Budget: Govt announces minor allocation for Thar coalfields

Some minor infrastructure upgrades announced, no major push on developing energy in the province.

KARACHI:

Despite having touted the Thar coalfields as the solution to Pakistan’s energy crisis, the Sindh government will allocate less than $145 million for developing the coalfields during fiscal year 2013.

Conservative estimates suggest that the combined investment required to get at least one project in Thar off the ground is around $3 billion. Yet the Sindh government has been extremely slow in getting off the mark in terms of developing the infrastructure needed in the area in order for private companies to begin construction work on the coalmines and power plants.

In his budget speech at the provincial assembly in Karachi on Monday, Sindh Finance Minister Murad Ali Shah said that the provincial government is “in various stages of feasibilities and financial close” on up to 4,000 megawatts of power generation capacity in Thar. However, it has yet to actually achieve financial close on any of them, and is significantly behind schedule on its commitment to the Sindh Engro Coal Mining Company – a 1,200-megawatt power generation joint venture with Engro Corporation in which the provincial government has a 40% stake.

Engro officials usually decline to speak on the record about their partnership with the Sindh government except in the most generic terms. Privately, however, several senior Engro executives have expressed their frustration at the slow pace at which the Sindh government has been developing the road networks and other infrastructure close to the coalmine.

The budget allocations for 2013 appear to be an attempt to address at least some of those concerns. For instance, among the specific allocations is money for widening the road from the Karachi port and Wango More to Thar, an airstrip at Islamkot, and a Rs5 billion project to deliver water to the area.

Yet the Sindh government has an exceptionally poor track record when it comes to actually carrying out development projects, even when the money for them has been released to the executing departments. According to sources in the Sindh planning department, as much as half of the 2012 provincial development budget remains unspent, despite the money being already disbursed.

Sindh is the undisputed leader in domestic energy resources in Pakistan. It accounts for over half of all oil production and over 71% of all gas production in the country. Sindh also has Thar, by most accounts one of the largest coal reserves in the world. Yet the provincial government has essentially done nothing since the coalfields were first discovered in the early 1990s.

The Engro project is one of the few to actually complete a feasibility study for power generation from Thar’s coalfields. The project would create a 1,200-megawatt power plant and a small coal mine that would yield about 6.5 tons per year. The project can be expanded to produce 4,000 megawatts of electricity in later phases.

UK-based Oracle Coalfields has also completed its feasibility study on the Thar coalfields and is now looking to raise an estimated $610 million for its project.

Engro is currently targeting a financial close by December 2012 – meaning it would have to raise all of the capital it would need for the project by then. Several Chinese state-owned financial institutions and the Chinese energy ministry itself have reportedly expressed interest in financing the project, according to Khalid Mansoor, an Engro executive responsible for the project.

The construction of the mine will start in 2013 and power generation is expected to commence by 2016. All of these dates, however, are subject to the Sindh government living up to its contractual obligations.

Given the relatively miniscule budget allocations by the provincial government, however, it is unclear whether Engro will be able to start generating electricity on schedule.

Published in The Express Tribune, June 12^th, 2012.