EDITORIAL: How on earth is Pakistan going to convince Chinese power plants – in Sahiwal, Port Qasim and Hub, with a combined generation capacity of 3,960MW – to switch from imported coal to Thar coal when the transition is good in theory but not quite so in practice? For, the road to Thar coal is “bumpy”, as rightly pointed out recently in a detailed report in a local daily.
And since this initiative is “understood to be part of the wider power sector reforms supported by the IMF (International Monetary Fund) to help reduce the so-called circular debt”, Islamabad is going to cut a sorry figure on more than one very crucial front if it peters out for lack of ability to implement it properly.
Energy Minister Awais Khan Leghari’s claim that it would “slash the basket price of electricity by Rs2.5 per unit (KWH)” is up for debate, since it’s also been pointed out that even though imported coal costs twice as much as local lignite, it evens out because you need to burn about twice the amount of the latter to get the same level of energy.
It is, however, true that a successful transition would save the country $700 million worth of imports every year, and domestic coal price can drop significantly with expansion in mining capacity – if, that is, such a thing is ever done successfully. It would also shield the exchequer from the kind of wild spot market gyrations that were witnessed in the wake of Covid and the Russian invasion of Ukraine.
That much is the theory. In practice, though, it’s turning out to be a different matter altogether. Capacity expansion, for example, remains a problem because of the sizable investments needed to retrofit plants to switch them to lignite, not to mention endless regulatory approvals and renegotiations of tariffs and capacity payments.
Besides, bringing the Chinese around to this way of thinking is taking more time than the government thought, and “may take many more years”. Already, the CIHC Pak Power Company has rejected a proposal to shift its 300MW Gwadar project to Thar coal, citing transportation issues and financing problems, among other things.
To make matters worse, industry insiders seem to have leaked to the press that even if the Chinese do accept this proposal, it might still be a non-starter because “we don’t have enough mining capacity to feed any of the three plants”.
The 600MW Lucky power plant is a good example, because it is designed to use local lignite yet still operates on imported coal due to the long delay in mining capacity expansion. It turns out that about half a billion dollars is going to be needed to retrofit each plant for Thar lignite.
And there’s the rather discomforting fact that technology replacement work will shut plants down for six months each, raising the question of who will bear the cost for the said periods.
Then there is the issue of transportation. Thar is hundreds of miles away from the plants, especially Sahiwal, and taking the combustible coal from its source to the plants will require “dedicated railway tracks and the construction of additional offloading and handling facilities”. That, of course, would require significant investments of its own.
Also, if all the pieces still fall in the right places – which would require a lot of money and the Chinese agreeing every step of the way – the shift is not possible before 2030. And by then, most plants would have paid back a big part of their loans anyway. At the end of the day, you’d be going through all this trouble, also upsetting the Chinese, not to reap any benefits beyond cutting the annual import bill.
But, then, such are the fruits of long years of mismanagement of the power sector, to the point that everything is falling apart, an unending patch up job is no longer feasible or even possible (given our fiscal and time constraints), and even friends that help us in hard time seem to have had enough of it.
Copyright Business Recorder, 2024
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