IMF Drives Pakistan to Coal in Bid to End Subsidies

Pakistan has long depended on gas supplies to power its economy.  The government of Prime Minister Nawaz Sharif is embracing coal as it seeks to end power cuts, curb subsidies and comply with aid conditions set by the International Monetary Fund.  Global investors and local companies including Engro Corp., Lucky Cement Ltd. and K-Electric Ltd. may spend about $15 billion to set up more than 10,000 megawatts of coal-fired power in the next five years.

“The IMF is this continuous force that is pushing Pakistan toward energy reform,” said Muzzammil Aslam, managing director at Karachi-based Emerging Economics Research.  “It gave the push and urgency needed for the government to solve the crisis.  ”Pakistan makes most of its power from gas supplies that have been falling for the past five years because of depleting reserves.  The country’s natural gas output dropped 6.2 percent to 38.6 billion cubic meters in 2013, the lowest since 2009, according to BP Plc data.  China was Asia’s biggest producer of the fuel at 117.1 billion cubic meters, while Pakistan was South Asia’s largest, according to the data.  India produced 33.7 billion cubic meters last year.

As a result, areas such as the Punjab province experience outages that last as long as 18 hours a day and at its peak the summer power deficit reached 6,000 megawatts last year. Blackouts have sparked violent street protests, shut factories and were a key reason for former president Asif Ali Zardari’s party losing last year’s election.

The panacea is coal, the cheapest fuel to generate power, albeit one of the most polluting.  Pakistan’s government plans to set up at least a dozen coal-based power plants across the country for which it has invited bids from private investors.  The country will use coal imported from South Africa and Indonesia before it develops and starts to use locally-mined lignite.

It helps that coal prices are falling.

“Coal prices are so low, everyone naturally gets an opportunity to switch,” said David Radclyffe, a Sydney-based analyst at CLSA Asia-Pacific Markets.

IMF Drives Pakistan to Coal in Bid to End Subsidies