By: Our Correspondent

The Thar Desert could hold the key to Pakistan's energy requirements,
with 175 billion metric tons of coal reserves, enough to fulfill the
country's power needs for the next century if the government can get
itself lined out.

However, political instability, indecision,
corruption, terrorism and security problems have kept exploration and
production at a standstill both in Thar and Balochistan. Current power
generation from the Thar reserves is less than 0.5 percent of the
potential capacity of the deep and rich reserves, which are spread over
9,600 sq km with the potential to generate 100,000 MW a year.

Some
estimates put the value of the reserves at US$30 trillion on a desert
that that encompasses nearly 200,000sq km of eastern Pakistan and the
Indian state of Rajasthan.

The coal is both a potential blessing
and a potential curse. A three-person team from the World Bank visited
the Thar area in 2010 to report that "people in Thar live in sub-human
conditions and remain deprived of even access to safe drinking water,
sewerage, healthcare, transport and education. Other issues include
bonded labor and violation of the fundamental rights to employment and
access to food availability."

At the same time, however, the
World Bank team found, there is considerable concern in the area over
the depredations of widespread coal mining. There are other concerns
expressed over growing use of coal both in Pakistan and India over the
increasing effect on climate change of widespread burning of fossil
fuels to produce energy for both.

It also demonstrates the
growing clout of the Chinese government in the region. China's immense
economic and technology muscle are expected to be applied in the desert.
Last month, a high-level Chinese delegation visited Sindh to
investigate the prospects of developing Thar coal. The seven-member
group met the Sindh chief minister Syed Qaim Ali Shah.

"China is a very advanced country," Shah told reporters. "So Pakistan intends to avail facilities from those achievements."

The
Chinese delegation included the Chairperson of state-owned China
Guodian Group Renaiquin who said their group generates 88000 MW power,
including renewable power in China and "intends to invest in Thar Coal
and other projects. "We possess all types of machinery, equipment and
operators with maintenance facility," she added.

Certainly, there
seem to be problems with Pakistan developing the region itself.
Although Islamabad and the government of Sindh Province, in which the
reserves lies, have signed multiple agreements with many domestic and
foreign firms to develop Thar coal, there has been almost no progress.
An example is Engro Powergen Ltd., a joint-venture company with the
Sindhi government, which has made no headway despite having signed an
agreement to go ahead in September of 2009.

Tax Holiday
Last
week, Pakistan's Federal Board of Revenue allowed a 30-year tax holiday
for firms to produce power from the Thar fields. The board exempted 10
percent income tax on the dividend of any Thar coal project for 30-years
from the launch.

The tax board said the incentive was on
recommendations of the Privatization Commission and Thar Coal
Development Board to promote a tax free environment to attract
investment.

The board has also given Thar reserves the status of
a Special Economic Zone, offering a 20.5 percent internal rate of
return to projects which achieved financial closure by December 2014.

Coal
mining equipment and machinery, including vehicles for site use, is to
be charged zero customs duty, with exemption from withholding tax,
special excise duty, federal excise duty, and workers welfare fund for
the initial 30 years.

The incentives have been announced in
keeping with the government's target to raise Pakistan's annual coal
production from the current 4.5 million metric tons to 60 million over
the next five years. According to Pakistan's Power Ministry, this would
translate into 9,000-10,000 MW new capacity every year.

UCG & Thar
Pakistan
is also looking to initiate Underground Coal Gasification projects at
Thar. Last week, Shah said the UCG project in Thar is the first
experiment in Pakistan to produce 50 MW of electricity. "The world is
watching the program which will help meet power needs," Shah said.

The
first stage of the UCG plant was scheduled to be operational March this
year, but has been postponed to May 15 as the earthquake in Japan
derailed plans to import compressors.

According to Dr. Samar
Mubarakmand, a scientist, head of the Thar coal gasification project,
"UCG is the most important clean coal technology of the future."

Foreign
interests in Pakistan's UCG projects include Cougar Energy, an emerging
gas producer with projects in Australia, Pakistan and India. Cougar is
evaluating multiple coal fields in Thar.

London based company
Oracle Coal Fields is developing Block VI of Thar. China Petrochemical
Corp. (Sinopec) is also conducting feasibility studies at Thar.

Pushing Energy
Over
the recent past, Pakistan has been looking to tide over its energy
problems and big power cuts that have resulted in many street protests
by household and industrial consumers.

The country is
implementing a long delayed pipeline to transfer gas from Iran, a
portion of the original Iran-Pakistan-India (IPI) pipeline.

Pakistan
has also announced plans to promote renewable energy, with particular
focus on wind and solar. It has sought the backing of institutions such
as the ADB and World Bank.

Last month state-firm Oil and Gas
Development Company Limited began exploration at Dera Bugti,
Balochistan's most restive part, after two decades of debate. The Zin
Block in the area holds gas reserves as big as the Sui field, which has
fuelled the country for more than 50 years

It remains to be seen
whether Pakistan will be able to overcome these obstacles and tap the
enormous Thar potential and other avenues.

Siddharth Srivastava is a New Delhi-based journalist. He can be reached at sidsri@yahoo.com