sustainable exploitation of bangladesh’ s coal · pdf file ·...

MOBILISING EUROPEAN RESEARCHFOR DEVELOPMENT POLICIES

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E U R O P E A N R E P O R T

DEVELOPMENTOONN

SuStainable exploitation of bangladeSh’S Coal ReSouRCeS: an intRaCtable (?) poliCy dilemmaprof mustafizur Rahman, Centre for Policy Dialogue, Bangladesh

SuStainaBle exPloitation of BanglaDeSh’S Coal ReSouRCeS: an intRaCtaBle (?) PoliCy Dilemma

SynopSiS

this paper, illustrated by Bangladesh’s coal experience, highlights the challenges developing countries are faced with as they try to address faster economic development in a sustainable manner.

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This paper served as a background paper to the European Report on Development

2011/2012: Confronting scarcity: Managing water, energy and land for inclusive and

sustainable growth. The European Report on Development was prepared by the

Overseas Development Institute (ODI) in partnership with the Deutsches Institut für

Entwicklungspolitik (DIE) and the European Centre for Development Policy Management

(ECDPM).

Disclaimer: The views expressed in this paper are those of the authors, and should not

be taken to be the views of the European Report on Development, of the European

Commission, of the European Union Member States or of the commissioning institutes.

Sustainable exploitation of Bangladesh’s coal resources: an intractable policy dilemma?

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Contents

Contents 4 Tables & figures 5 Abbreviations 6

1 Introduction 7

2 The energy situation in Bangladesh and the salient features of its coal

reserves 9

3 Major debates on the exploitation of Bangladesh’s coal resources 13

4 WEL nexus: a case study in the Bangladesh context 15

5 Recent developments and future plans 20

6 Concluding remarks 23

References 24


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Tables & figures

Tables

Table 2.1 Electricity consumption in South Asia (kWh per capita) 9 Table 2.2 Bangladesh power demand (assuming 8% GDP growth) (MW) 10 Table 2.3 Estimates of coal reserves 11 Table 4.1 Comparative picture of advantages/disadvantages of open- and closed-pit mining in

Bangladesh 17

Figures

Figure 2.1 Sources of meeting commercial energy needs in Bangladesh, 2010 10


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Abbreviations

BAPEX Bangladesh Petroleum Exploration Company

BPC Bangladesh Petroleum Corporation

BPDB Bangladesh Power Development Board

EIA Environmental Impact

GDP Gross Domestic Product

IEE Initial Environmental Examination

IPP Independent Power Producer

kCal Kilocalorie

kWh Kilowatt/Hour

LDC Least Developed Country

MMcf million Cubic Feet

MNC Multinational Company

MT Metric Tonne

MW Megawatt

NTPC National Thermal Power Company

PPP Public–Private Partnership

PSMP Power Sector Master Plan

PSMU Programme Support and Management Unit

SFYP Sixth Five-year Plan

SIA Social Impact Assessment

WEL Water–Energy–Land


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1 Introduction

Managing natural resources in a country such as Bangladesh poses formidable challenges,

particularly in view of the need to reconcile the often conflicting demands arising from

increasing demographic pressure, optimal use of scarce natural resources, rising food and

energy requirements, the environmental costs of development and the potentially adverse

impacts of climate change.

Other challenges faced by Bangladesh in the area of sustainable development include forest

degradation; land loss due to soil salinity and inundation (in addition to a significant area of

cultivated land being used for non-agricultural purposes); loss of river ecosystems and other

water bodies (including wetlands); air and water pollution; floods and droughts; loss of

biodiversity and depletion of groundwater layers; and contamination of groundwater. All of

these existing challenges are intensified by the potentially adverse impacts of climate change

since land, water, forests, and other natural resources are already scarce and are also

susceptible to the fluctuating fortunes of nature.

The task of addressing Bangladesh’s energy security epitomises many of the challenges facing

developing countries in their management of natural resources. Ensuring energy security,

while at the same time ensuring food security and aiming to achieve ‘sustainable

development’, present major development challenges for the country’s policy-makers. An

urgent concern, which encapsulates such tensions, relates to the exploration of the significant

coal resources that have been discovered in Bangladesh. Their exploitation is used as a ‘test

case’ in order to illustrate the formidable policy challenges that developing countries must

address at a time of growing demands, while also managing scarce natural resources in a

sustainable manner.

Bangladesh is one of the most energy-starved countries in the world even by the standards of

the least developed countries (LDCs). Annual energy consumption per capita (175kg of oil

equivalent or annual electricity power of 207.9 kWh in 2008) is one of the lowest in South Asia

and the developing world. Only about 55% of households have electricity (SOURCE, 2010),

and even then with frequent outages and load shedding. With higher gross domestic product

(GDP) growth, demand for energy in Bangladesh has been rising in recent years; but this

growth necessarily creates greater demand for energy. At present there is a significant gap

between power generation (averaging about 4,500 MW) and expressed demand (5,500 MW).

The gap between demand and supply gap has grown as a result of greater demand by

consumers and producers. The latent demand for power is estimated to be much greater

because of high levels of actual shortage. Growth elasticity of energy consumption is assumed

to be about 1.67 in Bangladesh. It is projected that if Bangladesh is to attain an annual GDP

growth rate of 8% (the target set in the Sixth Five Year Plan for 2011–2015), the country will

need about 13,500 MW of electricity by 2015 rising to about 41,900 MW by 2021 (PSMU,

2006). It is increasingly apparent that without ‘energy security’ the future development of

Bangladesh will be severely constrained.

Until now, gas has been the primary source of energy in Bangladesh and is mainly used to

produce electricity. But the gas reserves are fast depleting and Bangladesh is seeking

alternative ways to produce electricity. To meet the rising demand, policy-makers are going for

costly options such as diesel/furnace oil-based rental and quick rental plants for production of

electricity; gas is being diverted from fertiliser to electricity production (which increases the

need to import fertilisers). Yet Bangladesh has significant reserves of high quality coal, and its

exploitation is seen as an important option for Bangladesh to address its ‘energy security

needs’ for the foreseeable future. These coal resources have remained largely unexploited.1

The issues of open versus closed pit mining, coal exploration versus loss of fertile agricultural

land, land acquisition versus displacement and resettlement of people, and water management

1 With the exception of limited exploitation through underground (closed pit) mining in one coalfield.


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in coal areas versus potential environmental damage, have been major impediments to

reaching an acceptable solution to the exploitation of the country’s coal resources. Economics,

sociology, water and environmental management, sustainable development – all these

dimensions are informing debates on exploitation of coal resources in Bangladesh, which

makes this particular case study an interesting example of the difficulties of dealing with the

water–energy–land (WEL) nexus in developing countries such as Bangladesh. The case study

illustrates how the interconnections play out among the increasingly scarce resources such as

land, water and energy, drawing attention to the increasingly complex nature of the context

within which development has to take place.

