THE Thar Desert and its surrounding environment are changing, even though the commercial production of the first 600MW from the Thar Coal power project seems to have been delayed by at least six months.

A breakthrough in power generation in this desert can be a game changer not only for the country’s energy challenge but the socio-political environment as well. There is an apparent commitment by the federal and provincial governments to uncover the crucial natural resource to win political credit.

The PPP government in Sindh has taken upon itself the task of building over 400km of roads from Karachi to Thar and create bypasses around all the major towns — from Gharo to Makli, Sujawal, Golarachi, Badin, Thatta and Islamkot — to facilitate private investors. These newly built roads are much better in quality than their counterparts like Super Highway and the Karachi-Keti Bundar network.

Meanwhile, the central government of the PML-N has included the first coal mining and power generation project of the Sindh-Engro Coal Mining Company (SECMC) in the Pakistan-China Economic Corridor, graduating its importance to ‘early harvest’ and then zeroing in on one of the few ‘actively pursued list of projects’ to be jointly pushed forward by Pakistan and China.

An agreement for a $565m loan for the project would be signed with a Chinese consortium of banks next month during Prime Minister Nawaz Sharif’s visit to Beijing

However, this preferential and priority treatment has not eased the difficulties being faced by the SECMC in achieving financial close for the $2bn project. No fiscal benefit has been provided for import of machinery and equipment, despite top-level decision-making in this regard.

With the realisation that western financial institutions are not too eager to support coal projects, Chinese banks seem to be seeking terms and rates of their own choice.

A field visit to the Thar Desert, more specifically to its Block-II, however, showed that the acquisition of land for the project by the provincial government under the British-era land acquisition act has not gone well with some of the residents. Payments and compensations for their ancestral lands have remained far short of their expectations.

The purchase price — at about Rs180,000 per acre for people displaced from the Senhri Das village — is well below the expected price of Rs500,000 per acre. “We are not being given preference in jobs and the compensation is too low. But the government would force us out even if we do not give our consent,” said Zulfiqar Senhri Das, the president of the Senhri Das Coal Coordination Committee — a local organisation.

“The compensation money is more than double the known previous sale deed of about Rs70,000 per acre and has been fixed by the provincial government,” said a senior SECMC official. This is perhaps because the government wanted the land costs to remain within a reasonable range when the world’s seventh largest reserves finally open up for mining and power-generation investment.

Apart from roads and other facilities like guest houses and crisis centres etc, a new phenomenon is the exponential growth in the value of the land around Islamkot — a town about 25km from the Block-II exploration site. The land value around Islamkot has increased by 5-6 times since payments for compensation against land-acquisition started in areas like Bitra, Aban Jo Bar, Mansingh Bheel, Seengahrio and Thariyo Holepoto.

This raises hopes that a desert neglected for centuries may soon open up a lot of opportunities in the not-so-distant future, irrespective of who benefits the most — the poor or the mighty — and in the process allowing the government to convert to cheaper sources of energy generation and move away from imported fuels.

About 10 months ago, SECMC CEO Shamsuddin A Shaikh had said the first Thar coal-based power project of 600MW would come into production by end-2017, as its financial close was near.

Last Tuesday, he told a visiting media delegation that an agreement for a $565m loan would be signed next month with a Chinese consortium of banks — Bank of China, China Development Bank and the Industrial and Commercial Bank (ICBC) — during Prime Minister Nawaz Sharif’s visit to Beijing.

The SECMC will ultimately achieve 4,000MW power generation in about 30 years at an average generation cost of less than five cents per unit, against the over 18 cents per unit for oil-based projects now.

At the same time, Shaikh pointed out that a higher risk premium of about 9pc being demanded by Sinosure of China was still needed to be resolved to achieve financial closure. The first power project, according to his fresh forecast, is expected to come into production by ‘summer 2018’.

The SECMC’s sponsors have already started physical work on the project site with the initial earth removal of 1bn cubic metres, achieving about two metres of depth. The coal deposits are estimated to be at least 135 metres deep.

Published in Dawn, Economic & Business, October 27th, 2014