THE federal government violated its own policy decision last month when it approved an Asian Development Bank loan for power projects based primarily on imported coal.

On October 3, 2012, the government had decided that only Thar coal will be used in both existing and future coal-based power plants.

Conceding to reservations of the ADB, the 22nd meeting of the Council of Common Interests decided to set up a new 600MW power plant at Jamshoro with 80 per cent imported coal and 20 per cent Thar coal and gradually increase the content of Thar coal.

Simultaneously the bank will fund conversion of existing 800MW Jamshoro plant to imported coal, according to an official announcement.

The ADB is providing $900 million for the proposed coal-based power projects with certain conditionalities. It does not agree with the government decision that its loan be utilised for development of Thar coal and subsequent power generation, for the bank can finance only those power plants which are to be run on imported coal. Besides, the bank does not find the Jamshoro plant economically viable if it is based on Thar coal only, nor capable of meeting its ‘stringent environmental standards’.

In case, the project was to use only Thar coal, which is simply impossible at the moment for no mining activity is taking place in the Thar area since the discovery of deposits believed to be of huge size, the ADB would have to change the specification of the boiler which would increase the amount of the loan.

What is amazing is that the ADB, being a multilateral lending body, is providing loans for coal-fired power plants whose emissions would contribute to global warming. A few years ago, when the World Bank approved a loan for a similar plant in South Africa, its decision was globally condemned by environmental groups and civil society at large.

While announcing the policy decision to use only Thar coal in coal-based power plants in future at a meeting of Thar Coal and Energy Board in October, Prime Minister Raja Pervez Ashraf had said: “Today we have laid down the foundation of an energy policy based on our indigenous resources which will lead to huge savings.” The decision, he said, would ensure energy security because God had blessed the country with the sixth-largest coal reserves in the world.

Only a week later, the Asian Development Bank reacted harshly and threatened to cancel $1.14 billion loan it had promised to provide to Pakistan for the conversion of the diesel-run public sector power plants at Jamshoro, Guddu and Muzzaffargarh to imported coal and for a new coal-fired power plant at Jamshoro if the government did not reverse its decision of using only Thar coal.

The ADB had reportedly conveyed to senior officials concerned that since Thar coal was not available at the moment, the coal conversion project and the new coal-fired plant could not be taken up.

‘And even if the coal mining begins at Thar immediately and a huge investment is made, coal for power generation will not be available for at least five years.’

A few days later, the Sindh Chief Minister Syed Qaim Ali Shah held a meeting with Board of Directors of Asian Development Bank (ADB) in his office and told them that it would be a great tragedy if despite availability of huge coal resources in the country, new power plants were based on imported coal.

This will cause a huge drain on foreign exchange as the price of coal would always be subject to international market fluctuation, thus raising the cost of electricity to be produced. He urged the ADB to use Thar equivalent coal for the upcoming coal-based power plants, particularly at Jamshoro as this would boost the mining activity at Thar.

Werner Liepach, Country Director of the ADB, made it clear that his bank had no reservations on technical viability of the use of Thar coal for power plants but the environmental standards and project timelines were very important criteria for the Bank.

At the 21st meeting of the Council of Common Interests (CCI) held in December, Sindh CM had asked the federal government to formulate a clear and elaborate policy on the use of Thar coal reserves for producing power so that investment could be attracted and the current energy crisis could be overcome. Punjab CM Shahbaz Sharif supported his Sindh counterpart’s point of view and said a clear-cut power policy was also needed for sugar mills which, being 74 in all, could generate about 2,000MW power through bagasse in case the National Electric Power Regulatory Authority (Nepra) came up with an “attractive” upfront tariff.

Meanwhile, the Nepra has fixed the upfront tariff for coal-based power plants that will be installed in future. According to a notification, it has fixed the tariff of Rs7.05 per unit for the coal-based power plants that are to be locally financed and Rs8.12 per unit for those which are to be internationally funded.

The regulator has not determined the tariff for the power plants to be based on Thar coal as it does not know about the quality of Thar coal yet.

The notification says the upfront tariff for imported coal-based power plants will be effective for 30 years. However, the power companies will be able to enforce the uniform tariff for six years and the authority will review the tariff after six years.

The government, one may note, changed its policy stance on Thar coal in just three months and allowed new power plants to use imported coal because the private sector is unwilling to invest in energy sector, particularly Thar project, for various reasons. And no lender is willing to provide capital for Thar project because since 1992 when the deposits were discovered, nothing substantial has been done till today to utilise the coal. Only millions of rupees have been spent on feasibility reports, formation of boards and committees, contracts for infrastructure works, etc.

Now few are interested in listening to rhetoric of rich potential and strong prospects of Thar coal including promises of electricity for five hundred years at cheaper rates and many are questioning government's real intentions. Doubts are also being raised about coal gasification plan, the quality of coal and fairness in the execution of the project.