Oct 17 - 23, 2011

Global Mining Company (GMC) of China has 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.

Last month, a memorandum of understanding (MoU) was signed by Mohammad Younus Dagha, Sindh's Coal and Energy Development Secretary and Liyang Liu, the CEO of Sino-Sindh Resources, a local subsidiary of GMC at the Sindh Chief Minister House 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 plans to complete the feasibility study within six months and begin mining work by April next year.

The Sindh government has 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 last year. Another Chinese firm Kinghu that was also short-listed by the government in July to invest in Block VII of Thar coalfield, has reportedly refused to make any investment due to the poor law and order situation in Karachi, the capital of Sindh. Besides poor law and order situation, the crucial issue of tariff rate on power generation has so far halted the development of coal-based power plants in Thar coalfield. In 2007, Shenhua Group of China abandoned the $1.5 billion coal-based power project in Thar coal field due to disagreement on power tariff rates. Critics say that Islamabad's non-serious approach to develop Thar coalfield has led the country to face a chronic power shortage and forced many foreign firms to quit the project.

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 one of the biggest projects in the history of Pakistan, which is expected to be completed within stipulated time,' according to Chief Minister Sindh Syed Qaim Ali Shah.

Founded in 2007, China Global Mining Group, Inc is a mining company majored in exploration, mining, beneficiation and scientific research of non-ferrous metals. The company is striving to become a world-class mining brand, as it builds a portfolio of exploration properties containing known deposits of non-ferrous metals in China mainland. It has signed cooperation deals with many overseas mining firms from Papua New Guinea, Canada and Korea. The company's management combines unparalleled expertise in finance, geology, mining engineering from China Mainland, Hong Kong and USA.

Sindh government has declared Thar coalfield as special economic zone (SEZ). It has also approved an amount of Rs 972.070 million for the construction of an Airport at Thar for the coalfields.

Chairman of Board of Investment Saleem H Mandviwalla reportedly said a comprehensive incentive package has been developed to market Thar coal. The package includes 20 per cent international rate of return to firms, 30 years exemption on corporate tax, all custom duties on import of coal mining projects allowed at zero per cent to reduce the initial capital investment, exemption on withholding tax to shareholders on dividend for initial 30 years, exemption for 30 years on withholding tax on procurement of goods and services during project construction and operations to reduce the initial capital investment.

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.

The analysts believe that the energy-deficient country can achieve energy security through development of Thar coalfield, which is bestowed with 175 billion tons of lignite coal capable of producing over 100,000 megawatts for more than two centuries.

Kinghu Group, the China's largest private group specialized in coal production, which had earlier shown interest in investing in the Thar coal project, backed off of its commitment due to security concerns in Sindh, particularly Karachi where at least 400 people were killed only in July and August. Lawlessness has turned Karachi- the country's business hub- into a crime hub where land mafia, extortionist mafia and arms mafia backed by political parties have become a real threat to the business community. Provincial authorities however claim that China's King Hu has not quit the project but it has only suspended its programme temporarily.

Shenhua Group of China quit the project in Thar coal field because the former government of Prime Minister Shaukat Aziz had backed out of already decided tariff rates of 5.67 cent per unit with the Chinese firm and demanded a rate of 5.39 cent per unit.

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 has been the major issue between the government and private sector resulting in delay in functioning of power projects in Thar coalfield.

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 the country. Sindh has been accusing the federal agencies of sabotaging investment prospects in its Thar coalfield.

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 controversial 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 country faces acute energy crisis, which has not only suffocated the industry but also made the lives of 170 million Pakistanis unbearable due to frequent power outages on daily basis. The country's energy shortage led to losses estimated at $37 billion between 2007 and 2012, while a loss of Rs219 billion to the industrial sector alone was reported during 2008.