Foreign investment, mining conflict, and contested development in Bangladesh

ABSTRACT

This article focuses on the conflict over the most contentious resource development project in Bangladesh, a proposed coal mine in its northwest region. Moving beyond the rationale of place-based local struggles against transnational mining corporations, it examines the macro dynamics of resource extraction, i.e. the institutional context and deal-making culture, to emphasise the ability of popular power from below to confront extractive industry practices on the ground. Drawing on Overland’s theorising of the role of civil society in natural resource management, it argues that in a political context characterised by extractive institutions, robust debate in the public sphere and social mobilisation at local and national levels can strengthen popular power from below to safeguard the benefits of energy resources in a poor country.

RÉSUMÉ

Cet article se concentre sur le projet de développement des ressources le plus controversé au Bangladesh, une mine de charbon proposée dans sa région nord-ouest, ainsi que sur le conflit qui en a découlé. Allant au-delà de la logique des luttes locales contre les sociétés minières transnationales, qui ont lieu au niveau territorial, il examine la macro-dynamique de l'extraction des ressources, le contexte institutionnel, et la culture de négociation pour souligner la capacité du pouvoir populaire à confronter les pratiques de l'industrie extractive sur le terrain. S'appuyant sur la théorie d'Overland sur le rôle de la société civile dans la gestion des ressources naturelles, il soutient que, dans un contexte politique caractérisé par des institutions extractives, un débat vigoureux dans la sphère publique ainsi qu’une mobilisation sociale aux niveaux local et national peuvent renforcer le pouvoir populaire pour préserver les bénéfices des ressources énergétiques dans un pays pauvre.

KEYWORDS:

• Corruption
• extractive industry
• foreign investment
• public debate
• resource politics

Introduction

The point of departure for this article is a recent report by Natural Resource Governance Institute (NRGI) showing many countries fail to make use of their natural resources for national development, including for reasons of poor management, corruption, and a failure to follow their own rules (NRGI 2017). This is not a new discovery, of course, and scholarship on resource governance has systematically examined this phenomenon (Rosser 2006). In his analysis of resource plunder, Collier (2010, 207) says governments cannot always capitalise on the value of their natural resources. Corrupt officials may ignore their responsibilities, satisfying their personal goals and increasing the profits of transnational extraction companies at the cost of national development. To reverse this trend, Collier suggests the need to form “a critical mass of ordinary citizens” (in other words, popular power from below) to call governments and resource extraction companies to account. This is a critical task for civil society groups concerned with the corrupt nexus of governments and companies. But precisely how can they fulfil this task in a political context characterised by what Acemoglu and Robinson (2012) call “extractive political institutions?”¹ The lack of democratic institutions in many countries makes it even more difficult to address the problems associated with corruption and state failure in natural resource management.

The literature on resource governance offers little pragmatic insight. However, in recent work, Øverland (2018, 1) theorises the role of civil society in natural resource management and argues “public brainpower”, defined as “a dynamic and wide-ranging public debate”, can create better institutions to avoid resource plunder. In this interesting analysis, institutions (defined as the “formalised organisations dedicated to specific purposes”) are dependent variables, not independent variables as many scholars contend, and inclusive and effective institutions are contingent on the functioning of vital civil society activism, with “many different public actors freely expressing their views” (Øverland 2018, 3). In other words, public debate is essential to create “a critical mass of ordinary citizens” or popular power from below.

Drawing on these insights, this article focuses on a Bangladeshi case of mining conflict to probe the significance of public debate over foreign investment-driven resource extraction in a country plagued by extractive institutions. It asks whether oppositional actors (activists and civil society groups) can successfully challenge the corrupt nexus of the state and resource companies. More specifically, the article shows how public debate and social mobilisation can generate popular power from below to prevent resource plunder and turn the value of energy resources towards society, specifically characterising resource plunder in terms of the corrupt deal-making culture in the Bangladeshi political context. Moving beyond the rationale of a place-based local struggle against transnational mining corporation in the Bangladeshi context (see Chowdhury 2016; Nuremowla 2016; Luthfa 2017; Faruque 2017a), the article focuses on the macro dynamics of resource extraction to illuminate the complex intersection of foreign direct investment, corruption, and resource extraction in Bangladesh. It explains how the corrupt practice of making “bad” deals with resource extraction companies mobilised political activists and civil society groups against resource plunder, generating widespread debate in the Bangladeshi public sphere.

The overall idea of the article is rooted in the scholarly commitment of political ecology to investigate why people mobilise politically around natural resources (Hannigan 2014, 91; Perreault, Bridge, and McCarthy 2015, 7–8). To this end, it investigates a core component of political ecology, the exercise of power to impose decisions on resource extraction, using the case of a decade-long mining conflict in Bangladesh. The conflict is centred on the construction of an open pit coal mine in Phulbari, a town in the northwest region. Its opponents pose it as a binary choice between coal or rice and profit or life. The former (coal/profit) is preferred by the mining company and its allies in government and business; the second (rice/life) is voiced by a coalition of actors (local communities, political activists, civil society groups) involved with the anti-mining movement at the local- and national-level during 2005–2015.

