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FDI in Bangladesh, People's Uprising In Phulbari And The Right Signal

By Anu Muhammad

22 September, 2006

Sixty to Seventy thousand people, men women Bangali Saontal, were marching on 26th August 2006 at Phulbari in Bangladesh to say NO to a British company's big Open Pit Mining (OPM) Project. They wanted to give a strong message to the company, Asia Energy Corporation (AEC), that they were totally unwanted in the region and also in the country. People were angry, nevertheless disciplined. They were gathered under the banner National Committee for Protecting oil-gas-mineral Resources and Port-Power. That massive demonstration ended peacefully but on the way to return home they were hit by bullets, 5 persons were killed and several hundreds were injured.

Killing did not stop people from saying NO, rather protests spread countrywide. After four days, being unable to stop spreading anger, the government signed an agreement with the National Committee, where they made commitment for not allowing open pit mining any time anywhere in the country. The government also declared to take necessary actions to cancel Phulbari Coal Project and to say good-bye to AEC.

There are people who became very annoyed to see victory of the people and cancellation of a big FDI project. For them, this was a great opportunity for the country. If that is so, why people turned into irresistible protestors? Why people became so determined that they gave their blood to cancel the project? Why they opposed AEC and OPM so strongly? Do they oppose coal mining per se? Is exploration as well as optimum utilization of natural resources guaranteed by FDI of present form? What is the Phulbari Coal Project actually? In this article I would like to bring together theoretical assumptions of FDI for 'underdeveloped' countries and practical scenario with respect to natural resources in Bangladesh.

The Modernization Theory

Modernization theorists, in the late forties and through the fifties, worked extensively on theorizing development agenda where they focused on the scarcity of capital as one of the major constraints in the development of post-colonial Third World countries. WW Rostow, in the early sixties, termed capital the 'missing component' for these countries. Modernization theorists prescribed capital inflow from capitalist economies as an almost sure remedy. Foreign Aid (FA) and Foreign Direct Investment (FDI) have always been considered to be obviously crucial in development discourses of Third World countries in the modernization paradigm.

It has always been argued in modernization theories and in the views held by the second-generation theorists that capital inflow, in either form, would be essential for Third World countries to boost their economies and break the vicious circle of poverty and underdevelopment. FDI, according to this dominant view, would contribute in economic development of the 'underdeveloped' countries in different ways. It would bring in foreign currency along with the latest technology, skilled manpower, new ideas and modern management; it would also create conditions for strengthening and expanding the productive bases of the host economies. With these assumptions strongly glued to the FDI discourse, it has been a custom on the part of policy-makers, and a large segment of the economists and experts, to hail FDI uncritically.

Up to early nineties the so-called foreign aid, in projects and otherwise, dominated the external sector of Bangladesh. Since the eighties the remittance of foreign exchange has been showing significant growth. Gradually it has captured the highest position in foreign exchange inflow. In fact this source is the only real one for ensuring foreign exchange inflow into Bangladesh. FDI has been showing a significant rise since 1993. First it was in the Karnaphuli Fertilizer Company (KAFCO) and then FDI showed significant rise in the oil and gas sector followed by power and telecommunications. KAFCO is still a big liability for the country, as are quite a few other deals.

With practical experience in Bangladesh at hand, if anybody goes by objective facts and logic, the established hypothesis will be proved to be a manufactured myth. We clearly find that the FDI per se cannot ensure or cannot help the economy to develop and industrialize itself. It is not the quantity of FDI but the quality — that is the terms and conditions, areas and objectives — that determines whether it ends with disaster and high human costs or adds anything productive.

Concept of Common Property

The concept of common property is important in discussing the issue of natural resources. Common property is property that is owned by all in a country; nobody can be excluded from the ownership and authority over that property. Natural resources like gas and coal are common property owned by the people of Bangladesh. The government of Bangladesh, therefore, is supposed to be a protector of this common property and caretaker of that resource. Any attempt to transform the common property into private property, that is to privatize the common property, must fulfill two conditions: firstly, it must be in the interest of the economy and the people, and secondly, the people, the real owner, must approve it.

