PM Nawaz Sharif has announced Gadani Power Park project where up to ten coal power plants with a combined capacity of 6000 MW would be installed. The announcement made headlines as the project has a potential of being a game changer. This is as they say in urdu 'Sau Sunar ki aik Luhar ki' (Ironsmith's one hit is equal to one hundred hits of the goldsmith);the project is so huge that, if implemented in time, it can end our load shedding miseries. Many people have asked me many questions and are groping for some details. I will try to explain various aspects of the project and will offer some humble suggestions to those involved with the project for the project's better implementation.
In these crisis days, the foremost criteria are the time span required and whether some credible party or country is ready to implement it. On both counts the project fares well. Chinese government and companies have reportedly offered to install four plants with a capacity of 2660(4x660 MW).First plant would be commissioned in three and half years. If Chinese are involved, this would be possible. In their own country, where immense local capability is there, they can install a coal power plant in 18 months.
The whole project can be implemented, if finances are there(a big if), in about seven years, starting with the first project in three and half years and there after commissioning one plant every year. Another positive aspect is that the government will invest in the first plant itself which would solve many problems of permissions and various risks involved. Had a small power plant like 400 MW been installed by the government, federal or provincial, in Thar, the situation would have been different today. We will revert to Thar later, however.
The project would be based on better imported coal from Indonesia, South Africa or Australia. Due to large coal requirements (about 20 million tons per year), and economical coal transport, a special purpose jetty would have to be installed ,seven kms into the sea to have an appropriate draft(sea depth) to accommodate large Panamax and Capsize vessels containing 100-200,000 tons of coal. The unloading facilities are to be fast enough so that a whole ship can be unloaded in one or two days which means a system capacity of some 4000 tons per hour or even more.
The idea is neither new nor unbelievably large, although the norm is of 1000 MW projects world wide. There are several projects of this size operating in China, Poland and India. In fact in India, there is a scheme abbreviated as UMPP(Ultra Mega Power Project) whereby 16 such projects would be installed each with a capacity of 4000 MW. One such project has already been commissioned at Mundra Port in Gujarat by Tata Power based on imported coal. India has large coal reserves of 276 billion tons and a coal production of 526 million tons per year catering to 365 coal power plants with a combined capacity of some 126,000 MW forming 57 % of total power installed capacity in that country. For a variety of reasons, India has been facing shortages and has started importing the coal. Domestic coal in India is 50 to 70 % cheaper than the imported coal. UMPPs in India are based on both, local and imported coal. 4 UMPPs (16000 MW) is at various stages of implementation.
Gadani project is an offshoot of a proposal prepared in around 2005 by two major and credible companies, AES and MITSUI, the latter did not pursue its proposal but AES followed it through and got its tariff approved at about 8 cents by NEPRA. In the meantime, the enthusiasm with Thar coal and usual apathy combined did not let attract further progress in this direction. Now wasting more than a decade hoping for Thar project to come out with something, stage is set to follow the Gadani project. The feasibility study is already (which is a big time saver, saving one full year) there, whether it can be used legally speaking is for lawyers to comment.AES can comeback and install one of several plants. There is scope for many. In fact MITSUI may also be back and should be invited.
In India imported coal power is expensive than that on local coal; for example, MUNDRA got a winning tariff based on ICB(International Competitive Bidding) at about 5 cents and demanding another 26% increase due to force-majeur conditions of Indonesian governments change in coal export policies and prices. By comparison local coal power in India is at 3-4 cents mostly .In Pakistan reverse seems to be true; Engro's proposed tariff as reported in this newspaper only(CEO Khalid Mansoor's interview) and several discussions and public presentations, is 11 cents, unheard of for coal in any part of the world. This sweet dish for Pakistan's economy was prepared by those who have since joined a revolutionary political party to change Pakistan's economy and governance. Naturally with a ROE of 20.5% ,poor credit rating, biting larger than you can chew and providing for every one's interest should result in such horrible proposals. With such a tariff, the country is better off without Thar coal than with Thar coal. This seems to be one of the major reasons behind present governments soft-pedalling (if not altogether abandoning).The PM has asked Sindh government to continue treading on its solo flight under the slogans of provincial autonomy.