The rest of the article is organised as follows. It begins with a brief overview of the literature on the role of institutions and civil society activism in resource governance. Then, it provides an account of the mining conflict in Phulbari. The next section situates the debate over coal mining in the broader context of Bangladesh’s primary energy crisis. This is followed by an analysis of the connection between foreign investment in energy resource development and corruption in the Bangladeshi political context. It concludes by emphasising the role of public debate – an outcome of social mobilisation – in capturing the value of energy resources for the greater common good.

Resource governance: the role of institutions and civil society activism

A widely used analytical tool in social science scholarship on the role of institutions in resource governance is the “resource curse” theory. The theory highlights the complexity of managing resource revenues, with an emphasis on the failure of resource-rich countries to make adequate socio-economic progress using the rents captured from resource extraction (Badeeb, Lean, and Clark 2017). Instead of yielding benefits, a country’s natural resources have “adverse effects” on the country’s “economic, social, or political well-being” (Ross 2015, 240). While research by economists focuses on how resource rents contribute to economic growth, political scientists are primarily concerned with issues like the quality of democracy and institutions (“state-building” more broadly). This latter literature, relevant to the present purpose, addresses two aspects of the relationship between energy resources and institutions. Some scholars argue the quality of institutions determines the outcome of resource wealth; in other words, the extent to which such wealth contributes to economic growth in host countries is contingent on whether their key institutions are grabber-friendly and prone to corruption. Resource rents, in this context, end up in rent-seeking behaviour shaped by a patronage-based political culture (Mehlum, Moene, and Torvik 2006; Robinson, Torvik, and Verdier 2006). These scholars consider institutions are independent variables. Other researchers say dependence on resource wealth leads to deteriorating institutions (Bulte, Damania, and Deacon 2005; Anthonsen et al. 2012). They consider institutions are dependent variables. Wiens (2014, 198) argues the presence or absence of “institutional mechanisms to constrain ruler’s policy discretion” determines the outcomes of resource rents. The presence of such mechanisms will ensure citizens’ general interests are met, while their lack will undermine “any impetus to establish ‘good’ institutions … and serve to stabilise ‘bad’ institutions”. His formal model questions the validity of existing prescriptions, and he advocates for institutional reforms in resource rich countries to get rid of “curse-fostering institutions” (ibid.).

Although there is a tendency among scholars to uncritically apply mainstream resource curse perspectives, numerous critiques have emerged alongside the works of influential economists and political scientists. In addition to critiquing methodological and measurement-related issues (see Badeeb, Lean, and Clark 2017, 128–130), scholars emphasise some substantive issues to consider to make nuanced sense of the effects of resource dependence on a country’s economy and politics. Rosser (2006), for example, suggests scholars should integrate political and social variables influencing the relationship between a country’s resource endowment and developmental outcomes. Lahiri-Dutt (2006) argues resource curse perspectives do not adequately consider the legal mechanisms governing the ownership of resources and avoid questioning the role of global or national capital in institutionalising an exploitative resource governance system suppressing community rights over resources.

Recent scholarship considers a complex relationship between the nature of the resource, sociopolitical institutions, and their linkages with the overall economy in a resource-rich country. The resource curse, according to this scholarship, is shaped by many complexities and conditionalities (Papyrakis 2017). Gilberthorpe and Papyrakis (2015) advocate for a rigorous analysis of the effects of the resource curse at the micro level to reveal uneven consequences for local communities when resource endowment causes reduced economic growth because of political and social variables at the macro and meso levels. This line of inquiry pays attention to how social relations, economic interests, and power struggles involving both subaltern and elite actors shape the political economy of resource extraction (Gilberthorpe and Rajak 2017).

Notwithstanding the absence of consensus on how to tackle the resource curse, most agree that developing countries can harness the power of their resources if there is a firm commitment among political elites to develop democratic institutions to manage resource governance in such a way that prevents resource plunder and contributes to the greater common good (Collier 2010). However, in his recent review of the scholarship, Ross (2015, 250) suggests, “If these mediating institutions are themselves damaged by resource windfalls, escaping a resource curse becomes far more difficult”. As I go on to argue, the best strategy to prevent resource plunder caused by an “institutional curse”² is to foster intense public debate and create a critical mass of citizens insisting on robust checks and balances in the decision-making process.

Øverland (2018, 12) defines public debate as “the expression of views [of divergent civil society actors] on matters that are of concern to the public – often, but not always, with opposing or diverging views being expressed by participants in the discussion”. For Overland, the capacity of a society to create and re-create institutions plays a critical role in avoiding the resource curse. In other words, institutions must be embedded in the socio-political context of a country. Overland shifts our attention to a new independent variable to assess political arrangements for natural resource management and focuses on how the participation of “individual citizens, political parties, trade unions, charities, companies, research institutes, religious institutions, the mass media and government institutions” in a “wide-ranging public debate” change the power dynamics of natural resource management (2018, 3). Through debate and public contestation, the public can monitor the actions of decision-makers (political and bureaucratic elites). A critical element of this process is the right to free speech. This, for Overland, is badly needed in non-democratic societies.

Drawing on this work, I suggest democratic institution building in a political context characterised by extractive institutions is a long-term process. The conflict over the Phulbari coal mine, especially the intense debate on the benefits of mining under a corporate-friendly arrangement fostered by a corrupt deal-making political culture, offers hope that the effects of dysfunctional institutions can be avoided if a wide-ranging debate in the public sphere and social mobilisation work together to put pressure on decision makers. Relentless activism at both the local and national level and activists’ critical engagement in the Bangladeshi public sphere, in this case, persuaded policymakers to admit the “anti-state” nature of the deal between the Bangladeshi government and the mining company and reconsider the corporate friendly national coal policy (Daily Star 2006).

