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High taxes on Afghan coal cast shadow over Pakistan’s industrial ambitions

AT News

KABUL: Despite recent adjustments to tariffs for Afghanistan’s coal exports to Pakistan, the interest in coal among Pakistani businesses has waned. Taliban’s Ministry of Mines and Petroleum announced a slight reduction in the tariff, but the already exorbitant taxes, often double the production costs, are burdening the procurement of Afghan coal for Pakistani industries.

Over the past year, the Coal Mining Tax has surged from AFN 1200 to AFN 2500. While a recent announcement lowered the tax to AFN 2200, it remains insufficient to restore equilibrium.

Facing financial constraints, the government in Kabul has turned to natural resources for economic sustenance. The energy crisis triggered by the Ukraine conflict prompted Pakistan and other nations to seek alternatives, making Afghan coal an attractive prospect. However, the attractiveness of deals made in the past year is under threat due to steep mining taxes imposed on coal reserves.

Kabul did announce a reduction in customs duty, from $45 to $30, but when examining actual production costs, these charges appear unreasonable, if not exploitative. On average, procuring a tonne of coal costs between AFN 900 and AFN 1000.

Afghanistan boasts significant coal deposits, with 17 out of 80 coal mines currently operational, primarily in central and northern regions.

Pakistan, grappling with dwindling dollar reserves, had become a key destination for coal and fruit-laden trucks from Afghanistan. Former Prime Minister Shehbaz Sharif had outlined plans to import heavily discounted Afghan coal using Pakistani rupees to preserve foreign reserves. In 2022, the Taliban government generated approximately $160 million in tax revenue from coal exports, earning recognition in a World Bank report.

However, the era of prosperity for the Taliban may be short-lived, thanks to excessively high tax rates. These new prices have prompted Pakistan to explore cheaper alternatives, such as Indonesian and African coal, priced at PKR 35,000, as opposed to Afghanistan’s PKR 40,000.

Competitive rates also compel Pakistani businesses to evaluate coal quality in their opportunity-cost assessments. Coal from Afghanistan’s western border is characterized by lower sulfur content and higher Gross Calorific Value (GCV), making it inferior in quality. Energy companies are considering reducing their reliance on Afghan coal by accounting for these factors.

With international assistance dwindling and foreign trade at a minimum since the Taliban’s takeover, a heavy reliance on coal deposits remains crucial for Afghanistan’s economy. Contracts awarded to local Afghan firms have been pivotal in domestic development, as they employ Afghan nationals in the production process. Coal-laden trucks pay the Taliban authorities for safe passage into Pakistan, while private firms in Pakistan similarly compensate Afghan companies for coal contracts.

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