This background paper is structured as follows. Section 1 provides background information

about the present energy situation in Bangladesh and discusses the coal resources and the

characteristics of coal-mining areas. Section 2 focuses on major debates with regard to coal

mining, particularly in relation to water management, environmental impact, land acquisition,

resettlement and sustainability, highlighting the complexity of the policy choices. This section

tries to capture the WEL linkages in the Bangladesh context originating from the diverse

impact of two main methods of coal extraction. Section 3 highlights recent developments in

ensuring energy security of the country and the attendant policy dilemmas and tensions facing

Bangladesh’s decision-makers. The final section discusses possible policy options and their

implications. The issue of carbon emissions versus a low-carbon development strategy is also

underscored.

The Bangladesh case study is based mainly on secondary sources, supplemented by informal

interviews with major stakeholders as necessary. Relevant information was analysed with a

view to identifying the policy challenges that exploitation of Bangladesh’s coal resources pose

for the country’s decision-makers, particularly from the perspective of WEL nexus and the

associated trade-offs between economic growth and environmental sustainability.

The case study focuses mainly on the dilemmas confronting Bangladesh’s policy-makers rather

than on which policy option offers the ‘best solution’ to resolve the conflicting interests and

tensions.


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2 The energy situation in Bangladesh and the salient features of its coal reserves

As mentioned, even by LDC standards Bangladesh remains a highly energy-deficient country.

Table 2.1 shows its per-capita electricity consumption compared to other countries in South

Asia.

Table 2.1 Electricity consumption in South Asia (kWh per capita)

1991 2001 2007 2008

Afghanistan .. .. .. ..

Bangladesh 45.1 104.5 188.2 207.9

Bhutan .. ..

India 295.0 403.0 551.8 566.0

Maldives .. ..

Nepal 36.9 62.8 86.3 89.2

Pakistan 297.3 378.6 474.1 436.1

Sri Lanka 159.6 292.6 416.8 408.5

Source: World Development Indicators Online (available at:

http://data.worldbank.org/indicator/EG.USE.ELEC.KH.PC (accessed 7 July 2011).

As Table 2.1 shows, Bangladesh’s per capita electricity consumption remains significantly

below that of India, Pakistan and Sri Lanka, not to mention China, whose per capita

consumption was about 3,000 kWh). As was noted in the introduction, the shortfall of about

1,000 MW (average generation of 5,500 MW against average production of 4,500 MW) fails to

reflect the true situation. There is a significant latent demand in the country – only about

55,000 of roughly 80,000 villages have an electricity supply and almost half the population has

no access to electricity (SFYP, 2011); the shortage of power impedes the development of

many enterprises. It is estimated that for every percentage point in GDP growth, energy

consumption in Bangladesh goes up by 1.67%, meaning that growth generates higher demand

for energy. The current energy supply in Bangladesh comes from both renewable and non-

renewable sources: 38% of total energy used in Bangladesh (household and commercial

purposes) comes from biomass,2 and 47% of total energy needs are met from natural gas. If

only commercial energy (electricity) needs are considered, as Figure 2.1 indicates, more than

80% of the current commercial energy needs of about 5,500 MW are met from natural gas.3

The rest is met by hydropower, coal, furnace oil and diesel (see Figure 2.1).

2 Total annual energy supply is 38.0 million MT oil equivalent in FY2010 with 12 million MT coming from biomass and

18.0 million MT coming from gas (SFTP, 2011). 3 Gas production was about 3000 MMcf p. a. (BAEX, 2011).

http://data.worldbank.org/indicator/EG.USE.ELEC.KH.PC


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Figure 2.1 Sources of meeting commercial energy needs in Bangladesh, 2010

Source: Petrobangla, 2010.

Until now, gas has catered for Bangladesh’s energy needs for electricity generation, industrial

use and domestic production. 4 Although it had been projected that Bangladesh’s reserves

were quite significant, it is increasingly apparent that these reserves are being rapidly

depleted. At the present rate of use, some estimates suggest that gas reserves can meet

demand only until 2015. It is true that gas exploration has intensified in response to this

pressing situation, with drillings taking place both onshore and offshore, and several new gas

fields have been discovered. Compressor technology has been brought in to increase

production from old fields. In view of the projected future demand for energy, however, even

the newly discovered gas will not be enough to meet the rising demand.

The received wisdom is that Bangladesh will need to diversify its sources of energy in order to

ensure energy security in the medium to long term. The projections are that energy supply will

need to rise rapidly if Bangladesh is to meet its developmental needs and attain the double-

digit GDP growth target by the end of the SFYP period. As Table 2.2 indicates, projected

demand for elasticity, according to the Power Sector Master Plan (PSMP, 2006) will rise at a

significant pace in the coming years. Demand is expected to go up from the present level of

about 5,500 MW to about 13,500 MW in 2015, 24,500 MW in 2020 and around 42,000 MW in

2025. Given the current projections of gas availability, a growing part of this demand will need

to be met from non-gas sources, primarily coal. Indeed, according to the PSMP, by 2015, coal

is to account for about 40% of total energy generation (11.6 million tons) rising to 60% by

2020 (35.7 MT) and to 80% by 2025 (75.9 MT).5 The draft coal policy (2008) and the most

recent Coal Policy (2010) also envisage that the overwhelming share of future energy demand

of Bangladesh will be met from coal-based electricity.

Table 2.2 Bangladesh power demand (assuming 8% GDP growth) (MW)

Year Total Gas Coal

2015 13,408 8,036 5,372

2020 24,445 10,243 14,202

2025 41,899 9,062 32,837

4 55% of gas goes to the power sector; of the rest, 12% goes for fertiliser production, 11% for domestic consumption

and 16% to the industrial sector. 5 Coal’s current share in total electricity generation is about 4%.

