Govt develops policy to convert Thar’s coal to gas and liquid fuels [New Policy developed]

The government has developed a new policy for converting Coal-to-Gas (LTG) and Coal-to-Liquid (CTL) to tackle the declining domestic gas production and expensive fuel imports. Currently, the policy is being finalized with lucrative tax holidays and duty exemptions to make it a part of the upcoming federal budget 2022-23.

About the New Policy

The draft policy on Coal-to-Liquid and Coal-to-Gas has been prepared by Oracle Power and China National Coal Development Co (CNCDC). The objective of the policy is as follows:

To provide alternate uses of coal reserves in Pakistan, especially Thar coalfields, on a commercially viable and environmentally sustainable basis.

According to reports, the policy’s applicability will not be restricted to the Thar coalfield only. Institutional sale of synthetic diesel on a Business to Business (B2B) basis shall be on mutually agreed commercial terms. Still, it shall be sold with full disclosure that it is synthetic diesel, with the relevant specifications.

Speaking about the aim of the policy, the Special Assistant to Prime Minister on CPEC, Khalid Mansoor, said:

The policy’s initial aim is to scale up Thar coal production for CTG and CTL (diesel) conversion and set up a petrochemical complex for a chain of industrial products, and eventually move on to other areas for fertilizer, fuel, and agriculture security. We have already constituted a consortium of mining and power companies – already working at Thar Coal, including Shanghai Electric, Oracle Power, CNCDC — and fertilizer producers like Fauji, Fatima, and Engro.

Khalid Mansoor further shared:

A policy draft has been shared with all the stakeholders so that the policy can be finalized and included in the coming budget. Shanghai Electric has majority stakes in Thar Block-I and 1,320-megawatt power, while Oracle and CNCDC are partners in Block-IV and another 1,320MW plant. I have been successful in including the CTG and CTL initiative in the recent meeting of the Joint Cooperation Council (JCC) on the China-Pakistan Economic Corridor (CPEC). Financing could only be secured with the support of JCC.

Explaining the technical viability and challenges of the policy, the Special Assistant to Prime Minister on CPEC stated:

There is no doubt about the technical viability. I have seen several petrochemical complexes up and running in China. However, the main challenge would be to conclude policy and secure financing to move towards the execution phase and have plants in place by 2028. If CTG is successful, a large fertilizer plant can be set at the mine-mouth of Thar coal. The coal at the later stage would be moved through Thar coal rail – both North to South and South to North. Lucky Power Station of 660MW, which has just started trial power production, would ultimately be converted to Thar coal as required under the Power Purchase Agreement (PPA).

Elaborating further on the challenges, Mr. Mansoor said:

A regime change can affect momentum, but I hope the process continues as it is in the country’s long-term interest to have food and energy security. Only 1,000-2,000 tonnes of urea shortage created a crisis-like situation this year, so this is an issue of food security as well. Due to gas shortages, all existing fertilizer plants — currently producing about six million tonnes of the farming input — would have to shift to coal and ensure sustainable production. They would only need to change their front end.

The Policy’s Impact on Pakistan’s economy

Due to the late start, Pakistan has less than 15% of power generation capacity based on coal-fired plants. However, if Pakistan does not exploit its indigenous coal reserves, it will remain heavily dependent on imported thermal fuels.

As per the draft policy, Thar coal fields, being one of the largest lignite reserves in the world, needs to be commercially exploited, albeit in the new reality of clean fuels. The policy draft explains the regulatory framework in which coal can be converted into synthetic gas and synthetic diesel to displace oil and gas imports to some extent.

The New Policy’s Fiscal and Commercial Package

To encourage the deployment of such new technologies, the fiscal incentives would include waiving customs duty on all plants and equipment not manufactured locally for CTL and CTG technologies. Items manufactured locally will be charged a duty of 5%, for which certification of local manufacturing will be done by the Engineering Development Board (EDB).

There would be a complete waiver of withholding tax and sales tax on all imported equipment used in these plants. A lucrative 10-year complete income tax waiver from commercial operations for which prior timelines would have to be committed and met would also be part of the deal.

A company intending to become part of the policy would have to apply with the Board of Investment (BoI), stating:

  • It’s intention to put up a CTL or CTG plant
  • Identification of the local coal reserves that it intends to utilize
  • The offtake plan for the gas or liquids proposed to be produced.

Once the BoI has approved the application, the company will be eligible for such concessions.

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