Different studies on common property at the micro-level found that the common people have little access to common property. At the micro-level common properties are being grabbed by local powers while at the macro-level common properties like mineral resources are being grabbed by global powers. Therefore, common property like natural resources deserve further attention. Many instances are available from different parts of the world in this regard. These global powers are mainly the big corporate bodies supported by powerful states and global institutions like the World Bank, the IMF and the ADB.

Foreign 'Aid' as a tool for problematic FDI

It is not difficult to discover foreign aid as a tool for shaping 'reform' policies to the advantage of the so-called 'donors', weakening national institutions in order to facilitate big corporate bodies and to open up common property to big business. Evidences clearly show that FDI in the energy sector comes not through the invisible hand of the market process, but through strategic intervention by the visible fist of global institutions, the managerial bodies of global corporate power. Let me explain.

The first elaborate discourse by the World Bank on the energy sector of Bangladesh was made in 1982. It was a report of the Joint UNDP/World Bank Energy Sector Assessment Programme. The report was kept secret, as were most of other reports of these agencies. It was based on the findings of the Energy Assessment Mission undertaken in October 1981. It should be noted that similar reports were also issued at the same time on Indonesia, Mauritius, Kenya, Sri Lanka, Zimbabwe, Haiti, Papua New Guinea, Burundi, Rwanda and Malawi.

The report seemed certain about the size of the gas reserves, even though no scientific analysis was cited. Even 10 trillion cubic feet (TCF) of gas was considered to be 'substantial, economically recoverable natural gas reserves' and, according to their estimate, 'at present consumption levels would last for several decades'. The report then urged the concerned quarters to make 'rapid and effective use of this major resource' as it could be a 'crucial element in alleviating the country's current payment's problems and enhancing its energy outlook'.

The report also suggested the means by which Bangladesh could take advantage of these resources, saying that 'given Bangladesh's limited capability in mounting an exploration programme on its own, it would need to make concerted efforts to secure the participation of foreign oil companies in this area'. Moreover, it continued, since 'the supply of gas is likely to remain well in excess of Bangladesh's expected internal needs for a substantial period of time', they offered different export options.

A similar pattern existed in the pronouncements of the Asian Development Bank. It proceeded with a major energy study and an update of the power sector master plan in the same year as the World Bank. Its report was even more specific about the 'most effective use of the gas resource'. In the same report, the Asian Development Bank also informed us that, 'Energy projects have generally been quite popular with a number of donors…'

Things followed accordingly. Since 1993 many Production Sharing Contracts (PSCs) were signed for leasing out different oil and gas blocks to international oil companies (IOCs). These were kept secret and hailed as a big success and a big step forward to 'development' of the country. FDI increased dramatically from the mid-'90s. Presence of multinational corporations (MNCs) in gas, electricity and telecommunications became visible, and new contracts were being signed in those sectors. According to the World Bank's estimates, since 1996 the annual averages of the highest capital inflows of FDI took place in the gas sector ($134 million) followed by the power sector ($113 million) in 5 years' time. In the same period local institutions and specialized agencies were facing fund shortage, brain drains and government non-cooperation.

What happened actually in the Gas sector?

If we retrace the steps taken by the World Bank and the Asian Development Bank in the energy sector we find the following results:

Step 1: The Study on Energy provided a policy prescription to restructure public institutions in order to create space for foreign private investment.

Step 2: It argued that foreign private investment would provide an inflow of foreign currency, would ensure remarkable development of the energy sector and would contribute to the development of other sectors as well.

Step3: It advocated raising the price of gas and electricity.

Step 4: MNCs started operating here. The national exploration agency has been kept idle. Budget deficit and pressure on our foreign exchange reserve has increased. Profitable Petrobangla became a losing concern since MNCs started operating.

Step 5: Further increase of the price of gas and export of gas is proposed to avert further crisis!