Gas 81.6%

Furnace oil 5.3%

Coal 4.7%

Hydro 4.3%

Diesel 4.1%


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Source: PSMU, based on Nextant projections, 2006.

The projected share of coal in meeting energy demand presents a major challenge since it is

based on the likelihood of extracting more coal from the reserves in the northern region of

Bangladesh. In the five coalfields discovered so far, total reserves are estimated to be about

2,247 MT (excluding 1,053 MT of reserves in one field).6

Table 2.3 Estimates of coal reserves

Coalfields Depth (m) Estimated coal

reserves (MT)

Total in situ

(MT)

Proved in situ

(MT)

1 118-509 390 390 303

2 257-483 685 685 143

3 150-240 572 572 288

4 328-407 600 600 150

5 640-1158 1053 - -

Source: Petrobangla and Coal Policy, 2008.

As noted, at present about 4% of Bangladesh’s electricity is produced from coal extracted from

one of these coalmines, where a Chinese-owned company is operating an underground mine.

Two coal-fired power stations situated at the coalmine mouth were commissioned to produce a

total of 250 MW of electricity.7

The coal in Bangladesh’s five discovered coalfields is of very high quality, but there is intense

debate on whether, and how, these resources are to be exploited. Indeed, this debate

encapsulates some of the critically important tensions relating to the exploitation of natural

resources in resource-scarce, environmentally vulnerable countries. The exploitation of

Bangladesh’s coal reserves highlights many of the elements in the WEL nexus that make it so

difficult for developing countries to achieve sustainable development.

It is useful to describe some of the characteristics of the coal reserve region of Bangladesh,

and salient features of coal mining in the country.

First, the region is densely populated, as is Bangladesh in general.8 Coal exploitation would

result in the need to evacuate, resettle and rehabilitate large numbers of people. Many of

these are farming communities, and it will be far from easy to find places to resettle them in

land-scarce Bangladesh. Moreover, all five areas are concentrated in two adjacent

administrative districts of Bangladesh. (It would perhaps have been easier to resettle people in

neighbouring areas if the coalfields were geographically dispersed.)

Second, there is a thick layer (100m–200m) of soft, waterlogged sand lying over the coal

reserves in Bangladesh. This is likely to create significant problems for exploitation of coal

resources, whether mined by the open-pit or closed-pit method. In case of underground

mining, this water layer would make the exploration process both complex and costly, with a

high likelihood of flood and accidents during mining activities. In the case of open mining,

there would be a need to pump out huge amounts of water, which could create environmental

problems. Indeed, hydrological management will be a major challenge in both cases.

Third, the soil over the coal-reserve areas in Bangladesh is extremely fertile, usually sustaining

two or three crops a year. Land provides a permanent livelihood to the farming communities,

which could be irreversibly lost if over-ground, open-pit mining goes ahead.

6 Being situated at a depth of between 640m–1160m below the surface, these resources cannot be extracted in a

techno-economically viable manner on the basis of existing technology. 7 Actual production is below capacity because of problems faced by the coal mine, an issue explored in subsequent

sections. 8 Average population density in Bangladesh is over 1,000 per km2.


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Fourth, the coal reserves in Bangladesh are situated in ultra-thick seams. This makes

underground mining rather difficult. The experience of the only functioning (closed-pit)

coalmine shows that both the water flow in coal layers and the temperature are higher than in

some other countries.

The above features, which are noted in the draft Coal Policy (2008) report, make coal mining

in Bangladesh particularly problematic. In view of the above, a major policy debate in

Bangladesh concerns options and modalities to explore its coal resources and whether it should

go for large-scale coal mining. On the other hand, the current and future energy needs of the

country also mean that Bangladesh will need to ensure energy-security. The policy dilemma is

obvious.


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3 Major debates on the exploitation of Bangladesh’s coal resources

Three broad conclusions can be drawn from the discussion in Section I: (a) Bangladesh has

significant proven coal reserves which await exploitation and mining; (b) the WEL nexus makes

mining in Bangladesh context highly problematic (more on the WEL nexus later); (c) the issue

of economically viable and environmentally sustainable coal mining has emerged as a major

challenge facing the country and its policy-makers. Indeed, several coal policies drafted in

recent years have tried to grapple with this. However, successive governments have preferred

to shelve the decision for some uncertain future time.

The major dilemma concerns the method of mining the coal. As noted, the coal reserves are

situated in a densely populated area with fertile agricultural land.9 From a number of

perspectives including environmental implications, resettlement, change in livelihoods, damage

to a permanent asset such as land, the method of coal mining holds an important key to

dealing with Bangladesh’s ‘coal problem’. Open-pit mining, of course, allows a higher

proportion of reserves to be mined, in the range of 80%–90% of the total, while underground

mining would allow actual extraction in the range of only 20%–30% of the coal deposits. Thus,

the economics is quite obvious. The discussion gets complicated, however, when other factors

are brought into the picture.

Experts believe that both methods have risks and benefits. Some of the characteristics of the

coalfields in Bangladesh were noted in Section I. As the draft Coal Policy (2008) mentions, in

the geographical-geological context of Bangladesh, both options will have significant adverse

environmental impacts. Certainly, closed-pit mining uses less land, which means that fewer

people would need to be displaced and resettled. In this case, a limited area would be needed

for the necessary infrastructure at the mine entrance, and for the coal-fired power-generation

plant(s). In contrast, open-pit mining would mean acquiring the entire area where mining

activities will be carried out, along with land for the power plants. In densely populated

farming areas this has important implications for the lives and livelihoods of local people.

Experience to date with the only existing mine, which uses the underground method, has

revealed several difficulties. Water management is a problem and adjacent aquifers are being

contaminated. Land subsidence has led to water-logging, disruption of cultivation and damage

to surface structures. The production is also significantly below target,10 averaging about

20%–25% of the total extractable coal resources. Consequently, the annual production target

of 250 MW of electricity is not being achieved. Indeed, this proves the earlier observation that

water management and addressing environmental impacts pose challenges in both of both

open- and closed-pit mining.

