‘Low quality coal sector vulnerable to global price shocks’

KARACHI: Pakistan has an abundance of low quality coal and major consumers prefer importing coal that possesses higher heating value with less residue slag, which exposes the sector to international price fluctuations and exchange rate movements, a study said.

International crude oil plays a vital role in determining the global coal price. Rising concern about global warming, negativity towards fossil fuels and a shift towards decarbonisation as well as Russia-Ukraine war have led a negative effect on the price of both coal and oil, said a study of Pakistan Credit Rating Agency (PACRA).

The trend is observable in the price movement of these two fossil fuels and it largely remains in the same direction. Also, as major portion of the energy products is imported into Pakistan, both sectors are exposed to exchange rate movement as well.

The share of imported coal has significantly decreased in the supply mix of the country from 33 million tonnes in FY22 to 6.6 million tonnes in the first nine months of FY23. In percentage terms the decline from FY22 to first nine months of FY23 is 80 percent, largely owing to high coal prices and rupee devaluation, in addition to import restrictions imposed by the State Bank of Pakistan (SBP) during the said period.

Coal in Pakistan is made available broadly from two sources, extraction and imports. Exports of coal to other countries are almost non-existent. Pakistan has an estimated 186 billion tonnes of coal reserves as of 9MFY23 with around 99 percent coal reserves of the country found in Sindh.

The local price is linked to international price of coal, exposing the consumers to international price fluctuations and exchange rate risk.

During the nine-month period, the import of coal stood at 6 million tonnes. Coal consumption of cement has significantly declined from 42 million tonnes in FY22 to 15 million tonnes in nine months of FY23, whereas in percentage terms there has been a decline of 30 percent from July-March FY22 to the same period in FY23.

In terms of sectoral usage, power sector uses most of the coal and the share has increased to 47 percent during 9MFY23 from 44.5 percent during the corresponding period last year.

Over the first nine months of FY23, coal consumption by the power sector was recorded at 47.3 percent. The percentage share of hydel in total installed fuel-wise capacity has marginally increased to 26 percent during 9MFY23, whereas the percentage share of thermal remained the same in the said period at 59 percent when compared to the same period in FY22.

However, there has not been much of a difference in total power production, which stood at 24,095MW in nine months of FY23 compared to 24,710MW during same period of last year.