs a mega plan to be formulated by a new institution CoalBangla, which will need at least five years to develop its manpower and start proper functioning?
The draft document assumes that the coal fired power plants would be developed by private sector entrepreneurs and at the same time, it says that coal, the fuel for it would be regulated by the government as the government sector would be given priority in exploration and development of coal mine and extraction and marketing of coal.
The draft policy emphasizes that there is no possibility of export and has provided a long list of alternative uses of coal but the document does not present figures on proportions of investments, annual extraction volume required to maintain acceptable internal rate of return, estimated volumes of coal required for possible areas of coal use and expected new investments to create new demands.
The document says that the government will reserve a preferential right in purchase of coal but it did not make it clear whether the government is going to create the capacity to buy the increased volume of coal.
The document indicates that although the government sector would be given priority in the coal sector, private investors, including foreign companies would be invited to take part but the incentive structure proposed for the foreign investors in the sector appears discriminatory and different from those the government has declared and is practicing for private and foreign investors in other sectors.
On displacement and rehabilitation issues the draft policy says that the mining company that would be given lease/ license is to bear all compensation costs and the company is to ensure that the affected and rehabilitated people enjoys a better standard of living in future. There may not be any difference in opinion on first part of the condition but how can a company prevent someone from eating up his compensation money or selling out the house and assets he acquired in rehabilitation?
EP: Do you think that enactment of an act would impact on an agreement between the government and a company which would be signed before enactment of the law?
Mahfuz: I am not a lawyer. But what I am observing in economic management of the country over years together, if the government decides to do something and is constrained to implement the decision, it always finds a way to get a legal clearance either by using verdicts of court under judicial justification of the various provisions that have different interpretations or, by ordinances for subsequent sanction in the Parliament. Sometimes my lawyer friends say, no law is a law if it does not have exceptions.
EP: How will you evaluate the course of the energy sector of the country as an economist?
Mahfuz: Bangladesh suffers from a chronic deficit of power and fuel resources. There are different estimates on the demand for both power and energy resources based on different assumptions on growth of the economy, associated rates of growth in industries, transport sector, fertilizer use etc. and the expected expansion of the power supply coverage of households.
Also, there are parallel estimates for availability of fuel resources and supply of power in the country. There are forecasts for periods as far as up to 2055. But the reality in the country is a situation of concern not for any medium or long-term perspective, but for the immediate future.
To give a quick picture, let me quote the Summit Power Chairman Muhammad Aziz Khan and Honorable Energy Advisor Tapan Chowdhury. Aziz Khan said in a recent seminar that “because of the power deficit alone, the industries in the country are now suffering losses of Tk 2 billion everyday” and the Energy Advisor said in a roundtable discussion that the marginal stock of gas would ensure energy supply for hardly 10-12 years.
Now, if we fail to take any effective measure for tackling the fast developing energy crisis, we would have to go for one of the two options: make ourselves dependent on import of the strategic commodities like coal or electricity from neighboring countries or to wait for a period when we would live with a ‘candle-economy’, as many express it that way,
EP: Do you think that the country would be able to eradicate poverty and can meet the target of power for all by 2020? The gas crisis has erupted in the mean time and extraction of coal is also delayed. What should we do now?
Mahfuz: Economic growth, the primary requirement for poverty alleviation of a country is associated with growth in ability to use power. But before attaining the ability a country is to have the energy. If we go on continuing the debate on whether we would extract the coal, one fine morning we will simply observe that we have exhausted all the existing energy resources. The poverty alleviation issue then looses the relevance.
I am not sure whether the target for power to all can be achieved within 2020 because more than 85 percent of the country’s power production is based on gas and at the existing rates of consumption, the current gas reserves of the country would be reduced to nil by 2016 and prospects of discovery of new reserves are also not very promising.
Further, having power and increasing production with use of that cannot ensure poverty alleviation. Any program of poverty alleviation demands more attention on how the benefits of growth are distributed and if the income distribution pattern continues to remain skewed, the power sector based growth, just as growth induced by all other factors, would only increase the gaps between the poor and the rich.
However, if we take timely measures for developing the power sector buy using alternative resources and make the benefits of power available to all, we would be able to step much ahead in achieving the target.
EP: Do you think that an expected development of the energy sector could be made with the local investment?