With regard to mining of the remaining coal (barring the currently operated mine at

Barapukuria), experts believe that Bangladesh has two options – either open-pit mining or

underground (closed-pit) mining. In case of open-pit mining, the upper soil is removed and

coal is extracted. In case of closed-pit mining, a limited opening is made and extraction is

made underground (by boring deep and then going horizontally), keeping the overland ground

intact. The contradictory views about the advantages and disadvantages of these two

approaches are informing current debate. One view is firmly against any open-pit mining,

arguing that the costs of permanent damage to fertile cultivated land, disruption to lives and

livelihoods of people and eco-environmental damage are unjustifiable. An attempt to lease out

one of the coalfields to a foreign-owned energy company, which resulted in large-scale

9 The five areas cover about 50 square miles with about 60,000 people living in the coal zone.

10 A Chinese firm, Barapukuria Coal Mining Company, operates the mine. In five years of operation the company has

extracted about 3MT, which is way below target.


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violence and even deaths in the coal-mining areas,11 has added to the tension. Local people,

organised by the National Committee to Protect Oil, Gas, Mineral Resources, Power and Port

Oil, Gas and Mineral Resources, protested against the non-transparent manner of dealing with

coal-extraction issue. Its opposition centred on: lack of involvement of local communities in

the discussion and negotiation; lease of the coal area to foreign companies; ignoring national

institutions in the exploitation of national resources; proposed method of mining (open-pit)

with its higher attendant environmental damage; the option of exporting coal.

Those who tend to support the idea of open-pit mining also have their reasons: even in case of

closed-pit mining (as in the case of the mine in operation), land subsidence is a fact of life; if

this is so, large-scale land acquisition cannot be avoided even in case of underground mining;

water management and environmental challenges will need to be tackled whatever the mining

method. They argue that there are now ‘best practices’ for Bangladesh to follow in order to

reduce the adverse eco-environmental impacts. The supporters of open-pit mining argue that

since the rate of recovery is significantly higher (80%–90% as against 20%–30% of

recoverable coal deposits in case of closed-pit mining), a part of the additional income accruing

from open-pit mining could be used to control environmental damage and for resettlement and

rehabilitation purposes.

11 Three persons were killed in August 2006 when the police fired on groups who were agitating against leasing one of

coalfields to the foreign-owned company, Asia Energy, which was planning to operate a coalfield for which it had applied for lease and mining.


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4 WEL nexus: a case study in the Bangladesh context

A case study will show the importance of the WEL nexus in addressing the energy needs in

Bangladesh. So far, five coal deposits have been discovered in northwest Bangladesh. The

controversy surrounding the exploitation of coal resources is very well captured in the case of

Phulbari, one of the five prospective coal-mining areas. In 1994 the Bangladesh government

signed a contract with an Australian mining company interested in the country’s coal

resources. Later, its successor company took over and carried out a detailed study of the

mining of coal resources in one of the fields mentioned above.12 The proposal was based on

open-cut method and envisaged the export option. In the proposal, the area to be covered was

about 5,400 ha which included areas for open cut mine (2,038 ha), overburden dump (1,332

ha) and associated mine infrastructure including coal storage, loading and unloading, transport

facilities (2,058 ha).13 Potential coal reserves in this field total around 430 MT, and the

maximum coal that would be extracted would be 15 MT p.a. The coal itself was considered to

be of very high quality (ash: ≤15.0%; sulphur: ≤1%; specific energy: 6,604 Kcal/kg). The

prospective area covered habitation, agricultural land, business, transport and infrastructure,

plantation, water bodies, flora and fauna etc.

Several variables were identified for measuring the socioeconomic impact of the coal mining

through open-pit method, including (a) land, forestry and agriculture; (b) population

settlement and resettlement; (c) industry and commerce; (d) infrastructure; (e) income,

employment and livelihood; and (f) socio-cultural and environmental issues. A detailed

estimate was carried out with regard to the relevant costs involved in each of these areas.

These also covered the costs of mitigating the adverse impacts of the pen-pit mining including

environment-related ones. The proposal envisaged that the benefits would include income

from the mine and also in the form of employment creation, positive socioeconomic

externalities and income from alternative use of rehabilitated land (e.g. rangeland, forestry,

new forms of agriculture). However, the report conceded that for the current users and

occupiers of the land, the loss would be permanent. The estimates provided indicated that the

total costs involved in terms addressing the costs involved would be in the range of US$450

million. As against this, contribution to the Bangladesh economy, throughout the project life

(30 years) was estimated to be US$ 3.5 billion (i.e. US$450 million p.a.) in addition to which

total contribution to the local community was estimated to be US$3 billion.14 The company

claimed that Bangladesh would receive half of the total profit accrued from the mining

operation – this would include 6% royalty, 45% corporate tax and 2.5% import duties. The

gains to Bangladesh would include a new source of energy, a new commodity for export, new

industries, new employment opportunities, regional development, poverty alleviation, growth

of nascent industry, new rail and port infrastructure (Gain, 2006).

These estimates were, however, contested by some stakeholders in Bangladesh on the

grounds that the mining company has inflated the benefits and underestimated the costs. One

criticism was that, since the Environmental and Social Impact Assessment (EIA & SIA) study

was conducted by the mining company, it was inevitably biased. They also argued that the

report did not reflect the actual adverse short-, medium- and long-term impacts on

environment, so the estimated costs of mitigation did not reflect the true picture.15 Another

criticism was that the detailed cost–benefit estimation methods and methodologies were not

12 The major source of information here is the ‘Report on Initial Environmental Examination (IEE) of AEN’s Phulbari

Project’, 2005. 13

Others maintain that significantly larger areas will be directly and indirectly affected by mining activities. 14

Thus, the estimates indicated a total benefit of about US$ 16 bn (excluding the costs involved). Average ungeared

NPV 10% was estimated at US$ 2.3 bn (coal price as mine gate was estimated at US$ 50/ton). This is equivalent to about 2% of Bangladesh’s current GDP. 15

It has to be said that no other stakeholder has presented an alternative and reliable cost–benefit estimation.


