Black Gold of Thar

Majyd Aziz

Pakistan has been blessed with many resources that could thrust the nation into the ranks of major developing nations, reduce dependence on fuel imports, and provide opportunities for foreign exchange accumulation. Gwadar Port and Thar Coal are destined to be knights in shining armor of the motherland. Pakistan's history manifested a serious lack of urgency in developing these bounties. Pakistan has lost considerable momentum in the march towards economic prosperity due to the lackadaisical attitude towards these two projects. Without attempting to discuss conspiracy theories or indifferent mindset of decision makers or even machination of vested interests, it is sufficient to express the opinion, that for whatever reason, Pakistanis suffered.

Gwadar emerged in real time on the radar after the advent of CPEC and the process is moving at desired speed to enable Gwadar to become the game changing catalyst. Despite reservations of some regional countries, the fact is that fast track development and operation of Gwadar is in motion. Then there is Thar coal.

The conventional wisdom over the past many moons was that Thar coal is an illusion and not a reality. The 175 billion tons of coal reserves and the claims of 100,000 MW for the next two centuries, although over-hyped, were considered as soothing pills for the masses. There were loud whispers that, like the Quixotic misadventure of a nuclear scientist to promote underground coal gasification, the mining of coal and generation of electricity would be a far-fetched dream.

However, a well-defined private-public partnership between the Sindh government and a consortium spearheaded by Engro Corporation has taken the bull by its horns and today the dream is rapidly turning into a certainty. Recently, the Sindh Engro Coal Mining Company (SECMC) hosted a visit of 60-member delegation of energy experts, energy activists, and concerned citizens, including this writer, to Thar. The on-ground visit evaporated the misconceptions, doubts, and perceptions to a large extent.

Mr Shamsuddin Shaikh wears two hats. He is CEO of SECMC as well as Engro Power Gen Thar. He epitomizes the real essence of a gracious host. While briefing the delegation, he stated that since its formation SECMC has come a long way. It completed Bankable Feasibility Studies (BFS) on development of a mine and associated power project in Thar Block II. This was followed by a long and arduous journey to achieving Financial Close of the projects including changing perceptions that people had developed about Thar Coal following false starts of development during 1990s and early 2000s. SECMC finally achieved financial close in April 2016 and since then has made remarkable progress and remains on target to complete the projects by June 2019.

There are 13 Blocks within 9,000 square km and SECMC was allocated Block II that contains 1% of Thar coal reserves. This Block has exploitable reserves of 1.57 billion tons and can produce 5,000 MW for 50 years. He disclosed that the heating value, sulphur content, ash, and moisture are comparable to coal mines in Gujarat, India and Hambach, Germany.

The overarching question is whether this mine would be able to provide the required coal to the planned power plants at the mine mouth. Mr Shaikh explained that in 2010, when SECMC completed the initial BFS for 6.5 mtpa, it was decided that it was only a beginning. A conceptual study done by RWE Germany showed that the mine could be expanded up to 22 mtpa. At this size, the mine can cater to 3960 MW of generation capacity. During the development of the project, SECMC has kept updating its knowledge base on expansion. A study was undertaken by DADI Institute China for the expansion of the mine up to 7.6 mtpa to provide coal for the upcoming power plants.

The current approved power plants at the mine mouth are Engro Power Gen Thar power plant of 330X2 mw alongwith HUBCO 330X1 and ThalNova 330X1 who would be supplied coal supply by SECMC. The encouraging news is that three more power plants would be announced shortly. Moreover, Lucky Electric Power recently announced that its upcoming power plant at Bin Qasim would be based on Thar coal because the government has stopped the setting up of new power plants based on imported coal.

The good news coming out of Thar has instilled a bright ray of hope. A trip to the area of activity changes the entire perception many have about Thar coal. The road to Thar is world class, something that one would not expect to find in interior Sindh. The SECMC complex is very efficiently secured, is purpose-built, and is superbly administered. The EPC Contractor is the China Machinery Engineering Company and thus over 400 Chinese are diligently working to meet the targets.

