It has been awhile since the potential of Thar Coal deposits was discovered, tapping which has been a painfully slow process.
But, kudos to the government for finally showing some seriousness in the Thar Coal project. GoP has decided that upcoming power plants are to be converted to coal while the existing ones shall be modified to Thar coal specifications, from the current imported coal based generation.
The Sindh Engro Coal Mining Company expects the mining and power project to commence operations by 2016, provided there are no major hiccups or policy turnarounds. Four years is approximately the time for a power plant to be built and start electricity generation, therefore the decision to build the new power plants on Thar coal modification makes sound economic sense.
Not only will this move significantly reduce the power tariff and improve the power generation mix but it will also help a great deal in resolving the persistent circular debt crisis and soften the import bill by a good $4-5 billion per annum.
Four years may seem too far down the road but this decision of converting the existing coal based plants to Thar coal specifications would fast track the coal mining activity and the subsequent power plant in Thar.
Coal off-take agreement with the generation companies will definitely be viewed as a positive step and would help in generating financing for the projects. Moreover, the government is also believed to have agreed in principle to providing sovereign guarantee to Thar Coal projects, which would put the projects on the right track.
It has to be understood that there will not be much difference in the pricing of Thar coal and imported coal. But, as and when the economies of scale set in, the price of Thar coal will definitely come down and will eventually be cheaper than imported coal.
But, even with similar price, there will be savings on the foreign exchange front.
For example, Engro’s project will start with 6.5 million tons and the price will still be comparable with imported coal. Assuming that, other power plants also decide to convert to Thar coal, the company can extract up to 20 million tons per annum and that will significantly reduce the price of coal.
Power plants built on Thar coal requirements can also use imported coal from Indonesia. Therefore, in case of unwarranted delay, it is not that the power plants will sit idle as the option of using imported coal is always there. The government needs to ensure it sticks to its plans as Thar is undoubtedly essential for Pakistan’s secure energy future.