Energy crisis: Pakistan may join the ranks of food-importing poor countries

By Kazim Alam, The Express Tribune

KARACHI: Engro Corporation President and CEO Muhammad Aliuddin Ansari has said Pakistan may end up as a food-importing country if the government fails to take immediate measures to resolve the energy crisis.

“We know that wealthy countries and international financial institutions dole out large amounts of aid to poor countries every year to meet their food requirements. I fear Pakistan may join the list of food-importing, poor countries if measures are not taken to control the deteriorating energy situation,” Ansari said while talking to journalists at an Iftar dinner on Tuesday evening.

Despite the promise of uninterrupted gas supply, Engro’s new $1.1 billion fertiliser plant has received gas for only 43 days in the first seven months of 2012. The absence of gas and breach of agreement by the SNGPL and the government have resulted in a claim of Rs28.8 billion against them.

The government has so far spent over $600 million on urea import while another Rs40 billion has been used on urea-related subsidies. Current demand for urea in Pakistan is between 5.5 and six million tons a year. The installed urea production capacity in the country is 7 million tons a year. However, its production has dropped to 4.3 million tons due to gas curtailment, resulting in heavy imports of urea to meet local demand.

The actual price of imported urea, as per May 21 tender of the Trading Corporation of Pakistan, was Rs2,851 per bag while the current price of locally produced urea is Rs1,483 per bag, excluding general sales tax.

Thar coal reserves

Ansari said Pakistan should follow in the footsteps of other developing and developed countries by burning coal to generate cheap electricity.

“More than 50% of electricity is generated via coal worldwide. It’s the cheapest source of energy, but we have still to take advantage of Thar coal reserves,” he said, adding that the development of Thar block-II, owned by the Sindh Engro Coal Mining Company (SECMC), would eventually add 4,000 megawatts of electricity to the national grid.

The SECMC has completed the Bankable Feasibility Study (BFS) for its Thar block-II coal mining project by engaging internationally renowned consultants, such as RWE of Germany, Sinocoal of China and SRK of UK, which has confirmed the technical and commercial viability of the project.

In the first phase, the SECMC will develop integrated coal mining and power projects with a capacity of 6.5 million tons per annum and 1,200MW of electricity, respectively. The target for financial close of the project is the first quarter of fiscal year 2012-13 while the target for commencement of the project is April 2013.

In the second and third phases, mining operations will be scaled up to 13 million tons and 22.8 million tons, respectively, which will be sufficient to fuel approximately 4,000MW of electricity generation.

The total cost of the mining (96.5 million tons a year) and power projects (1,200MW) is over $3 billion. To mitigate the risk of circular debt impacting their loan payments, Chinese banks have asked for an independent sovereign guarantee from the government of Pakistan for both mining and power projects.

The government has yet to provide sovereign guarantee for the two projects.

Published in The Express Tribune, August 2, 2012.

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