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Thar coal power project: an unrealised dream

May 29, 2006

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A power plant based on the Thar coal, which is termed of great national importance, remains a distant reality. It was in 1992 that the Geological Survey of Pakistan (GSP) discovered huge sub-surface deposits of coal—- the largest in the world —in Thar District (Sindh). As the news spread globally, a number of foreign investors showed interest in the exploitation of Thar coal resources for power generation. No concrete proposal was however received.

In response to the Energy Policy 1994, Consolidated Electric Power Asia Ltd of Hong Kong signed an memorandum of understanding (MoU) for developing a 1,425 mw capacity integrated power project based on Thar coal. But it did not materialise.

Related activities on the part of the government however continued on priority. From 1993 to 2001, the GSP conducted comprehensive exploration, assessment, evaluation and appraisal studies of the Thar coal resources, establishing technical and commercial viability of confirmed reserves of 175.5 billion tons of coal.

The Thar coal, classified as lignite A-B, contains low ash and sulfur contents and is suitable for power generation, which would not have relatively less adverse environmental and ecological effects. Thar coalfields covering an area of 9,000 sq. km has been divided into four blocks of coal demarcation for administrative and logistic purposes.

The pioneering efforts however were made by President Musharraf who took personal interest in developing these coalfields on a fast track basis, and asked the Chinese, who have demonstrated strong commitment to participating in economic development of Pakistan, to come forward to invest in this mega project.

In April 2002, a state-run Chinese company Shenhua Group Corporation, was asked by the government to develop block-one of the coalfields, accepting its proposal to establish a 600-MW power generation plant at the mine-mouth with associated captive coalmines.

Subsequently, Shenhua Group, in association with the GSP, carried out studies related to coal-geological and hydro-geological investigations, and a feasibility report for the project was completed. The cost of these studies is estimated to be $7 million dollars.

Based on these studies, the agreements were signed by the sponsors with the government for the construction of power plant, as well as for land use right, coal-mining licence and use of underground water resources etc.

The proposed project to be undertaken on build, operate and transfer (BOT) basis was to be located at Tharparkar and was scheduled to generate electricity by the year 2009, extracting required quantity of six million tons of coal annually.

The project, for which groundbreaking ceremony was scheduled in January 2005, ran into snags, primarily on the issue of electricity tariff. Efforts at the highest level were made, until November last year, to salvage the project, without yielding any positive results.

Possibilities of transferring this project, on which basic preparatory work had been done, to another Chinese company namely China Chemical Engineering Corporation (CNCEC) were discussed, but tangible progress could not be achieved.

Meanwhile, various investors from Australia, Germany and other Western sources expressed desire in developing other blocks of the coalfields for power generation in the range of 1,000 mw each. But none came forward. Even other Chinese companies, which had earlier indicated willingness to undertake similar projects, withdrew from the scene.

The Sindh government, meanwhile, achieved a landmark in the direction of exploiting Thar coal reserves, as it got prepared in January 2005 a bankable feasibility report for the mining project related to another block of the coalmines, at a cost of about three million euro.

The world-reputed German consultants Rheinbraun Engineering confirmed technical and financial viability of mining Thar block-two that would yield more than six million tons of coal annually. The integrated project was now available to be offered to local or foreign investors for development.

Thus enters the American investor in the field, in response to the successful Dubai Road-show organised by the Private Power and Infrastructure Board. In April 2005, AES-Oasis Ltd, a subsidiary of AES Corporation of the USA, showed interest in developing an integrated mining-cum-power project of 1,000 mw capacity, utilizing block-two Thar resources. For the purpose, an MOU was signed with the provincial government for preliminary assessment of coal availability and mine-ability.

The due diligence was to be conducted in ten months for which the federal government issued a letter of comfort in June 2005. According to recent reports, the foreign sponsors have shown strong reservations about the commercial viability of the scheme, in spite of availability of project-specific sound technological and economic studies carried out earlier by many agencies and the German consultants.

The sponsors have taken the above stance in view of assumed non-availability of required cooling water in the area. There is no denying the fact that region is semi-arid, with scarce water resources. Nonetheless, underground water—of brackish to saline quality—is available, according to the GSP and the Chinese study reports.

The GSP drilling data has indicated three water-bearing zones (aquifers) at an average depth of 50, 120 and more than 200 meters. The sponsors however have opined that the underground water was not sufficient to meet the project requirements.

While they consider other options for water availability, including use of canal water, the sponsors would also look into the feasibility of changing the project site, somewhere on Indus River, and transportation of coal from Thar through railway wagons. Of course, the revision of site will totally change the characteristics of the envisaged project. The sponsors are said to take another nine months to present a comprehensive report on the issue, sometime in January 2007.

Conducting the studies appears to be a never-ending exercise, causing inordinate delays in taking off the project. On its part, the government has already done a lot-from facilitating the investors to developing necessary support infrastructure for the project.

Having launched the Thar Coal Infrastructure Development Project with a total financial outlay of over Rs5 billion, Sindh government has so far invested to the extent of Rs3.5 billion in the construction of roads network, town planning, water and power supply systems and other schemes.

Likewise, Water and Power Development Authority (Wapda) is in the process of laying a 500-kV transmission line, at a cost of Rs5.5 billion, for the dispersal of electricity from the project.

Wapda, as part of its Water Vision 2025, would also construct 164-km long Rainee-Thar Canal to irrigate region of Thar and Nara that can also meet water requirements of the project.

The coal-based power project assume greater significance in the projected energy scenario, as it will reduce country’s dependence on imported furnace oil, resulting in lower import bill, besides providing cheaper electricity.

It is time for President Musharraf, who is heading the Task Force on priority projects, to take stock of the situation and to adopt pragmatic approach addressing issues and challenges faced in implementation of the Thar project. Otherwise, the cherished objective of exploiting Thar coal reserves for the benefit of the national economy will remain elusive.