BALOCHISTAN - MEETING WITH COAL MINE OWNERS

UNCLAS SECTION 01 OF 02 KARACHI 000342


SENSITIVE
SIPDIS

E.O 12956: N/A
TAGS: EMIN ENRG ECON PK

SUBJECT: BALOCHISTAN - MEETING WITH COAL MINE OWNERS


1. (SBU) Summary: In an October 16 meeting in Quetta, mine owners
said coal mines are the province's largest employer, with 100-250
thousand employees. Owners described the difficulty in finding
markets for their ore, attracting investment, and operating in areas
of lawlessness where violence and targeted killings (including of
mine owners) have pushed coal production down by 75 percent over the
past three years. End summary.

Importing Labor
--------------


2. (U) Pol and Econ Offs met October 16 in Quetta with seven
different coal mine owners to discuss Balochistan's coal mining
industry. The owners said coal is by far the largest product mined
in Balochistan, with between 500,000 and 1.8 million tons extracted
annually. Owners described Balochistan's mines as "improvised,"
low-tech operations, requiring significant human labor to mine,
package, and transport the ore. The owners estimate that between
100,000 and 250,000 workers are employed in mining or support
industries in Balochistan. Two thirds of the workforce is seasonal,
migrating from the Swat region following the harvest there and
creating a "mining season." In season, sufficient labor is
available until workers return north to begin planting the next
year's crops in the spring. "We pay our workers 500-800 rupees
($6-$9.50) per day, which is very high, but the work is tough and
dangerous so finding labor is always hard," they said.


3. (U) Owners described finding markets for the high-sulfur ore as
their largest challenge. Balochistan's coal is shipped primarily to
the Northwest Frontier Province and Punjab for use in brick-making.
Its high sulfur content (between 3 to 8 percent) makes it less
desirable for power generation and thus extremely difficult to
market abroad. While prices fluctuate significantly, owners said
their coal sells for between $30-$45 a ton, compared to $45-$60 for
low-sulfur coal. The construction of a washing plant, estimated to
cost USD $250,000 - $400,000, could sufficiently reduce sulfur
levels, making Balochistan's ore more marketable; however, a
"chronic lack of foreign and domestic investment" makes this option
unlikely. Owners opined that the construction of a thermal power
plant could also create a significant market, but again, a lack of
investment and political interest has thus far prevented such a
development.

Lawlessness Brings Down Productivity
--------------


4. (SBU) Owners said that lawlessness has reduced coal production by
75 percent over the past three years. Targeted killings and
organized crime have exacerbated labor shortages, led to the closing
of several mines, and cut off access to several viable mine sites.
"We all have to pay gangs/mafia in order to operate, but still there
is violence... and three mine owners have been among those killed."


5. (U) Owners said the Government's Inspectorate of Mines is
well-run, with mine inspections every few months, high safety
standards, and active enforcement of mining regulations such as a
requirement to have one mine manager for every three mines. Despite
these "high safety standards," mine owners estimate that 30 miners
are killed each year, with 18 workers killed in a single explosion
this past July.

Sector Needs Investment
--------------


6. (U) Owners described their efforts as "improvisational," with no
foreign or domestic investment, a lack of modern technology, and
continual uncertainty in the market. "We don't have the expertise
to maintain our equipment, so when something breaks we scavenge the
junkyards for parts." The limited market for Balochistan's coal
leads to dramatic swings in demand, particularly when the
brick-making industry stops production during rains and the monsoon
season. "Coal is like a vegetable," one owner explained, "it only
lasts about three months once it's out of the ground, so if you
overproduce and can't find a buyer you lose significant amounts of
money." The owners returned to their earlier theme that
construction of a thermal power plant, or washing plant to open up
wider markets, could help stabilize demand and increase mine profits

KARACHI 00000342 002 OF 002


and employment.

Comment
--------------


7. (SBU) The mine owners point to the law and order situation as
the reason for the decline in the industry, but believe that with
increased investment and an expanded market they will be able to
revive operations. However, there are larger problems confronting
them. Balochistan's long drought may pose difficulties in obtaining
the water required for coal washing. The building of coal power
plants would create a larger domestic market for the coal, and work
to resolve the country's power generation deficit. However, until
stability is returned to Balochistan, it is difficult for the
province to attract investors. End comment.

FAKAN