Energy challenges: Importing coal will darken balance of payments, says Bengali
The annual oil import bill of $15 billion can be halved by transporting goods through railways and using indigenous coal for power generation, as heavy reliance on imported oil products is increasing chances of severe balance of payment crisis, said a noted economist.
One should not be surprised, if the rupee-dollar parity crosses Rs200 to a dollar due to increasing imports of petroleum products, said Dr Kaiser Bengali, advisor to Balochistan chief minister and a renowned economist. Bengali was a keynote speaker at a seminar on energy challenges and implications for balance of payments.
Dr Bengali cautioned that the government’s decision to set up power plants, fired by imported coal, would further aggravate problems and a time may come when a major chunk of the imports will comprise petroleum groups.
Around 92% of the petroleum, oil and lubricants imports are consumed for power generation and transportation. He suggested that the federal government should set up a holding company to bring Pakistan Railways and the National Logistic Cell (NLC) – the army’s transportation wing – under an umbrella. Bengali said that most of the cargo transportation is being carried out through trucks, which is economically unviable.
By shifting cargo through railways, the government can reduce its diesel import bill by one-fourth. As much as 95% of the cargo transportation is taking place through road networks.
The country’s monthly oil import bill is roughly $1.2 billion. In the last fiscal year, oil imports amounted to $14.8 billion, according to the Pakistan Bureau of Statistics. Bengali said another two-thirds of the total import bill can be curtailed by moving away from furnace oil-based power generation.
He said the problem was that the government wants to use imported coal for running the coal-fired power plants, which will have adverse implications on the balance of payments. Pakistan has long been facing twin deficits of budget and current accounts, and has knocked the door of the International Monetary Fund (IMF) about 20 times so far, seeking bailouts. Roughly $7 billion annual savings, that Dr Bengali claims as a result of change in priorities, is more than the $6.7-billion three-year IMF Extended Fund Facility.
It will take another seven years to produce seven million tons of indigenous coal sufficient to generate 20,000 megawatts of electricity, opined Mohammad Idrees, a business development manager working with Engro.
He said that Thar’s lignite coal was of low-heating quality and requires more quantity to produce the same amount of heat that is generated by using imported coal.
Dr Bengali said Thar coal may be as expensive as imported coal but still the country will be paying in rupees instead of dollars. He said the coal was as good as Germany’s lignite.
The experienced economist added that due to the weakening writ of state, the government was not able to fully recover the cost of electricity. The government was paying Rs5.10 per unit subsidy on account of price differential, low recovery and theft, he said.
However, it is only budgeting price-differential subsidy while deferring the other cost aimed at keeping the budget deficit artificially low.
“We have come to a stage where there is a hard choice between long hours of power outages to save subsidies or high cost of living due to inflation as a result of printing notes for budget financing,” said Dr Bengali.
He said building dams for enhancing power generation was also not an option as water shortage is also becoming an issue due to climate change. During the last decade, Mangla and Tarbela dams were filled to their full capacities not more than twice. He said due to silting in dams, the reservoirs were becoming cause of floods in the country.
Published in The Express Tribune, November 26th, 2014.
Like Business on Facebook, follow @TribuneBiz on Twitter to stay informed and join in the conversation.
COMMENTS (7)
Comments are moderated and generally will be posted if they are on-topic and not abusive.
For more information, please see our Comments FAQ
1731476617-0/Sandra-Oh-(2)1731476617-0-165x106.webp "article")
Thanks Dr. Bengali on your advise. As you at the recent APEC 2014 Beijing conference the most important agenda upon which Chinese Premier, and President Bush agreed to adhere to the Climate Change issue, which both were avoiding, particularly China. China will reduce its emissions from Coal power plants, and other sources. Severe penalties for emissions would be imposed by China and Climate Change authorities and will be impossible to make any investments in coal. After the summit this month a race is on for nuclear power generation. We use our clout to China and US for the Nuclear Power Plant, which is the only solution is clean energy. About the railways Chinese CNR Corp., and the other China Railway Construction Corp. are most willing to lay infrastructure for high speed rail track, and rolling stock. Pakistan should take advantage of the Japanese as Japan has very very soft terms on the set up of high speed rail track technology, and rolling stock bearing very low interest. This is the only solution for our survival. Not wasting capital resources on building roads, and trucks, polluting the country.Rail, only rail is the answer.
@iamme.kabir@gmail.com India plans high-speed rail project with China (People’s Daily Nov.25, 2014)
China is in discussions with India to help it build the world's second-longest high-speed railroad with a price tag of 200 billion yuan ($32.6 billion), its latest efforts to push for a bigger share of the overseas high-speed market. The Delhi-Chennai high-speed rail corridor will see trains running at 300 km/h, covering up to 1,754 kilometers. India has added 11,000 kms of track in the 67 years since its independence. China, whose operating rail mileage exceeded 100,000 km by the end of 2013, including 10,000 km of high-speed railroads, is pushing for a bigger share of the lucrative high-speed train market in India and other parts of the world.
You have 6000 MW defecit and just across the border in Gujarat we have a 10,000 MW power suplus (and counting...) and despite that just today Mr. Nawaz Shariff blocked the SAARC treaty for a unified electric grid and raod network. The solutions are just around the corner but your army are interested in keeping people like Hafeez safe.
We will not be replacing the oil generated energy with the coal generated energy. We have a deficit of 6000 MW so the initial imports will be just to meet the deficit but not to replace the expensive energy. Claiming that Mr. Bengali is right this will increase the trade deficit and using the local coal will only be feasible.
Also government cannot shut down the oil based power plants as they have already done long term contracts with IPPs. Until they themselves convert to the coal fired station as HUBCO is doing right now.
The learned economist has said that constructing dams is not an option due to water shortage. I think that is a shocking statement.
So what does bengali want more furnace oil imports, at least with coal the unit cost is less than 60% of the furnace oil cost. Coal production in Pakistan will increase as the demand increases.