Pakistan to tap coal riches to avert energy crisis

LONDON/ ISLAMABAD: Pakistan must turn to coal - both from its own large untapped reserves and from imports - to fuel power generation beyond the next decade if it is to ease the energy crisis which is capping economic growth, trade and industry sources said on Friday. 

The sixth most heavily-populated country globally with 180 million people, it has been plagued for years by power cuts and, unless new sources of generation can be developed, will see power demand outstrip supply for years to come.

Yet it has one of the biggest, barely-touched, single coal reserves on the planet - the massive Thar coalfield in Sindh with 175 billion tonnes of extremely high water-content, low energy coal.

This kind of low-grade, watery coal is found in abundance in other countries, such as Indonesia, the world's biggest exporter, but it has not been economic to exploit in the past.

But high oil and gas prices, rising coal prices and new technology to dry out watery, gaseous coal or leave it in the ground but extract the gas from it instead, has prompted projects around the world.

The Pakistan government this year declared the Thar coal fields as a Special Economic Zone, with tax breaks and incentives to lure investors to develop coal gasification and mining as part of its strategy to fill the energy gulf.

“In five years, coal's contribution to the energy mix will reach 10 to 12 per cent. It's minor at the moment," said Najib Balagamwala, Chief Executive Officer of Karachi-based trader Seatrade.

"The private sector is considering coal-fired plants very seriously, as there's margin there," he added.

Pakistan's energy mix has changed in recent years from mostly hydro to thermal, consisting of domestic gas and imported fuel oil, according to a report by the Asia Development Bank this month.

The supply-demand power gap at peak hours reached over 5,000 MW in financial year 2011, the ADB report said.

"The need for coal to fuel the rising demand for energy in Pakistan is well understood," said Shahrukh Khan, Chief

Executive Officer of Oracle Coalfields PLC, which is developing mines in Sindh.

Of the 10 coal blocks in Thar, four have been drilled and explored by Oracle, Cougar Energy, SECMC and another un-named gasification project company, according to the Sindh province website on Thar.

Two Chinese firms are also looking to build gasification and coal mining projects in Thar, industry sources said.

Oracle was granted a 30 year mining lease for 66 square km of Block VI of the Thar coalfield on Wednesday.

The high water content of Pakistan's domestic coal makes it tricky to mine and transport long distances economically but mine-mouth power plants and coal gassification projects to capture and extract gas trapped in coal seams without mining it are much more viable, industry sources said.

Imports to rise

Pakistan has been a relatively small but steady importer of thermal coal for several years which, like India, shifted to

South African and Indonesian material after China slashed exports in 2007, but imports will start rising next year, traders said.

A Pakistani buyer bought the country's first cargo of high-sulphur US coal last week, a move which reflects growing import needs and the desire to diversify sourcing, they said.

Thermal coal imports are likely to increase by 1 million tonnes to 4.5 million tonnes in 2013 and 6-7 million by 2017, most of which will be consumed by the cement industry but a rising portion by independent power producers, Balagamwala said.

There are several large coal-fired power plants under construction and more being converted from fuel oil, such as Karachi Electric Supply Company's (KESC) joint venture with Hong Kong-based Bright Eagle Enterprises (BEE).

"Conversion to coal is the only sustainable option," a KESC official said on Thursday.

Imports of low-grade coal are likely to be part of the near-term solution with the development of Thar a longer-term prospect, one industry source said.

"Pakistan has a pressing need for energy and low grade coal will do in place of higher price furnace oil, but who may import this and at what price, also on what terms will be interesting to watch," one industry source said.

Some converted plants are co-firing coal with biomass from rice husks or waste car tyres and blending imports with local coal but the need for more imports will remain as more independent power plants spring up and sugar, textile and steel mills switch to coal at their captive plants.

There are also a handful of private, coal power plants under construction which will increase the country's need for imports and, once Karachi and Gwadar ports are expanded, larger vessels can be berthed which will make importing more economic.

"Gwadar port in Balochistan province is more suitable. Karachi port is also possible but it is fully used," the industry source said.