In the process of this so-called development in the energy sector,
---- The governments chose to bring MNCs to explore gas when BAPEX, the national exploration agency, had the ability to do the same.
----The governments continued signing contracts even after it was found that further production of gas would be highly problematic with the existing infrastructure.

----The successive governments signed contracts to purchase country's own natural gas at a price from MNCs that is six times more than the possible price could be obtained from national companies.
---- The governments signed contracts to purchase country's own gas by hard earned foreign currency from the MNCs when it was possible to get it with local currency from the national companies.

----The governments signed contracts to exhaust limited and non-renewable resources within a few years' time, thus depriving the people of fuel, electricity and gas-based industrialization.
----The governments turned common properties into private properties that are virtually owned by the MNCs.

The results of these steps have been disastrous for the economy and the people. Because, (1) prices of gas and power have been continuously increasing, and as a result of that (2) cost of production at every level has increased, which resulted in the fall of the competitiveness of Bangladeshi goods; (3) hard earned foreign currency is being used to purchase the gas which could be bought with local currency at a much cheaper rate, (4) local production establishments are being dismantled and skills are being lost through disuse; (5) losses of Petrobangla are going from big to huge; (6) privatization of these institutions was suggested as a solution; (7) resources have become a huge liability for the country.

Not surprisingly, these adverse consequences were seen as a 'major step forward' in the 'reform processes' by creating a congenial atmosphere for FDI. But after analyzing all the revealed facts, it can be easily concluded that the FDI scenario in the gas sector does not stand up to scrutiny. The FDI that took place in the gas sector was not warranted considering the local capability and demand-supply scenario. Moreover, this FDI, which became functional through Production Sharing Contracts (PSC)s, (i) had an adverse impact on our foreign exchange reserve instead of making foreign exchange more available, (ii) instead of developing capabilities it negatively affected local expertise and institutional capability, (iii) adversely affected the resource balance and caused rise of the gas price which, through the multiplier effect, caused a rise of production costs in different sectors and an erosion of our competitiveness, (iv) and finally it obstructed optimum utilization of gas resources for the Bangladeshi people and the economy.

Coal Project and Phulbari verdict

The Phulbari coalfield was the latest discovery among the big four coalfields found in Bangladesh since independence. Contracts or deals on this field were no exception, were done secretly, and have still not been made public. In 1994 Government signed agreement with the BHP of Australia, in 1998 BHP transferred its right to one year old British company Asia Energy Corporation. The present energy adviser confessed that the coal exploration deal with Asia Energy was 'anti-state'. He also said, 'People who were involved in signing the anti-state agreement should be tried.' But we saw later how the adviser himself sided with these 'anti-state' people.

Despite the government's denial of any final contract for production of coal, the Asian Energy Co (AEC) had been waging a ceaseless propaganda blitz since 2005 to give an impression that it had been promised the lease of the Phulbari coalfield. The way AEC had been operating in Phulbari, the way it had been making statements to the media, the way its local experts and employees had been engaged in a large-scale publicity campaign may be lead one to believe it had received the lease for mining. Using multi-coloured and attractive brochures and leaflets published in both Bangla and English for projecting the Phulbari Coal Mine Project, big bounties and bright prospects had been brandished for the consumption of the general masses. The publications carried a lot of illustrations. The pictures show men, women and children with smiling faces surrounded by green paddy fields. These pictures were indeed the opposite of what was going to happen because of this one-sided deal. The smiles would die along with the green paddy fields because of the project.

The Project: Open Pit Mining

The AEC was preparing itself for open-pit mining. It said in its documents, 'Mining by the open cut method is new to Bangladesh, but it is a proven and highly productive and safe method in similar geological and hydrological conditions in other parts of the world such as Australia, India, Indonesia and Germany.' It goes without saying that projecting such a sweeping comparative statement as expert opinion is ill motivated. Leaving aside other criteria, the population aspect in Phulbari is entirely different from the reality in other countries like Australia or Germany even India or Indonesia.