Mining conflict in northwest Bangladesh

Bangladesh has an estimated reserve of more than three billion tonnes of coal in five coal fields located in several districts in the northwest region (Imam 2013). A state-owned company, Barapukuria Coal Mining Company Limited (BCMCL), currently produces coal in one of these fields (about one million tonnes per year) but does so by engaging a Chinese mining company (BCMCL 2017). A British mining company, Asia Energy Corporation (Bangladesh) Pty Ltd (AECB),³ has plans to develop a field near Barapukuria in Dinajpur District, the controversial Phulbari coal mine. The proposed mining zone is vast; 314 square kilometres will be indirectly affected, and 78 square kilometres directly affected.⁴ The core mining zone covers more than 6000 hectares (60 square kilometres), of which 80 percent is agricultural and 13 percent is homestead land. The area includes a municipality and 100 villages covering four sub-districts. The coal mine, according to AECB, will displace more than 40,000 people, including 2300 indigenous peoples (Adivasis) (AECB 2006a).

AECB has consistently portrayed the Phulbari coal mine as a symbol of economic growth and development; it promises to radically transform a subsistence-based agricultural area into an export-oriented industrial production zone (AECB 2006a). The project, it says, will generate profit for all stakeholders, particularly the people of Bangladesh (GCM Resources 2019). This corporate discourse of development has faced an enormous challenge from local communities who do not want to give up their land to profit a transnational company. The proposed mine is particularly contentious because it is located in a densely populated agricultural area, with more than 70 percent of residents involved in farming (BBS 2011). Moreover, the project area (Dinajpur District) is one of the poorest districts in Bangladesh, with more than 64 percent people living in poverty (BBS 2017).

Scholarly research on mining conflicts in the global South shows the promise of modernity, as manifested in carefully crafted discourses of mining corporations and state agencies, does not generate a positive outcome in reality. Host communities who have been promised a better situation frequently suffer multiple economic and environmental challenges, triggering discontent (Gardner 2012; Kirsch 2014; Li 2015). The narrative of AECB belongs in this category. In early 2005, some local elites and political activists alleged AECB and political and bureaucratic elites had formed an unholy alliance to deprive the country of benefits of its energy resources. They also claimed the mine would destroy highly fertile farmland, affect the livelihood of hundreds of thousands of people, and damage the environment. They formed a local community organisation (Committee to Protect Phulbari, CPP) to mobilise grassroots communities (including Adivasis) against the mining company.⁵ In its petition to the Prime Minister in June 2005, the CPP forcefully argued the local people could not allow building open pit coal mine, as it would destroy their ancestral places (graveyard), land, homes, and other properties. They said a life sustained by land-based resources and other communal practices defined the local identity, and they invoked the values of a “moral economy”.⁶ The loss of land, the main productive asset, would be perceived by local people as the loss of existence and the destruction of communities (see Faruque 2017a).

CPP later formed an alliance with the National Committee to Protect Oil-Gas-Mineral Resources and Power-Port (NCBD)⁷ known for its mobilisation against foreign investment-driven resource development projects. Its members include activists of various left-wing political parties, academics/retired bureaucrats (energy/policy experts), and progressive cultural activist groups. For NCBD, social mobilisation against a transnational mining company was not merely a local concern. They saw it through the wider lens of corruption, resource plunder, and corporate profits in the global periphery. Accordingly, NCBD and its local allies (CPP) made three key demands to the government: no to open pit mining, no to foreign ownership of mineral resources, and no to export of mineral resources (NCBD 2005). Both CPP and NCBD opposed the way the project was structured in terms of ownership and share of resource rents. They claimed the Bangladeshi government would receive a small portion of the resource rent (only 6 percent as royalty), and various tax concessions offered to the mining company would further reduce the country’s share. Moreover, the minimalist approach taken by the government allowed the mining company to deal with local and national regulatory matters and company-community relations, including land acquisition, population displacement, and resettlement, on its own.

The absence of government agencies during the consultation process made local people suspicious of the motives of a foreign company. Protest events and mobilisation discourses of CPP (at the local level) and NCBD (at the national level) gradually galvanised popular support. Eventually, an anti-mining movement emerging from localised community concerns formed a broader public debate over resource extraction and energy politics in Bangladesh, in which other civil society actors – Bangladesh Paribesh Andolon, Bangladesh Environment Network, Citizen’s Commission on Oil-Gas-Coal, Bangladesh Environmental Lawyers Association, Jatiya Adivasi Parishad, and Bangladeshi Adivasi Forum – also joined. The state and the mining company ignored the arguments voiced in protest events and seminars and publicised in pamphlets, posters, newspaper articles, and talk-shows.⁸

During a protest event in Phulbari in August 2006, state security forces killed three protesters, which resulted in mayhem in the region for several days. Eventually, a negotiation team representing the government agreed to accept all demands of the protesters, and a Memorandum of Understanding (MOU) was signed in this regard.⁹ Consequently, the government refused to approve AECB’s feasibility study and shelved the project.¹⁰ This popular uprising put the government policy agenda vis-à-vis resource extraction at the centre of the Bangladeshi public sphere. There was a heated debate in Bangladesh’s parliament. Newspapers published editorials, and many civil society organisations, political parties, and influential business associations representing economic elites released statements expressing concern over the deal between the government and the mining company. Agreeing with the demands of the protesters, they urged the government to review the deal and consult local communities before moving forward with coal mining in Phulbari.

