Thursday, October 21, 2010

Should Coal be imported,inspite of Thar Coal ?

Should Coal be Imported , inspite of Thar Coal ?

Coal is being imported in Pakistan and the imports are increasing every year. Coal is required and used in industries such as cement, brick kiln, metallurgical industries etc.

Hard coal of good quality is also being mined in Balochistan, KP and Punjab. Production of hard coal is limited by manual and artisanal mining. The known sources are not large enough to attract capital and mechanization. Whatever is produced is consumed, and even imports are made to meet the demand.

In this section, we are concerned with a specific question. Should we import coal for power sector? There is advantage in coal. In Pakistan , there are large deposits of Thar coal, and in the world coal is the most abundant fuel, expected to afford 200 years of world consumption. It is abundant in China, US, Australia, India, Canada, and India and the lesser countries of Indonesia and South Africa. Industrial revolution in Europe took place on the shoulders of the then abundant coal there. Coal served as a backbone to progress and production in almost every industrial society.

Coal is being much despised and opposed these days by the generally environmentally sensitive world of today. Pollution and Green-house gases are the two principal factors responsible for the opposition and resistance against coal. On the other hand, this is also true that most electricity in the world today comes from coal. In the U.S., almost 50% of electricity comes from coal. In China, one Coal Power plant goes up every week. India has an installed base of MW of coal power and a sizeable coal resource base. However, it has started importing coal for a variety of reasons; principal among those is excess demand due to production bottlenecks, despite a sizable resource base. In the U.S. all kind of energy is produced, imported and exported.

Why import, when one is exporting; and why export when one is importing. Trade is done for many reasons seasonal factors, location issues, transportation costs, business linkage etc. In the case of coal, imported coal may be cheaper than domestically produced due to shear logistics reasons. Coastal towns and markets may prefer imported coal for convenience and cost reasons , if domestically produced coal is far off in the inner regions. That is the reason behind energy trade in the U.S., involving imports and exports as well. In Pakistan , despite cotton abundance , it is considered wise to keep imports open to have a check on the local prices , as well as seasonal issues. Excess supply and availability in certain months may induce exports and lesser availability in others may induce imports. India, to-date prefers importing coal for coastal towns, as imports are cheaper in coastal towns due to cheaper transportation than bringing domestic coal from inner regions. At some point in time, India may import Thar coal or electricity produced from it, for its coal scarce regions of Rajhastan and Gujrat, which are adjoining Pakistan, in place of coal from south .It is shear economics, if politics permit it to operate. Often it does not. Similarly, Pakistan may import Coal from Afghanistan, in preference to its own coal in the South.

Am I making a case for importing coal for establishing power plants, as some foreign companies have proposed? Why have they done so? For almost the same reasons as we have discussed earlier. However, the primary concern is that people are generally skeptical if Thar coal resource would come on line at all? Our provincial government of Sindh and its relevant departments may not like this kind of skepticism. Every now and then they do announce their actions, projects and approvals. Engro has completed its feasibility study, which gives some credibility and optimism. However, it is still a low key affair, not befitting of a gigantic project of this nature, being largely operated and handled from a single room in Sindh Secretariat. Visibility and profile gives credibility to vendors, technology suppliers, investors etc. Unfortunately, its absence does not appear to be very reassuring. If projects are progressing, these are to be planned, monitored and co-ordinated .It requires qualified managers and manpower, training activity etc. No credible international party is yet on board. The sole public demonstration of such an association is indicted by a trip to Germany by the project authorities. World Bank is double minded, despite its technical and financial assistance project. Some very fundamental issues which may impede progress ultimately are of coal pricing and royalty. These remain unstudied and unresolved. To federal bureaucracy, the provincial set-up appears to be too tight lipped and secretive , resisting involvement of others which may be a requirement of such a huge projects. Some of them are looking forward to the ultimate failure of the provincial government and its relevant department, which appears to be the sole player trying to take it to the goal all alone. Chinese , the most befitting partners , for Thar coal do not appear to be interested at all in it , while they are interested in every thing else from nuclear power plants to dams etc. There is something missing?

However, I do not think that going for the imported coal option for new power plants would be a good idea at all. First and foremost, such a project would crowd out the investment in domestic coal, after there is a limited supply of foreign capital willing to come to Pakistan esp in the difficult political circumstances. Coal prices also increase in sympathy with oil, as has been amply demonstrated by the recent past. We are suffering from a perennial trade gap and balance of payment problems obliging us to approach IMF for loans restricting policy options for economic expansion and peoples’ welfare. Import of coal would be a luxury we cannot possibly afford. In South, we already have Thar coal. Had there been some possibilities of sourcing the same from hypothetical northern sources, there would have been a logistical rationale for meeting the requirements of the upper and central regions. In these circumstances, there appears to be no rationale for entertaining such projects, except slow progress on Thar, which it is hoped, would be speeded up by a co-ordinated action of Federal and provincial governments.

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