Identifier
Created
Classification
Origin
09KARACHI61
2009-02-25 09:27:00
CONFIDENTIAL
Consulate Karachi
Cable title:  

SINDH - WILL THAR COAL FINALLY MATERIALIZE?

Tags:  ENGR EINV EFIN ECON PREL PK 
pdf how-to read a cable
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C O N F I D E N T I A L SECTION 01 OF 03 KARACHI 000061 

SIPDIS

E.O. 12958: DECL: 02/25/2019
TAGS: ENGR EINV EFIN ECON PREL PK
SUBJECT: SINDH - WILL THAR COAL FINALLY MATERIALIZE?

REF: A. KARACHI 32

B. KARACHI 20

Classified By: Classified by Consul General Stephen Fakan for reasons 1
.4 (b) and (d).

This is a joint Karachi-Islamabad report.

C O N F I D E N T I A L SECTION 01 OF 03 KARACHI 000061

SIPDIS

E.O. 12958: DECL: 02/25/2019
TAGS: ENGR EINV EFIN ECON PREL PK
SUBJECT: SINDH - WILL THAR COAL FINALLY MATERIALIZE?

REF: A. KARACHI 32

B. KARACHI 20

Classified By: Classified by Consul General Stephen Fakan for reasons 1
.4 (b) and (d).

This is a joint Karachi-Islamabad report.


1. (C) In a series of meetings in February, Embassy and
Consulate EconOffs have heard Thar coal development described
in both hopeful and skeptical terms. Sindh officials claim
confidently that Pakistan is "three years away" from mining
operations in Thar, adding that China and South Korea both
have expressed interest -- although President Zardari's
recent trip to China does not appear to have resulted in any
concrete projects on Thar. However, both a prominent Karachi
energy investor and the GOP point man at the Private Power
and Infrastructure Board (PPIB) harbor doubts that plans for
Thar will bear fruit soon -- despite the area's vast
potential -- due to opposition from oil interests, internal
politics and bureaucratic hurdles. Pakistanis at both the
provincial and national level are pinning their hopes on a
World Bank visit in March, during which they hope to finalize
a Memorandum of Understanding (MOU) for technical and
financial assistance that can cut through Pakistani
bickering. Officials at both levels also agree that help
from the U.S. Geological Service (USGS) in developing a
mineral map for the region would be of enormous benefit. End
summary.

--------------
Just One More Study Away?
--------------


2. (SBU) On February 13, Sindh Secretary for Mines and
Minerals Younus Dagha gave EconOff an overview of Sindh's
plans to develop the Thar coal resources. Dagha presented an
optimistic timeline of 6-12 months for additional studies,
followed by one to two years to dig the first open pit mine,
making three years before actual coal mining could commence.


3. (C) In a February 20 meeting with Islamabad EconOff, Asif
Ali Abro (please protect),point man on Thar coal at the
Private Power and Infrastructure Board (PPIB),stressed that
a hydrological study (currently lacking) was particularly
important because all three aquifers in the area are highly
pressurized -- once tapped, experts fear they will burst,

with unknown ecological costs. Thar coal's exceptionally
high water content makes it 50 percent heavier and thus more
expensive to transport (Ref B). This, Abro maintained, makes
it essential to bring the power plant to the coal, instead of
vice versa, as some developers have suggested. Depending on
the results of the hydrological study, water essential to run
the plant may or may not be readily available.


4. (C) Abro concurred with other assessments that high
shipping costs make Thar coal unattractive for export, adding
that technology to dry the coal was impractical. Without a
domestic client (read: power plant),Abro concluded that Thar
coal - despite its abundance - was prohibitively expensive to
develop. Dagha pointed out that any electricity generated
will then have to travel 100 kilometers to reach the national
power grid. He said each company will need to invest at
least $2 billion to conduct mining operations and described
the project "as too big a venture for a single firm to
handle."

