Gwadar Coal Power Plant To Provide Power To Industries Once Finished

According to recent reports, the Industrial and Commercial Bank of China (ICBC), the country’s biggest commercial bank, provided financing for the plant.

Gwadar Coal Power Plant To Provide Power To Industries Once Finished

Initially conceived in 2016, the Gwadar coal power plant is expected to cost USD 542.32 million. The state-owned China Communications and Construction Group subsidiary CIHC Pak Power, a Chinese company, will build it. According to recent reports, the Industrial and Commercial Bank of China (ICBC), the country’s biggest commercial bank, provided financing for the plant.

The Gwadar Free Zone (GFZ), a special economic zone at Gwadar port that is a part of the China-Pakistan Economic Corridor (CPEC), the USD 62 billion bilateral infrastructure and connectivity project between China and Pakistan, is intended to provide power, on a priority basis, to the industries being established there once it is finished.

Shah Jahan Mirza, managing director of the Pakistan government-owned Private Power and Infrastructure Board, told The Third Pole that his organisation is pressuring the Chinese company to complete its financial closure by December 31, 2023, and to begin construction as soon as possible so that it can be finished by 2025. The greatest obstacle to the development of Gwadar, he claimed, is a lack of electricity.

The majority of Pakistan’s energy comes from fossil fuels. The country’s Finance Division estimates that as of April 2022, coal, gas, and oil made up just under 60% of all installed generation capacity. In the fiscal year 2022, only 3% of electricity was produced using renewable non-hydro sources.

Pakistan’s Nationally Determined Contribution (NDC), which constitutes its climate commitment under the Paris Agreement, aims to generate 60% of renewable energy, including hydropower, by 2030. Additionally, the NDC states that “new coal power plants are subject to a moratorium beginning in 2020.”

Xi Jinping announced in 2021 that China would not build any new coal-fired power projects abroad and would increase support for low-carbon energy in developing countries.

Bao Zhong, political counsellor at the Embassy of the People’s Republic of China in Islamabad, told The Third Pole that the Chinese government stands by the pledge and is pushing the Chinese company to complete its financial closure by December 31, 2023, and start construction at the earliest possible time so that it can be completed by 2025. The electricity shortage is the biggest impediment to developing Gwadar.

In April 2022, China’s National Development and Reform Commission (NDRC) released an interpretation of the 2021 pledge, clarifying a moratorium on all “new build” projects. Some commentators suggested that the wording also left the door open to renegotiating contracts and pursuing alternatives to coal.

Azhar Lashari from the Policy Research Institute for Equitable Development (PRIED) believes that China’s continued support for the Gwadar coal power plant violates the NDRC interpretation as no civil works have started. However, Bao of the Chinese Embassy in Islamabad said that the preparation for construction of the power plant is almost ready and it would be unfortunate if hurdles came in its way.

The delay in starting construction was due to problems in land acquisition and environmental approvals by the Balochistan government, lenders, and Chinese state-funded insurance company Sinosure.

The tariff was determined in 2019, but the land acquisition and power purchase agreements were not signed until 2020. The Pakistani government had attempted to shift the project to Thar, a district rich in lignite coal reserves, but China has taken a principled stand not to support new coal projects. China has examined the plant thoroughly from all perspectives, including the environmental one, and made an effort to consider alternatives. Coal is the only practical fuel.

The only way to help Pakistan develop Gwadar and draw in investment is to give it access to reliable power. How the Gwadar coal power plant fits into the long-term energy policies of the Pakistani government has also been called into question.

At the 2020 Climate Ambition Summit, Pakistan’s former prime declared to the world that his country had “decided that we will not have any more power based on coal” and that two CPEC-approved power projects, Muzaffargarh and Rahim Yar Khan, which were to use imported coal, had been abandoned. Additionally, he stated that Pakistan would concentrate on using coal to produce energy.

Last year, the Pakistan government was trying to persuade China to replace funding for the coal plant at Gwadar with investment in solar plants of equivalent capacity. Haneea Isaad, energy finance analyst at IEEFA, argued that this was a negation of the previous government’s pledge to not produce any more power from imported coal.

Khalid Mansoor, former special assistant to the prime minister on CPEC affairs, argued that the GFZ needs uninterrupted power from gas, oil, or coal and that the 300 MW coal power plant will be a lifeline for Gwadar. Minister for Planning, Development, and Special Initiatives argued that coal is the cheapest option and that solar power can be used for homes and smaller ventures but cannot provide undisturbed electricity to big industries.

Shah Jahan Mirza of Pakistan’s Private Power and Infrastructure Board confirmed to The Third Pole that the Gwadar power plant is to use high-quality imported coal, not the lignite coal produced in the Tharparkar coal mines of Pakistan’s Sindh province.

“Had we used Thar coal at the Gwadar power plant, not only would it have reduced the power tariff for customers, it would have reduced our import bill,” said Mansoor.

“But without a railway line, it was logistically not possible to transport lignite Thar coal right now. The coal project at Gwadar was conceived several years ago when coal was cheap and there were other projects on imported coal being set up in the country,” said Vagar Zakaria, an energy expert with environmental consulting firm Hagler Bailley Pakistan. “The economics don’t work out now with coal prices so much higher,” he added.

IEEFA’s Isaad is concerned that increasing coal imports at a time when Pakistan is experiencing a serious foreign exchange crisis will “exacerbate the economic hardships we’re facing today. At the end of the day, she declared, “power planning needs to be separated from the political whims of the ruling party.”