Ghias Khan: Engro’s vision under CPEC for energy & agriculture

President & CEO Engro Corp Mr. Ghias Khan explains how Thar coal mine's development and Engro's increasing work in agriculture is aligning with CPEC's priorities to harness Pakistan's indigenous resources.

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Thar Coal mine project was formally initiated and talked about since 2008 in Sindh – what was achieved before it became part of CPEC?

Thar Coal was discovered in 1992 as the seventh-largest coal reserves in the world, with a potential to generate up to 100,000MW of electricity for many decades. Due to changes in the political setup and slow progress on infrastructure projects, work on Thar coalfields could not gain much momentum in the following years. In 2009, the Sindh Engro Coal Mining Co (SECMC) came into existence as a public-private joint venture under the leadership and guidance of the Government of Sindh. The Thar Block II was leased to Sindh Engro Coal Mining Company (SECMC) in 2010 to develop a technically and commercially viable open pit mine in Thar Block – II. The total allocated area of 95.5km2 in Block II has been leased to SECMC for 30 years, further extendable to another 30 years for extraction of coal.

Meanwhile, the government launched a program to build the required support infrastructure in the area. In 2010, a study by Sinocoal International Engineering Research & Design Institute of China and other experts concluded that the project is technically, commercially, environmentally and socially feasible. It was in 2014 that SECMC’s mining project and EPTL’s power project was categorized amongst the ‘early harvest’ projects under CPEC to generate electricity utilizing Thar’s untapped coal reserves. Without the Chinese funding, it would have been practically impossible for the project to finally take off and take Pakistan a step closer to realizing the Thar dream of utilizing indigenous fuel.

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What were the considerations for bringing it into CPEC and what has been achieved so far?

It is important to note that the Thar Block II mine and 660MW power project managed by SECMC and EPTL respectively are the largest private investment under CPEC and are part of the early-harvest component of the CPEC framework, being the only investments which are 95% owned by Pakistanis. When CPEC was being planned, Pakistan faced chronic energy shortages that led to closure of factories, cancellation of export orders, loss of nearly half a million jobs and we became uncompetitive compared to other Asian economies. Therefore, CPEC prioritized the energy security of Pakistan by harnessing cheap, indigenous coal resources so that reliance on imported oil and gas could be reduced.

Whilst work on the project had been in motion since 2010, the real mining work commenced post the financial closure in April 2016. SECMC unearthed the first layer of coal in July 2018 and declared commercial operations date by reaching the final layer and completing all tests and inspections on July 10, 2019. Since its commissioning, the first of the 660MW Thar coal power projects has provided over 4,000 GwH to the national grid and saved up to USD 130 million against LNG and USD 80 million compared to imported coal. Further, the project has created a strong socio-economic impact by providing local Tharis with better jobs, schools, hospitals and access to clean drinking water.

SECMC is a joint venture between several companies – what specialized skills or complementarity are each of these company bringing to the project?

SECMC is an exemplary public-private partnership between Government of Sindh (GoS), Engro Energy Limited and its partners namely Thal Limited (House of Habib), Habib Bank Limited (HBL), Hub Power Company (HUBCO); China Machinery Engineering Corporation (CMEC) whereas Houlinhe Open Pit Coal Mine, subsidiary of SPI (State Power International) Mengdong (SPIM), has joined the SECMC Board as strategic investor with preference shares’ subscription.

The beauty of this partnership is that each of these partners has brought to the table their expertise in developing a complex project of this massive scale with operational excellence, financial strength and business acumen to ensure that the project reaches fruition. Specifically, the Federal government and Government of Sindh have played a catalytic role in the development of the project. The Government of Sindh has been responsible for key infrastructural projects and deployment of an enabling environment for the development of the Thar coal projects. These infrastructural developments include construction of almost 300 kms of road networks from Karachi city to Thar, construction of an airport in Thar, development of housing facilities in Islamkot, and water schemes for the mine and power projects.

