The coal diplomacy by Reema Shaukat
Pak-Afghan relations are viewed from the prism of security, and they are usually conjoined in political debates from the same perspective. It is done naturally as both neighbours share history and culture. But one aspect of paramount importance which is ignored about them is the benefit of their contiguity that can be utilised in terms of mutual trade. It is accepted universally that the cheapest trade is between the neighbours but that is unfortunately not the case with Pakistan and Afghanistan.
According to statistics of Pak-Afghan economic exchanges, during the first quarter of the fiscal year 2022-2023, the bilateral trade between Pakistan and Afghanistan stood merely at $741 million. Given the potential and demands on both sides of the border, it is peanuts. Both countries can amply fulfil each other’s needs provided this fact is realised and appropriate measures are seriously taken. It is important to note that out of the total mutual trade Pakistan imports goods worth $408 million and coal secures the major portion of this volume. Pakistan has been importing 25,000 tons of coal per day and became the major importer of Afghanistan’s coal while the coal exports to Pakistan are a critical source of revenue for Afghanistan. The World Bank’s Afghanistan Economic Monitor Report states that 111.6-million-ton coal was exported to Pakistan during the first quarter of fiscal year 2023. The Afghan government earned $160 million in tax; three times what the previous administration could amass, which has been appreciated as ‘strong’ in the report.
Seeking this opportunity, the Afghan government increased the coal mining tax to more than 100%. In July 2022, this tax was AFN 1200 which was raised to AFN 2500. It is important to understand that the actual labour cost of Afghanistan’s coal at the mine is AFN 900-1000, whereas the mining tax has more than doubled. Although recently it has been reduced to AFN 2200, the difference is still substantively high and is not considered business-friendly. For Pakistan, coal contributed to 16% of the total electricity generated in the first quarter of fiscal year 2023-24. The decision by the Afghan government may not have a substantial impact on our energy sector, yet it may result in more detrimental for the Afghans, mutual trade, and relations between both countries.
Afghanistan’s coal is of low quality and contains low Sulphur–i.e. less than 1 percent but high Gross Calorific Value (GCV). Just to understand, Sulphur helps coal to burn completely while the GCV value of a gas is the quantity of heat liberated by the combustion of the unit volume of a gas. Despite these deficiencies in Afghanistan’s coal, Pakistan has been purchasing it due to availability across the border. Afghanistan’s government awards contracts to Afghan coal businessmen which means the beneficiaries of each contract are the local Afghans. Likewise, Afghan labourers are hired for coal extraction which means employment opportunities for the local populace.
Due to the lack of international banking systems operating in Afghanistan, coal exports to Pakistan are a critical source of revenue for Afghan suppliers since they cannot effectively trade with any other country. The Afghan government’s coal export price-hike has compelled Pakistan to look towards cheaper options like Indonesian or African coal at Rs.35,000 per ton against Afghanistan’s coal which costs up to Rs.40,000 per ton. With the price increase, many Pakistani factories have already changed their plants to adjust for high Sulphur and GCV thus reducing reliance on Afghan coal.
Trade creates stakes between the two countries and when they are neighbours it is the best option to generate goodwill and healthy relations. Afghanistan and Pakistan both need to focus on their economies and if they can help each other, it is incumbent upon them to go for it as in this manner, not only will they support each other but their own economies as well. The shared history and border between both countries afford them this important leverage of creating stakes amongst each other for a better future to be carved out for the generations to come. Coal diplomacy is, therefore, one such avenue where both have to interact for a win-win situation.