Mahfuz: Well, there might be many tycoons that are still somewhere beyond the current trajectories of the ACC eagles. The private sector is already in the medium and small scale energy sector business and I believe, more local investment is available for the sector. But the type of coal projects needed for development of energy in Bangladesh needs much larger investment. If we consider that money is not the only factor in such investment and the technical and managerial manpower, as well as machines and equipment matter, local investment may not be available for the purpose. Also, investors have to consider the risk factor.
EP: It is said that the government, unless it’s a politically elected one, should not take any final decision on coal extraction. What the current government should do? Should they sit idle?
Mahfuz: Look, the country is moving and already big decisions are being taken and even implemented by the current government. It seems to me that we have almost nothing to say if the government now decides that it will also sit idle on the coal issue and invite the energy crisis to intensify further just as the elected governments did. But since the current government has already made it clear to everybody that it is not an ‘only caretaker’ government, I believe that it won’t be ‘only caretaker” on the coal issue, too.
EP: You hail from Phulbari area and at the same time you are an economist. How do you see the Phulbari coal mine project by the Asia Energy?
Mahfuz: Unfortunately, economists working on Phulbari coal mine so far did not put much effort in looking at the economic issues and have spent more of their time and energy in the sociology and environment and too often, such analysis have not been based on consideration of the technology.
In most cases, the analyses are one-sided and highlight only the loss and hazard part of the project but do not present estimates of the benefits from it. I think we could make a “Project or No Project” analysis, weigh the possible losses and compare them with the potential benefits and only then, come to a conclusion.
Implementation of the coal project would change the development scenario of a large part of the country, create new opportunities for employment and income and revitalize the industries now closing down because of power failure alone.
As regards Asia Energy, I guess, for whatever reasons it so happened, the company has failed to explain to the local people how it plans to implement the project, what specific losses in terms of displacement and changes in the geophysical and environmental aspects may take place and what measures the company would take to sufficiently compensate for the losses, reclaim land, rehabilitate the displaced people and structures and prevent environmental damages.
The company’s local office in Phulbari had tight security and almost all surveys and studies conducted for evaluation of the various aspects of the Project were done by non-local consultants and field investigators. The local people had developed a notion that the company had already started implementation of the project and they did not see local people working in it. Neither the local contractors were given work orders for recruitment of personnel or execution of any of the project’s components. This created a misunderstanding and I cannot blame economists with ‘social responsibility’ if some of them ‘could succeed’ in organizing campaign against operation of a foreign company by using the ‘hostile’ local interest group people.
As an economist, I would say that any development work creates displacement and even most of us as individuals are also displaced people. How many of us reside with our parents in our ancestral homes? What have we done or what do we do for the people displaced because of the constant road development works, construction of big bridges like the Jamuna Bridge, or the satellite towns in Uttara or Purbachal?
EP: What kind of positive impact it would impart in terms of employment opportunities and industrialization if the coal mine is activated there?
Mahfuz: I haven’t made any detailed estimates. But I believe that if the mine is going to be an open pit one, it would require a large number of local workers in excavation work in all phases of it throughout the life of the project.
I would expect that all employees to be engaged in construction of office and other support establishments, new township for rehabilitation, loading and unloading trucks of soil, subsoil materials and coal, most of the backfilling and environment management work would be local recruits.
However, local manpower with technical expertise may not be available in sufficient numbers. Development of the mine should also have an employment multiplier effect and besides, revitalization of old industrial units and establishment of new ones with the new energy sources (both coal and the power generated by use of coal) should create new employment opportunities.
EP: The government had assigned Prof Nurul Islam committee to evaluate Asia Energy’s proposal. He submitted the report to the government and at the same time a newspaper is publishing the report. How do you see that?
Mahfuz: What can I say? Big people always ‘have the right to do big things’. And most likely, this is beyond economics or engineering. I may be wrong and it may be only a guess that Prof. Islam might have been asked by somebody to make his report public. We saw many examples of this type of things. I also heard that his committee was supposed to complete the said evaluation much earlier.
You know that Prof. Nurul Islam is also on the government’s newly formed Coal Policy Review Committee as a co-opted member and I was a little surprised to see him attending a meeting of a citizens’ group for protection of fuel and expressing what he believed right for the coal sector of the country. Any person does have the right to express his opinion but can a person openly express his own stand on an issue and with the bias, sit in a committee to review and accommodate opinions of many others?
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