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shared with stakeholders in a transparent manner. A more extreme view was that it is

impossible to place a value on the emotional-psychological trauma of people who are to be

forced off their ancestral land, against their will. Some also state that the value of land in a

densely-populated country, which lies at the frontier of climate change impacts, where land is

scarce and food security is under constant threat, cannot be judged based on market-based

estimates. The most contentious issues, though, were related to environmental concerns.

These emanated from both the mining process and also the generation of electricity by the

coal-powered power plants. A major environmental concern was related to the de-watering

process and the related damage – through discharge of water in nearly canals, water bodies,

lowering of water table/reduction in groundwater availability, changes in surface water sources

and reduction in contribution of catchments for existing canals/rivers draining to the large

reservoirs (which are there now), reduction in artesian pressure head beneath natural water

bodies, water discharges with suspended solids causing contamination of lands, sedimentation,

change in flood behaviour because of the changed water flow pattern etc. Emission of methane

from mining and the emission of carbon dioxide through consumption of fossil-fuel-powered

electricity were also some of the other concerns.

According to the critics, this adverse impact could result in irreversible damage and the

mitigation costs presented in the IEE were gravely underestimated. Indeed, they have tended

to argue that some of the damage cannot be fully addressed and mitigated at all.

On the other hand, the report prepared by the coal-mining company argued that the only

viable option for this particular mine was open-pit mining and that adverse impacts can be

appropriately addressed and mitigated through proper interventions.

A serious concern about open-pit mining everywhere relates precisely to the greater adverse

environmental impacts. In Bangladesh, because of the geological conditions, hydrological

management will poses quite a challenge. The open-cut method requires complete de-watering

of the mining area so that the hollow is not immersed. This will require large pumps to suck

out underground water constantly over the entire lifecycle of the project. It is feared that this

will lower the water level in the surrounding areas, and that tube-well owners in nearby areas

will suffer during the dry season. The company had proposed that pumped water would be

distributed among farmers. Opponents argue that while de-watering could hasten the

desertification process, pouring water over ground may not be able to mitigate the adverse

impacts (Gain, 2007).

The average thickness of the coal seam in Phulbari was 38m. To reach this, an overburden

ranging between 150m and 250m will need to be removed, leaving a hollow of a depth of

about 300m. The company had proposed a gradual approach – once mined, the hollow was to

be filled with earth and then a new area excavated. The topsoil would be removed and

preserved and brought back and spread over the filled-in area. However, doubts have been

raised as to when this land will become cultivable again. The company’s proposal was that a

freshwater lake for fisheries and recreation would be created out of the final hollow at the end

of the project (after about 30 years). Critics argue that the toxic residue will make it unrealistic

to create a freshwater lake in the coal-mining area.

Table 4.1 summarises these arguments.


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Table 4.1 Comparative picture of advantages/disadvantages of open- and closed-pit mining in Bangladesh

Open-pit Closed-pit

Higher extraction rate (about 80%–

90% of coal reserves can be mined).

Higher production of electricity because

of higher amount of mined coal.

Large-scale disruption overland

(relocation of people, loss of

agricultural land, relocation of business,

dismantling of infrastructure including

building and transport).

Environmental damage is significantly

higher. Hydrological management is

particularly difficult and challenging

(disposal of extracted water, toxic

waste management, contamination and

damage to water bodies, flora and

fauna etc).

Carbon emission is higher due to higher

electricity production from more

extracted coal.

Costs of mitigating the adverse

environmental affects are higher.

Higher returns could help to finance

the required initiatives to mitigate

adverse impacts.

Opportunities to access global

assistance based on policy choices for

low-carbon growth will be limited.

Significantly lower extraction rate of

mined coal (of about 20%–25% of coal

reserves).

Significantly lower production of

electricity.

Disruption overland is limited. Some land

will be lost to build the required

infrastructure, coal storage facilities etc.

(However, as current experience has

shown, it is impossible to avoid damage

to overland originating from land

subsidence).

Environmental damage is lower than in

open-pit although there will be

hydrological challenges.

Carbon emission is relatively lower

because of lower production of electricity

from lower amount of extracted coal.

Costs of mitigating the adverse

environmental affects are relatively

lower.

Returns on investment, which would

finance the required initiatives, would

also be lower.

Provides an opportunity to seek global

assistance (e.g. carbon trading) in order

to choose a low-carbon growth trajectory.

One of the contentious issues was whether the mined coal could be exported. The ‘resource

nationalists’ were against this, while prospective leasing companies would have liked to keep

the option open.16 But now, in view of the depleting gas reserves and the rising needs for

energy, there is a broad consensus that none of the mined coal should be exported. It is also

argued by some that multinational companies (MNCs) are more interested in exploiting the

coal in an aggressive manner because this would guarantee highest return on their investment

and ensure quick profits; they are not interested in energy security of Bangladesh and

sustainable exploitation of its coal resources. Indeed, the Draft Coal Policy (2008) recommends

that the plan for coal extraction will be designed with 50 years of energy security in mind.

‘Since gas reserves are depleting fast, dependence on coal as the primary energy source will

be increasing in future. In such a situation Bangladesh will need to extract a total of about 885

million tons of coal by the year 2030 and 1200 million tons by 2035. Thus, there is no scope

for export of coal. Additionally, annual levels of coal extraction will be delimited by the

demands of domestic needs’ (Draft Coal Policy, 2008). The Draft Coal Policy (2010) reiterates

this, stating that ‘in view of future energy security, increasing use of coal for production of

electricity and long term demand for coal, if not called for in public interest, coal will not be

exported’.17 Indeed, the coal policy (2008) recommended that coal should be extracted in a

non-aggressive and phased manner to minimise environmental damage, to make it possible to

16 Economies of scale required more intensive mining. It was acknowledged that this could create a situation in which

the government may not be able to buy all the coal. 17

The Draft Coal Policy (2008) was subsequently revised and a much shorter National Coal Policy 2010 (proposed

draft) was prepared by the Energy and Mineral Resources Division of the Ministry of Power, Energy and Mineral Resources, Government of Bangladesh.


