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Major coal field and the required progress

Thar coalfield in Sindh province is bestowed with 175 billion tons of lignite coal, which can fuel power generation of over 100,000 megawatts for more than two centuries and the present government of Prime Minister Imran Khan can take good initiative of developing the coal-based power plants in Thar coalfield in order to meet the country’s energy challenge. Pakistan needs to increase share of coal in country’s energy mix to at least 19 percent by 2030 and 50 percent by 2050.

The crucial issue of tariff rate on power generation has so far halted the development of coal-based power plants in Thar coalfield. Extending over 9,000 square kilometers, Thar coalfield is the largest untapped coal resource in the country. In 1992, Geological Survey of Pakistan (GSP) discovered coal deposits worth 175-185 billion tons of lignite in Thar. In Pakistan, the provincial governments do not have the authority to decide the tariff rate on power generation from coal-fired power plants and they can only facilitate the investor companies and provide them the essential logistics. National Electric Power Regulatory Authority (NEPRA) decides tariff rate while Water and Power Development Authority (WAPDA) is responsible for distribution of electricity in Pakistan. Sindh has been accusing the federal agencies of sabotaging investment prospects in its Thar coalfield.

It is actually the political economy of coal resources that has led the country to face a serious power shortage.

Critics say that the federal government has deliberately created the power shortage by not taking serious initiative for the development of Thar coal resources for power generation. They contend that federal agencies have been trying hard to build a consensus on building Kala Bagh dam for the past three decades. But the idea is strongly opposed by all three provinces except Punjab, which would be its primary beneficiary. Sindh has been opposing the Kala Bagh dam tooth and nail for its potential devastating effects on agriculture in the province. The energy-deficient country can achieve energy security through Thar coalfield whose development has ever raised political stakes. Critics say that Islamabad’s non-serious approach has forced many foreign firms to quit the project.

Dr Samar Mubarakmand, Pakistani nuclear scientist, is engaged in Block-5 of Thar coalfield to produce electricity from coal through gasification process to overcome the ever-aggravating power crisis. Dr. Mubarakmand is presently running the Underground Coal Gasification (UCG) project for converting coal into electricity.

Former government declared Thar coalfield as special economic zone (SEZ), where investors would enjoy corporate income tax holiday of five years and 10 years for developers of the zone. The former government also approved an amount of Rs 972.070 million for the construction of an Airport at Thar for the coal fields.

Private firms have mainly been reluctant to start power generation due to unfair pricing formula for coal-fired power generation. The finalization of tariff rate at which power would be supplied is the major issue between the government and private sector resulting in delay in functioning of power projects in Thar coalfield. There is an urgent need to evolve a uniformed pricing formula for electricity purchase to guarantee foreign investors for setting up coal-fired power plants in Pakistan. Without any decisive policy on tariff rates, it is very difficult for Islamabad to attract more investment in power projects.

 

Chinese interest

In 2007, Shenhua Group of China abandoned the $1.5 billion coal-based power project in Thar coalfield due to disagreement on power tariff rates. Chinese Shenhua Group quit the project because the government of former Prime Minister Shaukat Aziz had backed out of already decided tariff rates of 5.67 cent per unit with the group and demanded a rate of 5.39 cent per unit.

Shenhua Group was interested in setting up two power plants of 350 MW each in Thar coalfield. The Group started work on Thar coalfield in 2002. It spent over $100 million to conduct two investigation studies about the viability of the project. After concluding its investigation and preparation of a feasibility report, the group was all set to construct the proposed power plants, but the crucial issue of tariff rate on power generation halted the project. Chinese had stopped work in 2004 prior to the official announcement, which was made in the 2007. The group officials had left the project, but negotiations on tariff rates continued and finally Shenhua announced to quit the project.

Chinese Prime Minister Wen during his visit to Pakistan in December 2010 had expressed that his country wants to invest in Pakistan particularly in the energy sector. The proposed Chinese investment in development of Thar coal mines is expected to provide benefits like strategic energy resource, import substitution of expensive raw furnace oil (RFO), lower power tariff for coal-fired power plants, and improve socio-economic development in Thar region.

In September 2011, Global Mining Company (GMC) of China signed a multi-billion dollar deal with provincial authorities in Pakistan for coal mining and setting up a power plant in Thar coalfield in southern Sindh province. A memorandum of understanding (MoU) was signed by Sindh’s Coal and Energy Development Secretary and Liyang Liu, the CEO of Sino-Sindh Resources, a local subsidiary of GMC in Karachi. Under the deal, the Chinese company will initially invest $3 billion to develop a mine producing five million tons of coal per annum initially with power generation of 900 megawatts in next three years. The company will make a total investment of $8.5 billion by 2020. The GMC consortium plans to invest approximately $4.5 billion up to 2016. Out of $4.5 billion, $1.5 billion will be spent on development of infrastructure and construction of transmission line, road network and communications facilities. Another $4 billion investment would be made to meet the target of 10,000MW of power generation by 2020.

This is going to be one of the biggest projects in the history of Pakistan for what the Sindh government allocated Block-I of Thar coalfield having area of 122 square kilometers to the Chinese company following an international competitive bidding process initiated in December 2010.

In March 2011, Kingho Group, the China’s largest private group specialized in coal production and chemical products expressed interest to invest in Thar coal. The Chinese group showed interest in investing in the chemical production plant at Thar coalfield. In July 2011, Kingho was short-listed by the government to invest in Block VII of Thar coalfield. The company, however, backed off from its commitment due to security concerns in the country.

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