With a rising population and an expanding economy, Pakistan’s energy needs have outpaced its national energy supply. Exacerbating the demand-supply gap isPakistan’s unsustainable power generation fuel mix, which contains a high share of oil-based power generation up to 32%, resulting in high cost of electricity production.Moreover, there is a heavy reliance on imported fuels which results in constant depletion of foreign exchange and insufficient control over the fuels supply chain. This inappropriate fuel mix leads to energy losses at each level of the value chain and inadequate recoveries lead to power outages, unaffordable electricity and circular debt.
Due to this inefficiency, over 51 million people are left with no electricity.In the last 5 years, with just a mere 2% net installed capacity growth, the power plants have not been able to catch up with the GDP and population growth indicators. There has been a 5,000-7,000 MW shortfall in the country during peak hours, whichhas resulted in almost 8-12 hours of load shedding in various parts of the country.The sustainability of Pakistan’s power sector would only be possible if the power distribution system is improved by controlling electricity theft, inefficacy and improvising recoveries.
Tackling the energy crisis through Public-Private Partnership
To provide incentives for the development of local coal and encourage mining and power projects in the region, the Govt. of Pakistan through the ECC approved a number of incentives for such projects in October 2010. These included declaring Thar Coalfield a Special Economic Zone, ensuring a guaranteed return for the project investors and exemption of various taxes and levies. In addition to this, ECC approved the provision of sovereign guarantee for debt portion of SECMC’s mining project of up to USD 700m with the condition that GoS shall hold the majority shareholding in the project. As a result of this commitment to provide sovereign guarantee, the shareholding of GoS and SECMC has been changed with GoS holding minimum of 51% equity in SECMC.
The Thar Coal Mining project is being undertaken by Sindh Engro Coal Mining Company (SECMC) – a Joint Venture Agreement (JVA) between Government of Sindh (GoS), Engro Energy Limited (formerly Engro Powergen Limited) and its Partners namely; Thal Limited (House of Habib), Habib Bank Limited (HBL), Hub Power Company (HUBCO) and China Machinery Engineering Corporation (CMEC). Houlinhe Open Pit Coal Mine, subsidiary of SPI (State Power International) Mengdong (SPIM), formerly CPIM, has joined the SECMC board as strategic investor with preference shares’ subscription.
SECMC was created with the vision “to develop a technically and commercially viable Coal Mining Project in Thar Block – II to bring energy security to Pakistan”. The total reserves of block II are sufficient to support 5000MW of energy for 50 years; enough to pull the country out of the energy crisis.
The total allocated area of 95.5km2 has been leased to SECMC for 30 years, further extendable to another 30 years for extraction of coal. The approximate project cost for the 3.8 Mt/annum coal mine is expected to be USD ~845 Mn with a construction timeframe of 42 months. However, SECMC is ahead on the completion schedule of the project by about 5 months and under the projected cost by a margin of 10%.