Despite a slight reduction in the “royalty tariff” on each tonne of coal exported to Pakistan, as reported by Afganistan’s Ministry of Mines and Petroleum in a statement last week, business interest in coal appears to have cooled down. In a series of conversations, the Daily Times has learned how taxes as high as double the production costs have been slapped on the procurement of Afghan coal for Pakistani businesses. In just one year, the Coal Mining Tax has swerved from AFN 1200 to AFN 2500. While a recent announcement put down the tax at AFN 2200, as a culmination of talks between the Interim Afghan Government and interested parties, the development is not yet significant enough to balance the scales.
Languishing with the short end of the international aid stick, the cash-strapped government in Kabul began actively tapping into natural resources as a means of sustenance. The Taliban-led administration finally hit the jackpot when the war in Ukraine prompted a global energy crisis; forcing countries like Pakistan to scramble for alternatives. However, the sweeteners of deals brokered in the last year or so might soon be at the risk of drying out as a consequence of unreasonable mining taxes charged on coal reserves.
Kabul has, indeed, announced a reduction in custom duty (from $45 to $30), but a cursory glance at the actual costs of production renders these charges unreasonable, at best, and exploitative, to be more crass. On average, it takes somewhere between AFN 900 and AFN 1000 to procure a tonne of coal.
Afghanistan has significant deposits of coal. Out of the country’s 80 coal mines, 17 are operational, with most located in central and northern Afghanistan.
Due to Pakistan’s fast-withering dollar reserves, it had become a hot favourite destination for a logjam of trucks filled to the brim with coal and fruits. Former prime minister Shehbaz Sharif had announced plans to import heavily discounted coal from Afghanistan using Pakistani rupees to save dwindling foreign reserves. With twice the volume of exports as the previous administration, the Taliban earned almost $160 million in tax in 2022, which was appreciated as “strong” in a World Bank report.
However, like all good things, the Taliban’s prosperous innings might soon end, thanks to overly-hiked rates. The new prices have forced Pakistan to look for cheaper options. Considering the availability of Indonesian coal and African coal at much lower prices (PKR 35,000 against Afghanistan’s PKR 40,000), the exports are likely to hit snags.
The competitive rates would also invite Pakistani businesses to analyse the coal quality as part of opportunity-cost calculations. For starters, coal making its way from the Western border is inferior in quality with a low sulphur content and high Gross Calorific Value (GCV) in comparison. Energy companies have already threatened to stop importing Afghan coal. By adjusting for high sulphur and GCV, they wish to decrease their reliance on Afghan coal.
As international assistance that used to prop up the Afghan economy is nowhere in sight and foreign trade has been reduced to a bare minimum ever since the Taliban seized power, it would be almost suicidal to torpedo a heavy reliance on coal deposits. By awarding contracts to local Afghans, coal deposits were allowing Kabul to gain domestic recognition. After all, these firms hire Afghan nationals for production processes; facilitating an economic revival. The coal-laden trucks then pay the Taliban authorities for the privilege of passage before entering Pakistan. It should be mentioned that private firms operating in Pakistan similarly pay Afghan companies for coal contracts.