By Kamran Riaz
In Pakistan, people, who have absolutely no knowledge of an issue under discussion, tell conspiracy theories about it with such conviction that one starts believing that perhaps these people are narrating a firsthand account of acts to which they were eye witnesses.
Something similar is happening with Thar Coal today. Print and electronic media are awash with stories about how we have the world’s largest reserves of coal in the Thar desert but still we are not benefiting from this coal.
Being very familiar with the Thar coal project in my professional capacity, I find the proliferation of such myths quite amusing, even bewildering. Perhaps, it would be better for us as a nation to investigate the facts of an issue first instead of immediately resorting to emotional sloganeering.
Coal occurs in nature in different types. The deposits at Thar are of Lignite type of coal. These deposits have very high moisture content with water level approaching almost 50% and are considered to be of inferior quality. This coal is highly volatile and cannot be transported over long distances. So, exporting this coal after extraction from ground or transporting it to more convenient locations is not possible. That is why it is suitable primarily for mine-mouth power generation.
The size of these reserves is being reported as 175 billion tons and this figure is being repeatedly touted on the media as enough for fulfilling our power generation needs for centuries to come. At the moment the top ten countries with largest proved recoverable lignite coal reserves in the world are as follows:
Proved recoverable Lignite Coal reserves: (see table)
Energy council report
As shown in the table above, the country with the largest proved recoverable reserves of lignite coal in the world is Australia with about 37 billion ton with the sum of all such reserves all over the world being about 150 billion ton. So if the recoverable lignite reserves at Thar are actually proved to be 175 billion tons, then these would be greater than total reserves all over the world combined.
The fact is that the reported reserves of 175 billion tons at Thar are not “proved-recoverable” reserves but rather the bulk of these reserves have a relatively low degree of geological assurance. Out of these purported 175 billion tons, only about 2.7 billion tons are ‘measured’ reserves while about 9.3 billion tons are ‘indicated’ reserves. The remaining 163 billion tons are “inferred” reserves (lying within a radius of 1.2 to 4.8 km from a point of coal measurement) and “hypothetical” reserves (undiscovered coal, generally an extension of inferred reserves in which coal lies more than 4.8 km from a point of measurement). It is obvious that given the geological evidence so far available, the claim of 175 billion tons of reserves is highly speculative. If the Thar coal reserves had really been that big as is being claimed then there would have been a long queue of international mining giants trying to get concessions for mining rights. If such companies can go to places like war torn Iraq, they can certainly come to Pakistan. But the apparent lack of interest from foreign investors as a tell tale sign that these claims of huge and profitable reserves are not believed by the major players in the field.
However, even if these reserves are for example 3 billion tons instead of 175 billion tons, still significant amount of electricity can be produced from Thar coal.
The other common myth is that there is some organized conspiracy to stop utilization of Thar coal. Some people blame it on oil marketing companies that are allegedly afraid that the coal from Thar will significantly reduce oil consumption in the country. Others blame it on foreign powers that do not want Pakistan to be economically independent.
If anything the delay in exploitation of Thar coal can be attributed primarily to the economic rationale and to a lesser extent to the traditional slow pace of our bureaucracy. Much is made of the story of the Chinese company Shenhua which did a preliminary feasibility study of Thar coal but decided not to pursue the project further allegedly on disagreement with proposed tariff. In fact after doing a preliminary feasibility study in 2002, Shenhua had reached the conclusion that the Thar coal project was not feasible purely an economic basis at that time because the cost of extraction of coal was very high and based on international coal prices at the time, it made more sense to import coal for power generation. However, the company recommended that Thar coal should still be exploited for social reasons as the project would help in social uplift of the extremely backward Thar area.
A primary determinant in successful exploitation of any mineral resource is the cost of exploration vs. cost of import. For example, Canada has one of the largest reserves of oil in the world. But unlike Middle East where it is relatively much cheaper to extract oil from the ground, the cost of oil exploration is much higher in Canada. So it is not economically feasible for Canada to extract oil from its own resources at a higher cost when it can import the same from foreign sources at a much cheaper cost. However, as the price of imported oil increases, Canada will be extracting more and more oil from local sources. If the cost of extracting local oil for Canada is say $ 125, it does not make much sense to extract local oil when foreign oil is available at $ 40 a barrel but when the oil price in international markets rises to $ 150, Canadians will be going all out to extract more and more oil locally as it now becomes cheaper.
Developing the mining infrastructure is a much more time consuming process as compared to installing a power plant and is likely to take anywhere between 6-8 years. Therefore, the previous Sindh government could have started work on the mining of coal as that phase is likely to take about six years. In the mean time, it could have commissioned a bankable feasibility study for power generation. Furthermore, additional uses of Thar coal could have been investigated (as is being done now) like gasification, rather than unnecessarily focusing on making it an exclusively power generation project.
It is also another myth that this project will alleviate the need for hydel electricity. The fact is that any electricity eventually produced from Thar coal would be at least twice as expensive as that generated from large dams. The main problem in electricity sector is not how to generate electricity, but how to generate electricity at an affordable price. If the issue had only been power generation than we also have abundant wind and solar resources, but these cannot be fully utilized because electricity produced from these sources would be prohibitively expensive. The average power generation cost given the current generation mix of Pakistan is about 6.5 cents/kwh. Electricity from Thar coal would provide relief to consumers if it can be generated at a cost lower than this average.
However, previous Sindh government used to criticize NEPRA that had given an indicative tariff of 7.8 cents/kwh to Thar coal project saying that the tariff was too low and unacceptable. As a matter of fact that tariff was the highest coal based tariff anywhere in the world.
All this does not mean that Thar coal project should be abandoned. Given the current electricity crisis and the need to increase usage of indigenous resources for power generation, Thar coal can still prove to be a useful source of energy. Any electricity generated from Thar coal might help in reducing the need of importing expensive furnace oil. Gasification can also be a potential use of Thar coal.
The involvement of a professionally managed and reputed company like Engro Pakistan is also a good omen. Let us hope that it will prove to be a very beneficial project for the country. What it will do is diversify our electricity generation sources, save us some foreign exchange and decrease the present gap between supply and demand of electricity. Most importantly, it will bring much needed development and employment to Thar area.
— (The writer is a Chartered Financial Analyst and International Energy Consultant who has worked extensively in electricity sector in Pakistan.)
Top ten countries
Lignite Coal Reserves
|04. Serbia (Kosovo)||13.50|
|05. Russian Federation||10.45|
|Total proved Recoverable|
|Lignite Coal reserves|
|in all the countries of the|
Source: The News