18

adequately address damage-control issues and to allow production to be adjusted according to

domestic needs, in line with the no-export option.18

The no-export option, indeed, reflects a national consensus. This is informed by a number of

factors. First, to ensure energy security Bangladesh needs a long-term strategy to exploit the

coal resources. The proven reserves of coal and gas can ensure Bangladesh’s energy security

for only about 30 years. In view of the uncertainties (rising price of energy in the global

market, availability of energy sources), the general consensus is that Bangladesh should keep

the coal for its own domestic use. It is true that exports could generate foreign currency and

some have argued that Bangladesh needs the money to pay for further drilling and

exploration. However, the view of the ‘resource nationalists’, that Bangladesh should think

about exports only when the projected energy needs for the next 50 years have been assured,

has gained wide support across the political spectrum and among the general public. An

additional argument is that Bangladesh will need to go for a higher pace of exploitation of coal

resources in order to meet domestic and export needs. But in that case the exploitation would

need to be undertaken in an aggressive manner, which could lead to higher environmental

damage. So in order to contain such damage, Bangladesh should go for phased exploitation of

coal resources. The 2008 Coal Policy therefore recommends that leasing of mines should follow

the above policy direction. Since a contentious issue relates to the leasing of coal-mining areas

to foreign companies, the draft policy (2008) recommended that these areas be designated

Coal Zones and a national agency be set up to manage them. The agency will be in charge of

extraction of the coal, and setting up coal-fired electricity plants, in collaboration as necessary

with domestic and foreign private and/or public entities.

On the crucial issue of open-pit or closed-pit mining, the draft policy (2008) kept both options

open, with the observation that ‘coal extraction will be based on established and proven

methods, in view of the geological structure of Bangladesh, and characteristics and nature of

land. Coal is to be mined in a manner that it is acceptable in the socio-economic context of

Bangladesh’. The policy asks investors to undertake a thorough study of the soil/rock

mechanics, underground water level and land/soil conditions. All lessees will be obliged to

undertake an EIA, the results of which must be made publicly available. The particular option

of mining, suggested by the potential investor based on a socioeconomic and technical survey,

will then need to be vetted by an expert committee appointed by the government. Thus, the

draft policy does not exclude open-pit mining as such. It observes that Bangladesh has no

experience in this area and that if and when such an option is considered for commercial

extraction, there will need to be an appropriate assessment of possible environmental damage

and its mitigation, and proposals for land reclamation, handover of land to owners after coal

has been extracted, employment opportunities for local people and socioeconomic

development of the local community, based on best practices and results of mathematical

modelling and simulation exercises. Indeed, the policy recommends that an open-pit, run on a

pilot basis, may be operationalised in a part of one of the discovered fields to ‘gain

experience’.19 The draft coal policy necessitates the lessee to implement Sustainable

Integrated Water Management Program. Adherence to Environmental Quality Standard and

Equator Principles is mentioned along with setting up of Waste Water Treatment Plant, settling

ponds etc. The lessee is to bear all the relevant costs, including the cost of rehabilitation and

resettlement of displaced population. Thus, the Draft Coal Policy (2008) has attempted to

address a number of key issues, which are perceived to be contentious. However, the policy

was not finalised and another version of the Coal Policy, the National Coal Policy 2010

(proposed draft), has now been prepared. This is much shorter, but essentially retains the

major features.

18 All leases will have to build coal-fired electricity station at the mine-mouth. The produced electricity will go to the

national grid and the government will purchase the power at a pre-determined price to be negotiated with the lessee. 19

The entire area of this particular coal field covers about 25 sq km. About 40,000 people live in this area including

about 2,300 indigenous people. They will need to be resettled. There will be a need to acquire about 5,500 ha, 80% of which is fertile agricultural land.


19

So, the idea of open-pit mining, on a limited scale, has now been mooted, but no concrete

steps have been taken with regard to either the finalisation of the Coal Policy or mining of the

coal resources (in addition to the existing mine). The method of mining still remains a major

divisive issue in Bangladesh. Potential investors argue that underground mining will not make

it economically viable given the costs of mitigating environmental damage and the low rate of

recovery. The estimates presented by one company, reported above, assert that it is possible

to go for the open-cut method, address the environmental impacts and get high returns on

investment. Those who oppose open-pit mining argue that environmental damage and the

long-term impacts of damage to land and resettlement/rehabilitation and loss of livelihoods are

too costly. There is hardly any open, informed debate, or any initiative on the part of relevant

authorities to encourage public debate or discuss the issues with local key stakeholders. Yet

the demand for electricity has been rising by the day. Given this situation Bangladesh is having

to go for costly options for generating electricity, creating the significant fiscal burden of

government subsidies.


20

5 Recent developments and future plans

The energy market in Bangladesh is highly regulated although there have been some

significant changes. Previously, the government was the sole producer of electricity, managed

by the Bangladesh Power Development Board (BPDB). In recent times, Independent Power

Producers (IPPs) have been allowed to operate on condition that they sell power to the

national grid, which is run by the government. For the government-owned power plant,

primary energy (mainly gas) is purchased either from the government-owned Bangladesh

Petroleum Exploration Company (BAPEX) or the IPPs, mainly foreign companies. More recently

still, in view of rising demand and growing demand–supply gap, the government has allowed

the setting up of quick-rental and peaking plants which buy diesel/furnace oil from the

government (Petrobangla), produce electricity and sell this back to the government via the

national grid.

As noted above, the rising demand for energy and uncertainties with regard to exploitation of

coal reserves mean that Bangladesh’s policy-makers have been compelled to meet the growing

demand for electricity through a number of costly initiatives. True, urgency is one of the

reasons, but it remains unclear how the government plans to address the energy situation in

the medium term. To manage the emerging situation, and reduce the rising demand–supply

gap, the government has developed a strategy for power generation which envisages

production of about 13,275 MW of electricity by 2015.20 As an immediate step, power plants

are being set up (both public and private as well as on public–private partnership (PPP) basis)

based on gas, diesel/furnace oil, dual fuel, and liquid fuel. Since gas supply is in difficulty at

present, a significant part of the power that is being produced is based on imported

diesel/furnace oil. Given the high price of fuel on the global market, producing electricity from

imported fuel is proving rather costly. The government is selling the imported fuel21 at a

subsidised rate to the power producers; it then buys power from them at negotiated price for

the national grid, and subsequently sells power at retail levels to households, commercial and

industrial consumers, at highly subsidised prices. This double subsidy is creating a substantial

fiscal pressure with the attendant difficulties for macroeconomic management.22 The oil-import

bill is projected to exceed US$6.3 billion in FY2011/12 (Bangladesh Petroleum Corporation,

BPC, estimates); this was more than 50% higher than in the previous year when the import

bill was US$4 billion. A large part of this significant increase is explained by import of

diesel/furnace oil for quick rental plants commissioned in the last few years when several

expensive oil-based power plants came into existence. The import bill would be almost double

the amount paid last year. The combined import was estimated to be 2.1MT of furnace oil and

diesel annually (Energy and Power, 2011).23 As it stands, the government is paying significant

subsidies because generating electricity from diesel and furnace oil is so expensive. To mitigate

the burden of these subsidies, the government is upwardly revising fuel prices and electricity

tariffs (three times over the past year alone).

