Govt plans coal conversion to gas, liquid fuels

Amid declining domestic gas production and expensive fuel imports, a new policy for conversion of Coal-to-Gas (LTG) and Coal-to-Liquid (CTL) with lucrative tax holidays and duty exemptions is being finalised to be made part of the upcoming federal budget 2022-23.

Informed sources said the draft Policy on Coal-to-Liquid and Coal-to-Gas was prepared by Oracle Power and China National Coal Development Co (CNCDC).

The policy, according to the Special Assistant to Prime Minister on CPEC Khalid Mansoor, is aimed initially at scaling up Thar coal production for CTG and CTL (diesel) conversion and setting up a petrochemical complex for a chain of industrial products and eventually move on to other areas for fertiliser, fuel and agriculture security.

“We have already constituted a consortium of mining and power companies – already working at Thar Coal including Shanghai Electric, Oracle Power, CNCDC — and fertiliser producers like Fauji, Fatima and Engro,”

A policy draft had been shared with all the stakeholders so that the policy could be finalised and included in the coming budget, he added.

Shanghai Electric has majority stakes in Thar Block-I and 1,320 megawatt power while Oracle and CNCDC are partners in Block-IV and another 1,320MW plant.

He said he had been successful in including the CTG and CTL initiative in the recent meeting of the Joint Cooperation Council (JCC) on China-Pakistan Economic Corridor (CPEC). Financing could only be secured with the support of JCC, he added.

“There is no doubt about the technical viability,” he said when asked about the CTG and CTL, adding that he had himself seen a number of petrochemical complexes up and running in China.

He, however, said the main challenge would be to conclude policy and secure financing now to move towards execution phase and have plants in place by 2028. He said if CTG was successful, a large fertiliser plant could be set at the mine-mouth of Thar coal.

The coal at the later stage would be moved through Thar coal rail – both North to South and South to North. Lucky Power Station of 660MW which has just started trial power production would ultimately be converted to Thar coal as required under the Power Purchase Agreement (PPA).

Mr Mansoor, however, agreed that a regime change could affect momentum but hoped the process would continue as it was in the long-term interest of the country to have food and energy security. “Only 1,000-2,000 tonnes of urea shortage created a crisis-like situation this year, so this is an issue of food security as well,” he said.

“Due to gas shortages, all existing fertiliser plants — currently producing about six million tonnes of the farming input —would have to shift to coal and ensure sustainable production. They would only need to change their front end,” he added.

The objective of the policy is to provide alternate uses of coal reserves in Pakistan, especially Thar coal fields, on a commercially viable and environmentally sustainable basis but its applicability will not be restricted to Thar coal field only. Institutional sale of synthetic diesel on a Business to Business (B2B) basis shall be on mutually agreed commercial terms but shall be sold with full disclosure that it is synthetic diesel, with the relevant specifications.

Due to late start, Pakistan has only less than 15pc of power generation capacity based on coal fired plants.

“However, if Pakistan does not exploit its indigenous coal reserves, it will remain heavily dependent on imported thermal fuels. Thar coal fields being one of the largest lignite reserves in the world needs to be commercially exploited, albeit in the new reality of clean fuels,” the draft policy argues.

It explains the regulatory framework in which coal can be converted into synthetic gas and synthetic diesel, to displace oil and gas imports to some extent.

Fiscal & Commercial Package

To encourage deployment of such new technologies, the fiscal incentives would include waiver of customs duty on all plant and equipment, not manufactured locally, for CTL and CTG technologies. Items manufactured locally will be charged a duty of 5pc for which certification of local manufacturing be done by Engineering Development Board (EDB).

There would be complete waiver of withholding tax and sales tax on all imported equipment used in these plants on top of a lucrative 10-year complete income tax waiver with effect from commercial operations for which prior timelines would have to be committed and met.

For a company to be eligible for such concessions would have to file an application with Board of Investment (BoI) that it intends to put up a CTL or CTG plant, identifying the local coal reserves that it intends to utilise, and the offtake plan for the gas or liquids proposed to be produced.

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