During 2007–2014, both the mining company and the government tried to reintroduce the agenda, but activists and civil society groups collectively resisted their initiatives. A group of transnational advocacy groups joined the movement in 2008. They successfully persuaded some global investors including Asian Development Bank to withdraw from AECB’s project. They also took the matter to the United Nations and OECD’s National Contact Point in the United Kingdom (UK). A group of UN Human Rights Specialists urged the Bangladeshi government not to move ahead with the Phulbari coal project because it would affect various rights of hundreds of thousands of local people. UK’s National Contact Point, under the auspices of OECD, found AECB had violated part of the OECD Guidelines for Multinational Enterprises.

Energy crisis and coal mining in Bangladesh

Although Bangladesh has a small coal-fired power plant (525 MW), coal has never been a primary energy resource.¹¹ It was virtually absent in Bangladeshi policy discourse until 2005. More than 66 percent of electricity is produced by natural gas (BPDB 2017). AECB’s proposal to develop the Phulbari coal mine brought coal centre-stage in policy discussions. The shortage of natural gas¹² convinced many policymakers that coal could be a suitable alternative. Although Bangladesh has tremendously increased its power generation capacity in recent years, policymakers consider it insufficient to meet the future demands of its industrial sector (BPDB 2020; Power Division 2020). Moreover, the inadequate supply of electricity is a major infrastructural problem in Bangladesh’s growing economy, and many industries rely on their own power generation system. The regular interruption of electricity supply (power outages) reduces GDP by two to three percent annually (The World Bank 2016). Some energy experts, influential business elites, and pro-market think-tanks believe the exploitation of Bangladesh’s huge coal resources will solve its primary energy crisis (Khatun and Ahamad 2015).

In 2010, Bangladesh adopted a new economic agenda, “Vision 2021” – its goal was to make Bangladesh a middle-income country by 2021. Among other things, Vision 2021 projected the production of 24000 MW of electricity to meet the growing needs of industry and to bring all households into the national power grid. To realise this goal, the government prepared a Power System Master Plan (PSMP) in 2010, outlining several priority areas for long-term strategic power development (2011–2030). One priority was to increase the domestic primary energy supply by over 50 percent. By 2030, 25 percent of the primary energy would be domestic coal, 20 percent would be natural gas, and 5 percent would be hydropower and renewable sources (Power Division 2011). To meet these requirements, even though the government had backed down in Phulbari in 2006 in the face of intense grassroots opposition and refused to let AECB to proceed with an open pit coal mine, it now wanted to move ahead with open pit mining in Barapukuria; at the same time, it encouraged AECB to seek public support for its Phulbari coal project.

To meet the PSMP 2010 goals, the government’s Sixth Five-Year Plan (2011–2015) called for a coal extraction plan and national coal policy and the development of coal fields to reduce dependence on natural gas (Planning Commission 2011). The Plan suggested “building up mass awareness regarding the extraction procedure of coal especially for the open extraction method” (Planning Commission 2011, 154). Accordingly, AECB redesigned its public relations materials and established the narrative that its Phulbari coal mine could be used to realise the government’s goals. In 2012, it proposed building a mine-mouth power plant to generate 2000 MW electricity. In its recent endeavours, the company emphasises that the Phulbari coal project is capable of delivering up to 6000 MW of cheap electricity, which will “make a significant positive impact on [Bangladesh’s] industrial development” (GCM Resources 2019, 3).

However, coal extraction goes beyond technological logics. It is also a political process. Local communities who would bear the brunt of the “slow violence” of coal extraction were not consulted during the formulation of PSMP 2010 and were deprived of their democratic right to express dissent.¹³ Oppositional discourses challenging this dominant narrative, once again, mobilised grassroots resistance during 2011–2014 in Barapukuria and Phulbari. As before, local people demonstrated against the government, and acrimonious policy debates in the public sphere forced the government to reconsider.

The government abandoned PSMP 2010 and unveiled a new PSMP in 2016, outlining an extensive energy and power development plan up to 2041. Although domestic energy resource development remains a major goal, the new plan emphasises building a robust infrastructure for importing primary energy, such as coal and liquefied natural gas. Instead of looking for primary energy in domestic sources, it proposes meeting growing power demands by building power plants using a variety of imported primary energy sources (Power Division 2016).

The reversal in the Seventh Five-Year Plan is another indication of policy shift. The new Plan (2016–2020) envisages that accelerating growth in GDP requires reducing infrastructure constraints, especially in the power and energy sector. It identifies the need for an energy mix, i.e. diversifying sources of primary energy to extend electricity coverage to 96 percent of the country’s households and to maintain uninterrupted power supply to industries. Bangladesh now plans to increase power generation by building more mixed-fuel power plants. As it cannot guarantee coal supply from domestic sources, it plans to import coal and liquefied natural gas and accelerate offshore exploration for natural gas (Planning Commission 2015).

