ARTICLE (June 22 2008): EMISSIONS AND ENVIRONMENTAL CONCERNS: While coal is going to be the fuel of next century, the issue of emissions control and pollution abatement shall have to be properly addressed in the context of climate change under Kyoto protocol. In the longer term one must also keep in mind that CO2 mitigation initiatives down the road may become mandatory for countries like Pakistan. This may add to the cost of coal power generation as has happened in the developed world.
The pollution abatement costs in the developed world have reached levels where projects have started yielding negative returns. One must keep in mind that a typical power coal plant generates 3 million tons of CO2 or 17 tons of carbon per megawatt and draws about 2.3 billion gallons of water per annum from nearby source while on land, whereas Sindh is seriously deficient in the supply of water even for agriculture; produces mercury which not only renders water useless for human consumption but also for irrigation purpose as well.
So the challenges are ahead in the use of coal as a fuel which involves adoption or the development of technologies that minimise the environmental impact. This would certainly mean higher up-front costs as a compromise too much higher long-term costs that will have to be paid in the form of environmental impact. Use of coal presents a challenge in preserving the quality of the environment.
TARIFF ISSUES: Issue of tariff remains to be a point of contention between the sponsors of coal based power projects and NEPRA. Demands for 9.5 cents per KWh have been contested by NEPRA with the argument that a tariff of over 7.8 per KWh cannot be justified.
From a sponsors viewpoint the matters at the heart of the issue are the risks associated with so many unknowns involved in a typical coal based project within an entirely new environment lacking fully developed infrastructure and a track record. The argument that goes in favour of up-front tariff is that international price of oil is uncontrollable and a deeply embedded upward trend in prices may persist till an indefinite future.
Project sponsors use price of oil, prevailing in the international market at a particular time, as a benchmark. While intricate and time consuming tariff negotiations are underway sudden upwards movement in the price of oil invalidate the whole rationale of the predetermined tariff and the exercise has to be done all over.
Delays cost money and keep on adding to the cost of the project till it becomes unfeasible or the investor is forced to look for better opportunities elsewhere. Under the Power Policy 2002, competitive bidding process is time consuming and takes two years to conclude which no investor can afford in times of uncertainty of prices of everything and supply constraints while risking losing US $7-9 Million in development costs.
In order to alleviate investors concerns, government should be willing to share the risks and contingencies that investors perceive subject to certain conditions. There is a need for an equitable policy that would enjoy the confidence of all stakeholders. GoP needs to come up with a cost based pricing formula which should form basis for competitive bidding on the tariff to avoid recurrence of bitter experience of 1994 power policy. But at the same time the proposed approach would ensure incentives to the investor without putting excessive burden on the domestic consumer and conserving competitiveness of the industrial consumer.
Adjustments can be made to tariff based on a cost based formula in line with shifts in prices upward or downwards. Another approach should be that demand for the up-front tariff(as an indicative tariff) should be accepted right away subject a review based on actual costs with the condition of a strict monitoring role jointly by NEPRA, Sindh Coal Authority and PPIB.
The idea would be to ensure a reasonable rate of return to the project sponsors with minimum risk in the spirit of private-public partnership. This should be done at least for the first project sponsor for Thar as a showcase to attract other international investors.
Costs should be monitored closely along with overall project activity for necessary adjustments to the indicative tariff to ensure that consumer is not overly burdened with a highly inflated tariff.
THE WAY FORWARD: Plans to exploit coal resources in Pakistan through a piecemeal approach have not met with any success so far. Any initiative to develop and exploit Pakistan’s coal resources, in the absence of a comprehensive strategic plan, is bound to fail.
Formulation of a strategy based on an integrated approach with the participation of all stakeholders should ensure long term viability and success of any project which would form part of a long term coal development program.
New democratic government may consider creating a high powered body (Commission for the development of coal) which should not only serve as a think tank for the formulation of strategic plans and policies but also should serve as one window facility and a high powered decision making body for the speedy implementation of coal mining and power projects.
The proposed commission may draw representation from Federal Ministries of Planning, Water and Power, PPIB, NEPRA, WAPDA, KESC, Provincial Government Planning and Development Department, Mineral and Mining Dept and Sindh Coal Authority (for the province of Sindh), HDIP, PMDC and professionals, consultants, research institutions and experts.
Private sector should be encouraged, through a package of incentives, to come forward and participate in the socio-economic uplift of the target areas. They may also be invited to participate in the private/public sector joint venture schemes which government must launch for the socio-economic uplift of target areas so that basic conditions to attract investors could be satisfied.
To name a few, these schemes could include recreational facilities, shopping centers, sports facilities, housing schemes, educational institutions, hospitals, etc. Also, in order to attract serious investors, a more detailed feasibility study is needed, especially on the mineability and suitability of Thar coal on the quality and utility.
In addition more information and data on configuration and size of the reserves being claimed for large scale power generation projects be made available, it is imperative that extensive research may be undertaken by the national scientific research institutions to determine feasibilities of appropriate technologies that would ensure most efficient yet cost effective exploitation of the coal resources.
Foreign institutions that have excelled in coal mining/power generation technology from countries such as UK, Germany, USA, South Africa, China, India, Poland and Russia may be invited to establish institutional linkage for carrying out coal based technical studies and research projects.
This would provide a platform for the exchange of knowledge, learning of best industry practice, transfer of know-how and technologies, adoption of international quality standards, knowledge on the application of modem technologies, etc-etc.
In the past there had been setback to the Chinese initiative to invest in the coal power generation in Pakistan. Despite that there is a lot of scope for co-operation and collaboration with China. Pakistan must establish institutional linkage with China to benefit from their extensive R&D program to develop cost effective and environment friendly technologies involving coal as fuel.
Lessons learned from the bitter experiences of the past must be applied to attract investors and joint venture partners to exploit coal resources of Pakistan. The ongoing co-operation with China for the development of power and exploitation of coal deposits of Pakistan need to be boosted further.
This could be achieved through promotion of institutional linkages and collaborative research projects for adoption of latest technologies making best use of indigenous resources in a cost-effective manner. Engineering Development Board can play a catalytic role to facilitate the process.
Pakistan’s heavy engineering industry in the public sector is operating considerably below capacity, in particular the HMC Taxila and KSEW Karachi; these industries have the potential for the transfer of technology to fabricate coal-fired power plants or their components in Pakistan. This will not only create new employment opportunities but also help lower cost of the plant and equipment based on local inputs.
These organisations with the support of EDB should be brought into the loop of proposed institutional linkage. Pakistan has a lot to gain from China from their experience in the research and application of CTL technology as well.
In order to revive interest of Chinese investors in coal-fired power projects they need to be offered a better incentives package with a guarantee for the protection of their capital and a competitive rate of return on their invested capital. Time is the essence of any project program.
The Board of Investment has an important role to play and need to move fast to attract potential investors from the world over. The proposed high powered commission for the development of coal should serve as a one window operation to support smooth implementation and timely completion of projects free of procedural hurdles.
(The writer is a management consultant firstname.lastname@example.org)
Courtesy: Business Recorder, 22/6/2008