As is usually the case, much ado is created regarding the displacement of Tharis, the critical environmental issues, and the avowed mindset of pseudo-socialists who cannot digest the fact that private sector is concerned about corporate social responsibility and not just profits. SECMC had put paid to this hullabaloo by structuring a Corporate Social Responsibility program that can be termed as a pioneering initiative unheard of previously in Pakistan.

Mr Shaikh, who is leading the project since 2012, is gung-ho about the CSR initiatives undertaken by SECMC. The CSR theme of SECMC is "Towards a Better, Brighter Thar". The company vision is "SECMC, together with its partners and the Government of Sindh, will work to provide its communities with improved quality of life and a better, brighter, and prosperous future for its coming generations". In his presentation, he highlighted the various social projects and, at times, he sounded more like a social activist rather than an enterprising technocrat. The Thar Foundation envisages five areas of CSR activity. These are health, education, livelihood support, infrastructure development, and social preservation.

The Marvi Mother and Child Clinic, that at present provides free medical services and medicines to over 2,000 patients every month, will soon become a 70 bed hospital managed by Indus Hospital. It has covered 100% school going children of Block II from Hepatitis while more than 4,000 people vaccinated under the community vaccination coverage. SECMC and The Citizens Foundation will establish school campuses in each taluka of Tharparkar. The first campus, in Islamkot, would commence in 2017 with atleast 1,000 students.

The company has set up and will continue to place reverse osmosis drinking units in all the community settlements so that Tharis would be able to drink and use quality water instead of the brackish water consumed now. The Green Park has been established with over 150,000 locally grown saplings and this process would keep on continuing. Mr Shaikh informed that for every tree felled, SECMC plants ten trees against the obligated three saplings. A very noble environmental protection gesture. This writer was also invited by Mr Shaikh to plant a tree.

Another laudatory initiative is social preservation. SECMC plans to restore archeological sites that are a part of the rich Sindh history. Moreover, it has collaborated with Sindh Endowment Fund to sponsor and produce a Coffee Book that is a pictorial tribute to Tharparkar and indigenous people of Thar.

A very impressive and highly appreciated project is the resettlement of residents of displaced settlements. SECMC is building custom-designed villages where each home, costing over Rs 3.50 million each and depicting the local architectural heritage, would be handed over to the displaced persons. Initially, 171 such homes are envisaged. Masjids, Temples, community centers, common Otaqs, water tank towers, bus stands, markets, and milk collection centers, etc are part of the resettlement scheme.

The company has assiduously pursued the program to provide meaningful employment to the denizens of the area. At present, nearly 1,000 of them are working on various jobs. Thus, a positive social paradigm shift has evolved for these residents. Most of the drivers of trucks, dumpers, and shovels are locals and the salary they earn is beyond their imagination.

A pertinent concern is that the feasibility plan of the proposed power plants has a clause that in case of shortage in coal supply, they would resort to utilizing imported coal. It is like taking coals to Newcastle! Would this not give credence to the negative reports that full supply may not be possible from SECMC in the short run? Mr Shaikh explained that since mining at this scale is being done for the first time in Pakistan, banks and investors in power projects required an alternative source of fuel to be available in case the mine is unable to fulfill its obligation due to any reason. However, this condition is no different from any other power project where plants are required to show alternative source of fuel. Thus, to make these projects bankable, the government allowed these plants to run on imported coal as a backup during periods of mine unavailability or downtime.

Thar coal, like Gwadar, will definitely be the game changer and the engine to drive Pakistan on the avenues of self-dependency, social quality, and economic prosperity. The 220 million citizens are waiting for the electricity generated from Thar coal to light up their homes, roads, and the industries. On a personal note, my company introduced imported coal in Pakistan and our determined efforts enabled cement mills to convert to imported coal. Nevertheless, as a patriotic Pakistani, I am substantially convinced that Thar coal is indeed the savior of Pakistan. A piece of Thar Coal is now in my Archives. Mr Shamsuddin Shaikh very aptly commented, "'It is your destiny to change the destiny of people of Thar.' This was the advice given to me by my President while assigning me to this job."

