ROUNDTABLE

FDI: A Must for Energy Development

Nahid Anjum Siddiqui

Some 20-25 percent of the country’s installed manufacturing capacity remained unutilized for acute shortage of gas and electricity, deterring exports from further growth as well as holding back production for domestic consumption and thus contributing to inflation.

“We have a very close relationship with price and export,” Faruk Khan told a roundtable in Dhaka recently, expressing his frustration over the nagging energy crisis, as the Commerce Minister, who is responsible for looking after the price situation of essential commodities and providing facilities to support boosting the country’s export earnings.

“Our exports have increased substantially after overcoming the setback due to the global recession. It would have increased further, might doubled within a very short period if we could have ensured gas and power.”

The influential member of the cabinet, taken office early 2009 with a commitment to curb inflation and substantially improve the country’s energy supply situation, revealed the adverse consequences of the energy shortages – around 500 mmcfd of gas and 700MW of electricity – the Awami League-led alliance government had inherited from the previous governments.

Energy & Power organized the roundtable on “Energy Sector Development & FDI” at CIRDAP Auditorium, marking its stepping into 9^th year of publication. EP Editor Mollah Amzad Hossain welcomed the guests and participants while inviting a series of three keynote papers from energy experts from abroad.

The meeting dwelt on the present energy situation of the country, its impact, possible solution and the need for attracting foreign investment to solve the crisis. It also highlighted that the local entrepreneurs could also contribute to improve the sector through investment.

The commerce minister apprised the meeting of the government efforts in tackling the energy crisis and assured that the government’s commitment in this regard would be implemented timely. He mentioned about the latest development as part of the efforts, including the agreement on offshore gas blocks DS10 and DS11 with a US company, ConocoPhillips, signed few days later. “We will implement our policy very soon.”

The minister said that the coal policy was now under process and said the people of the democratic country would decide whether the government would go for open-cut or underground mining method. He, however, expressed his personal opinion in favor of open-cut mining, but stressed the need for mining of coal through whatever might be the method.

In response to the need for developing local entrepreneurs, he said the government has already been supporting the local investors and will do so in the future. He mentioned about the recent development in BAPEX, for instance, which has recently made a mark in conducting 3D seismic survey and drilling gas wells.

At the same time the government would welcome foreign direct investment in the country – be it energy or other sectors.

Defending the criticism over the country’s “inconsistent” investment regime, Faruk Khan said every FDI has so far been very profitable in Bangladesh. “Not a single FDI went back from the country. So, I believe, FDI will come,” said the minister, assuring updates in the regulations and laws, if necessary, to attract FDIs.

He said there are some problems in improving the energy and power sector. Logistic is one of them and government had a careful eye on that. Moreover, this problem would be solving in the near future. He added that the government has undertaken a vast program for further development of the sector. He said only setting up of the power plants is not the solution.

The minister called upon the opposition political parties to work together with the government to overcome the situation. He also invited them to come forward with advice, help, or anything else that would be good to produce electricity.

Petrobangla Chairman Dr. Hussain Monsur said that there are immense prospects for gas in the Surma basin, but the possibility becomes lean as we went beyond the basin. We have done many exploration wells there and Sunetra is a prospective gas field. He informed that eight structures have been identified from which gas production would be possible by 2013.

He further informed that Russian oil and gas company Gazprom has kept two top grade drilling rigs for Bangladesh. If their financial offers are acceptable to Bangladesh, they would start working here from October this year.

He informed that gas production increased by 284 MMCFD in last two years and expected that the demand-supply gap could end by 2012, when the gas connections would reintroduced. About corruption allegations, he said the corruption exists in the society and invited people to come up with specific allegation for their punishment.

With having a special attention of the Prime Minister, the Petrobangla chief expected that the country would overcome all the crises and called upon the people to keep patience.

Bangladesh Energy Regulatory Commission (BERC) Chairman Syed Yusuf Hossain stressed the need for integrated policy to solve the energy crisis and emphasized on diversifying the energy sources.

He spoke about a challenge of primary energy, which is conflicting with the climate security. He said fuel mix would push up the prices although some people say we need energy first at economic price. He stressed the need for ensuring cost effectiveness, cost rationalization, efficient sufficient return on investment, and promoting confidence in investors’ mind. “We will have to have a proper subsidy policy right now,” he added.

BUET Professor Dr. M Tamim, who was a Special Assistant to the Chief Adviser of the last caretaker government, estimated that the country needs US$ 30 billion in five years, US$ 6 billion per year, to generate 15,000 MW of electricity and meet other related requirements.

He is not in favor of LNG import considering its high cost. He estimated that the exchequer would have to pay a subsidy of US$ 1.8 billion per year against LNG unless there is any price adjustment.

“We should not go for this sort of plan.” He also estimated that US$ 700 million of subsidy would have to pay annually against furnace oil based power. He also calculated that 1,000MW capacity power plants would require US$ 1,000 million and informed that 18 banks and financial institutions had to form a syndicate to finance some power plants already under implementation, putting pressure on the foreign exchange. “So, foreign investment is needed.”

He mentioned about the legal problem in bringing IOCs in the country and said a third party, neither the government nor the IOCs, goes to court and gets an embargo on all kinds of operation. “We have to resolve this situation.”

