India discovered its lignite coal reserves in Rajasthan in 1963. Some 60 years later they have burnt almost the entire supply that helped them produce cheap electricity to power their economy.

Just across the border, Pakistanis began hearing the chatter about the discovery of one of the world’s largest coal reserves in Sindh’s Thar region in the early 1990s. It took almost two decades before the first concrete step was taken to use this huge energy source when the Sindh government entered into a joint venture with Engro Corp and a few other large private investors to set up the Sindh Engro Coal Mining Company (SECMC) to start mining Thar coal for generating electricity. It took another 10 years before the first mine started commercial operations in July 2019.

Currently, a 660MW plant set up at mine-mouth by Engro Powergen Thar is producing the cheapest electricity in the country. Its present generation fuel cost of Rs9/10 per unit will drop to under Rs5 a unit by the end of next year as the SECMC increases its coal production from the existing 3.8 million tonnes a year to 7.6m tonnes by the end of this year and to 12.8m tonnes by the close of 2023.

“It is time we switched to economical and reliable substitutes from expensive import-based fuel mix to tackling longstanding power sector challenges: availability, affordability and accessibility,” Amir Iqbal, CEO of SECMC, told Dawn in an interview.

Consuming Thar’s coals reserves could bring down electricity rates and reduce reliance on imports

“The recent energy market disruptions and the sharp spike in the fuel prices should be a wake-up call for us. Thar coal can be the next big opportunity for Pakistan (after the discovery of Sui’s now depleted gas reserves) to achieve energy security and power our economy.”

Pakistan’s longstanding electricity woes ranging from acute power shortages leading to long-duration blackouts to unaffordable prices to poor distribution infrastructure to the massive accumulation of inter-corporate debt of Rs2.5 trillion in less than a decade have been exacerbated by the recent Covid-related global supply disruptions and escalation in prices. The Russian invasion of Ukraine has lately worsened the supply situation, pushing the energy prices further up.

“Pakistan must rapidly shift to indigenous, inexpensive fuel sources to overcome affordability and accessibility challenges. With indigenous gas reserves forecasted to run out in a decade, Thar lignite is the only viable option for Pakistan to pursue to displace expensive imported fuels for sustainable economic revival and addressing the key power sector challenges of supply, affordability and access.”

Among other factors, growing energy imports are largely to blame for the nation’s worsening balance of payments position as the current account deficit surged to $17.4 billion last fiscal year. Likewise, the increase in electricity tariffs due to surging generation costs is suppressing demand, and encouraging power theft and default on bills.

Thar lignite is the cheapest indigenous energy resource with its 175.5bn tonne reserves having the potential to produce over 100,000MW electricity for 30 years. The heating value of Thar lignite reserves, according to Mr Iqbal, is estimated to be higher than the combined oil reserves of Saudi Arabia and Iran, and 68 times greater than the country’s total gas reserves.

Currently, 3.8m tonnes of lignite is being extracted annually from one of the 13 blocks spread over an area of 100sq km leased to SECMC, supporting the production of 660MW from the mine-mouth power plants. The SECMC production will double to 7.6m by the end of this year and 12.2m by the end of the next. So will mine-mouth generation capacity to 3300MW accordingly. “We are expanding output according to generation contracts,” Mr Iqbal points out.

Thar lignite is costing $60 per tonne now. The planned increase in coal production will bring the price to $45 by the end of this year and below $30 before the close of next. This compares with imported coal rates that recently spiked to well above $420 a tonne — and is still hovering around $375 — from around $100 due to the commodity super cycle.

SECMC has so far extracted 11m tonnes of coal to generate 10.5m units of electricity, which saved $700m of government spending. “The price difference shows the massive dividends the shift to indigenous coal can bring to the dollar-starved government in the form of foreign exchange savings and consumers through a huge reduction in generation cost while sustainably reviving the economy.

“Besides, it will protect our economy from the vagaries of international commodity markets as it will be insulated from global prices as well as supply disruptions,” says Mr Iqbal, who worked for Nestlé and headed Bayer before joining Engro as its chief commercial officer before taking over SECMC in October last year.

In Pakistan, coal power constitutes just about 12pc of the total generation capacity of over 39,700MW. The four independent power producers (IPPs) based on imported coal are bearing a large generation fuel cost, which recently rose to Rs30 a unit for the Sahiwal coal power project as imported coal rates surged to their peak.

Lucky’s plant at Port Qasim is using cheaper Indonesian coal costing it $110-120 and mixing it with that lignite to further reduce its generation cost. It will completely shift onto it once SECMC scales up its production.

Mr Iqbal points out that Pakistan could save $1.5bn annually in foreign exchange by converting imported coal power plants once the Thar coal price falls to $30 a tonne. Likewise, the conversion of the cement industry will save another $1.8bn. And if we convert coal into synthetic gas for urea production, it will save another $4bn a year.

“These savings of nearly $8-10bn are possible to achieve by 2030 by converting IPPs, cement industry and fertiliser manufacturing on Thar coal. But for that, we need more sustainable and conducive policies for expanding coal extraction and use,” urges Mr Iqbal.

SECMC has already commissioned a study for converting the China-Pakistan Economic Corridor coal plants in Hub, Jamshoro and Sahiwal to indigenous lignite. A 105km long Thar Rail project is being planned to connect Thar coal fields with Main Line at the New Chhor Halt Station to transport lignite to the power plants in the rest of the country.

The transportation of lignite by trucks to Karachi and Kallar Kahar shows its movement by road and rail is feasible and safe despite higher moisture. “Transportation is manageable; no combustion encountered during mining or transportation,” he adds.

Mr Iqbal contends that the present energy market conditions have compelled even developed nations to shift back to coal and fossil fuels. “Pakistan’s coal generation of 10-11pc is nothing compared to 56pc for China, 47pc for India and 20pc for Germany. Our energy footprint is very low. Our priority should be how can we become energy secure.

Published in Dawn, The Business and Finance Weekly, August 1st, 2022