Punjab has sizeable coal reserves, estimated at 235m tonnes, of varying quality in the Salt Range. Most of the mining activity is manual and primarily targeted for brick kilns and the cement industry.

The main limitation is the absence of bankable data for different blocks of coal for complete and consistent exploitation. There is chronic under-reporting of current extraction, limiting the options for its consideration as fuel for power generation. Coal and hydro are the preferred sources for generating electricity, as they are relatively cheaper than other fuels.

According to the provincial Annual Plan and Strategy 2011-12, the target for coal-based projects is to generate or initiate 900MW — against 3,206MW from all sources — over the next three years.

The EoIs invited by the Punjab Power Company indicates that Punjab is following the federal security package framework. Such a package may have serious risks, including that of the dreaded circular debt, as was in the case of IPPs

The primary focus will be on private sector projects, where the provincial government will enter into a power purchase agreement as well as an assured coal supply agreement with private power producers. Procuring and supplying coal will be the responsibility of the government-run Punjab Mineral Company. The power producers, however, will have a freedom to select their coal supply sources.

The situation regarding Punjab’s possible coal sources are briefly as follows:

• Salt Range coal: The primary focus is on expediting the four existing private sector feasibilities for 50MW plants each, being processed by the energy department. There are, however, uncertainties about the quality and quantity of the coal. Based on the final results of Snowden Study on coal reserves, an expression of interest (EoI) may possibly be invited for additional 100-200MW coal-based projects on mine-mouth basis or in industrial estates.

• Balochistan coal: The target for power generation is 250-300MW in D G Khan district. Under a facilitation accord, a coal purchase agreement has been signed between the Punjab Mineral Company and the Chamalang Coal Mines Industrial Cooperative Society (backed by Balochistan’s mines and minerals department) for supply of a minimum of 2,400 tonnes of coal per day, as per agreed specifications. Since supplying of such a large amount of coal from Balochistan has not yet been demonstrated on a reliable basis, the plant will be designed to handle imported coal and/or biomass as an alternative.

• Imported coal: Another 300MW of electricity generation is targeted through imported coal from a plant in South Punjab (Rahim Yar Khan or Sadiq Abad tehsils). Besides, imported coal-based power plants are proposed to be set up at the Sundar Industrial Estate Lahore and the M-3 Industrial Estate Faisalabad. The key determining factors would be port space available for imported coal, rail transport capacity, water for plant cooling and inter-connectivity with Wapda’s grid system.

Given the uncertainties in terms of logistics, the plant would initially be developed as a public sector project, but the option for private sector investors joining in, once such uncertainties are removed, would be encouraged.

Besides, the prime minister has laid the foundation stone of two 660MW coal-fired power projects in Sahiwal district towards the end of May. These plants are expected to be completed within a record period of 30 months.

Meanwhile, Nishat Chunian Power Ltd has signed a letter of interest issued by the Punjab Power Development Board for setting up a 660MW coal-based power project at Jhang. Construction is to start in the middle of next year.

The EoIs invited by the Punjab Power Company Ltd, operating under the provincial energy department, gives the impression that the Punjab government is following the security package framework — i.e. sharing of risks and rewards among different counterparties — that had earlier been agreed to by the federal government in the case of independent power producers (IPPs).

Such a package may have serious risks, including that of the dreaded circular debt, as was in the case of IPPs. It should be subjected to further debate and review before a final decision is made to adopt it. At the stage of mobilising local and foreign loans for these projects, the creditors may ask for guarantees from the federal government, in addition to from the Punjab government.

Being highly capital intensive, involving long-term obligations, new large coal-based power projects, including the two 660MW Sahiwal plants, should be justified on the following parameters: technology suitability with highest efficiency; environmental impact; comparable capital costs of plants, with a single country procurement under suppliers/tied credits vis-à-vis the ICB process and financed from untied/mixed sources; average agreed tariff comparable with tariff for similar coal-based projects; benefits of long-term public-private (local and foreign) partnership; and annual debt servicing and the cost of government guarantees and obligations.

The National Power Policy 2013 neither elaborates on issues surrounding operational strategy, nor does it lay out detailed implementation plans. As such, more work is needed at various levels, including at that of provincial governments, which aspire to play a bigger role in power generation and/or gas production and management after the 18th amendment.

The provinces also want to use locally produced electricity within their respective boundaries, so that loadshedding may be reduced. They may also ask for a certain role in privatisation of different gencos and discos currently operating in their respective territories. .

There is a need to align the ministries involved in the energy sector and improve the governance of all related federal and provincial departments as well as of regulators for better coordinated efforts.

Published in Dawn, Economic & Business, July 21st, 2014