Ownership of coal in Bangladesh

Md. Mosharraf Hossain

Ownership of coal in Bangladesh

Historically exploration and exploitation of minerals resources, including coal, have been allowed in lieu of payment by the sponsor a percentage of the value of minerals as 'Royalty'. This was the practice by the then British Empire in India, Australia and Africa. This royalty was taken as a symbol of ownership by the crown and the mining companies could invest explore, develop, process and sell the minerals for its own gain by paying the royalty to the crown. Through the process of payment of royalty, ownership of minerals is transferred to the developers, empowering them to do anything with the minerals. In some states the ownership of minerals found under the land in an individual's possession belongs to him and not to the state. Any developer willing to develop these minerals must pay the royalty to the individual owner of the land to become a legal owner of the said minerals. The developer thus obtains the right for mining and selling the minerals under the land of the original property holder through payment of royalty. When the mineral-bearing property of the Republic is allowed to be worked out by any individual under the royalty system, obviously he is given the ownership of the minerals for which the royalty is being paid and thus the ownership is effectively being allowed to change from the Republic to a company. Such change of ownership is not permissible for the underground minerals of Bangladesh as per the country's Constitution.

Article 143 of the Consti-tution of the People's Republic of Bangladesh states:

" 143. (a). There shall vest in the Republic in addition to any other and or property lawfully vested, all minerals and any other things of value underlying any land of Bangladesh

"(b) All lands, minerals and other things of value underlying the ocean within the territorial waters or the ocean over the continental shelf of Bangladesh."

As the lawful owner of these minerals is the Republic, there cannot be any law which will challenge the ownership of the mineral resources by the country. So any laws which will contradict the ownership of minerals by the Republic will be redundant. Therefore, the Mines and Minerals Rules, 1968, under which the royalty system is still being maintained, needs to be scrutinised in the light of the provisions in the Constitution and amended so that the ownership of minerals is not transferred to any company or a new act in the line of Petroleum Act, 1974 needs to be enacted so that the provisions of the Constitution are upheld.

A bold decision was taken in 1974 for exploration and development of petroleum in Bangladesh and the concept of Production Sharing Contract was introduced. The preamble of the Model Production Sharing Contract states:

1. All mineral resources including petroleum within the territory, continental shelf and economic zone of Bangladesh are vested in the People's Republic of Bangladesh and

2. The Government has under the Bangladesh Petroleum Act, 1974 (act no LXIX of 1974 (as amended up to date) the exclusive right and authority to explore, develop, exploit, produce, process, refine, and market petroleum resources within the territory, continental shelf and economic zone of Bangladesh and it has the exclusive right to enter into petroleum agreements with any persons for the purpose of any petroleum operations

3. Pertrobangla shall have the power to exercise rights and powers of the Government to explore, develop, exploit, produce, process, refine, market petroleum in the territory, continental shelf and economic zone of Bangladesh and also to enter into petroleum agreement with any person or company for the purpose of any petroleum operations.

These citations indicate that the petroleum resources cannot be independently explored or developed by any company or person as per the provisions in the Bangladesh Petroleum Act, 1974.The purpose was to establish the ownership of petroleum in Bangladesh by the Republic.

On the other hand, the Mines and Minerals Rules, 1968, says any body can apply for exploration and development of minerals and exploration or mining lease contract can exercise all the rights of the ownership of the minerals through payment of royalty. The rights of the lessee or licensee and provisions of payment by the lessee or licensee of mineral-bearing zone as presented in the Mines and Minerals Rules, 1968 are as follows:

The lessee shall have the liberty and power to enter upon the leased area and to search and win, work, get, raise or convert and carry away the leased mineral. (Sixth Schedule, item 3.Liberty to work)

All these rights are granted to the lessee in lieu of an annual fee prescribed in the rule 27, viz the lessee shall pay to the Government, in respect of land owned by the government, the yearly land revenue, rent, cess and water bill, at such rates as may be determined by the concerned authority.

As per provision of the rules 44 of the Mines and Minerals Rules, 1968 royalty, as prescribed for the particular type of minerals shall be paid by the Lessee.

Due to the legacy of the past the rules and regulations of mining as are being adopted were drafted or enacted hundred years ago. The provisions of ownership continued to be incorporated under the royalty system untill Bangladesh was established in 1971. At this point of time the subject related to minerals was given a special point of reference in the Constitution and the Republic was declared to be the owner of all minerals. Following this when there was a petroleum exploration need in the country, a special petroleum act was enacted in 1974 which embodied the power of exercising full authority on petroleum by Bangladesh. The term royalty was thus sidetracked and petroleum could only be explored and developed by the state-owned organisation which could appoint a contractor for the work. The concept of production sharing was conveniently adopted to finance exploration and development of hydro-carbon resources of Bangladesh.

But as the minerals were not on the focus at the time when the Petroleum Act was promulgated, the old practice of royalty-based award of mineral exploration and mining lease continued even after the ownership of minerals was declared to be vested in the Republic. Since Mines and Mineral Rules, 1968 was a continuation of provisions adopted under the Mines Act, 1923, when the ownership was not explicitly defined, the process of royalty did not change in the mining and minerals sector though the petroleum issue was taken out of this anomaly.

The ownership transfer of minerals is a serious issue because when coal is worth $100 per ton, the licensee or lessee, under the coverage of royalty, shall get benefit of selling coal at whatever price and to whom it may like only paying 5-10% of the pit head value of coal to the Government. Prior to 1971, the areas in Bangladesh that were given to the international oil companies (IOCs) under the license and royalty system, production, price and sales were controlled by the IOCs. Shell, PPL, Stanvac, etc worked under royalty system but since 1971, this practice has stopped and there is no provision of royalty in the Petroleum Act, 1974.

The practice of ownership of minerals by a company cannot be allowed to continue in the country. For the sake of equal treatment, the minerals and mines systems need to be brought at par with the petroleum sector so far as the regulatory systems are concerned. As the petroleum side is already reaping benefit for the country by discarding the royalty system, this practice should also be added to the mines and minerals sector.

Royalty is not a very good mechanism of reaping benefit from an asset especially if it is an exhaustible one. Giving license for some thing or leasing of some asset is conceivable if it is of permanent nature, for example land which could be retrievable after say 100 years, but mineral resources which are non-renewable will be lost after the lease period.

Mineral deposits, when given under royalty system, cannot ensure maximum profit for the owner. This question of getting benefits from royalty is increasingly being raised in the countries where the exploitation of mineral resources constitutes a significant element in national economies. There must be an appropriate reciprocity for the reduction in natural capital resulting from exploitation of non-renewable resources and heated debates have been generated in the countries well-known for mining activities, focusing on the benefits and limitations of royalty systems applicable to mining. Again, these are practised by the countries having vast mineral resources which are unlikely to be worked out for major economic gain by the country itself. This is not the case with Bangladesh.

Bangladesh under the Minerals and Mining Rules, 1968 allocated two coal blocks to two prospective minerals companies; one for the Khalashpir coal deposits and the other, for Phulbari coal deposits. These two major coal blocks given on the basis of the Mines and Minerals Rules, 1968 have raised serious questions as to how far the age-old rules are relevant in the context of Bangladesh. When the petroleum sub-sector is being driven dynamically and very effectively under a different set of updated rules, there cannot be any justification for the minerals and mining sectors to stick to the old rules which are not in the best interest of the country. Above all, when the said rules are conflicting to the provisions of the Constitution, it is high time that a revised or amended set of rules for Mines and Minerals, in line with the Petroleum Act, 1974, is put in place