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China has announced, at international forums, that it won’t finance any new coal-fired power plant project outside its country anymore. This has sent shock waves among stakeholders in Pakistan who were counting on technology and finance from China to utilise the huge Thar coal deposits of 185 billion tonnes in the country.

China has already built a 660 MW power plant in Thar and is in the process of building another plant along with a coal mine with a capacity of 1320 MW. There are several other Thar-based coal projects in the pipeline, all reliant on technology and finance from China. It has also built three power plants in Pakistan based on imported coal. There were other project ideas and proposals regarding coal gasification to produce diesel, gas, fertilisers and chemicals on which considerations were at various stages.

Also, there were project proposals to transport Thar Lignite coal to outside of Thar and use it in place of imported coal – creating a 20-80 percent mix of Thar Lignite and imported coal. A railway extension project has been developed for the same.

Hopefully, China will honour its existing commitments regarding Thar coal, which are not beyond the current two projects: one has already been constructed (SECMC 660 MW) and the other is under construction (SSRL 1320 MW).

In Pakistan, coal is not used in the power sector alone. The cement sector, too, uses imported coal along with some sub-bituminous coal produced in underground coal mines in Balochistan. Before the advent of coal-based power plants, Pakistan imported 10.7 million tonnes of coal, in 2017 – almost all of it went to the cement sector. Its installed capacity is projected to grow to 100 million tonnes per annum (mtpa) from the existing 55mtpa. Thus, the cement sector’s coal demand is going to be 20mtpa in the near to mid-term future. The sector is vital for both the domestic construction industry and exports. The total imported coal demand for both the power and cement sectors appears to be touching 25mtpa, which will go up to 35mtpa. Based on an average price of $100 per tonne, the total annual import bill for 25mtpa is $2.5 billion.

There is no economic fuel for producing cement other than coal. Previously, cheap local gas was used for producing cement. Rising gas prices and depleting local gas resources have forced cement producers to shift to coal. Unfortunately, now both gas (LNG) and coal are expensive. Coal prices have gone as high as $146 per tonne from the previous $70 per tonne. LNG prices are exceeding $36 per mmbtu, which is absolutely uneconomic and unaffordable.

In this context, local coal production appears to be cheaper and viable. Although there has been controversy over Thar coal production costs, recent estimates suggest that the production capacity of $30 per tonne of Thar coal is equivalent to that of $60 per tonne of imported coal. Thar Lignite coal is one-half in calorific value than imported coal. Lignite may not be an ideal fuel for cement production as it contains 40-50 percent moisture. However, it can be pre-processed to fire in cement kilns. The cement industry is quite progressive in Pakistan. It has been trying to use municipal solid waste in an attempt to reduce production costs and solve the community’s waste problem.

A 20mtpa demand of imported coal from cement factories will be tantamount to 40mtpa of Thar Lignite. Add another 10 mtpa for other sectors and it will add up to 50mtpa of Thar coal demand for sectors other than the power sector. If this import is replaced, the country could save $2 billion of foreign exchange. It is, therefore, vital for Pakistan to establish Thar Lignite mines with a capacity of 50mtpa in the next five years, even if we forget about the use of Thar coal in the power sector.

It may be plausible that the present undertaking or announcement of China is restricted to only coal-based power plants and that there is no bar on the use of coal in other sectors such as cement. Pakistan should also start developing indigenous mine development and operating capacity. It now has some experience in this respect. The Chinese government may also be more than willing to transfer technology in this sector (by reducing its direct exposure in terms of operations and finance) now that it wants to improve its international image among the world’s climate lobbies.

Pakistan started its Thar coal venture quite late, while in India, across the border in the same Thar desert, its utilisation started in the 1970s. Except China, no other country was ready to extend cooperation in this field, and it did. It appears that it cannot do any more than the existing commitments. The need of the hour is to start developing and absorbing local coal mining capabilities projects and develop independence.

It should be noted that coal-based power, whether local or based on imported coal, is expensive at 8.5 USc per kWh while renewable energy like solar is available at less than 4 USc. International prices have gone down to even 2 USc and less. There are predictions that solar power might go as low as one USc, although storage cost would double it.

The issue is how to manage the transition and avoid stranded investments. China’s decision may ultimately prove to be a blessing in disguise. Thar, which is an area of 10,000 sq kms, can generate 400 GW solar electricity based on 25 sq kms per GW. By comparison, the Indicative Generation Capacity Expansion Plan (IGCEP) predicts 55-75 GW of generating capacity by 2030. Although all electricity cannot be produced in one location, it may be reasonable to plan up to 10,000 MW of solar power in Thar. It is quite possible that some large capital-extensive projects may be dropped for a variety of reasons. The IGCEP is indicative.

We should not repeat the same mistake of high foreign reliance. A local solar equipment production industry development plan should be developed, not only for producing solar PV panels but also for other items such as inverters. An incentive programme should be prepared to encourage the local manufacturing industry. After all, huge incentives in the form of custom tariffs have been given to the automotive industry. And now, there are proposals for the 10 percent price protection for the refinery sector.

There is ample scope for incentives when we compare coal-based electricity tariff of 8.5 USc vs under 4 USc for solar power. India, Turkey and other countries have similar incentive system, and they have developed their solar industries along with the installation of substantial solar power capacity. Thus, local manufacturing and installation of solar power capacity are not incompatible.

As of today, no energy source is a panacea. Solar is available only during the day while hydro and wind energies are available in summer. Fossil fuels such as oil and gas are exhaustible and subject to price variations, while coal is bad for the environment and climate.

The days of energy utopia are not far – the targets can be achieved by between 2040 and 2050. The world is moving towards the solar-wind-hydrogen chain. Hydrogen will make energy transportable and tradable across national boundaries. We have to start moving in that direction too.

The writer is a former member of the Energy Planning Commission and author of ‘Pakistan’s Energy Issues: Success and Challenges’.