The issue is energy security
The current investment proposal from Tata in Bangladesh as I understand mainly from the press has five basic parts: 1) A gas-based 2.4 million ton capacity steel plant in Isurdi; 2) A gas-based 1 million ton capacity fertiliser plant in Chittagong; 3) A gas-based 1000-megawatt power plant (50% to be consumed by Tata's steel plant and 50% to be sold to Bangladesh at yet unknown prices); 4) Ownership and open pit exploration rights of Barapukuria Coal fields; and 5) Ownership of 3,000 acres of prime agricultural lands for plant, factories, mines, etc. This is being portrayed as the single largest investment proposal in Bangladesh.
What does Tata want from Bangladesh, and what does Bangladesh get in return? Let us see first what Tata wants from Bangladesh. It wants: 1) Cheap energy (gas at below market prices and coal at throw-away prices). 2) It wants land and water and infrastructure.
For all latest news, follow The Daily Star's Google News channel. Under the latest proposal, as I understand, it wants security and guarantee of gas supply for 20 years of an amount of 2.2 tcf from commencement of operation (in about three years from now). The latest proposed price of gas is in three parts. Initially Tata will pay $1.5 per mcf for 5 to 6 years, $2.5 per mcf for steel, and $3.1 per mcf for fertiliser production. Most of the steel and the fertilisers will be exported. Bangladesh will supposedly get about 100,000 man-years of low paid labour in direct construction and 24,000 workers during operation. It will get 10% equity in coal mining and duties on exported steel and coal, besides 6% royalty in coal.
The two basic questions relate to the supply of gas and coal to Tata. There are two basic questions related to gas. One is the matter of price and the other is that of security of supply. The second part, i.e. the supply, is related to the issue of assured availability of gas from local fields for twenty years. Are any of them favourable to Bangladesh? In terms of prices, the question is, what is the price of gas supplied to domestic industrial and power producers in Bangladesh today and what will be the projected price of gas during the period demanded by Tata? Will gas be available in Bangladesh even after 10 years, let alone 20 years?
Gas in Bangladesh is primarily consumed to produce electricity. A part of it is used to produce fertiliser as well. We are running very low in electricity production. To sustain our all round national growth we need more electricity. Unfortunately, we have not added a single additional megawatt of electric power during the last five years. Yet the need for power has grown by at least 50% during the same period.
No matter which party comes to power after the next election, the pressure to produce gas-based electricity will be intense. The party in power will not be able to resist the call for more power production. And power production will depend on dependable supply of gas. So, no foreign investing party should be supplied gas at rates less than the rates at which we sell to our own power producers and suppliers. This should be condition number one. Otherwise, we will end up supplying gas to foreign investors at the expense of domestic producers, whether in the private or the public sector, and at a heavily subsidised rate.
If we are purchasing gas from IOC's at $3.5 per mcf ($2.7 well-head cost, plus corporate taxes, etc at $0.80) today, it does not make sense to supply gas to Tata at $1.5 to $3.1 three years hence when the prices will be even higher.
What is the international price of gas today? It is between $5 and $8 depending on location and ease or difficulty of supply. Gas price, internationally, is indirectly linked to oil prices. Two years ago oil prices were in the mid-30s (dollars). Today the price of oil is $70 plus. In five years or less, the price of oil could rise to $100. In twenty years, the price of oil, a depleting resource with rising world demand, could rise to $150 or more.
Bangladesh has no oil and yet is dependant on it. Most of its transport sector is oil dependant. Agriculture is also becoming more and more electricity and diesel-based. Any reasonable transport conversion will have to be to gas. We have seen how the Bangladesh government requested Kuwait to allow deferred payment for oil for six months. It is not an absolute relief. The money will have to be paid in six months by the Bangladesh people, but maybe by a different government. The burden has been shifted to another one, temporarily. Today's price of gas in the international market could also double in twenty years. By then or earlier, as predicted by quite a few experts in Bangladesh, the domestic production of gas may cease. In which case we may have to import gas from others at $10 to $15 per mcf.
In such a scenario Bangladesh may have to provide expensive imported gas to Tata at guaranteed prices. According to some experts the subsidy alone will cost Bangladesh far in excess of $10 billion, maybe $15 billion, if gas price rises to $10 per mcf by 2020. Why should we risk an investment of $3 billion, where we may have to pay subsidy of $10 billion to $15 billion?
Why should we do such a thing, which is against our national interests and at the cost of our ability to produce energy for our own needs? With power production we have made one mistake. We should definitely not blunder into another. We are not Kuwait, with unlimited supply of gas and oil. Our resources are very limited. We must use very judiciously. Those who opt to sign such a lopsided deal should be very careful of its implications.
As to the handing over of coal exploration rights to Tata at a mere 6%, this is utterly wrong. Why should we hand over one of our very limited and critical energy assets at a throw-away price? Further, the 10% equity and 6% royalty payback is nothing when compared to the devastation to the environment that will be caused by open pit mining, as well the dislocation of people and loss of very valuable agricultural lands. The costs of these will far outweigh the meagre returns. Why should we get into such an illogical agreement when we ourselves will need all the coal to run our own power plants in the not too distant future? Have we gone blind or mad?
If we have to enter into coal deals, it should be on the basis of production sharing agreements like in the oil and the gas sector and not on some measly 6% royalty. Otherwise it will be better not to enter into such a deal and to keep the energy resources for our own future.
Further, it is absolutely imperative that all coal mining must be underground and not open pit. To have open pit mining agreement there has to be a major environmental review, which must be open and transparent to the public. Such reviews must not override national consensus.
If we have to pollute our own environment, it should be for our own power generation and not merely for exporting raw material or value added finished goods like steel. We could become a major steel producer, if we had inexhaustible supply of gas and coal. But we do not. We have very finite and limited quantity of both and we will need them both in the very short term, never mind mid and long terms.
When countries like India and China embarked on major world quests for energy and are securing every deal they can, when US is very concerned of its energy future and is desperately searching for secure energy resources, when France is 40% dependant on atomic energy and continues to expand the program, and Britain is thinking of moving into major atomic energy uses, because it running out of north sea oil, when even a small country like Vietnam is thinking of moving heavily to atomic energy, it is not prudent for a small country like Bangladesh to go into projects that demand huge energy resources without a total and transparent national debate about its benefits and effects on its energy future.
The issue is not Tata's investment in steel and fertiliser; the issue is the energy future of Bangladesh. In this context, I personally feel Bangladesh should complete the deal with India and Myanmar for transhipment of Myanmar gas through its territory, if only to have an additional source of gas energy available in the future. We need energy security for Bangladesh's future. If Iran, Pakistan and India can plan to have a common gas pipe-line, there is no reason why we cannot work out one between India, Myanmar, and Bangladesh as well, to the common benefit of all three. That would be a win-win proposition for all of us.