In response to a criticism that the IOCs are sucking us, he offered a challenge to the critics that the criticism is baseless. He argued that why the IOCs will not make 50 percent profit after the risky investment. Pointing to the rising steel price, a major input for mining, he said that the price quadrupled in last few years in the international market and five times since 1996. These issues must be considered in making the sector attractive.

BAPEX Managing Director Mortuza Ahmed Faruque said that they were working over-capacity as they do not have the capacity to run four rigs simultaneously, despite the fund support is available.

He, however, informed the meeting of BAPEX’s success in conducting 772 square kilometer 3D seismic survey in only one year. He informed that BAPEX contributes only two percent of the country’s present gas production of 2,000 MMCFD and now sets a target to reach it to 15 percent by this year and 20-25 percent by 2015.

He recognized that BAPEX does not have the capacity to operate in the offshore fields. They were, however, planning for CHT jointly with other national organizations like Petronas of Malaysia. He pointed out the problem relating to the procurement rules that delays the activities. He also stressed the need for skilled manpower, materials and technology to expedite the activities, and expected that they would move forward through overcoming the problems.

Former PDB Chairman Shamsul Islam pointed out the problem of power generation and foreign investment. We have shortage of power and need to be generating. But the main problem is bureaucracy and corruption, which causes foreign investors to lose interest in any sector of Bangladesh.

Energy expert Dr. Mushfiqur Rahman said that the country needs foreign investment, but should not think that the foreign investors would come here for charity. They would invest here for profit. For this reason, we should ensure our rights as well as their profit. For foreign investment, we need to improve our legal system. Bureaucracy and corruption must be minimized for attracting foreign investment. Some 2,600MW power plants depend on coal for a long time. So, coal mining needed while importing coal or other energy for power generation may not be the wise decision.

Santos Bangladesh General Manager (Commercial) Ajay Nambiar said that India has already completed 10 rounds of bidding and India’s gas reserve is now increasing, as a result. Bangladesh should follow the Indian experience as part of its effort to solve the energy crisis.

In his presentation, Engr Khondokar Abdus Saleque, a non-resident Bangladeshi energy expert, said that the energy is a basic parameter of social and economical development, poverty reduction and overall development of a country. Bangladesh is a developing country. To develop social and economic situation, and reduce poverty, Bangladesh needs a huge production of energy. Because economy says, “if production arrow rises, GDP shows the high. And, where the question of production is, there must be needed power and energy.” To achieve the Vision 2021, the government should take a desperate attempt on electricity and fuel right from now. In the current situation, we need minimum US$25 billion only to improve our energy and power sector. Only the government and BAPEX cannot afford this huge investment alone. So, Bangladesh needs foreign investment besides local investment, the country needs a clear energy policy to attract foreign investors.

He said that coal is another important sector to produce energy. Coal policy is not mandatory to develop coal sector at all.  Nevertheless, coal mining is mandatory to develop energy sector and it is sure that Bangladesh cannot afford to import coal from overseas. The reality is that the development of Barapukuria Coal Field has destroyed that field consequently. Investors expect profit. Without preparing a financial model foreign investment could not be attracted.

He also said: Renewable energy needs high technology that we cannot afford. Nuclear is another technology of energy. However, we have to think about the accident happening in Japan. In addition, it is true we have not enough power, technology, and other to overcome from this kind of incident at all. LNG is expensive way of power generation. So, it is not possible to implement LNG project. The government can take an attempt to train our youths. Clear energy policy, good governance, and strong regulatory and institutional infrastructure needed for the development of this sector.

John Chamber, Chairman of Bangladesh chapter of Santos, one of the Australian upstream oil and gas company spoke about the gas sector in Bangladesh and gas value chain, and disclosed the plan of Santos in Bangladesh. He said Production Sharing Contact (PSC) is a successful model used across the world, which allows the government control over the hydrocarbon resources of a country.

“The logistic problem fell in a difficult situation to investors. Energy crisis occurred for not extracting those. Inflation covered everywhere. So, the price has been rising more than 300% from 1990 to 2011, and in last 10 years, it was crucially increased. For shortage of power generation, electricity cannot be generating in the flow. Santos wants to provide gas as a cheaper fuel.”

He hoped that Santos would find gas in Sangu and Magnama gas fields. And if the attempt resulted in successful they will go to recover the shortage of gas in Chittagong.

Robert Sercombe, former Member of Australian Federal Parliament and consultant, said that Bangladesh community in Australia is very strong and positive. “They are hard working people and as a first visit of Bangladesh, I had a positive impression about it.”

Bangladesh must need a key component of driving sustainable economic development by using modern technology and management system, he said. He added that Bangladesh would require minimum US$18 billion investment in energy sector alone to sustain rapid economic development. In addition, FDI is the solution to face such kind of huge money allocation.

“But there are some problems. The first is corruption and bureaucracy. For this reason, the production cost is rising high. Investors are feeling uneasy and insecure. And, its impact obviously is negative. Second is the policy shortage of macro economy. Inadequate infrastructure, particularly supply of power such as generation, transmission and distribution and port, is a problem for the investors.”

“Many major investment decisions rely upon degree of certainty over many years into the future. For long-term investment, the policy stability is a pre-requisite. So, in Bangladesh aspect, policy instability is an important issue to attract foreign investment. Bangladesh has many positives. However, for the negatives, it looses interest of foreign investors.”