Sarang
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Dear Friends,
I have come across the same facts about Thar coal etc on various forums and came with the following post today on a separate thread which I thought I would also share as a separate post, if the mods don't mind. Hopefully it will be a good read and will raise the level of debate on these issues.
____________________________
It is unfortunately very sad that we have to rely on matters related to energy and power which are intricately linked to economics on the likes of Hakeem Zaid Hamid. Unfortunately, the level of journalism and awareness in our country is such that even the simplest of information is twisted around owing to lack of analysis.
And people like me who have been working with energy and power companies, regulators and investors in Pakistan and abroad are partly to blame as we are busy doing our jobs rather than launching public awareness campaigns and countering misperceptions. So here are my two cents in light of my 10 years of practical work experience and research on this sector:
1. Quality of the Thar Coal Reserves: Yes, these are very large reserves by any standard, however the standard and nature of the reserves is of very low quality. As a result, there are a number of technological, logistical and feasibility challenges which make project economics very tricky and hence make any references to the Thar coal resources as "black gold" rather laughable.
2. Government's Failure on Thar Coal: It is not that the GoP or the Sindh Government has never tried to develop these reserves. I for one am aware of ongoing efforts to seek investment by the GoP particularly the PPIB to exploit these resources since before 2001. (Some more recent litreature can be found on the PPIB website) The key issue here has been that owing to the low quality, the extraction cost of coal is high and as a result the cost of any electricity produced from this coal will not be cheap and the GoP is essentially not able to approve these higher tarriffs. This was the key breaking point with respect to discussions with the Chinese. Furthermore, I understand that there have been issues between the GoP and Gov. of Sindh which are secondary contributors to slow development pace.
3. Copper-Gold Reserves in Baluchistan: There are two key projects in Baluchistan which exploit Copper and associated Gold deposits: Riko Diq and Saindak.
One of the small developments in early Musharraf era was leasing out Saindak Project to Chinese investors. At that stage, Saindak Project was quite a significant disaster of the GoP with something like 0.5 billion dollars (at that exchange rate if i remember figures correctly) of investment having been shut down with the project being complete but not having started owing to lack of working capital. Nevertheless, the project was not very feasible again owing to low quality of resource and costs being high. Nevertheless, I believe that the project is currently in operations but facing some difficulties.
The Riko Diq resource is however a world class copper-gold resource which was leased to BHP Billiton (leading Australian natural resource company) "through the proper regulatory channel" established by the GoP and the Govt. of Baluchistan sometime in the late 90s. BHP Billiton worked on the development of the project (feasibility etc) and I believe some years ago it sold its rights to a Chilean company which is one of the leading copper-gold developers in the world. Again, while I am not aware of intricate details, I believe that while progress on the project has been slow (remote location, difficult development, technical challenges, slow regulatory process and Pakistan/Baluchistan investment environment some of the contributors), all regulatory requirements would have been followed here. There is no question in my mind of a "sell out" here as project was alloted much earlier than Mush Govt. and the rules and lawazmaat for seeking international investment into a country have been followed by both the Government and the investors here.
4. Privatisation in Pakistan: Privatisation is a controversial topic so say the least, but nowhere in the world is it more so than Pakistan today. The benefits of privatisation when rightly done are accepted world-wide and the perils of privatisation in the wrong environment are also well documented. Despite bad perception, the track record of large privatisations in Pakistan has been fairly good, MCB Bank, Habib Bank, Allied Bank, PTCL, Pakistan Refinery are some of the successfully privatised entities after following a transparent and competitive process. The main privatisation disaster has been KESC, the key reasons for which are well established (kundas, kundas and ghundas) and in my opinion despite everything it should be viewed as an achievement that KESC was sold for anything over Rs. 1 in the sense that the losses which were to be booked by the GoP for the past 5 years have been the investors headache (my prayers are with the current owners!). Nevertheless, with the cancellation of the Pak Steel privatisation (a separate topic) all privatisation has come to a halt.
