EDITORIAL: The dollar crunch is hitting the economy hard; the power sector is no exception either. One more casualty may soon be the significantly reduced operations at Thar coal mining site, which could have an adverse impact on cheap and indigenous power production that will have to be replaced by imported fuel.
According to media reports, China Machinery Engineering Corporation (CMEC), which works with Sindh Engro Coal Mining Company (SECMC), is having problems in repatriation of payments outside the country. Reportedly, the amount stuck is said to be $60 million.
CMEC is writing letters, stating that this may lead to halting the operations-- partially or fully. Right now, the work is in full swing, but the company is not happy.
The problem is not with SECMC, which has enough cash to pay and part of the payment is in PKR while the rest is in the foreign currency. The issue is of payment in foreign currency, which State Bank of Pakistan is not allowing.
There are long queues of payments awaiting repatriation, and this case is just one more.Recently, in another episode, there were delays in imports of equipment for Thar Coal Block-2, which is delaying the commissioning of the Phase-III, and if that is delayed, the plants supposedly to be run on it would have to rely on imported coal.
Already, Lucky Electric Power Company (LEPC) is running on imported coal, which would be converted to local coal once Phase-III of the project becomes operational.
The bill of that equipment import is around $15 million while the total spend by LEPC on imported coal at current prices is around $20 million per month. The good news is that half of the equipment import is being allowed and the rest of it may get the required approvals as well.
Similar math can be applied to the operational phases in Thar Coal Projects where power plants are already running on Thar coal. The monthly estimated cost of imported coal could be $40 million if both the operational phases of Block-2 are closed and monthly imported fuel cost could be $20 million if half is operational. And if the first two phases are closed, then the third phase would be delayed even if its equipment is being imported on time.
Thus, saving $60 million accumulated due payments can cause a loss of similar amount ($60 million) per month. That is absurd. And even in case of the plants in Phase-I and Phase-II, imported coal may not be used and these are to be replaced by other plants, which are lower on the merit order and could be even costlier both for consumers and the central bank which is trying to save dollars.
This is just one example of the unintended consequences of curbing imports through administrative measures. The policy was badly thought out.
This started in July 2022 when Pakistan Muslim League-Nawaz’s (PML-N’s) Dr Miftah Ismail was the finance minister and Murtaza Syed was the Acting Governor of the central bank.
They started this in sheer frustration as Prime Minister Shehbaz Sharif was adamant on showing “speed” and was importing expensive RLNG on spot prices. In those days, he continued with the petroleum subsidy as well.
Later, the policy of restrictions was expanded by incumbent finance minister Ishaq Dar, and he also tried to fix the currency that unfortunately exacerbated the problem. In other words, no government step has so far prevented the law of unintended consequences lurching into action.
Copyright Business Recorder, 2023