The AEC further stated in defense of open-pit mining: 'Adoption of this method will permit the fullest extraction of coal resources, and will augment duration of the mining period and thus enhance socio-economic opportunity, income prospects and gains for the Bangladesh economy.' It was not made clear who would bear the cost and who would be the beneficiaries of this 'fullest extraction'!

It was conceded in the AEC's own publication that the 'initial open cut will cover an area of about 2,000 hectares. Over the life of the project, a total of some 10,000 hectares will be required for the mine and associated infrastructure. This means that there will be loss of agricultural land and that people living in the eastern part of Phulbari and in a number of outlying villages and homesteads will have to be relocated…As the mine advances during the first 5 to 10 years, between 15,000 and 20,000 people will have to be resettled, and over the 30-year life of the mine the total number of people resettled could be in the region of 50,000. Population displacement is likely to occur mainly in Phulbari Township and also in some of the villages of the upazilas of Phulbari, Birampur, Nawabganj, and Parbatipur.' From the local government offices' data we find that the number of people who could be evicted goes beyond 1,50,000!

Not vitally needed agricultural land alone will be lost. 'A number of local roads, the regional Bogra-Phulbari-Dinajpur road and the north-south railway may need to be relocated.' Besides, 'The groundwater level will require lowering in the vicinity of the mine in order to maintain dry and safe working conditions.' The issue had not been further elaborated on for fear of exposure of the danger and disaster this de-watering will cause.

In another publication of AEC, we find some more partial facts and statements of possible social distortion and economic losses and damages:
'It is eventually estimated that an area of 10,000 hectares of land may be needed, a part of which will be engulfed by the mine pit. Other areas would be consumed for making roads inside the mine area, offices, workshops, stack yards for excavated soil and rocks, and some areas would go under the re-located railroad and national highway, and yet some more areas would be used for resettlement of the uprooted people. The areas to be appropriated for the purpose will spread over the upazilas of Phulbari, Birampur, Nawabganj and Parbatipur.

'It is estimated that a part of Phulbari town, some wards and villages belonging to Phulbari Municipality, and the unions of Hamidpur, Joypur, Khanpur, Khairbari and Shibnagar would come under the mine's area. A little part of the unions of Golapganj, Aladipur and Daulatpur would also be used. Nearly 10,000 homesteads and business establishments, along with trees, would become victims and would require relocation and settlement.

'Some community buildings like schools, colleges, hospitals, mosques, temples, churches and community property like bazaars and graveyards would be affected, requiring relocation and rehabilitation.'

Even these effects appear as catastrophic but those cover only a part of the story. The damage to earth formation and losses to human beings, current and long-term, have not been taken into account.

Financial Loss and Gain

Let us now look at the quantum of gain and quantum of loss of the economy of Bangladesh that will be caused by the deal with the AEC. The latest figure for the extractable quantity of coal in Phulbari is 572 million tonnes. Besides coal, the mine contains high-grade silica (sand), ceramic clay, Madhupur clay and gravels and rocks of high quality. The AEC claims that only 10 to 20 per cent of the coal can be mined if the tunnel system of extraction is used. The percentage of recovery rises to 70-80 per cent if the open-pit mining method is adopted. In the initial stage of the project, annual coal production will be nearly 1.5 million tonnes and by 2011 the figure will rise to 15 million tonnes. The plan was that 12 million tonnes would be exported per annum, of which 4 million tonnes would go to India. Only 3 million tonnes would be available for consumption in Bangladesh.

If we consider only coal in the mine, at the rate of Tk 50 billion per year, AEC could make an income of Tk 1,500 billion or 1,50,000 crore takas in thirty years. Investment figure was shown to be increased by Tk 70,000 crore or 856 per cent within a few months. In the latter account the cost of machinery and equipment was shown at Tk 13,000 crore, and the balance was operating costs, which include salaries, travel expenses, refreshment, etc. Siphoning of money outside the country of investment after artificially inflating the figure is an oft-practiced ploy. Even if this discrepancy is ignored and the latter higher figure is assumed, the profit comes to nearly 100 per cent. If the previous figure, which is possibly nearer the truth, is taken into account the profit goes up to 1,621 per cent!

