Bangladesh coal controversy: power to the people?

January 2010

Even if GCM, the UK-listed miner, can regain government approval for its giant coal project, opponents may still threaten its prospects & profitability

This is the fourth article in our ‘License to Operate Flashpoint’ series analysing socio-political risks around resource projects in the news. It will shortly be published in Mining Environmental Management and on Mineweb.com

Why is Phulbari an interesting project?

UK-based GCM Resources has for years been planning a $3bn open-cut coal mine at Phulbari in Bangladesh. But progress has been stalled since 2006, when government officials appeared to call the project into question after violent local protests over various issues including potential environmental impacts and resettlement plans (GCM estimates 40,000 villagers would be displaced by the project). GCM’s share price then plummeted and has since remained low – a clear case of damage to the ‘socio-political license to operate’ translating into lost shareholder value.
But investors continue to keep their fingers crossed that the Bangladesh government’s long-delayed coal policy will soon be agreed as this, it is hoped, will allow the project to progress and GCM’s share price to revive once more.

Will GCM be able to regain its ‘socio-political license to operate’ at Phulbari?

GCM remains upbeat about its prospects, particularly because Bangladesh is desperately short of power and in need of coal. The project promises substantial economic development benefits locally and nationally, including a power station.
But despite frequent reports that an agreement will soon be reached, the coal policy is hotly contested. An array of nationalist, community and environmentalist voices variously insist on a ban on open-cut mining; higher royalties or more project participation for the state; and heavy restrictions on the export of energy resources. Further delays are possible and there is no guarantee that, when complete, the policy will favour GCM’s plans.
Even if a coal policy is agreed which gives the green light for the project, the coalition which has opposed it so far will not disappear, and could create continuing problems, financial as well as reputational, for GCM and its investors. At worst, the activists could return to the streets making it more likely the government again rescinds project approval. Other major foreign investments in Bangladesh have been stalled in the past after domestic opposition. Equally, NGOs could launch high-profile global campaigns against GCM and its investors (a number of potential backers of the project, including the Asian Development Bank, Barclays and RBS, have already faced some flak from NGOs).

What can GCM do?

While much remains beyond its control, if it is to achieve commercial success, GCM clearly needs to do all it can to allay stakeholder concerns over social and environmental impacts and also sensitively and responsibly influence the debate in Bangladesh. In recent years, GCM has already made significant efforts in this respect – for example, committing to comply with IFC Performance Standards on issues such as resettlement. A more ambitious campaign and set of commitments by the company may now be justified in order to win over critics, including for example, even stronger environmental mitigation plans and additional contributions to local, regional and national development.
Tenacity and patience will be vital for GCM, but are not enough to guarantee the outcome it is seeking. While Bangladesh’s energy crisis will increasingly force the government to take a clear position on coal, in the country’s turbulent political climate other voices will still have a say – and many will continue to resist GCM’s proposals.

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¹ This simplified version of a ‘heat map’ is one element of LicenseSecure™, a model developed by Critical Resource to help companies responsibly strengthen the ‘license to operate’ (i.e. local, national and international stakeholder support) for resource projects. This particular ‘heat map’ is based on outside-in analysis – GCM is not a current client of Critical Resource. A full LicenseSecure™ study involves in depth, on-the-ground research, and analyses company policies and activities as well as external factors.

Declaration of interest: Critical Resource has provided information to GCM on LicenseSecure™.