Monday, May 9, 2011

Pakistan's Thar Desert Coal Deposits

These will soon be replaced by trucks

Abundant coal presents both problems and promises

The Thar Desert could hold the key to Pakistan's energy requirements, with 175 billion metric tons of coal reserves, enough to fulfill the country's power needs for the next century if the government can get itself lined out.

However, political instability, indecision, corruption, terrorism and security problems have kept exploration and production at a standstill both in Thar and Balochistan. Current power generation from the Thar reserves is less than 0.5 percent of the potential capacity of the deep and rich reserves, which are spread over 9,600 sq km with the potential to generate 100,000 MW a year.

Some estimates put the value of the reserves at US$30 trillion on a desert that that encompasses nearly 200,000sq km of eastern Pakistan and the Indian state of Rajasthan.

The coal is both a potential blessing and a potential curse. A three-person team from the World Bank visited the Thar area in 2010 to report that "people in Thar live in sub-human conditions and remain deprived of even access to safe drinking water, sewerage, healthcare, transport and education. Other issues include bonded labor and violation of the fundamental rights to employment and access to food availability."

At the same time, however, the World Bank team found, there is considerable concern in the area over the depredations of widespread coal mining. There are other concerns expressed over growing use of coal both in Pakistan and India over the increasing effect on climate change of widespread burning of fossil fuels to produce energy for both.

It also demonstrates the growing clout of the Chinese government in the region. China's immense economic and technology muscle are expected to be applied in the desert. Last month, a high-level Chinese delegation visited Sindh to investigate the prospects of developing Thar coal. The seven-member group met the Sindh chief minister Syed Qaim Ali Shah.

"China is a very advanced country," Shah told reporters. "So Pakistan intends to avail facilities from those achievements."

The Chinese delegation included the Chairperson of state-owned China Guodian Group Renaiquin who said their group generates 88000 MW power, including renewable power in China and "intends to invest in Thar Coal and other projects. "We possess all types of machinery, equipment and operators with maintenance facility," she added.

Certainly, there seem to be problems with Pakistan developing the region itself. Although Islamabad and the government of Sindh Province, in which the reserves lies, have signed multiple agreements with many domestic and foreign firms to develop Thar coal, there has been almost no progress. An example is Engro Powergen Ltd., a joint-venture company with the Sindhi government, which has made no headway despite having signed an agreement to go ahead in September of 2009.

Tax Holiday
Last week, Pakistan's Federal Board of Revenue allowed a 30-year tax holiday for firms to produce power from the Thar fields. The board exempted 10 percent income tax on the dividend of any Thar coal project for 30-years from the launch.

The tax board said the incentive was on recommendations of the Privatization Commission and Thar Coal Development Board to promote a tax free environment to attract investment.

The board has also given Thar reserves the status of a Special Economic Zone, offering a 20.5 percent internal rate of return to projects which achieved financial closure by December 2014.

Coal mining equipment and machinery, including vehicles for site use, is to be charged zero customs duty, with exemption from withholding tax, special excise duty, federal excise duty, and workers welfare fund for the initial 30 years.

The incentives have been announced in keeping with the government's target to raise Pakistan's annual coal production from the current 4.5 million metric tons to 60 million over the next five years. According to Pakistan's Power Ministry, this would translate into 9,000-10,000 MW new capacity every year.

UCG & Thar
Pakistan is also looking to initiate Underground Coal Gasification projects at Thar. Last week, Shah said the UCG project in Thar is the first experiment in Pakistan to produce 50 MW of electricity. "The world is watching the program which will help meet power needs," Shah said.

The first stage of the UCG plant was scheduled to be operational March this year, but has been postponed to May 15 as the earthquake in Japan derailed plans to import compressors.

According to Dr. Samar Mubarakmand, a scientist, head of the Thar coal gasification project, "UCG is the most important clean coal technology of the future."

Foreign interests in Pakistan's UCG projects include Cougar Energy, an emerging gas producer with projects in Australia, Pakistan and India. Cougar is evaluating multiple coal fields in Thar.

London based company Oracle Coal Fields is developing Block VI of Thar. China Petrochemical Corp. (Sinopec) is also conducting feasibility studies at Thar.

Pushing Energy
Over the recent past, Pakistan has been looking to tide over its energy problems and big power cuts that have resulted in many street protests by household and industrial consumers.

The country is implementing a long delayed pipeline to transfer gas from Iran, a portion of the original Iran-Pakistan-India (IPI) pipeline.

Pakistan has also announced plans to promote renewable energy, with particular focus on wind and solar. It has sought the backing of institutions such as the ADB and World Bank.

Last month state-firm Oil and Gas Development Company Limited began exploration at Dera Bugti, Balochistan's most restive part, after two decades of debate. The Zin Block in the area holds gas reserves as big as the Sui field, which has fuelled the country for more than 50 years

It remains to be seen whether Pakistan will be able to overcome these obstacles and tap the enormous Thar potential and other avenues. By Siddharth Srivastava New Delhi-based journalist

1 comment:


    Coal is globally abundant, relatively cheap and will remain a vital fuel source for decades to come, particularly in developing countries.

    Energy policy advisor The International Energy Agency (IEA) forecasts that coal will remain the leading source of electricity generation through to 2035, albeit its share is expected to decline to 32 per cent from the current 41 per cent.

    While China, India and Indonesia account for nearly 90 per cent of the IEA's forecast of incremental demand growth to 2035, increasing demand and potential power deficits in Pakistan and Bangladesh look set to power the prospects of two junior coal miners.

    Oracle Coalfields plans to move next month from PLUS markets to the Alternative Investment Market (Aim).

    Its 371m tonne (mt) reserve could support Pakistan's first large-scale open pit coal mine and Oracle has attracted interest from power and cement companies that either already import coal or are expecting to have to do so.

    Electricity demand in Pakistan is projected to outstrip supply for two decades, driven by historical shortages more than surging economic growth.

    Indigenous oil and gas production has been in decline and coal-fired generation is projected to increase substantially as part of the government's energy plan.

    Oracle aims to complete a definitive feasibility study by the summer, after which it will finalise sales contracts and raise funds to allow it to begin mine development next year and produce first coal as soon as 2013.

    In Bangladesh, GCM Resources has for several years been mired in the process of securing permits for its 572 mt Phulbari coal project.

    Analysts at Evolution Securities believe the project could generate a quarter of the country's electricity for over 35 years, which would single-handedly transform power generation in Bangladesh.

    The company needs government approval for its Scheme of Development, which has been slow in coming. Just as in Pakistan, however, Bangladesh's natural gas reserves are depleting and power shortages are expected to worsen.

    The current government has set alleviation of the country's energy crisis as one of its principal objectives ahead of elections expected in 2013, so GCM's long wait might finally soon be over.
    IC VIEW:

    Government approval would provide a strong boost to GCM's shares, and while the wait has been a long one, conditions look finally to be moving in the company's favour.