Power outages this summer severely inconvenienced the people, business and industry in Pakistan. For the future, there is an urgent need to tackle the obstacles adversely affecting the setting up of new power generation capacity.
Due to an expected decline in gas reserves, the natural gas distribution utilities are finding it difficult to make long term commitments for the supply of gas to new power generation plants. Also, continuing large trade deficits being experienced by the country signal clear messages for reducing big-ticket imports, particularly the import of fuel for power generation.
In view of the factors listed above, there is ample justification for exploiting local coal, particularly Thar coal for power generation. This measure would, on the one hand help meet power shortages and on the other, conserve foreign exchange being used to import fuel for power generation.
The Sindh government under its Thar Coal Infrastructure Development Project has so far earmarked over Rs 4 billion on developing roads network, town planning, supply of water, telephone, electricity, and other infrastructure, including rest houses. Work is still continuing on improving the infrastructure.
Wapda is working on a 500-kV transmission line to connect the proposed coal based power plants to the national grid. In addition, Wapda has taken up constructing the Rainee-Thar canal to irrigate the region and to the meet water requirements of the power projects. All these are positive developments.
Presently, four power generation projects based on Thar coal or other coal fields in the adjoining areas are under pre-feasibility or feasibility study. Progress on two projects, based on two feasibility studies - one by the Chinese investors and the other by the German experts - is held up due to certain technical or low tariff obstructions.
Besides, the investors are also said to have reservations on the quality and quantity of the underground water required for cooling purposes. The Thar coal has a number of special characteristics. Heating value is said to be relatively low, while the level of moisture, ash, volatile matter and sulfur is slightly on the higher side.
These characteristics have implications for plant design as well as the supply of coal, disposal of ash and management of environmental pollution. All these matters need careful handling. At the inauguration of a conference on Sindh Coal Mining: Challenges and Success in Karachi a few days ago, the Sindh Chief Minister, reportedly recalled the investment made for the development of Thar coal field and the obstacles faced in the use of coal reserves for generating electricity.
At the Conference it was also said that the government was offering tariff for the bulk purchase of one unit of electricity generated through the use of furnace oil at over 13 cents, 10 to 12 cents for wind power, but was not willing to consider 7 to 9.5 cents for coal-based power. I wish electricity tariffs were so simple.
The Sindh government, from newspaper reports, appears somewhat frustrated due to delays or lack of visible physical progress at the project sites for the setting up of the Thar coal-based power generation plants. The issue of indicative or upfront tariff has been hotly debated recently in the press, as well amongst the various stakeholders.
The Federal Minister for Water & Power has reportedly constituted a Committee led by the Secretary, Water and Power to submit within a week recommendations on the upfront tariff. Other members of the Committee comprise the Chairman, Nepra; Managing Director, PPIB; Director-General Minerals, MP&NR; Wapda Member Power and the Sindh Secretary for Mines.
In the said meeting, the Chairman, Nepra reportedly expressed reservations on the upfront tariff on the grounds that such a tariff could not be considered without the availability of the cost of coal production from the Thar coal field in Sindh, the capital cost of equipment and machinery and other fundamentals; especially since all the projects were still in a feasibility stage. It was also apprehended that the investors would later assume such price as base rates and demand increases as had happened in the case of thermal power projects in the past.
The announcement of indicative or upfront tariff by the government for coal-based power generation plants is an important matter needing careful consideration by the experts and policy makers. The views expressed above by the Chairman, Nepra are very relevant and must be given significant weight. It is good that the government has constituted a committee to work on this issue and submit recommendations.
As a past student of the IPPs phenomena in Pakistan, I am convinced that delay in the implementation of the coal-based power plants is not entirely due to lack of upfront tariff.
There are a number of other factors, some of which are likely to surface once the upfront tariff is announced. The following suggestions are offered here for consideration by the government and other stakeholders.
1. Electricity tariff is the rate at which one unit of electricity on average is sold by the Independent Power Producers (IPPs) to NDTC for onward sale to Distribution Companies (Discos) which service the consumers and distribute electricity in their respective areas. Electricity tariff calculations, being complex, are hotly debated among the stakeholders.