On the other hand, Bangladesh could receive, by way of 6 per cent royalty and taxes, $7 billion or Tk 48,000 crore in thirty years, little over Tk 1,500 crore per year. In this context it should be noted that currently the export earning of Bangladesh has exceeded Tk 60,000 crore per year. Bangladeshis working abroad send foreign exchange remittances worth around Tk 30,000 crore per year. The AEC claimed that its project would give a fillip to the Bangladesh economy, but the income that Bangladesh would get from AEC over 30 years is less than one year's export earning or 2 years' worth of foreign remittances by Bangladeshi expatriates. What can be the economical and social cost to Bangladesh in making the above income? AEC gave a partial projection but it refrained from drawing the full picture or telling the whole truth.

According to AEC's own estimate, the coalfield will extend over 135 square kilometers. Again, the area, which can be affected directly or indirectly during the mining operation including de-watering, will be nearly 656 sq km. This area is very fertile, paddy output is extremely high, and nearly all the land yields three crops per year! The people inhabiting the area are very active economically. The business activities in the non-agricultural sector are also expanding fast, and the density of population is very high. Because of the coal-mining operations, the production activities of the entire area in agriculture, livestock, fisheries and forestry will be totally destroyed and will remain unproductive for an indefinite period! The products here include Aman, Aus, IRRI and Boro varieties of rice, wheat, mustard, potato, corn, banana, sugarcane, jute, chilli, garlic, onion, vegetables of all varieties, and numerous fruit-bearing and timber trees.

There are also rivers and canals, beels, and fish farms numbering over a thousand, and farms that rear ducks, hens and cattle, etc. Besides the above, there are many shops, and business and commercial houses. Economic activities in the entire area will come to an end. This is 'small loss' in AEC's eyes. The quantum of loss has not been figured out by AEC but the people of the area have done it. According to their account, considering the adverse effect on production and economic activities, the total loss will be Tk 1,800 crore per annum!

Even according to the above conservative estimate, our coal resource would be used to build a mountain of profit for AEC, an MNC, at the expense of an ocean of loss to Bangladesh, to the tune of at least Tk 90 billion in addition to the loss of the coal. This predicament was shown by AEC as a blessing for the Bangladesh economy! The figure of loss will swell manifold if the destruction of a large variety of flora and fauna, environmental imbalance and economic uncertainty, along with physical debility of the population now and in the future, is taken into account.

AEC stated that 'during the operation of the mine, 2,100 short-term and 1,100 long-term positions would be available for employment'. AEC has been deafeningly silent about the fact that livelihood of over 2,00,000 people will be destroyed by its operation. Furthermore, the few hundred or thousand jobs to be created by them will not be routine or familiar jobs but dangerous ones indeed. Profiteers exclude these costs while figuring out profit or loss!

If AEC and its local commission agents and collaborators could succeed in implementing their sinister plan, the foreign company would leave Bangladesh after grabbing an astronomical sum as profit, and the sycophantic agents and devious politicians would be bloated by commission money gorged by them, and today's green, living and thriving Phulbari would be permanently consigned to the status of a disfigured wasteland. No one can predict what would be the condition of the people remaining in the region.

The right signal

It should not be unclear anymore that natural resources have turned into a liability and a source of danger for the people of Bangladesh not due to lack of FDI but because of it. A local-global vicious alliance has been working on plundering in the name of FDI. The Phulbari inhabitant's uprising and their victory in resisting the AEC's machinations by sacrificing lives have not only halted the implementation of this disastrous project but also have brought other corrupt secret FDI projects under critical observation.

The Phulbari project is a project of mass destruction and genocide. The Phulbari people's verdict has sent the right signal to the government and global corporate entities, and made it clear that the people of Bangladesh will no longer tolerate plundering and impoverishment in the name of FDI and the contracts signed without their knowledge will not be accepted anymore.

The AEC has caused bloodshed in Phulbari. This blood of innocent young people should haunt the company for ever and everywhere.









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