Power generation costs surge 15.4pc on expensive coal import

KARACHI: The country's reliance on expensive imported coal for power generation has drained precious foreign exchange reserves, with the cost of electricity from this fuel source surging to a record high in April.

The cost of power generation from imported coal rose to Rs22.84 per kilowatt hour (KWh) in April, up 15.4 percent from the same month last year, data showed. This makes it the most expensive fuel source for power production.

Despite being the least preferred fuel source, imported coal still contributed significantly to power generation, with the country spending $1.5 billion on coal imports last financial year. This financial year's import bill is expected to be similar, analysts said.

The government has announced plans to convert power plants from imported coal to local coal; however, this may take some time to fully realize this objective.

Analysts said that the government should abandon imported coal for power plants completely; however, it is not doing so completely as the Gwadar Power Plant has been committed to running on imported coal under the latest indicative generation capacity expansion plan (IGCEP).

The import of coal has dropped significantly over the last few years after its price rose sharply in the global market. The country imported 19 million tonnes of coal in FY2020-21, which dropped to 18 million in 2021-22 and halved in the last financial year ended on June 30, 2023, when 9 million tonnes of coal was imported. “The import of coal in this financial year would be around 8-9 million tonnes,” said Farhman Mahmood, head of Research at Sharmen Securities.

Mahmood said the country spent $1.5 billion on coal imports last financial year and is likely to be spending almost the same this financial year when the final figures are available at the end of this fiscal.

Pakistan imports coal from South Africa, Afghanistan, and Indonesia.

Mahmood said South African coal is the most expensive, followed by Indonesian coal and Afghan coal.

Regarding power generation from imported coal, he said that electricity generation from this fuel is expensive compared to local coal because of its high price, so the government has planned to shift power plants from imported to local coal.

According to the power generation data, the electricity cost from imported coal came to 22.84 per KWh in the month of April during the current financial year, compared to 19.78 per KWh in the same month of the last financial year.

Apart from the high cost of power generation from imported coal and the spending of precious foreign exchange, imported coal also has serious consequences for the environment due to the industrial waste produced after it is burned in power plants for electricity generation. Its transportation from the port to power plants and its storage are major issues, posing threats to the environment.

Energy analyst Mustafa Amjad believes that the adverse impact of imported coal on the environment is known to everyone; "however, when we talk about economic terms, it has lost all its charm because of being expensive, as well as the capacity payments for power plants running on imported coal and the high operational costs of these plants".

He said that although the government has announced a shift from imported to local coal for power plants, the policy has not been completely scrapped, as under the latest IGCEP, it has been committed to operating the Gwadar Power Plant on imported coal.