There are many ecological concerns that while the rest of the world is moving away from Coal Pakistan is moving towards it – what safety measures are you implementing to ensure no harm to the environment.

Firstly, this is an incorrect assumption that the world is moving away from coal as a source of energy. Around 40 percent of global electricity generation is still being done from coal. Meanwhile, the use of coal in Pakistan’s energy mix is currently only between 10% to 12%. Further, data available with New Energy Outlook 2019 as released by Bloomberg ascertains that a number of countries have planned additions of coal-fired power plant to their energy mix including planned additions of over 200,000MW in China; more than 51,000 MW in India; almost 11,000 MW in Japan and approximately 27,000MW in rest of the world from 2018 to 2025.

It is important to highlight that the Thar mine & coal-fired power projects have been designed and developed under applicable regulatory environmental guidelines. Based on the studies conducted by reputable international consultants, the projects were designed to comply not only with the Sindh Environmental Quality Standards (SEQS) as a mandatory requirement but also voluntarily compliance with IFC (a subsidiary of World Bank) emission & air quality standards. Independent third-party monitoring studies have also shown minimal incremental impact of emissions which are all within the allowable environmental limits.

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The best available control technologies are being utilized and operational excellence standards are being maintained to keep all such emissions well within the provincial, national and globally accepted limits. In addition, various technological modifications have also been used in the design of the projects to ensure that the environmental emissions remain minimal. Unique initiatives such as the Thar Million Tree Program; bio-saline agriculture & aqua-culture; biodiversity restoration programs for vultures and peacock fowl; have also been initiated with a firm focus to enhance our environmental stewardship agenda in the region.

What is your exposure in renewable energy projects? Do you see that as the way forward?

We believe that renewable energy offers a sizeable opportunity over the long-term to meet Pakistan’s energy needs. Engro Energy – our exclusive energy vertical – is focused on providing effective solutions to the energy vertical of the country and through its services arm already manages two 50MW wind power projects at Gharo, Sindh.

We feel that Balochistan is the next big frontier and will be the energy capital for renewables in the country. The provinces’ coastal belts, along with its solar and wind corridors, provide a sizable renewable generation potential to Pakistan. According to experts Balochistan houses three of the world’s best wind corridors in the world along with four of the world’s best sites for solar radiation including Kuchlak, Panjgur, Khuzdar and Chagai.

To this effect, Engro Energy had earlier secured LOIs for a 500MW wind power farm in the province and we have already initiated wind data collection for the development of the 500 MW wind power project, with two wind masts currently commissioned in Chagai, Balochistan. Similarly, LOIs have also been secured for 350MW solar power projects in Balochistan. Going forward we will continue to maintain this focus and evaluate the renewables sector to make investments whenever and wherever feasible.

Read more: Thar Coal: Powering Pakistan

The recent government’s proposed agreement with IPPs – how do view that? Do you see that as resolving the energy crisis?

As energy crisis is one of the most pressing issues faced by Pakistan today, Engro remains committed to work with all stakeholders to help the country come out of it. The agreement with IPPs highlights the complexities of Pakistan’s power sector, ranging from distribution system inefficiencies to the Rs 2.2 trillion circular debt that may swell to Rs 4 trillion by 2025. The agreements with IPPs will help curtail circular debt and electricity tariffs to an extent. Perhaps the single most important element that has come to light with these discussions is the focus of the government and the regulators to effectively and efficiently resolve the power sector issues and the resolve and agreement that has been shown by the private stakeholders.

However, this is just the first step in the right direction. For Pakistan to progress through industrialization, we need wide-ranging power sector reforms that ensure affordable and accessible electricity for all. There is a dire need to improve DISCO operations, focus on proper and independent power-planning by considering both the supply and demand side, and shifting industrial captive-power generation to the grid. The government along with the regulator also needs to focus on reducing impact of rupee devaluation on power cost, by renegotiating borrowing terms, promote indigenous fuels and renewables, and any procedural and policy flaws rectified in consultation with all stakeholders.

