Thursday, February 24, 2011

Thar Coal update

Thar Coal: some submissions

Our energy crisis is so huge and worsening that one finds it only appropriate to belabor the known facts and bring forward new thoughts and solutions that come to ones mind. By this time, it should have become obvious that there is no escape from fast tracking the Thar coal project. Hydro power is also an equally viable option which solves water storage problem also , but suffers from seasonal factors . The two resources together offer optimal opportunities to meet Pakistan’s Energy demands. Here we are focusing on Thar coal.

The bureaucratic circles tend to show that there is progress on Thar coal. But the fact remains, that there is almost none. Allocation of blocks, MOUs and even feasibility studies do not mean much, as many such things have been done in the past. Under-ground coal gasification project has raised false hopes among the public. Without casting doubts on the scientific credentials of its eminent promoters and on the technological potential of the route adopted, the problem of scaling up would remain for which there is no capability in the country of a level that would be acceptable to the lending banks. While the existing gasification would yield useful data, we would be back to the square one, which is of requisite financing.

The bad news is that under criticism and pressure from international Green lobbies, World Bank has discontinued its technical assistance program on Thar coal, amidst news that government of Sindh has persuaded them to renew it. Even if they do renew, it sends us ample signals on difficulties that we are going to face towards financing Thar coal. With time, the opposition to coal would increase. Our problem is immediate and the renewables are still to be perfected and improved to be cost effective and competitive. In any case, renewables are projected to have a share of 20% even by the year 2050 .What are we to do in the meantime. The threat is that by the time we put our act together, although fossil based power age may not be over, the financing regime may become too difficult and hostile against coal.

The residual issue as it stands today is not the financing issue of the mining and power parts of the projects, however difficult it may itself be, it is the financing of infrastructure part which is proving to be a stumbling block. Various estimates put these requirements to between 1 to 2 billion US dollars. More money is required for infrastructure, than the first coal mine and power plant itself .Government of Sindh, obviously would not have such resources, nor would the federal government. And in these days of emphasis on provincial autonomy, where is the appetite for common projects. There are also issues as to the technical and management capability of the provincial bureaucracy, as the project continues to be run from the narrow confines of the Sindh secretariat. Apparently, there is no shaft of light at the end of this tunnel, although it is not the only one.

In all humbleness, this scribe makes the following proposals. There are two options. One is to tender for a large project of 5000 MW or so, which may be able to assume the infrastructural development costs. The cake becomes big enough to absorb all kinds of interests. This is not new .In India, this size of coal projects are being planned already. The feasibility of this proposal in Pakistan context can only be tested once it is actually tendered. The second option would be to float tenders for establishing a mining development company that undertakes to develop and finance the infrastructure and manages the Thar coal operations on behalf of Sindh government, within the framework of the relevant rules and regulations. The company recoups its investments by granting mining leases and charging a fee on coal production by individual companies. Obviously such a company would be a multinational which may have a joint venture with local private sector and government of Sindh’s share in it. Such a company would offer many advantages. First of all to bring in finances, which appear to be well-nigh impossible for Sindh government to finance? Secondly, the operations would be more commercial like and would be on fast track. Ironically, I have made a case of yet another feasibility study? Not necessarily.

Certain issues related to the 18th Amendment need to be sorted out. After the amendment, Electricity sector becomes a federal only subject, as there is no concurrent list any more. Earlier Electricity was in concurrent list. Coal was and is a provincial subject. If I understand correctly, federal responsibility and role in Electrical power sector should be larger than it was prior to the amendment. Thar coal power development , therefore, ought to occupy higher priority in Federal budgeting system. It may not be a bad idea considering some kind of linkage between investments in Hydro and Thar coal power; one project in hydel, and one in Thar coal. There is a technical requirement to balance hydel power as well. Gas being no more and oil unaffordably expensive and imported, thermal energy in future should mean Thar coal energy. Politicians from Sindh can suitably make a convincing case, provided they are also prepared to readily agree to federal involvement.

Let me close with good news, if at all. Some politicians lately made a statement that Thar coal is larger than the oil resources of our rich brothers of the Middle East. Many people cast a doubt on such an assertion. This scribe has collected facts and data and has made some calculations and is happy to report that these claims are by far correct with the following details and provisos. Total Middle East Oil and gas resources add up to equivalent of 385 billion tons of Brown coal, out of which Iran and Saudi Arabia own 110 billion tons of coal equivalent each. Pakistan’s Thar coal is 185 billion tons. We should, however, remember that Saudis would have been quite poor had they had 189 million people to support, instead of their current population of 25 million only.

The writer is a former Harvard University fellow, and has authored the book “ Pakistan’s Energy Development; the road ahead”,

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