It is unfortunate that due to the back box of Thar coal governance, no body is prepared to come to Thar or fiancé Thar coal projects. Chinese Senhua has done a full feasibility study and has spent valuable time in Thar field with scores of Chinese experts. Senhua had offered 5 cents tariff on Thar coal to WAPDA, then managed by General Zulfiqar and the country under the whelm of redoubtable General Musharraf. The offer was not accepted and now we have Engro's 11 cents possibly even more. I wonder why Senhua does not entertain Thar .This is something that should be asked from the administrators of Thar project and the provincial government. In fact they should ask themselves and try to correct the situation. Why don't other project promoters with MOUs do not push ahead despite newspaper announcements. Although the issue is more complicated than the inefficiency and posturing of the provincial government.
A suitable and precise formula has to be worked out for provincial sharing of the energy produced in provinces. At present, there is a vague and broadly mentioned"priority" for the producer province. Under this broad definition, Punjab has suffered more than Sindh, where people in Punjab did not have gas to cook their meals while in Sindh people revelled in CNG. Perhaps a defined 25% ,it has to be studied, for the producer province may be allocated in place of the vague but indefinitely expandable priority prescription leaving the consuming provinces in the lurch. More specifically, what happens if after labouring on a 5000 MW power capacity in Thar, the provincial government demands all of it for itself. This is risk analysis, all risks have to be mitigated .Four decades earlier, the position of gas was the same as it is of Thar. There was enough of hydro power and oil was cheap. Gas resources were developed in national interest which later was converted into resource nationalism. The issues should be resolved .The initiative should be taken by the provincial government which until now thought that it had the trump card and everybody would come to their door. With Gadani, there is a game changer.
Let me now tell you how big the impact going to be. Presently, there is 90 billion units(kWh) of electricity generation, stuck at this level for past many years. Coal power plants produce much more than an equivalent hydro power plant with capacity factors exceeding 80% as opposed to Hydro of 45-50%.a 1000 MW coal power project would generate about 6 billion kWh and 6000 MW would inject 36 billion units, about 40% of present generation at a cheaper rate of around 7-8 cents, replacing the present oil based power plants in total or relegating those to a peak power use only of less than 1000 MW. Cost of generation would go down and with this the power tariff as well. The nation would have to wait , however, in the intervening period in which improvements can be brought about by reducing the power losses ,theft and non-payments.
The readers may be surprised that non-payment of bills alone are of the order of 100 billion Rupees, a major chunk of which is from interior Sindh. That is the reason, there is a move to provincialize the power losses creating some incentive and responsibilities on provincial governments which currently take no interest in this matter.
It appears that on conversion of oil fired plants to coal has gone to back burners. EOIs have been invited for conducting feasibility studies on the instance of ADB, the main potential financier. Selection of consultants alone may take several months and feasibility many more months and the bidding processes and the potential snags and litigation. This means that the project has gone out of the emergency list. If some thing had to be done, it could have been done real fast with a negotiated price with Chinese. However the logistics of imported coal, when there is no breakthrough on local Thar, and the conversion cost may have been a restraining factor. A coal boiler (with all auxiliaries like coal preparation, storage and pulverizers) can easily cost 400,000 USD per MW as opposed to 250,000 USD per MW of turbo-generator set. And uncontrolled Sulphur may have implications for agriculture, acid rain and what not. Feasibility studies would be examining all these questions. Some times a lot of thinking may be counter-productive. They say, doers are not thinkers and vice-versa and thus the stampede into Gadani.
In the end, we would recommend that government push ahead with the construction of the coal jetty, since it is a common facility that would be utilised by all power plant owners. It can always be privatised later. Thar coal should not be left as an orphan .Thar coal can be used in deep land project s in Sindh and as well as in Sothern Punjab, both for new projects as well as for conversion of oil fired plants to coal.
Secondly, the Prime Minister has announced a transparent mechanism which involves a competitive bidding process. For the Chinese companies, it may be irrelevant. They are all one party (although, I have to update myself on this). And when the Chinese are there, nobody else comes nearby due to low Chinese bids. A fair price can always be b negotiated on imported coal projects. There are all kinds of numbers and data. For the first few Chinese projects, negotiated prices ought to be adopted; similarly, Russian and Polish sources on a government-to-government basis. The government can always privatise these projects.
Pakistani private sector is too small for the billion dollars utility projects.
However, they can prove their efficiency by transporting the used coal power plants from the Western coutries.50,000 MW of Coal power plants are in the pipelines to be retired not all of which have completed their useful life. Many power plants are being discarded due to new and stricter environmental standards in those countries. Environment is important here as well, but it is all relative. After all the plants being now discarded were tolerated all these years and were permitted and cleared earlier by respective authorities in those countries. We can, for the time being, settle for less say of 1980s USA or Europe. It won't be a bad deal.