I would request anyone who is overly and passionately critical of privatisation to please look up the privatisation progress made in Turkey with respect to energy and power sector over last few years and compare the pace with Pakistan. Turkey is ruled by an Islamic party and are much more educated and informed on the ways of the world than our nation, nevertheless they have swiftly and intelligently privatised their so called "strategic" assets and "family silver" and are keen to seek international invetors who have flocked to their auctions. In addition last year the British Government, privatised the nuclear power assets of British Energy (think "strategic") to none other than their first arch rivals in the world: the French, Electricity de France!
5. The Tarriff Problem: For Pakistan's investor profile there were catastrophic mess ups by the GoP during 1992-2002 era summarised as: Benazir Govt invites foreign investment at high tarriff; lots of das nambarees across the board as too many IPPs set up with high tarriffs and 10 fee sads; Nawaz govt comes in and instigates criminal legal proceedings against all IPPs and GoP officials/reps; IPPs and their international investors are persecuted and harassed; court proceedings and bail before arrest warrants abound. In 2002, the Musharraf Government finally agreed upon revised tarriffs with IPPs and resolved all ongoing disputes. End result for international investors "don't invest in Pakistan as one elected Govt. signs contract and the next one takes you to court". End result for GoP officials "don't sign off on any tarriff higher than 6 cents, infact don't bloody sign anything!"
6. Current Regulatory and Investment Environment: As a result of IPP crises and its aftermath, when world oil prices peaked in 2007 at around $140 per barrell we were still offering power tarriffs to new investors which were agreed in 2002 when oil prices were $25 per barrel. Furthermore, with rising steel prices and demand for power generation equipment, project costs increased many fold during this period. As a result, no new investment was possible in the power sector or in renewable energy (wind, solar) with the GoP officials not being able to show any flexibility in the environment of distrust where one department did not trust the other and most believed that all foreign investors are chors.
Well thats my take on some of the things that have come to mind with respect to this topic. I recognize that I am far from being the ultimate authority here and readers are welcome to do their own research and come to their own conclusions. I have written numbers and facts from memory and will post corrections if necessary on separate posts with any edits to this post limited to spell checks and grammar.
I have come across the same facts about Thar coal etc on various forums and came with the following post today on a separate thread which I thought I would also share as a separate post, if the mods don't mind. Hopefully it will be a good read and will raise the level of debate on these issues.
____________________________
It is unfortunately very sad that we have to rely on matters related to energy and power which are intricately linked to economics on the likes of Hakeem Zaid Hamid. Unfortunately, the level of journalism and awareness in our country is such that even the simplest of information is twisted around owing to lack of analysis.
And people like me who have been working with energy and power companies, regulators and investors in Pakistan and abroad are partly to blame as we are busy doing our jobs rather than launching public awareness campaigns and countering misperceptions. So here are my two cents in light of my 10 years of practical work experience and research on this sector:
1. Quality of the Thar Coal Reserves: Yes, these are very large reserves by any standard, however the standard and nature of the reserves is of very low quality. As a result, there are a number of technological, logistical and feasibility challenges which make project economics very tricky and hence make any references to the Thar coal resources as "black gold" rather laughable.
2. Government's Failure on Thar Coal: It is not that the GoP or the Sindh Government has never tried to develop these reserves. I for one am aware of ongoing efforts to seek investment by the GoP particularly the PPIB to exploit these resources since before 2001. (Some more recent litreature can be found on the PPIB website) The key issue here has been that owing to the low quality, the extraction cost of coal is high and as a result the cost of any electricity produced from this coal will not be cheap and the GoP is essentially not able to approve these higher tarriffs. This was the key breaking point with respect to discussions with the Chinese. Furthermore, I understand that there have been issues between the GoP and Gov. of Sindh which are secondary contributors to slow development pace.
3. Copper-Gold Reserves in Baluchistan: There are two key projects in Baluchistan which exploit Copper and associated Gold deposits: Riko Diq and Saindak.