Both policy documents keep the door open for extracting coal from domestic fields. PSMP 2016 envisages open pit mining in Barapukuria and Phulbari will increase the domestic coal supply (Power Division 2016, 35–36), and as the Seventh Five-Year Plan says, “coal mining is essential to provide low-cost power” (Planning Commission 2015, 345). These policy choices have given new hope to AECB, given its project’s perfect fit with Bangladesh’s broader development goals. AECB says it will send coal from Phulbari to the newly built thermal power plants (GCM Resources 2017, 2). It has redesigned its coal mine project as a combined mine and power project. To achieve this new goal, AECB’s parent company, GCM Resources Plc, has partnered with three Chinese state-owned companies; one for mine development and two for building three 2000-megawatt power plants at a site near the mine (GCM Resources 2020). It has also engaged lobbyists in China and Bangladesh to persuade policymakers to include its project in China’s ambitious global project – One Belt One Road Initiative (GCM Resources 2019, 1). Tellingly, however, it remains silent on coal exports, the most lucrative aspect of its deal with the Bangladeshi government.

Foreign direct investment (FDI), corruption, and resource extraction

Political resistance to coal mining in Phulbari involves policy changes and the institutional context at the macro level. Bangladesh, like many developing countries, is desperate to attract foreign investment. In the early 1980s, Bangladesh adopted a liberal FDI regime by enacting the Foreign Private Investment (Promotion and Protection) Act. The Act and subsequent industrial policies promoted concessions and financial incentives for foreign investors in all industries except in a few reserved areas, such as banking, insurance, and other financial institutions (Ministry of Industries 2016). The Bangladeshi government and its Western development partners, particularly the World Bank and the International Monetary Fund, collaborated on institutional reforms to attract FDI, which resulted in a gradual capital inflow in Bangladesh starting in the 1990s with the liberalisation of oil, gas, and mineral exploration and power generation. Several transnational oil/gas companies were given contracts to explore and develop gas fields in onshore areas (Imam 2013), and foreign companies began to invest in power generation. By reducing the role of the public sector exploration companies, the Bangladeshi government gradually institutionalised a neoliberal resource governance system. As a result, on the one hand, it used foreign investment to mobilise much-needed capital for resource extraction; on the other hand, foreign companies established firm control of gas production and supply.

Despite the usual gains from FDI, including capital mobilisation, technology transfer, and higher efficiency in production and management, Bangladesh is faced with a shortage in its foreign exchange reserve and is struggling to meet its rising debt service payments. According to the World Bank, Bangladesh can reduce downward pressure on its foreign exchange reserve by allowing international extraction companies to export gas (The World Bank 1999). AECB capitalised on this and planned to export the majority of its coal (80 percent) to India and other Asian countries; this, AECB argued, would reduce the gap in the balance of payments between India and Bangladesh (Buerk 2005; AECB 2006a). While the government may have welcomed the idea, it led to contentious public debate over foreign investment and resource extraction in the late 1990s. Well before the mining conflict in Phulbari, a popular mobilisation protested a proposed policy on gas export in 2002 and forced the government to abandon it. Opposition groups, especially those associated with NCBD, consider FDI-driven resource extraction is unhelpful in generating public benefits. They say it has increased the fiscal burden. Instead, they advocate “planned development of national capability …  to maximise potential use of natural resources” (Muhammad 2014, 63).

Another concern is corruption. In many countries, FDI-driven resource development projects are riddled with corruption (Kolstad and Wiig 2013; The Economist 2015; Williams and Le Billon 2017). Corrupt political and bureaucratic elites and transnational companies disregard existing laws, with rules and global transparency initiatives (e.g. the Extractive Industries Transparency Initiative, EITI) used as shields or public relation strategies (Öge 2016; Papyrakis, Rieger, and Gilberthorpe 2017). Bangladesh’s resource governance is a good example. Political and bureaucratic elites commonly make “bad” deals; they fail to negotiate favourable contractual terms for national development, preferring corruption and cronyism.¹⁴ Transnational companies have an excellent rate of return on their investments and get many concessions. An example is the case of KAFCO, who signed a deal in 1990 near the end of the military regime. KAFCO, an export-oriented fertiliser company, uses natural gas at a highly concessional price. Its deal with a consortium of foreign investors from Japan, Denmark, and the Netherlands was detrimental to Bangladesh’s national interests (Task Force 1991). In 1992, the newly elected democratic government tried to renegotiate it but failed because of the rigid position of the government of Japan. The tense situation created a diplomatic crisis between the two countries in 1993–1994 (Kalam 1996, 176–179).

By the same token, an inquiry into the nature of the deal between the government and AECB revealed that the former granted the latter a wide range of concessions (discussed in the following pages), which, according to a senior official of Bangladesh’s Energy Ministry, reduced the government’s scope to make significant gains from the mining project (Rahman 2008). An expert committee commissioned by the Energy Ministry found the profit margin of the mining company would outweigh the net gains of the Bangladeshi government (EMRD 2006). These findings clearly characterise the Phulbari coal mine project as a case of resource plunder where a corrupt nexus of Bangladeshi political and bureaucratic elites and the mining company offers benefits to the company at the expense of the greater good of ordinary citizens.