As consumers, we would wish the tariff to be as low as possible yet high enough to offer reasonable returns to the IPPs on their investment. One cent extra added to tariff for one unit of electricity has the potential to make our industries and services uncompetitive internationally and to substantially increase the outflow of foreign exchange to foreign investors.
2. The investors always wish to manage all their risks. In case of power plants based on furnace oil, the risk of regular supply of the agreed quantity of fuel is passed on to the PSO in Pakistan. For hydel power plants, arrangements are made regarding the flow of water with the provincial governments. It is different for the integrated coal-based power generation plants; all risks associated with the supply of coal are also to be managed by the IPPs in addition to their usual risks as investors.
Large scale coal mining, particularly of the Thar coal field has no previous record. Private coal miners at the moment are shy to come forward and offer regular supply of given coal or lignite in agreed quantity to the IPPs, at the agreed prices. If coal mining and supply has to be added to their usual risks of setting up and operating power generation plants, the IPPs would naturally wish to be adequately compensated through extra tariffs.
The government is not known to have refused to compensate them for the cost of coal and risks associated therewith. As regards the announcing of the upfront tariff, it is felt that only some of their fears could be allayed.
3. Existing Power Policy-2002 might not be providing sufficient comfort and incentives to investors, as well as financiers to address issues associated with the exploitation of Thar coal or other local coal for power generation. Instead of making ad hoc changes in piece-meal fashion, it would be better if a comprehensive policy on Coal Mining & Coal-Based Power Generation is prepared.
This policy may perhaps expedite the exploitation of Thar coal and the use of coal for power generation. Important parameters such as policies on coal mining, transportation of coal to power plant sites, provision of water at plant sites, appropriate technologies for power generation from local coal, technologies for pollution control, handling of emission gases, disposal of ash, etc might be discussed and agreed among the major stakeholders. Foresight, capability, funding and coordination- all would be needed in abundance to achieve this objective.
4. The government of Sindh has established the Sindh Coal Authority, which is exclusively responsible for the development of the coal resources of Sindh. Existing Provincial policies might not be fully appropriate for the protection and optimal exploitation of the natural resources, minimising damage to the landscape, saving the population from harmful pollutants, etc.
These matters might be reviewed and updated for bringing them at par with the present day coal mining practices in the developed counties.
5. To show its commitment for the development of Thar coal, the Government might consider becoming an investor (say with 5-10% equity stake), in the integrated coal-based power generation plants to be set up as IPPs.
6. The potential investors desirous of setting up coal-based power generation plants may be required to adopt technologies which are reasonably modern and tested and at the same time acceptable, both technically and environmentally, to international lenders who are likely to be financing the cost of power projects based on Thar coal. Use of advanced technologies may slightly push up the tariff for the electricity generated. A suitable and acceptable balance may have to be found.
7. The government might consider asking Wapda to undertake an integrated Thar coal-based power generation plant and allocate to it a suitable piece of coal-bearing area for the mining of coal and the location of the plant. Wapda had earlier implemented a 150 MW Lakhara Coal Power Plant based on Fluidised Bed Combustion technology from China.
A study of this plant may perhaps yield useful lessons for planning Thar coal-based power plants. Wapda is expected to be in a much better position to tackle the technical and other issues of Thar coal mining and using Thar coal for power generation as compared to private investors. Wapda's integrated project may perhaps prove to be the trail-blazer and pave the way for early exploitation of Thar coal for power generation in a big way.
8. Thar Coal Research Institute (TCRI) needs to be established preferably in the Thar coal field. TCRI should be developed into a centre of excellence for the whole country. It may initially require large financial and human resources, which might be made available by the government.
It should have the wherewithal to set up coal-based pilot power plants, using different clean-coal technologies and should operate them to demonstrate the appropriateness of the technologies for the burning of coal, collection of gases being emitted, gasification of coal, and the disposal of ash, among other research objectives.
9. It is imperative to build capacity and to properly motivate the different cadres of government officials associated in the work pertaining to enhancing the capacity for power generation, selection of technologies for coal mining as well as power generation and the purchase of power from bulk producers. A liberal budget for capacity building may be assured by the government.
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