The initial brouhaha notwithstanding, the Sindh government’s plan to produce gas and liquid fuels for urea production, electricity generation, and transport doesn’t seem to be getting anywhere even after the passage of several years and despite investor interest.

Sindh Coal Authority officials blame the federal government’s failure to devise a policy to “support investment as a main impediment to any tangible progress on the plans” to explore the possibility of conversion of coal to gas and liquid.

When asked what was stopping Sindh from moving ahead with its plan and signing investment deals with interested local and foreign companies, a senior Sindh Energy Department official argued, “Constitutionally, the provinces are owners of their ground hydrocarbon energy resources but the powers to regulate international and interprovincial movement of energy, determine prices of different fuels and energy goods, impose taxes and fees, and decide use for power generation, urea production or transportation are with the federal government in the interest of the country’s economic development and energy security.

“The province, therefore, cannot implement its coal-to-gas or coal-to-liquid project or involve private investors in it unless the federal government finalises a policy to regulate this sector.”

Plans to establish coal to gas and liquid conversion plants for energy and urea production are on hold despite private sector interest due to federal inertia

Converting coal to gas and liquids (diesel) using vast reserves of lignite in Thar was one of the options initially proposed by the Sindh government to deal with the energy crisis and mitigate climate change concerns due to the growing use of indigenous and imported coal for power generation and other purposes.

The Sindh government started work on a proposal to tackle the projected shortfall of 2.6 million tons per annum (mtpa) of urea in the country by 2027. Utilising lignite through a surface gasification procedure in urea production is significant in mitigating this predicted deficit.

The scheme had been on the table for a long time, but it gained momentum after former prime minister Imran Khan committed to banning coal generation at the Climate Ambition Summit in December 2020 as part of Pakistan’s efforts to reduce its carbon footprint. Mr Khan also announced his intentions to convert domestic coal reserves to produce energy via coal-to-gas and coal-to-liquid processes.

The Pakistan Tehreek-i-Insaf (PTI) government had also done some initial work to formulate a policy to execute the proposal in collaboration with Oracle Power PLC — a natural resource and power project developer — and its Chinese partner, China National Coal Development Company (CNCDC).

The two companies submitted policies and proposals for the federal energy ministry at the beginning of 2021. The proposals outlined a draft commercial framework through which the development of coal to gas and liquid at Thar Block VI could be fast-tracked to address the country’s crippling gas shortage and reliance on imported liquid fuels.

Oracle’s Thar Block VI was even included in the China-Pakistan Economic Corridor (CPEC) portfolio to develop coal-to-gas and coal-to-liquids to assist Pakistan. Three urea producers — Engro, Fatima and Fauji — had also shown considerable interest in the project to augment their production capacities.

“The need for alternative sources of economically viable gas in Pakistan is clearly evident, and the government has sanctioned the conversion of coal-to-gas with this in mind. With the ongoing support of our consortium partners, including our technical partner and clean coal pioneer, CNCDC, we expect to be the front-runner in this burgeoning industry,” Oracle Pakistan Chief Executive Officer, Naheed Memon, was reported to have said at that time. “It is estimated that through the application of coal gasification, our Thar Block VI Project could produce and supply approximately 1,000m standard cubic feet per day.”

The then special assistant to the prime minister on CPEC, Khalid Mansoor, was also quite upbeat about the scheme. “The policy’s initial aim is to scale up Thar coal production for conversion to gas and oil, set up a petrochemical complex for a chain of industrial products, and eventually move on to other areas for fertiliser, fuel, and agriculture security.

“A policy draft has been shared with all the stakeholders so that the policy can be finalised and included in the coming budget,” he had told the media weeks before the ouster of the PTI government in April 2022.

On project viability, he maintained that there was no doubt about the technicalities. “I have seen several petrochemical complexes up and running in China. However, the main challenge would be concluding policy and securing financing to move towards the execution phase and have plants in place by 2028. If coal-to-gas is successful, a large fertiliser plant can be set at the mine-mouth of Thar coal.”

Among other proposals, Oracle had suggested fiscal incentives, including a waiver of customs duty on all plants and equipment not manufactured locally for coal-to-gas and coal-to-liquid technologies, to encourage their deployment. The items manufactured locally must be charged a duty of five per cent, besides a complete waiver of withholding tax and sales tax on all imported equipment used in these plants.

Moreover, the policy proposals demanded a lucrative 10-year income tax waiver from commercial operations, for which prior timelines would have to be committed and met. The policy was also supposed to provide an offtake/purchase plan for gas and liquids proposed to be produced from Thar coal and determine the prices.

Despite federal inertia, the Sindh Coal Authority continues to work on the scheme. Last year, it received confirmation from a South African laboratory that lignite coal found in the Thar Desert can be converted into gas, liquid and urea through surface gasification. The analysis, conducted as part of a ‘Pre Investment study — Coal to Gas, Coal to Liquid and Urea’, said that Thar coal has high tar yields of 20pc (air-dried basis) and high CO2 reactivity, which are typical of lignite coal and suitable for gasification.

“Everything except the policy is in place for the project to take off,” a Sindh Coal Authority official, who has remained part of the project since the beginning, told Dawn. “Without a policy providing clarity on tax and other incentives and concessions on investments, gas and oil pricing, and purchase agreement with gas companies and PSO, no private investor is prepared to put their capital.

“We have approached fertiliser firms, but they are reluctant to spend a significant sum of money on feasibility studies unless they have a clear idea of the coal-to-gas policy. So I don’t see any progress until the federal petroleum ministry finalises the policy document.”

He pointed out that India has recently launched a major coal gasification programme to install a coal gasification capacity of 100mtpa by 2030, involving an investment of $65 billion. The country has announced tax and other incentives totalling more than $100bn as the government targets to gasify 100m tonnes of coal by 2030.

Younis Dagha, a retired bureaucrat who had conceived and finalised the joint venture on Thar coal mining between the Sindh government and private sector companies to open up Thar coalfield for power generation, says gas transportation from Thar to the existing fertiliser plants would be a challenge. However, if the production facilities are shifted to the mine-mouth, urea manufacturing from synthetic gas would become cost-effective.

He lamented that bureaucratic hurdles were impeding the use of Thar coal to ensure the country’s energy and food security. “Without a robust policy, you cannot expect investors to bring their capital and invest in such projects,” he concluded.

Published in Dawn, The Business and Finance Weekly, March 18th, 2024

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