It is becoming clear that such a costly option for producing electricity is seriously undermining

the macroeconomic management of the country. Higher energy prices are fuelling an already

rising pace of inflation, thus eroding the real income particularly of the low-income groups.

The power-generation plan does envisage the production of electricity from coal. Two power

plants with combined production capacity of about 2,640 MW are to be built on coal-powered

fuel, in the southern parts of Bangladesh, in collaboration with India’s National Thermal Power

20 The strategy aims at producing 2,166 MW in FY2011, 1,178 MW by 2012, 3,176 MW by 2013, 2,333 MW by 2014

and 2,410 MW by 2015. 21

In Bangladesh the government is the monopoly importer of fuel. 22

Subsidies are also rising because of the higher cost of fuel. 23

In January 2010 Bangladesh also signed a memorandum of understanding with India to import 500 MW of

electricity. The first of its kind, Bangladesh is expected to get the power by 2013.


21

Company (NTPC).24 However, the plan is to import coal (from Indonesia, India etc.) to run the

coal-fired power plants. The idea is to switch to domestic coal once the issue of coal extraction

is resolved. Already, some stakeholders have questioned the location of the power plants,

making available the required space for storage of such a huge amount of imported coal,

logistics of coal transport, handling capacities at port(s) and environmental costs and pollution

(the imported coal is likely to be of much lower quality than the Bangladeshi product, with all

the environmental implications).

There appears to be a general understanding in Bangladesh that at some point the country will

need to make the strategic choice to go for coal-powered electricity generation. However,

conflicting perspectives with regard to the method of coal extraction, the best way to deal with

adverse environmental impacts and the addressing of the WEL nexus in an environmentally

sustainable manner, present Bangladesh’s policy-makers with an intractable policy dilemma.

The urgency of food security (diversion of arable land, dedicated mostly to production of rice,

to extraction of coal through the open-pit method) appears to be in contention with the

urgency of ensuring energy security; the needs of economic growth clash with the negative

externalities emanating from environmental consequences; the interests of local communities

have to be set against the broader interests of the population and the country’s

macroeconomic development. Indeed, the issue of food security versus energy security gets

more complicated and complex when one takes into account the fact that because of lack of

energy Bangladesh is having to divert natural gas from the production of fertiliser (a key input

to ensure higher production of food and food security) to the production of electricity.

Bangladesh’s susceptibility to the adverse impacts of climate change25 has given this debate

and dilemma an added dimension and edge, and the need for policy choices that are

environmentally justifiable and sustainable.

Since managing natural resources in a sustainable and inclusive manner depends on both the

public and the private sector playing the desired respective roles, it is crucially important that

the stakeholders believe that these roles will be observed. The experience in Bangladesh in

dealing with the coal-extraction issue has, regrettably, deeply divided public opinion.

Some stakeholders feel that government has only weak negotiating capacity vis-à-vis private-

sector investors. It is feared that government will not be able to safeguard the interests of

sustainable development, and that whatever is negotiated will not be appropriately

implemented. Thus, weak governance and weak institutional capacity on the part of the state

create a negative attitude towards exploitation of coal resources. Local communities are afraid

of losing a permanent asset (land) for one-time compensation. Some (Sobhan, 2011) have

argued that this can be addressed by making the displaced people permanent shareholders in

the coal mines, with a share of the benefits on an ongoing basis. The Draft Coal Policy (2008)

came up with a number of suggestions for mitigating the adverse impacts and addressing the

concerns of stakeholders. However, policy-makers need to make an effort to engage with local

people, the environment lobby and other stakeholders through open and transparent

discussion on relevant issues. Indeed, the ERD Draft Outline (2011) underscores the need for

stakeholders’ participation in the management of natural resources with cooperation,

collaboration and active participation by all concerned parties (governments, business, private

sector, civil society, non-governmental organisations). The roles of the public and private

sectors will have to be one of complementarities if win-win solutions are to be identified.

Indeed, as the ERD Draft Outline (2011) states, in an era of increasing scarcity, there is a need

to apply our minds to how different legitimate interests of different stakeholders can best be

balanced in managing natural resources (ERD, 2011). As it stands now, many of the

stakeholders perceive national and commercial interests to entail conflict, with some eyeing

both of these with suspicion. So for the time being there is a stalemate regarding the decision

on mining of this natural resource.

24 The NTPC and BPDB will jointly implement the project.

25 Bangladesh is considered to be one of the most adversely affected by climate change.


22

As was noted in the previous section, it is likely that an initiative will be taken in foreseeable

future to go for open-pit mining, on a limited scale, in a part of one of the coalfields where the

seams are relatively close to the surface. However, if and when this is done, there will need to

be wide-ranging consultation preceding any concrete step in that direction. Coal-mining

technology is constantly improving. Some of the key environmental concerns can perhaps be

addressed by ensuring the adoption of appropriate technologies.26 The adoption of

environmentally sustainable extraction methods by commercial producers, and a faith in the

ability of relevant state institutions to monitor implementation practices, will be important.

Perhaps such institutions need to be set up and the related supply-side capacities built early on

so that these are ready before large-scale mining is undertaken.

