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‘Coal sector development through production sharing contract (PSC)’

Energy sector is of very high importance to Bangladesh given that indigenous natural gas constitutes 90% of the sources of fuel supply for power generation, fertilizer production and other major industries.

At the same time, the presence of about 3.1 billion tons  of significant coal reserves  comprising of 5 deposits at depths between 118-1158 meters have caused the Government to give special attention towards development of Coal Sector to ensure harnessing alternate source of energy and diversify energy portfolio.

So far, coal is being mined only from Barapukuria Coal Mine by Barapukuria Coal Mining Company Ltd.(BCMCL).

Petrobangla through its companies is carrying out the exploration and development of gas, oil, coal and other minerals to meet the growing energy demand of the country along with the over all control of Production Sharing Contract (PSC)  with the IOCs on behalf of the government.

In 2006, Petrobangla was given with the license to develop Dighipara Coal Field for development. Till 2015, no activity i.e survey, resource assessment, drilling, mine facility development, etc. been taken place in Dighipara. 

From the very outset, Petrobangla searched for a ‘Strategic Partner’ who would make the necessary investment into a feasibility study. But , for the last 9th year in a row, Petrobangla could not manage to get any international party  as a ‘Strategic Partner’ to move forward with Dighipara development.By this time,  it has become  reality that arranging the alternative fuel in absence of gas, coal is the only way forward, but so far no mentionable progress have been made for coal sector development of the country. 

Coal Development Plan

 

Plan already been taken 

As instructed by the government to increase coal production to 20,000 ton/day, following steps have been taken by BCMCL with the consent of Petrobangla:

Recruitment of Consultant for ‘Techno-economic Feasibility Study for Expansion at North & South side of Existing Mining  Area of Barapukuria”.

Contract signed with BMD for ‘Feasibility Study and Development of Dighipara Coal Mine’.

Project Concept Paper(PCP) for ‘Mining of the Northern Coal Deposit’ of Barapukuria.

 

Plan to be taken in future 

BCMCL is also planning   for expansion of Barapukuria as per time-frame stated below:-

(i)  Barapukuria Under Ground Expansion(4- 5 yrs)

(ii) Barapukuria Open Pit Mining (7-10yrs)

 

BCMCL requested EMRD through Petrobangla to lease them with Dighipara, Jamalganj, Khalashpir and Phulbari Coal mines for developing as per time-frame stated below:-

(i)  Dighipara Under Ground Mining (6-7 yrs);

(ii)  Khalashpir  Under Ground Mining (6-7 yrs);

(iii)  Phulbari  Open Pit Mining  (7-10 yrs) and

(iv)  JamalgangUnder Ground Mining (7-10 yrs).

 

Coal Sector Development Programme 

Strategy 

It is very much true that  present system and organizations dealing with mines and minerals in the country are not in position to achieve the objective of exploring and developing the mineral resources of the country with the given limited mandate and also lake of capabilities. 

Hence, to take over  the responsibilities  for the development of coal sector , it is of utmost importance that action based development programmeshould be taken up earliest. 

In October 2013, M/s PriceWaterhouseCoopers(PWC) , India, commissioned by Hydrocarbon Unit (HCU) under  EMRD in their  Study Report  entitled  “ Mines and Minerals Development of Bangladesh” prepared‘Coal Sector Development Strategy’ along with the recommendations for  ‘Investment Models and type of Contract’ as below:-

Taking into account the various types of coal contracts (Cost Plus, Levelised price, PSC, etc.) and circumstances prevailing in Bangladesh, a Model Coal PSC appropriate for attracting investment in the sector may be prepared.

In view of the need of specialized financing and development need of the coal sector, the tailored mode of investment in terms of PSC may be explored. However, the issue may be professionaly examined further  and any mode of financing that suits best for the country may be adopted expeditiously. Contractual issues should be settled with due-dilligence so that a win-win situation is created for all the involved parties.

 

Types of  Coal Contracts

 

Cost-plus contract

The contractor is responsible for development and operations of the coal block. The Government would allow a fixed profit based on percent of operating cost or amount per ton or percent of capital cost etc.

 

Levelised price contract

The contractor is fully responsible for development and operations of the coal block and the price at which the coal is delivered is lump sum on per unit quantity delivered subject to escalation based on some pre-agreed formula (to accommodate change in cost structure).

 

PSC

The contractor  can be given due return on his investment for exploration and production of the coal, during mining operation and the profit coming out of coal production shall be shared between the partners as is done in hydrocarbon production sharing contract in Bangladesh.

                  

Production Sharing Contract (PSC) for Coal Mining 

If the coal reserves of the country could have been exploited with own resources that would have been the ideal for deriving best results but the option is not feasible due to limited resources. When foreign investmenstare  required, the return to investment needs to be ensured. 

Thus, while selecting investor for coal development, the terms of agreement should be such that the investor gets adequate return on investment while Bangladesh gets its due share without compromising any benefit that it may reasonably claim as the sole owner of the resource. 

The mode of investment through PSC is very popular in the oil and gas exploration & development and is the prevailing practice in Bangladesh. 

This PSC is  defined as a contract between a host government and petroleum company for the exploration and production of petroleum resources where the company`s costs are recovered from a percentage share of production and the balance is shared between the government and the company. 

Petrobangla is well conversed with this PSC since 1974 and  as suchPetrobangla may consider ‘Production Sharing Contract (PSC)’ to be an ideal form of investment for developing the coal sector of  the country. 

 

Suggestions 

In view of above, it is suggested  that a professional study be undertaken to examine prospects and problems of adopting PSC for coal sector development in Bangladesh. This study may include among  others--- 

(i)   the review of coal sector in the country;

(ii)  the investment need;

(iii)  prospects of different mode of invesments;

(iv)  the likelihood of responses from international mining investors or financial institutions;

(v)   comparision of probable mode of invesments for Bangladesh

(vi)  other relevant issues   and

(vii)  drafting a ‘Model PSC for Coal Mining in Bangladesh’,subject to emergence of PSC as the preferred optionto  facilitate developing the coal sector of the country.

 

Conclusion 

Petrobangla with its long experiences can go for ‘coal exploration and development’ through the ‘production sharing contract’ modality. 

In this modality, the investor shall take the responsibility for technical and investment risk in the development of coal fields as his liability and enter into  contract with the client to produce a defined amount of coal per year. The produced coal will be shared  between the client and the investor/contractor. 

The client will pay the contractor the return on investment through offering him coal. The client will get his share of coal free and thecontrctor’s share of coal will be paid by the client. In this process risks are taken by the contractor while the client will get the benefits of foreign investment at an upfront agreed terms and conditions. 

The contractor shall be given due return on his investment for exploration during mining operation. 

Considering circumstances prevailing in Bangladesh, a model coal PSC appropriate for attracting investment in the coal sector may be prepared and selection may be done by conducting international competitive bidding process. 

Engr. Anwar H. Khan, Former Diretor General, Hydrocarbon Unit & Bangladesh Petroleum Institute (BPI)

 

 

 

 

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