Liberty Power Holding, a company operating in Pakistan that recently acquired the thermal power assets of the country’s largest conglomerate Engro Corp for $125 million, is betting on the latter’s coal reserves and implementing IMF-recommended reforms to make the most of this deal.
Under the deal, Liberty Power will also buy Sindh Engro Coal Mining Company among other assets of Engro Corp, Reuters mentionted.
The deal is one of the biggest in recent years in Pakistan’s electricity sector, which has been in crisis for years due to unpaid debts and chronic technical problems.
“We believe that Thar Coal is the energy future of Pakistan, it’s domestic, it’s cheap and it’s a base load,” said Zain Mukaty, Chief Operating Officer of Liberty Power, in an interview with Reuters on Friday, referring to the coal fields of the Thar Desert.
The South Asian nation’s power sector has been plagued by high rates of power theft and distribution losses, resulting in debt piling up across the production chain – a concern also raised by the International Monetary Fund (IMF).
The IMF’s policy proposals under its existing $3 billion stand-by arrangements with Pakistan were a major confidence-booster for Liberty Power.
Ahead of national elections held in February, Pakistan was ruled by a caretaker government that, among other measures, raised energy prices to stop the build-up of circular debt, a form of public debt that accumulates in the electricity sector due to subsidies and unpaid bills – a key reform required by the IMF.
Prime Minister Shehbaz Sharif’s new government is pushing ahead with reforms, especially as it seeks to negotiate a long-term bailout with the lender to shore up the country’s reserves and improve its risk profile.
“We feel that one of the IMF’s main takeaways (for the next program) will be that cyclical debt should go from being stagnant to being reduced,” said Mukaty, a 32-year-old Wharton graduate.
The decision to move to coal for Liberty stems from Pakistan’s foreign exchange crisis and the potential of domestic coal reserves.
“It looks like foreign exchange will remain a challenge in the near and medium term. By working on local coal you bypass any foreign exchange requirements,” Mukati said, adding that the government is in talks with coal-fired power plants to work on imported coal. urging them to switch to local coal.
“So for us we see this as a long-term play. We don’t think that domestic coal is an idea or an idea that is going to disappear. We think it should be explored further for the benefit of Pakistan and that’s why we have a long-term view on it “, he added.
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