Sitting on a ‘goldmine’ of coal, Pakistan can change the energy game

The contribution of local coal to the national energy mix is almost zilch vis-à-vis global and regional standards and despite sitting on a ‘goldmine of coal’ in Thar, Pakistan never gave an iota of a serious thought to tap this treasure that could change the game for the energy-deficient country, energy experts said.

“With the expansion of mines and rising production, this cheapest of fossil fuels can save hundreds of millions of dollars every year -amounts much higher than the bailout packages sought from IMF over the life of the mines,” said Asif Arsalan Soomro, a senior financial and economic analyst. “Recent increase in petroleum prices will have a multiplier effect in fueling inflation and impacting the common man, who will experience firsthand how the rise in electricity prices impacts all prices directly and indirectly. He said consumers’ purchasing power was likely to be materially eroded after the government’s belated but right decision to pass on the entire cost of petroleum products, gas, and electricity to the consumers.

In addition, he said, monthly Fuel Cost Adjustments (FCA) would likely reflect massively in the bills.

“The rising crude/refinery margins and elevated gas and coal prices were an upshot of the IMF programme. It’s simply unavoidable but unfortunate for low-income countries,” Soomro said.

To escape the current energy crisis, the government needs to urgently divert its attention towards long-term solutions such as encouraging expansion and investments in developing indigenous fuel sources such as hydro and Thar coal. These projects, once developed, will have a long-term impact on the overall industrial competitiveness as well as provide positive returns to the consumers.

The power generation cost surged by 66.2 percent to Rs9.22 kWh in March this year from Rs5.55kWh a year ago, owing to higher imported fossil fuel prices. The generation cost of RLNG-based power has increased by 58.5 percent to Rs14.37 kWh from Rs 9.07 kWh. With the Ukraine-Russia war lingering onwards and seen possibly escalating beyond borders, coupled with OPEC’s tepid response to calm the oil prices, RLNG and furnace oil prices are expected to remain higher especially after EU’s decision to ban Russian oil imports, except those that come through the pipelines.

Hence, it’s fair to assume the energy prices are going to stay higher for longer. Furthermore, the price of electricity generated through imported expensive coal has gone up by 71 percent to Rs12.41 kWh as compared to Rs7.26 kWh and it will only grow further in the coming months as international coal prices continue their meteoric rise at more than $300/tonne due to supply disruptions and rising fuel costs of alternative fuels.

Whereas if the generation is moved to local resources such as Thar coal the price would drop down to approximately Rs3.63 kWh, which will provide massive relief to the consumers, the dwindling foreign exchange reserves and the overall macroeconomic stability of the country.

It has been reported that NEPRA has allowed a massive increase in electricity base tariff by up to Rs7-7.50/unit to be enforced from July 1, 2022. Currently, the average base tariff stands at Rs16.64/unit, which will go up to Rs24.14/unit, creating further ripples throughout the economy. Due to the frequent fluctuation in the commodities prices, Pakistan has approximately 60 percent imported fuel and 40 percent local fuel in its energy mix. Whereas for any developing country with the right resources available, the bulk of reliance should be on indigenous resources for sustained growth.

Soomro said to attract local and international investments on indigenous resources of Pakistan, there was an urgent need for a consistent power policy that ensured that the long term returns of the investors were protected.

“There should be a bird’s eye view on the target; utilise and develop maximum avenues of indigenous resources such as Thar coal and beyond and watch the country resolve most of its energy crisis internally,” he said. Hence, to effectively substitute imported expensive fuel, cultivate local investors and, lastly, protect the consumers from energy “shocks” reliance on Thar Coal should increase.