Pakistan’s Plan to Import Cheaper Coal Backfires as Afghanistan Hikes Prices

Afghan miners work in a coal mine in 100 km east of the western city of Herat in Afghanistan on June 26, 2010. (Majid Saeedi/Getty Images)

The Taliban moved to increase Afghanistan’s coal prices after Pakistan’s prime minister announced plans to import coal from Afghanistan using local currency to save foreign reserves.

Coal prices in Afghanistan were raised from $90 per tonne to $200 per tonne last week as the Taliban seeks to generate revenue from its mining sector amid a lack of direct foreign funding.

The Taliban announced the move just hours after Pakistan’s Prime Minister Shehbaz Sharif approved the import of coal from Afghanistan using rupees as opposed to dollars to save foreign reserves.

Sharif made the decision against the backdrop of rising coal prices in the international market. He said importing coal from Afghanistan could help Pakistan save more than $2.2 billion annually on the import bill.

“This will not only generate cheap electricity but also help save the country’s precious foreign exchange,” he said, according to his office.

In response, the Taliban raised Afghanistan’s customs duties from 20 percent to 30 percent, a move that Finance Ministry spokesman Ahmad Wali Haqmal described as a “coincidence” with Pakistan’s decision.

“[The timing] was coincidence. Any country would be irresponsible to suddenly lift the price without giving it consideration and study,” Haqmal said.

Haqmal said the Taliban’s technical staff had spent weeks studying regional markets, the domestic situation, and rising global coal prices in the wake of the war in Ukraine before they settled on the price.

The coal price was determined with the intention of maximizing profits for Afghan dealers while preventing Pakistani traders from pursuing alternative choices, he added.

Pakistan has reconsidered its plan to purchase fuel from Afghanistan following the increase in coal prices, saying that it will only proceed in the presence of a business deal to ensure affordable fuel prices, The News reported, citing top official sources.

“The prices of Afghan coal have increased more than double in the last few days. Hence, Islamabad will have to explore all its options before moving ahead,” the unnamed official said.

Pakistan mainly imported coal from South Africa but South African coal prices have been rising in recent weeks due to higher demand from Europe.

Afghanistan exported 12,000 to 14,000 tonnes of coal per day, the majority of which went to Pakistan.

Customs duties from coal exported to Pakistan are a key source of revenue for cash-strapped Afghanistan. Sanctions on the banking sector and a cut in development aid since the Taliban took control last August have severely hampered its economy.

Reuters contributed to this report.