Exports out of STPF

Majyd Aziz

The Strategic Trade Policy Framework (STPF) 2012-15 was formulated after a reasonable evaluation and analysis of STPF 2009-12. The focus of the three-year strategy was to enhance export competitiveness through an integrated approach rather than jumbling around with piecemeal actions. The vision was to introduce pragmatic and sustainable measures to achieve the objectives. As usual, the regulatory amendments were given priority but incentives for exporters received a lukewarm support, largely due to non-availability of resources.

The increase in the export base during the tenure of the STPF 2009-12 was largely due to the efforts of the private sector and primarily due to global demand rather than any outstanding policies of the government. The figures did give impetus to the Ministry of Commerce to prepare a viable framework rather than a three-year vision. The buoyant atmosphere at Ministry of Commerce and TDAP when exports nearly hit the $25 billion landmark for 2010-11 was all-embracing. That year, exports jumped over 27%.

That was when serious planning as well as adopting a visionary outlook should have been considered. The fundamentals were in place and the time to strike iron while it was hot was then. However, the euphoria faded away when the consecutive years witnessed a dark period in the export regime. There was no handholding between the government and the exporters as envisaged in the three year STPF. The concerned Ministries and TDAP did not realistically harness the global as well as domestic trade dynamics. Blame was laid on factors beyond the control of the decision makers. The ensuing result was that the export regime took a big jolt.

STPF 2012-15 was billed as the most formidable strategy that would catapult Pakistan's exports on a much higher plateau. Exports would definitely be given topmost priority through introduction and implementation of far-reaching incentives and support. The downslide in exports would be addressed seriously and the resultant inflow of export proceeds would reduce dependence on international financing institutions. At the same time, remittances from the Pakistani Diaspora would further strengthen the Foreign Exchange Reserves. Despite infrastructure shortages, intensive competition from regional rivals, and various exigencies in the global marketplace, Pakistan would be able to maintain a rising trajectory in global trade.

The right buzzwords were highlighted in the policy. Fifteen elements were to be addressed and the die was supposedly cast to make exports the engine of growth. TDAP was promoted to be the focal center to ensure that it adhered to its laid down objectives of ensuring a fast moving export regime through a defined linkage between enhancing exports and development of domestic trade and commerce. There was a need to institutionalize the reforms through a sustainable mechanism so that the foundation would be solid and effective. Regional trade was targeted to be the launching pad and it was decided to establish the Pakistan Land Port Authority to ensure effective facilitation. EXIM Bank was another planned initiative. Amendments in the regulatory framework were to be undertaken in a fast mode. In short, a sweeping revamping of the system was to be taken up to achieve the export objectives. The STPF laid down four enablers to achieve the targets: Competitiveness, Compliance with international standards, policy environment, and market access. The sad fact is that there is no progress or sincere initiative to implement these enablers.

However, there is a wide gap between initiating and envisaging policies and incentives and their eventual implementation. The slow pace and the lackadaisical attitude in implementation tightened the noose around the necks of the exporters. In short, the exporters continued to be between the devil and the deep blue sea. The dismal trade figures even today are a direct outcome of the non-implementation of the vision.

Then, as well as now, the hard-boiled, non-support of the Ministry of Finance in releasing Export Development Funds as well as refunds of taxes further exacerbated the travails of the exporters as well as Ministry of Commerce. Thus, exports continue to be depressed and difficult.

The above analysis is more export-focused because the impact of imports is due to the price variations of world oil prices, the increased domestic demand for edible oil, the huge inflow of agriculture products mainly due to floods, low productivity and efficiency of the agriculture sector, unnecessary imports of consumer goods, higher demand for automotives, and informal trade of various essential and non-essential products.

STPF 2015-18 was envisaged as a functional model with clearer targets than what was planned for its predecessor. The export target was $35 billion, rather unrealistic considering the fact that there were declines in the previous years and that the infrastructure situation needed to be properly addressed. Moreover, the oil prices were declining especially when positive news was emanating from the negotiations between P5+1 and Iran on the nuclear issue. At the same time, the Ministry of Finance was adamantly averse to the idea of settling the refunds of the exporters. There was, and is, a blatant disconnect between the Commerce and Finance Ministries.