In Bangladesh, resource extraction deals with transnational companies often disproportionately favour one party over the other. An UNCTAD report said Bangladesh learned a hard lesson when it failed to persuade an American company to pay for the loss of natural gas and environmental damage caused by a blowout in its gas field in the northeast region (UNCTAD 2004). The contract, based on a model Production Sharing Contract prepared by a group of experts hired by the World Bank under its Petroleum Exploration Promotion Project in the 1980s, did not include a liability clause. In another example, it was found officials of the Energy Ministry colluded with a Canadian company and its local agents, who included politically well-connected influential lobbyists, to give it exploration rights (Adhikary and Habib 2017).¹⁵ The Supreme Court of Bangladesh recently declared two contracts with this company illegal (Adhikary 2017). The Barapukuria coal mine operated by a Chinese mining company mentioned earlier was also found to be influenced by extra-legal activities, and “national interest was severely undermined” by the deal (Khan 2006).

The deal with AECB fits into this larger pattern. In the initial protests, local and national activists claimed political and bureaucratic elites disregarded Bangladesh’s national interests and favoured the interests of the mining company (NCBD 2005, 2011). The report of the expert committee, commissioned by the Energy Ministry, validated these claims. It suggested the government disregarded existing Mines and Mineral Rules to make the deal; it gave many concessions to AECB, thus increasing the company’s profit margins and costing Bangladeshis.¹⁶ First, the investment agreement guaranteed that the royalty rate would remain the same for the mining period (more than 35 years). Second, it fixed the royalty rate at six percent; meanwhile, the royalty rate for BCMCL was 20 percent as per the existing Mines and Mineral Rules. Third, the mining company could export all resources without paying export tax. Fourth, AECB could use offshore accounts and transfer pricing¹⁷ to manage its revenue from export sales. Fifth, AECB did not have to submit three percent of the total investment needed to develop the coal mine as a bank guarantee. As per the Mines and Mineral Rules of 2012 (clause 58.1C), this is a legal requirement to obtain a mining permit. AECB estimated its total investment over the lifetime of the project would be $3 billion (AECB 2006b). Accordingly, it should have submitted $90 million along with its application for a mining permit. However, the Energy Ministry accepted the application for a mining lease without the money and moved forward to assess the company’s feasibility study.

Corruption is an inherent feature of deal-making in the Bangladeshi political-administrative culture and has been called “rent-sharing across political divides” (see Hassan and Raihan 2018). Bangladesh was listed among the world’s most corrupt countries in 2001–2005. Scholars studying the political economy of resource extraction and corruption in Bangladesh (Ahmad 2001; Murshid and Wiig 2001; Khan, Riley, and Wescott 2012) have shown how the state-extractive industry nexus favours the latter’s corporate interests at the cost of the former’s broader national interests. They find that: (a) political and bureaucratic elites influence deal-making process for their personal interests, increasing the costs and risks of resource extraction projects (foreign companies make up these costs via concessions); (b) politically well-connected local agents play a critical (extra-legal) role in determining the terms of a particular deal; (c) existing laws and rules are often avoided to make room for extra-legal influences in decision-making processes. Table 1 shows the institutional dimensions of weak governance in Bangladesh.

Table 1. Institutional dimensions of governance in Bangladesh.

Indicator	Percentile Rank (0–100)
	2006	2011	2016	2019
Voice and Accountability	32.21	36.15	30.54	27.09
Government Effectiveness	22.93	24.64	25.48	23.56
Regulatory Quality	16.67	22.75	22.12	15.38
Rule of Law	20.57	27.70	27.88	27.88
Control of Corruption	3.41	14.22	18.75	16.35

Source: Worldwide Governance Indicators (http://info.worldbank.org/governance/wgi/#reports).

The complex relationship between foreign investment, corruption, and resource extraction, described above, endangers the democratic rights of citizens in Bangladesh, both locally and nationally. At the local level in Phulbari, the Bangladeshi state apparatus uses its power to repress popular mobilisation, refusing to address legitimate concerns about resource extraction. Local actors face state violence to exercise their democratic rights to contest development interventions. At the national level, political and bureaucratic elites shield themselves from the concerns of activists and civil society actors, in some cases refusing to apply existing laws and in other cases refusing to create an appropriate legal framework.

Three actions of the Bangladeshi government vis-à-vis coal mining in Phulbari are exemplary. First, anti-mining mobilisations at local and national levels established a benchmark of policies for coal extraction, as laid out in the MOU signed between the activists and the government in 2006. Although the government implemented various sections of the MOU, it ignored a critical element: banning open pit mining, exportation of extracted resources, and foreign ownership of resources were not put into a legal framework. The government avoided these issues in its revised Mines and Mineral Rules in 2012. Second, although the expert committee appointed by the Energy Ministry said existing laws were violated, and a senior official of the Energy Ministry claimed two successive governments (1991–1995; 1996–2000) compromised national interests to make the deal with AECB, the government refused to take action. Third, the Energy Ministry granted a mining license to AECB to conduct activities related to coal exploration, reserve determination, water and environmental management, rehabilitation of displaced people, and other related matters, but it has no agreement with the company to extract coal (Karmakar 2015). The license, valid for two years, expired in January 2006 (Arifuzzaman 2019). As a result, the legal status of AECB vis-à-vis the Phulbari project has become ambiguous. Notwithstanding this legal vagueness, the annual reports of GCM Resources Plc (2009–2020), the parent company of AECB, list the undeveloped coal deposit in Phulbari as its “principal asset” (GCM Resources 2020), and it continues to trade on the London Stock Exchange. Despite repeated calls from the activists and civil society actors, the Bangladeshi government seems reluctant to take legal action. In short, the state uses its structural power to curtail its citizens’ democratic rights.

