Lifting ban on imported fuel projects



According to a Business Recorder exclusive, the government is considering lifting the ban on imported fuel, notably coal, projects. The ban was imposed on the insistence of the recently transferred former Secretary Water and Power Ministry, Younus Dagha, who had plausibly argued in a presentation made to the Cabinet Committee on Energy headed by the Prime Minister that: (i) under-construction power generation projects would enhance total capacity by 20,380MW by 2022 which would be more than sufficient to meet the projected additional demand; and (ii) constructing more imported coal projects would further deplete scarce foreign exchange reserves of the country.

Dagha in a letter to Private Power Infrastructure Board (PPIB) had noted that 3600MW LNG and coal-based power plants (on local and imported coal) are under consideration and expected to bring in 1,320MW of new generation by 2017 which would be sufficient to meet electricity demand and end load shedding. The new generation that Dagha referred to is from the coal-fired plant located in Qadirabad, (near Sahiwal) constructed under the umbrella of the China Pakistan Economic Corridor. A joint consortium of China’s state-owned Huaneng Shandong (which will own 51 percent shares) and the Shandong Ruyi Science and Technology Group (which will hold 49 percent shares) financed the project and the plant’s ownership would be transferred to the Punjab government in 30 years.

The Sahiwal power plant is based on imported coal and its construction cost was estimated at 1.8 billion dollars; it is scheduled to become operational sometime this month. The government of Pakistan will purchase electricity from the consortium at a tariff of 8.3601 US cents/kWh. Coal imported from Indonesia and South Africa has been delivered to the plant on Pakistan’s existing railway infrastructure. An estimated 4.48 million tons of coal will be required annually for the plant, based on a calculation of 22 hours of power generation per day.

Coal is a combustible black/brownish black sedimentary rock that was much in use in the past as a source of energy; however over time because of coal’s negative environmental impacts natural gas is preferred. In addition to the environmental cost, transport cost of coal is very high, higher than mining it, according to experts, which explains why coal-fired electric plants are located either near the coalmines or near a port in the event of imported coal. To locate a coal-fired plant in Sahiwal, Punjab, therefore does not make any kind of logistic sense at all.

With ongoing mega projects projected to deal with energy shortages by next year any move to lift the ban on imported coal projects does not make any economic sense strengthening the claim that the motive behind this latest move is to favour a few individuals rather than to meet the electricity needs of the country. One would hope that the Prime Minister would kill any such move in the Cabinet Committee on Energy (CCoE) and the Muzaffargarh project, scrapped by the CCoE, is not re-energised.

To conclude, Pakistan has scarce resources and needs to make optimal use of these resources by locating projects in areas best suited to minimise their negative environmental impact as well as ensure that the project with the higher internal and economic rate of return is preferred over others.