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Conversion from oil to gas

Despite having world's largest coalfield industrial and power generating units running on costly oil in Pakistan

June 18 - 24, 2001

The government's decision to deregulate oil prices with effect from July 1, 2001 is certainly a major step towards deregulation of the petroleum sector in Pakistan.

This was officially announced last week at the time when the government increased petroleum prices by 9.4 per cent to 14.5 per cent last week. This increase in oil prices is stated to be the last on the part of the government as from now onward the authorized oil marketing companies have been allowed to adjust oil prices on a fortnightly basis from July 1, 2001.

People in general and trade bodies in particular have rejected the increase, as it would certainly bring multiplier effects on general prices already beyond reach of the average income groups.

As a result of increase in oil prices, the transportation charges have been doubled during one and half year. The transporters again have threatened to pass on the increase to the commuters.

The oil-based manufacturing units also have good reasons to pass on the increase to the consumers. Similarly, the exorbitant electricity charges being charged by WAPDA and KESC have shattered the economics of the lower and middle-income groups. The natural outcome of the situation is that over 40 per cent of power generation consumed through illegal connections by the consumers unable to afford the exorbitant electricity bills. Consequently, the utility companies suffering huge losses due to 40 per cent power theft. How long they would survive under the prevailing situation. Situation demands for immediate corrective measures to bring down general prices within affordable range of the consumers. In order to beat the high cost of fuel oil, Pakistan will have to shift over to cheaper fuel substitute i.e. coal is plenty of which, available in this country.

It is unfortunate that despite having the largest coalfield, the oil consuming units have criminally ignored the coal sector mainly due to their convenience, which has become a second nature in Pakistan.

The budget for 2001-2002 is likely to take measures to shift oil consuming industrial units on gas or coal fired systems. According to informed sources, the first sector, which is being considered for switching from oil fired system to coal fired is the cement sector.

The Board of Investment (BOI) has prepared a detailed report for improvement of the cement industry and it might be a part of the investment policy to be approved by the cabinet.

The government has chalked out a plan to improve the financial footing of the companies. Cement sector is depressed due to over capacity, heavy government levies, stagnant demand and mounting cost of fuel oil. To reduce the cost borne by the cement sector in respect of fuel oil converting cement plants to less expensive gas or coal will require large investment in infrastructure.

The conversion to coal will not only benefit the cement sector but the country also by making a saving of around $240 million through a cut in cost of furnace oil imports.

Usage of coal instead of furnace oil would result in a saving of nearly Rs495 million per year for a plant producing 3000 tons of cement per day. The furnace oil consumed in producing one ton of cement would cost Rs924 while coal would cost nearly Rs374.

The gas is costlier than coal but would help the cement plants to generate a saving of Rs277 million a year for a plant having an output capacity of 3,000 tons per day.

In terms of dollars the national exchequer would save $170 million if the cement sector runs on 100 per cent capacity, while from at present rate of 63 per cent production the saving would be about $100 million a year.

However, there is an urgent need to develop the coal industry because the cement industry requires around 3.5 million tons of coal to run the plants.

The development of coal mining would also support the government's plan to reduce the unemployment ratio in the country and would certainly uplift the underdeveloped areas.

The shift from furnace oil to coal would enable plants to reduce the cost of production by as much as $10 per ton, which would be of great help in tapping the potential for exports.

Pakistan hosts the world's largest coalfields in Thar, Sonda and Lakhra in Sindh, which is placed in the category of low rank coal. The provinces of Balochistan and Punjab also have reserves of sub-bituminous coal. Due to convenient access to natural gas or liquid fuels, utilization of coal in energy dwindled from 60 per cent at independence to six per cent at present.

The government should earmark Rs20 million to conduct feasibility study of Thar coalfield.

Coal mining machinery is importable at zero per cent customs duty. Import of machinery and equipment for coal processing, firing etc. be also allowed at zero rated custom duty or lowest tariff slab for 3 years.

The conversion of all cement plants from oil to coal within next three years.

World coal consumption is projected to increase from 5.3 billion tons in 1997 to 7.6 billion tons in 2020. The world wide coal share in energy is around 37 per cent.

Germany, Japan, China, and India have converted or are in the process of converting most of their cement plants to coal.

China and India are projected to add an estimated 180 gigawatt and 50 gigawatt of new coal-fired generating capacities, respectively by 2020.

Globally, coal is increasingly being used for power generation, cement manufacturing, and steel production and industrial process heating.