Many global initiatives are now being taken and contemplated to encourage and stimulate

environment-friendly, sustainable and low-carbon development in developing countries. As the

ERD Draft Outline (2011) points out, the world and developing countries are challenged to

manage natural resources for inclusive and sustainable growth while dealing appropriately with

WEL resources, and moving towards a low-carbon path. The challenges facing developing

countries are perhaps even more formidable. Developed countries were not required to pursue

low-carbon development, which is something that developing countries are now expected to do

(ERD, 2011). In view of this there is a case for global support to enable countries such as

Bangladesh to address the sort of policy dilemmas that they face, as exemplified in the present

case study. Two options may be thought of in this context, as they relate to Bangladesh. One

is to underwrite part of the environmental mitigation costs towards environmentally

sustainable exploitation of the country’s coal reserves.27 The other option could be to make

this a part of the global carbon-trading agenda. Although these could potentially help

Bangladesh to address some of the concerns, the task of ensuring energy security continues

and will continue to remain urgent. Although Bangladesh is also contemplating the

diversification of its energy sources by exploring the option of nuclear energy (negotiations on

setting up a 1,000 MW nuclear power station have been initiated with the Russians),28 and

some initiatives are being taken towards the generation of solar and wind-power, these are

hardly likely to address the ever-increasing energy needs. In February 2011, the government

produced the PSMP study, which estimates that power-generation capacity requirements in

2021 would be 24,000 MW, rising to 2,900 MW by 2030. In 2030 the generation capacity from

various primary fuel sources would be: domestic and imported coal-based: 19,650 MW; Gas

and LNG: 8,850 MW; Nuclear Power: 4,000 MW; Regional Grid: 3,500 MW; Liquid Fuel, Hydro

and Renewable: 2,700 MW (Energy and Power, 2011).29 It appears that Bangladesh is likely

exploit its coal resources at some point, but any such decision must be environmentally

sustainable and inclusive. Despite the urgency of reaching a decision, the issue has not yet

been addressed in any comprehensive manner.

26 Both Draft Coal Policy 2008 and 2010 speak of underground coal gasification. Whilst this could potentially address

many of the concerns stated in this case study, available information indicates that this is yet to be proven as a techno-economically viable option in a wide-range of coal-mining situation. 27

For example, underwriting the carbon-capture costs to reduce carbon emissions. 28

This could take eight to ten years. 29

The government has recently decided to set up a new company, Coal Power Generation Company of Bangladesh

Ltd, to monitor and supervise all new and old coal-based power plants (Energy and Power, 2011).


23

6 Concluding remarks

As mentioned at the outset, this study did not set out to resolve the policy dilemma concerning

how to exploit the country’s coal resources to ensure the energy security of Bangladesh.

Rather, the case study was used to highlight the challenges facing developing countries such

as Bangladesh as they try to achieve faster economic development in a sustainable manner. In

the present context, such countries are having to pursue initiatives that today’s industrialised

countries never had to face when they were at a similar stage of development. Environmental

sustainability concerns, both at the national and at the global level, have become major

binding constraints to development initiatives. Concerns about the impacts of climate change

have compounded these challenges manifold. Addressing and balancing the conflicting

interests and concerns that inform development agendas and praxis in developing countries

presents a major policy challenge. The issue of exploiting Bangladesh’s coal reserves

encompasses many of these policy dilemmas, tensions and conflicting interests. The present

case study attempted to capture these in order to highlight the complexity of the challenges

that will need to be addressed and resolved in managing natural resources for development in

an inclusive and sustainable manner. There are several lessons to be drawn from the

Bangladesh experience. First, the local people, the major stakeholders, have to be included at

every stage of decision-making. Lack of transparency here can be costly. Second, in view of

the growing voice of environmental groups and the influence of the resource-nationalists, it is

preferable to entrust national companies/agencies with the major task of exploiting natural

resources such as coal, rather than leasing these out entirely to foreign companies (this does

not exclude joint ventures). Third, the estimates of costs and benefits need to be made in

transparent manner and local communities should have a direct stake in the benefits (beyond

employment, perhaps the option of being shareholders) with a certain percentage of net profit

allocated for investment in the local economy. Fourth, as discussed, in the particular case of

Bangladesh, the most contentious issue seems to be the choice between open- and closed-pit

mining. Given the attention now being accorded to the issues of climate change, with related

initiatives such as carbon trading etc., there appears to be a case for global initiatives to

address this type of policy dilemma. This could be in the form of setting up dedicated funds to

help low-income countries to both go for low-carbon options and for mitigating the adverse

impact of natural resource exploitation. Fifth, the answer could well be one that is technology-

driven. In the particular case of Bangladesh, underground coal burning and coal gas-based

electricity generation could perhaps provide a feasible option, although the techno-economic

feasibility of this particular option remains as yet unproven.


24

References

BAPEX (2011) Bangladesh Petroleum Production and Exploration Company Ltd website: http://www.bapex.com.bd/.

Coal Policy (2008) ‘Draft Coal Policy’. Prepared by National Committee set up by the Government of Bangladesh.

Energy and Power (2011a) 8 (23).

Energy and Power (2011) 8 (20).

Energy and Power (2011) 9 (1).

ERD (2011) Draft Outline of European Report on Development prepared by ODI, ECDPM and DIE, March.

IEE (2005) ‘Report on Initial Environmental Examination (IEE) of AEN’s Phulbari Project’. February.

Gain, P. (2006) ‘Phulbari, Asia Energy and Grassroots Revolt’, Earth Touch 10, April, 2007.

Government of Bangladesh (2010) Bangladesh Climate Change Mitigation Strategy, Dhaka: GoB.

National Coal Policy (2010) Proposed Draft Prepared by Ministry of Power, Energy and Mineral Resource, Dhaka: GoB.

Petrobangla (2007) ‘Estimates of Coal Reserves in Bangladesh’, December. Dhaka: Petrobangla.

PSMU (2006) ‘Power System Master Plan Update for Bangladesh’. Dhaka: PSMU.

SFYP (2011) ‘Resolving the Energy Crisis to Support Higher Growth and Employment; Background Paper for the Sixth Five Year Plan of Bangladesh’. Dhaka: SFYP.

Sobhan, R. (2010) Challenging the Injustice of Poverty: Agendas for Inclusive Development in South Asia, New Delhi: SAGE Publications Pvt. Ltd.

World Bank and IFC (2003) Equator Principle Guidelines. Washington, DC: World Bank and IFC.

World Bank (2011) World Development Indicators. Washington, DC: World Bank.

http://www.bapex.com.bd/

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