Sindh Chief Minister Syed Murad Ali Shah has appealed to Federal Finance Minister Muhammad Aurangzeb to address the financial difficulties hindering the Thar Coal project.
In a letter to the finance minister, Shah emphasized that since 2019, the Thar Coalfields have been pivotal in generating electricity using an indigenous and cost-effective energy source. However, financial constraints are obstructing its future expansion.
Recent data from the National Transmission & Distribution Company indicates that the weighted average cost of generation through Thar coal is Rs. 4.3 per kilowatt-hour, the lowest for base load electricity generation. The mines at Thar Block-I and II have been producing over 15 million tonnes of coal annually.
“Currently, over 5,000MW of coal-fired power plants, including those used by our cement industry, rely on imported coal. By substituting imported coal with local sources, Pakistan could save over $3 billion in foreign exchange,” the chief minister highlighted in his letter.
Moreover, the federal government is working on the “Sustainable Coal Utilization Policy 2024” to optimize the use of Thar coal for various purposes, including coal-to-fertilizer, coal-to-gas, and coal-to-liquid conversions.
Shah noted that converting imported coal power plants to indigenous sources and expanding the mines would require an estimated additional capital of over $2 billion, in both PKR and USD. He pointed out that two open-pit mines in Thar have already been developed with CPEC funding, and expanding them further would cost a fraction of the initial phase and take less time.
Economic growth, driven by industrial expansion, necessitates affordable and readily available energy. Thar coal can significantly meet this demand, Shah reiterated.
“A major barrier to increasing Thar coal production is accessing financing from Pakistani banking channels,” he said.
Shah attributed this to liquidity constraints, circular debt, and the country’s climate goals, which make it challenging for Thar’s power plants to secure funding.
Proposal for Financing Support
He proposed that the Ministry of Finance and the State Bank of Pakistan (SBP) support industrialization, foreign currency conservation, and energy security by mandating all scheduled banks to fund projects focusing on indigenous energy sources, particularly Thar coal. This could be implemented by allocating lending percentages to banks, increasing their loans to indigenous energy projects to one percent of deposits by June 2024, and up to three percent by June 2027.
Shah suggested that any shortfall from this mandate should be placed as an interest-free deposit with the State Bank. Additionally, the ministry and SBP could establish a separate lending window for local coal mining and power projects, distinct from the already stressed power sector.
“Thar coal has proven its ability to significantly reduce generation costs, and additional capacity will have a lower capital cost as production scales up. To ensure energy security and promote industrial growth, affordable energy is essential for the country, and Thar coal is ready to provide this,” stated the chief minister in his letter.
He also recommended forming a working group to plan the implementation of the proposed interventions.
