Taliban throws wrench into Pakistan’s plans for cheap coal power

PESHAWAR, Pakistan — The Taliban has upset Pakistan’s plans to ease its energy crisis by importing cheaper coal from Afghanistan, exposing the neighbors clashing interests.

Facing a severe energy shortage, partly due to a lack of foreign reserves to import coal or gas for its Chinese-built power plants, Islamabad recently announced its intention to import coal from Afghanistan in Pakistani rupees instead of dollars. This way, it hoped to reduce its dependence on more expensive South African coal.

But the Taliban rulers in Kabul more than doubled the price, quickly setting customs duties at 30%. Afghanistan has its own foreign funding crunch under Western sanctions and is keen to generate more revenue. The Taliban is also eager to show that it can assert itself and is no proxy, observers note.

Pakistan has been grappling with blackouts that disrupt life and business, and its woes have grown only worse this week due to severe weather and flooding.

The country imports about 70% of its coal from South Africa for its cement and textile industries, as well as some power plants. However, it has not been able to do so in the last few months as coal prices have remained close to record highs. In South Africa, elevated prices are linked not only to the Ukraine war but also to disruptions from domestic civil unrest, according to an S&P Global analysis in May.

In March, the coal price on the international market touched $425 per ton. While it has declined in recent weeks, the market is unpredictable due to global uncertainties, experts said.

Worried about high import bills due to sky-high international prices of petroleum products, Pakistani Prime Minister Shehbaz Sharif late last month approved imports of cheaper but good quality coal from Afghanistan in Pakistan’s own currency.

Key power plants that use coal include the Huaneng Shandong Ruyi-Sahiwal Coal Power Plant and the China-Hub Coal Power Plant, both 1,320-megawatt facilities that supply the national grid. They were built and financed under the China-Pakistan Economic Corridor, the Pakistan component of the Belt and Road Initiative.

“The prime minister was informed that imports of coal from Afghanistan, initially required only for the Sahiwal and Hub power plants, would save more than $2.2 billion annually in the import bill,” state-run Radio Pakistan reported.

But there was a glaring problem with the plan: Pakistan needed the other side to play ball. Almost as soon as Islamabad showed interest in Afghan coal, the Taliban announced it was imposing a 30% duty and taxes, increasing the price from $90 per ton to $200.

As no country has recognized the Taliban as Afghanistan’s legitimate rulers, the millions of dollars in aid that helped prop up the previous government have vanished. Billions in state assets are frozen and economic sanctions have led to a near-collapse of the country’s economy. In this situation, the Taliban are banking on the country’s natural resources, particularly coal, to survive.

“The price of coal per ton in the global market is around $350 and the Islamic Emirate of Afghanistan will exploit its coal reserves by selling it at international rates, imposing duties on export of coal abroad,” Mufti Esmatullah Burhan, a spokesperson for Afghanistan’s Ministry of Petroleum and Minerals, told Nikkei Asia. He insisted that Kabul had not yet inked any agreements on shipping coal to foreign countries.

The ministry said that it had surveyed 80 coal fields across the country, and among them 17 were functional. “Local companies extract nearly 10,000 tons of coal from 17 functional fields,” Burhan said.

Officials in Islamabad have avoided reacting publicly to the Taliban’s stance, as they attempt to manage complicated relations with Kabul’s new rulers. However, Miftah Ismail, Pakistani finance minister, recently told The News newspaper that Pakistan was interested in importing coal from Afghanistan only if it was available at affordable rates.

Shahid Hussain, a leader of the Sarhad Chamber of Commerce and Industry — a body of industrialists and traders in Pakistan — said that the increase in import duty on coal from Afghanistan will create problems for sectors such as cement and textiles, which use coal as fuel. “Due to the high cost of furnace oil, Pakistan industries shifted to using coal, but now coal is also becoming expensive,” said Hussain.

The Taliban’s move raised larger questions about relations between Islamabad and the administration in Kabul.

The Taliban has not met Islamabad’s demands to flush out sanctuaries of the Tehreek-e-Taliban Pakistan, a Pakistani militant outfit. Instead, it brokered a cease-fire between Islamabad and the TTP.

Taliban troops recently also blocked an ongoing Pakistani project to erect fencing along the 2,570 km border with Afghanistan.

Some experts note that the Taliban has a domestic audience to consider.

“The Pakistani premier’s announcement of importing cheaper Afghan coal in local currency has sparked severe criticism of Taliban rulers,” Haji Mujtaba, a Nangarhar-based political analyst, told Nikkei Asia.

“Through opposing such moves of Islamabad, the Taliban is trying to gain domestic legitimacy and do away with a common perception that they are a Pakistani proxy group,” he said.