--------------
World Bank Stepping Up?
--------------


5. (C) A World Bank delegation plans to accompany German
Consulate officials on a visit of the area in March to
examine the site. Dagha said Pakistan might then also sign
an MOU with the Bank that would, as part of a larger package,
provide technical assistance for developing Block One. Abro

KARACHI 00000061 002 OF 003


also spoke of the upcoming Bank visit in hopeful but cautious
terms. Bank officials, he asserted, placed too much faith in
the as yet non-functional Thar Coal and Energy Board (TCEB).
Established nine months ago to bridge the constitutional
divide on coal (Note: The Constitution awards provinces the
authority to develop mineral resources, while the national
government controls power generation over 50 MW. End note.)
TCEB's budget, although allocated, has not yet been issued.
Without funds, TCEB is still unable to hire experts,
establish offices, and essentially has only one full-time
staff member who works out of his home, instead of the joint
provincial-national staffing its mandate requires.


6. (C) Abro described TCEB's creation as an "understandable
response" to the Constitutional contradiction that has made
developing Thar so challenging, but said that its creation
failed to get at the real problem: mistrust between
provincial and national authorities. Abro noted that he had
told Bank officials about his concern over their intention to
create project management units attached to TCEB, but still
reporting separately to the national-level Ministries and the
Sindhi authorities: "This will only make things more
complicated and confused for investors." Abro said investors
want simple structures with clear lines of authority.


7. (SBU) In addition to a comprehensive study of Thar, Abro
maintained that Pakistan had an even greater need that he
intended to urge the Bank to address: while Pakistan has a
national policy for power generation projects, Abro said that
policy document is silent on coal. Without such guidance,
neither PPIB nor any other body is in a position to provide
assurance to investors as to the rules of the game in
Pakistan. Technical assistance from the Bank to develop that
policy, above what they may provide to strengthen TCEB and
examine Thar, is a must, according to Abro.

--------------
Other Assistance
--------------


8. (SBU) Dagha asked for help from the U.S. Geological Survey
(USGS) to develop a geological map of the coal deposits and
to determine if coal bed methane is present in the Thar coal
seams. Abro also expressed interest in possible USGS mapping
assistance, and joined our lament that, thus far, Pakistani
security concerns have precluded the GOP accepting USGS
assistance that has been on offer for years.

--------------
Foreign Interest...
--------------


9. (SBU) China is reportedly interested in developing the 55
km Block Two and the China National Machinery Company has
also expressed interest in building an electrical power plant
in Thar (Ref A). Despite expectations that President Zardari
would discuss investment in Thar during his recent visit to
China, no MOU appears to have resulted.


10. (SBU) According to Dagha, South Korea's state-owned KEPCO
would also like to invest in Thar coal development, and has
reportedly even made inquiries about purchasing some of the
coal. Dagha also reported that ENGRO, a chemical and energy
firm formerly owned by Exxon, is also interested in Thar
coalfield investments.

--------------
...But Domestic Business Has Doubts
--------------


11. (SBU) Farooq Hassan, a large shareholder in the Karachi
Electric Supply Company (KESC) and a partner in the
successful Uch Power Plant, told EconOff that he believes
Thar coal is the immediate solution to Pakistan's energy
shortage. However, Hassan said that although (by his
estimate) seven trillion dollars worth of coal awaits mining

KARACHI 00000061 003 OF 003


in Thar, he did not believe that the GOP is serious about its
plans to develop the coal fields. He accused Pakistan's oil
industry, particularly the Pakistan State Oil Company, of
blocking coal-based energy development plans. Hassan said
his past attempts to develop energy resources have been
frustrated by the country's internal politics and
"mindboggling" bureaucratic obstacles. (Note: Hassan holds
exploration rights to a 64 square kilometer portion of the
Thar coalfield. End Note.)

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


12. (C) The development of Thar coal has been "imminent" and
"essential" for years. Follow-through has been lacking
because of federal-provincial jurisdictional squabbles and
prohibitive development costs. The arrival of TCEB on the
scene can be interpreted as a positive step; but unless the
GOP follows through to get the office up and running -- and
working cooperatively with Sindh authorities -- we doubt that
TCEB alone can exert sufficient leadership to cut through the
bickering bureaucracies.


13. (C) We hope the World Bank can capitalize on the fact
that the GOP may still be smarting from public anger over
widespread power shortages in the fall and winter (and
expected again this summer) to compensate for lower world
petroleum prices that could easily reduce GOP incentive to
get serious about Thar. A World Bank acting as "honest
broker" between national and provincial officials could be a
catalyst to break this longstanding logjam.
FAKAN