Pakistan’s energy crunch spurs ‘barter’ trade for Afghani coal

Cash-strapped Pakistan can’t afford to buy fuel on the spot market and is either skipping purchases or turning to alternatives such as Afghani coal as it grapples with a worsening energy crisis. 

State-owned Pakistan LNG Ltd. didn’t award a recent purchase tender seeking several shipments of liquefied natural gas through May due to high offer prices. Cement manufacturers, meanwhile, are buying coal from Afghanistan at roughly half the price of shipments from regular supplier South Africa.

Poorer countries like Pakistan that are heavily reliant on imported fuels are being hit the hardest by the surge in prices following Russia’s invasion of Ukraine. LNG, diesel and coal are essential to keep the lights on and factories humming, and the shortages are straining government finances after Prime Minister Imran Khan cut local fuel and electricity prices at the start of March.  

One of Pakistan’s long-term suppliers recently canceled several LNG cargoes for delivery through July, and the country can’t afford to replace them with spot market purchases, according to traders, who requested anonymity to discuss private details. That risks shortages for power plants and factories.

Some cement manufacturers are now buying coal from their northern neighbor, which is 40% to 45% cheaper than seaborne cargoes, said Tahir Abbas, head of research at brokerage Arif Habib Ltd. Pakistan buys about 85% of its coal overseas, he said.

Imports from Afghanistan have risen to around 500,000 tons a month from zero last summer, and it now makes up 70% of supply for some factories in the north of Pakistan, according to Maple Leaf Cement Factory Ltd. 

Afghanistan is ramping up production, but the trade is still disorganized, Maple Leaf Chief Financial Officer Mohsin Raza Naqvi said at a briefing this month. The manufacturers pay for the coal in local rupees and then the Afghans use the money to buy goods like wheat and meat from Pakistan, he said.

“It’s sort of a barter that’s happening,” Naqvi said. “With these global prices, Afghanistan coal supply will keep continuing and growing.”