The Commerce Minister travels all over the world but has not been able to make any progress in exports. TDAP is a redundant organization. Overall, there is no real time ownership of the STPF in the corridors of power. The export package is still gathering dust despite intensive lobbying. Refunds are released by FBR in trickles or droplets rather than clearing the outstanding amounts in one go. Objectives should be achieved through a holistic approach rather than in an ad hoc manner.

There is a need to close down TDAP, TCP, and other such organizations since it is actually the domain of private sector as well as Chambers and Associations to develop the foreign and domestic trade. Private sector organizations should be tasked with marketing and promoting international trade. It should not be left to the bureaucracy to indulge in trade and commerce. Billions can be saved if these redundant and ineffective organizations are closed down for good.

The vision of making a positive transition from the factor-driven mode to efficiency driven structure with emphasis on innovative economy is still a pipedream and not adopted even by the private sector. Moreover, the plans to solidify and enhance regional trade are still tottering. There is no marked progress in intra-SAARC trade and Pakistan has not substantially penetrated the Central Asian States, except in pharmaceuticals. Trade with Afghanistan is moving from the formal sector to the reliable and lucrative informal sector, mainly due to vast experience of the players in moving the goods under the Afghan-Pakistan Transit Trade Agreement. Bilateral trade with Iran is mostly through third countries because of the reluctance on the part of SBP to revisit the banking channels rules.

The comforting hope is that bilateral trade with China would cover the shortfall in regional trade. However, Pakistani exporters have also not had a significant success in this context while importers are having a field day in procuring Chinese goods, raw material, and equipment. CPEC is being promoted as a conduit for increased Pakistani exports but the ground realities negate this premise.

Economic diplomacy cannot be effective when most of the commercial consuls and trade officers in Pakistan's diplomatic outposts are appointed on political grounds or through nepotism rather than on merit. Most of them spend time as protocol officers rather than as business go-getters. This is the general complaint of the private sector and, hence, most of them avoid utilizing the services of these officers. Free Trade Agreements, Preferential Trade Agreements, and other bilateral or multilateral agreements are usually not in the larger interest of the country. In essence, trade diplomacy has been an abject failure.

The STPF is very silent on upgrading, processing, and marketing of minerals. It focuses more on traditional products and goods rather than making a paradigm shift. Rice, horticulture, jewelry, and meat products are to be promoted alongwith textiles, leather, sports goods and specific fruits like mango or kinnow. The export base is still narrow and this is one prime reason why exports have not rushed upwards. Exports of minerals can cross double figures in billions of Dollars within five years if there is a dedicated and determined outreach towards this sector.

Achievement of $35 billion exports by 2018 seems to be a difficult task. A 75% increase in exports in the next 18 months is highly improbable. Therefore, it is important to concentrate on real time projections rather than abstract targets. No action plan can reach fruition if there is a disconnect between policy planners and downstream implementers. Moreover, the volatility of the global marketplace as well as the strong and fierce competition for global market share are large hurdles that need to be surmounted. The decrease in oil prices led to reduction in the value of exportable goods worldwide. Pakistan has not been able to cash in on the new scenario. The Pakistani exporters, by and large, are deficient in marketing, in promotion and in networking. Moreover, the negative image of the nation has been a debilitating factor too.

Despite the grave scenario, Pakistani exporters are persevering and ensuring maximum utilization of their facilities albeit at a lower profit margin. In the short-term, exports would not increase at optimum levels. The pro-active measures, if undertaken by the government, may enable Pakistan exports to rise upto $23 billion by end of fiscal year 2016-17. An upsurge in economic activity, with better availability of utilities, sales tax refunds, lower markup rates, stable oil prices, better law and order situation, political stability, and much needed incentives may enable Pakistan to cross $28 or $ 30 billion by end of fiscal year 2017-18. The government must become a sincere facilitator and must use all resources to implement the framework and its policies. Exporters must get out of their complacent posture and target regional countries and even Russia. The theme should be regional economic integration and this must be the rallying point for all stakeholders. Pakistan may achieve the export target of STPF 2015-18 by end of calendar year 2019 or by end of fiscal year 2019-20 but if all systems are in fast track position, then the upward movement in export figures may become a reality.