Conclusion: public debate and capturing the value of energy resources

Scholars show that the preferences, capabilities, and strategies of elites play an instrumental role in developing the institutions which enhance economic growth (Amsden, DiCaprio, and Robinson 2012; Robinson 2012). In the Bangladeshi context, building and strengthening institutions – the process of state-building – “remains a work in progress” (Lewis 2011, 109). Political and bureaucratic elites are not all that interested in creating democratic institutions, and this disinterest is a significant factor in the strengthening of authoritarian rule in Bangladesh (Khondker 2004). This is a common feature of hybrid regimes “characterised by a mixture of institutional features which are typical of a democracy, with other institutions typical of an autocracy” (Riaz 2016, 28). Moreover, the weak state structure reflects a paternalistic and dysfunctional political culture. In effect, the Bangladeshi state apparatus is a hybrid of a patrimonial and democratic political system. Its political leaders do not seem to understand the significance of building institutions “to consolidate state or building of a developmental state” (Khondker 2018, 83). This institutional context has implications for resource extraction because the quality of democratic institutions shapes the developmental outcomes of rents generated by resource extraction (Bhattacharyya and Hodler 2010). Compliance with social and environmental regulations is generally costly, so weak institutions and their corollary (e.g. corruption) are beneficial for extraction companies (Wiig and Kolstad 2014).

Given the larger political/institutional circumstances described above, rigorous debate in the public sphere (and its outcome, i.e. social mobilisations and popular power from below) can play a critical role in securing the value of the country’s natural resources, and the repeated failure of the Phulbari coal mine project suggests the ability of “a critical mass of citizens” to force political and bureaucratic elites to pay attention to their concerns. As this case suggests, a critical mass of citizens can work together both locally and nationally to ensure a country’s resources are used for general benefit, not simply to line the pockets of foreign extraction companies, and deals are in the nation’s interests, not those of the company or corrupt elites.

The debate on the Phulbari coal mine began with the refusal of local communities to accept AECB’s compensation and resettlement scheme. Issues of the valuation of resources were at the heart of their refusal. AECB’s cost–benefit analysis, based on a common metric of commensuration, denied the incommensurable multiple values of their resources. Contradictory languages of the valuation of resources espoused by the mining company and local communities separated the two (see Martinez-Alier 2009 for a theoretical analysis of commensuration). The localised grievances were gradually connected to larger issues, specifically, the political economy of foreign direct investment in resource extraction in poor countries characterised by high levels of corruption and extractive political and economic institutions.

Bangladesh is positioned on the lowest level of the recent global index of the rule of law (World Justice Project’s 2020 report shows Bangladesh ranks 115 out of 128 countries). Similarly, Democracy Index 2020, published by the Economist Intelligence Unit, points to the country’s poor democratic governance. Most institutions are “extractive” in nature, and political elites manipulate them for personal and political gains (Alam and Teicher 2012). There is little or no urge to develop robust “inclusive” institutions to regulate the political and economic domains. Moreover, the confrontational political culture, characterised by winner-takes-all politics, makes institution building a non-issue among competing political elites (Lewis 2011) who prefer to meet their personal and political goals through an informal settlement with other political elites. Under such circumstances, relying on formal institutional procedures to ensure the public will benefit from resource extraction will not work.

The new Power System Master Plan stipulated large coal-fired power plants would be built to achieve Bangladesh’s developmental targets and envisaged open pit mining in both Phulbari and Barapukuria to increase the supply of domestic coal (Power Division 2016, 2011). Other national policy documents, such as two perspective plans (Planning Commission 2020a, 2012) and three five-year plans (Planning Commission 2020b, 2015, 2011), similarly underscored the necessity of developing domestic coalfields. These developments helped the mining company remain optimistic, and it has redesigned the coal mine project as a combined mine and power project. Even so, the Energy Ministry seems less interested in moving forward; its scientific studies, carried out in 2015–2016 after intense debate and social mobilisations, as mentioned earlier, rejected the claims of company-sponsored feasibility studies and proved the validity of the claims and grievances of the challengers. Notwithstanding the recent initiatives of the company to show its Phulbari project is a perfect fit with Bangladesh’s development goals in the energy sector, the Energy Ministry decided to continue importing coal to run its newly built coal-fired power plants (Power Division 2020). I explain this as the effect of popular power from below – an outcome of social mobilisation has the potential (at least in the case analysed here) to persuade policymakers in a political context characterised by weak formal governance. In such contexts, the functioning of formal institutions will simply take too long to be effective.