Given the financial conditions of the country – what areas would you recommend greater involvement of the private sector within CPEC projects and otherwise?

The broad-based CPEC partnership remains key to ensure economic progress of Pakistan and make it a regional power. Businesses in Pakistan must explore opportunities in non-conventional sectors, such as chemicals and technology, to achieve exports growth and import substitution, and create jobs to absorb its large young population. Pakistan can learn from Chinese startups in the area of e-commerce and upskilling its workforce, especially in the aftermath of COVID-19 crisis, to prepare the country for rapidly changing ways of doing business. Agriculture has been included as part of CPEC Phase II, while other areas of infrastructure development, supply chain and logistics offer significant growth potential as well.

Engro is working in agriculture for long– obviously the sector has been extremely important for Engro fertilizer – what is Engro’s understanding on the real challenges for Pakistan’s agricultural sector.

Agriculture is the backbone of Pakistan’s economy, employing nearly 42 percent of the labor force and contributing around 20 percent to the GDP. However, it has experienced lackluster growth in recent years due to several factors.

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The inefficient use of water is a key challenge for the agri sector as we consume 90% of available water in agriculture versus 70% in most other countries. At the same time, we are inclined towards water-inefficient crops such as sugarcane and cotton. Further, crop yields in Pakistan have considerably lagged behind our regional peers primarily due to usage of non-certified/substandard seeds, improper nutrients application, lack of mechanization and low agricultural R&D expenditure. One of primary reasons behind our low crop productivity is the lack of application of phosphorus and potash fertilizers.

Another important element in improving agri productivity, is the implementation of targeted subsidies for small and medium scale farmers. Lastly, medium and small-sized farmers have limited access to formalized agri-loans as a result of which they are encircled in a continuous debt trap at the hands of unorganized financing entities. There are also infrastructure and supply chain related challenges that impede market access.

What solutions have you found to these challenges?

Firstly, we need to revamp the subsidy mechanism and introduce a targeted subsidy mechanism for farmers. By introducing a sticker-based mechanism to roll out smart subsidy, as being already successfully done for phosphates in Punjab, the government can ensure that small subsistence farmers earn more and catalyze the growth of agriculture sector. Through the smart subsidy mechanism, much higher discounts on urea can be made possible for small and medium-sized landowners.

Technology should be leveraged to design e-credit and e-subsidies initiatives that can also be supported by the private sector. There is a need to explore new models for creating awareness about modern farming practices. For example, progressive farmer network as change agents, YouTube and other digital/video platforms can be utilized.

Financial inclusion must include the entire ‘farm to fork’ value chain and there should be greater availability of credit access to farmers. This will help them gain access to high quality, certified seeds and also make investments in mechanized agricultural inputs, such as tractors.

Now since this has become part of CPEC phase 2 on insistence of PM Imran Khan – how can the Chinese help us? Are we looking for technological help to improve our yields or for an export market?

While we believe that the Chinese export market offers a huge opportunity, it is the prospect of technology transfer from China that excites us the most. This technology transfer will be crucial to address the challenges that have been mentioned above, whether in agriculture, manufacturing, logistics and access to financing and markets. Solving these problems will help the country achieve self-sufficiency and hopefully create jobs, which is one of the most prominent challenges being faced today.

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What kind of cooperation can exist between Chinese companies and a large corporate entity like Engro Fertilizers.

The opportunities to collaborate with Chinese companies are endless. Joint ventures can be looked at to develop the agricultural inputs industry, such as DAP and mechanical inputs like tractors. A combined research initiative to improve agricultural inputs, such as seeds and pesticides, can be considered to improve crop quality and productivity. It would also be interesting to use digital solutions to improve farmers’ access to information such as weather and crop/soil monitoring, and financing. There is significant potential in the modernization of the current agricultural supply chain, such as setting up purpose-built warehouses and food processing units.

 

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