One of the small developments in early Musharraf era was leasing out Saindak Project to Chinese investors. At that stage, Saindak Project was quite a significant disaster of the GoP with something like 0.5 billion dollars (at that exchange rate if i remember figures correctly) of investment having been shut down with the project being complete but not having started owing to lack of working capital. Nevertheless, the project was not very feasible again owing to low quality of resource and costs being high. Nevertheless, I believe that the project is currently in operations but facing some difficulties.
The Riko Diq resource is however a world class copper-gold resource which was leased to BHP Billiton (leading Australian natural resource company) "through the proper regulatory channel" established by the GoP and the Govt. of Baluchistan sometime in the late 90s. BHP Billiton worked on the development of the project (feasibility etc) and I believe some years ago it sold its rights to a Chilean company which is one of the leading copper-gold developers in the world. Again, while I am not aware of intricate details, I believe that while progress on the project has been slow (remote location, difficult development, technical challenges, slow regulatory process and Pakistan/Baluchistan investment environment some of the contributors), all regulatory requirements would have been followed here. There is no question in my mind of a "sell out" here as project was alloted much earlier than Mush Govt. and the rules and lawazmaat for seeking international investment into a country have been followed by both the Government and the investors here.
4. Privatisation in Pakistan: Privatisation is a controversial topic so say the least, but nowhere in the world is it more so than Pakistan today. The benefits of privatisation when rightly done are accepted world-wide and the perils of privatisation in the wrong environment are also well documented. Despite bad perception, the track record of large privatisations in Pakistan has been fairly good, MCB Bank, Habib Bank, Allied Bank, PTCL, Pakistan Refinery are some of the successfully privatised entities after following a transparent and competitive process. The main privatisation disaster has been KESC, the key reasons for which are well established (kundas, kundas and ghundas) and in my opinion despite everything it should be viewed as an achievement that KESC was sold for anything over Rs. 1 in the sense that the losses which were to be booked by the GoP for the past 5 years have been the investors headache (my prayers are with the current owners!). Nevertheless, with the cancellation of the Pak Steel privatisation (a separate topic) all privatisation has come to a halt.
I would request anyone who is overly and passionately critical of privatisation to please look up the privatisation progress made in Turkey with respect to energy and power sector over last few years and compare the pace with Pakistan. Turkey is ruled by an Islamic party and are much more educated and informed on the ways of the world than our nation, nevertheless they have swiftly and intelligently privatised their so called "strategic" assets and "family silver" and are keen to seek international invetors who have flocked to their auctions. In addition last year the British Government, privatised the nuclear power assets of British Energy (think "strategic") to none other than their first arch rivals in the world: the French, Electricity de France!
5. The Tarriff Problem: For Pakistan's investor profile there were catastrophic mess ups by the GoP during 1992-2002 era summarised as: Benazir Govt invites foreign investment at high tarriff; lots of das nambarees across the board as too many IPPs set up with high tarriffs and 10 fee sads; Nawaz govt comes in and instigates criminal legal proceedings against all IPPs and GoP officials/reps; IPPs and their international investors are persecuted and harassed; court proceedings and bail before arrest warrants abound. In 2002, the Musharraf Government finally agreed upon revised tarriffs with IPPs and resolved all ongoing disputes. End result for international investors "don't invest in Pakistan as one elected Govt. signs contract and the next one takes you to court". End result for GoP officials "don't sign off on any tarriff higher than 6 cents, infact don't bloody sign anything!"
6. Current Regulatory and Investment Environment: As a result of IPP crises and its aftermath, when world oil prices peaked in 2007 at around $140 per barrell we were still offering power tarriffs to new investors which were agreed in 2002 when oil prices were $25 per barrel. Furthermore, with rising steel prices and demand for power generation equipment, project costs increased many fold during this period. As a result, no new investment was possible in the power sector or in renewable energy (wind, solar) with the GoP officials not being able to show any flexibility in the environment of distrust where one department did not trust the other and most believed that all foreign investors are chors.
Well thats my take on some of the things that have come to mind with respect to this topic. I recognize that I am far from being the ultimate authority here and readers are welcome to do their own research and come to their own conclusions. I have written numbers and facts from memory and will post corrections if necessary on separate posts with any edits to this post limited to spell checks and grammar.
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