ISLAMABAD: The National Electric Power Regulatory Authority (Nepra) announced the new Thar coal tariff on July 27, 2017. It will be valid for two years or until the production of 5,000 megawatts, whichever occurs earlier.
A contractual instrument has been signed with a Chinese company. Many people in this country have raised eyebrows on it, to say the least. In my opinion it is a bad decision which will hurt them and hurt us all. Let me tell you why.
Siting power plants based on imported coal have been generally criticized for several reasons; imported coal will be transported from Karachi which would strain our Railway network, cause pollution and unseemly sights throughout its passage and will affect health and agricultural productivity. There is almost a consensus among experts that imported coal based power plants should be installed on sea coast and electricity be transported from Karachi rather than coal, which would be cleaner and possibly cheaper.
The counter argument popular in Punjab is that demand is high and growing. Hence, power plants should be situated near the load center to avoid congestion and investment in electricity transmission. Also, Punjab would like to be self-sufficient in energy production. The system has tried to meet and satisfy the demand of the Punjab government by approving several RLNG power plants, one after the other.
Recently, yet another RLNG based power plant has been approved, possibly (and vainly as has been proved by the approval of Rahim Yar Khan plant) to meet their requirements and assuage their worries. But nothing seems to have worked.
Interestingly enough, Rahim Yar Khan is a better site than Sahiwal where a coal power plant has been installed and is working already. And perhaps, if at all, coal power plant should have been located at Rahim Yar Khan first in the first place, as it is closer to Karachi and it would have been far less costly in financial, environmental, and railway congestion terms.
Another issue is that are we going to forget our Thar coal resources which most people have been craving for. Two coal power plants, one in Sahiwal and the other in Karachi, each of 1,320MW, should have been enough to meet the emergency. Further coal plants should have been planned and installed in Thar. It costs 4 US cents to produce one unit of electricity on imported coal and thus, one coal plant would be loading an annual import bill of $400 million.
Admittedly, this article and other efforts of this nature may not be successful in dissuading the government in going ahead with this project, although I would sincerely request them and urge them to reconsider it. I propose a compromise solution which is of changing the coal power plant design on the following lines.
The Rahim Yar Khan coal plant, others in Punjab and elsewhere should be CFBC based power plants ala Engro’s Thar coal power plants instead of Pulverized (PC) coal power plants that have been installed for imported coal.
This would enable them to use local Thar coal as well or a mixture of local and imported coal. The damage would thus be minimized.
Rahim Yar Khan, being on Sindh border, is close to Thar than any other site that is being considered in Punjab.
One could contemplate a direct road or rail link between Thar and Rahim Yar Khan and then onwards to Sahiwal. From Islamkot in Thar to Rahim Yar Khan, there is a distance of 700kms by car and 500kms in crow flight (point to point straight).
A special road link can be built or preferably a rail track. The same route can be used for taking the Thar coal to Sahiwal, in case Sahiwal coal power plant can be converted to Thar coal or a mix of imported and local. In some hard days when there would be foreign exchange problem, this solution can be handy. But solutions take time.
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I started with opposing the Rahim Yar Khan coal power plant proposal or decision and have ended up proposing compromise solutions reducing the pain and cost of swallowing this bitter decision of the relevant authorities. What can I do; justifying the mistake or reducing the potential cost of the mistake?
Unfortunately, Thar coal is fast losing ground soon after its inception. On the one hand, there is pressure from climate change and environmental consideration and there is competition from falling prices of Renewable Energy, and on the other hand there is the unfortunate role of the two provincial governments.
Punjab government is pursuing energy autonomy objectives almost like a separate country without realising its implications on foreign exchange. Sindh government continues to behave as a resource monopolist, little realising that times have changed.
They should in these circumstances act as resource marketers offering better terms and prices. Instead they keep insisting on Higher Returns such as IRR of 20% which reduces Thar coal competitiveness. Also, they are awarding one mining license after other without regard to market conditions. They should have waited till existing Engro mine is booked up to the optimum required capacity resulting in cost reduction.
Finally, a number of issues would have to be resolved before going ahead with such projects. There should be no hurry, already 10,000MW is in the pipeline and some pause can be taken without causing any short supply.
Some time can be spent for studies and sober thinking and evaluation. The Ministry of Water and Power has been opposing imported coal power plants, tooth and nail; reportedly, its secretary had been de- seated due to his opposition and the latest martyr is the NTDC managing director.
Secondly, there is confusion and controversy on the demand projections; there are views ranging from 4% RoG of pessimists to the 10% or even more being pushed by super-enthusiasts who foresee Pakistan becoming an ‘Asian Tiger’ very soon. The issue has to be resolved through genuine technical studies.
The Planning Commission had started some work on this issue and a few high level visits were made by the US Energy Information Administration. A PC-1 had also been approved, although after much delay and procrastination. The Commission is in some kind of limbo and dysfunction these days .They don’t manage to get the right persons despite several advertisements. They must put their act together and commission the proposed study.
Alternatively, a committee should be formed of governmental and non-governmental experts who should be able to develop some recommendations and projections in a period of three months. The committee may also examine the issue of debt servicing and paying capacity in order to recommend a viable programme resolving the current confusion and controversy.
Current imported coal tariff is due for reexamination (for new projects), as it had a life of two years. It is quite high in comparison to tariffs in the region(around 5 cents).
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It is about 8.5 cents plus rail transportation cost to site which would make it 9.5 cents. In my opinion, separate determinations should have been made for CPEC projects. In CPEC projects, there is no competition and thus CAPEX is naturally overstated (in the instant case by 30-40%). It should have been accompanied by lower ROEs as compared to the competitive bidding projects.
Instead, NEPRA raised the RoE to 16% instead of the normal 15%. IDC (interest during Construction) provisions can also be brought down due to smaller construction period of 24-30 months than provided in the upfront tariff. If the needed adjustments are made, imported coal power tariff can be brought down by 25%. In the new relaxed situation, there is scope for hard negotiations with Chinese in this respect and carve out special terms suiting the situation. NEPRA has to show some spine and shun relying on vendor supplied data.
Concluding, the Rahim Yar Khan power plant is a big mistake. Apparently, this is a victory of government of Punjab vis-à-vis federal institutions. But this victory would be an ultimate defeat as it would hurt them and hurt us all eventually. Would they desist from it, reading the afore-mentioned? I am not sure.
The writer has been member energy at the Planning Commission until recently
Published in The Express Tribune, July 17th, 2017.