In theory, a government may represent society, but in fact, it may fail to pass benefits on to the larger society. As the arguments in the preceding pages make clear, this is true of the Phulbari coal mine. However, in this instance, a robust debate engaging grassroots communities, political activists, and civil society groups threw an enormous obstacle in the way of a “bad” deal. The intense debate in Bangladesh’s public sphere, an example of popular power from below, helped Bangladesh avoid resource plunder.¹⁸

Acknowledgements

The author thanks the editor, two anonymous reviewers, and Matthew G. Allen for their many helpful comments on an earlier version of this article. Their suggestions helped the author to improve the quality of the article.

Additional information

Notes on contributors

M. Omar Faruque

M. Omar Faruque is a SSHRC Postdoctoral Fellow in the Department of Global Development Studies at Queen’s University, Canada. He earned his PhD in Sociology from the University of Toronto.

Notes

1 Acemoglu and Robinson (2012, 81) explain the role of institutions in a country’s prosperity or poverty: “Extractive political institutions concentrate power in the hands of a narrow elite and place few constraints on the exercise of this power. Economic institutions are then often structured by this elite to extract resources from the rest of the society. Extractive economic institutions thus naturally accompany extractive political institutions. In fact, they must inherently depend on extractive political institutions for their survival”.

2 Menaldo (2016) argues it is not the resource curse per se but bad institutions (the “institutional curse”) causing underdevelopment and resource extraction.

3 AECB is a subsidiary of GCM Resources Plc, a company listed in the Alternative Investment Market (AIM) of the London Stock Exchange (GCM Resources 2020).

4 Here “indirect effect” means people living in this area will face a shortage of underground water sources; “direct effect” means people living in this area will be displaced, losing their land and properties.

5 CPP’s members include leaders representing local branches of all major political parties, labour unions, business associations, and civil society groups representing peasant communities and Indigenous peoples (Adivasis).

6 “Moral economy” encompasses both material and emotional elements emanating from perceived threats to subsistence resources, on which peasant communities rely (See Edelman 2005).

7 A Dhaka-based social movement organisation, NCBD has been campaigning against privatisation of resource extraction since the late 1990s (see Faruque 2017b).

8 During the planning stage of the project (2004 -2005), AECB maintained a “divide-and-rule” technique to administer its public consultation processes at the local level. It favoured maintaining a relationship with selected elected representatives of the local administration (Union Parishad) at the expense of achieving a broad-based community participation. It also failed to disseminate enough information to local people so that they could make an informed choice. In fact, AECB’s activities during this time were aimed at meeting procedural and contractual obligations. Critical scholarship on participatory processes in resource governance characterise such practices as “empty bureaucratic procedures aiming to depoliticise extractive activities” (Leifsen et al. 2017, 1044). For example, during consultation meetings in Adivasi villages, Adivasi community leaders repeatedly said “no” to AECB’s displacement and resettlement plan. However, the mining company and its consultants (Anthropologists) considered their mere presence at those meetings as their “approval” of AECB’s project.

9 It was agreed that the government would not allow AECB to build the mine. Moreover, no open pit mining would be allowed anywhere in Bangladesh, and a suitable mining method would be decided after considering the opinions of people living in the mining area (NCBD’s leaflet published in May 2009).

10 An evaluation of AECB’s feasibility study by an expert committee found the project would cause vast agricultural and environmental damage (the report was submitted to the Energy Ministry in September 2006).

11 In 2020, a new coal-fired power plant (capacity 1320 MW), built by a Chinese company, was added to the national power grid. 

12 According to the Planning Ministry, “Most recent data suggest that the current reserve will likely be depleted in less than 10 years. Out of the 27.12 TCF recoverable reserves, Bangladesh used 13.032 TCF natural gas by June 2015” (Planning Commission 2015, 310).

13 See Gamu and Dauvergne (2018) for an application of the term to mining conflicts.

14 An American oil company (Occidental) took opportunity of this political context and escaped financial compensation for the loss of resources and environmental damage when its gas field blew out in 1997 (UNCTAD 2004; Rahman 2007, 66–71). After this incident, the extractive industry in Bangladesh became a focus of contentious public debate.

15 The State Minister of the Energy Ministry, responsible for dealing with the company, resigned in June 2005 after newspaper reports claimed he accepted a bribe from the company. The company later admitted to a Canadian court that it bribed higher officials of the Bangladeshi Energy Ministry (Daily Star 2005; McArthur 2011).

16 The deal for coal mining in northern Bangladesh was originally signed with the Australian mining company, BHP, in 1994. The deal violated several laws, including the Mines and Mineral Rules. BHP transferred its agreement and licenses to AECB in 1997. AECB was a new resource company formed by two of BHP’s senior managers. The Bangladeshi government approved this assignment agreement in February 1998 (EMRD 2006; Faruque 2016).

17 Mining companies use offshore accounts to avoid taxes in host countries. Transfer pricing is another popular strategy to avoid public taxes in various jurisdictions (Sikka and Willmott 2010; Pegg 2016).

18 Although local- and national-level mobilisations faded after it became clear in early 2015 that the Energy Ministry would not accept AECB’s “mine development Scheme” submitted in late 2005 (Karmakar 2015), a London-based coalition of several transnational advocacy groups continues to mobilise anti-mining protest events, mainly centred on GCM’s annual general meeting. Some members of this coalition regularly participate in the annual general meetings (as proxy shareholders) and speak out against the coal mine project. In recent years, they lobbied the London Stock Exchange to investigate the alleged fraud of the company and delist it from the stock exchange (Ahmed 2020).