'Thar coal project could be completed by 2016,' CEO, Sindh Engro Coal Mining Company
Shamsuddin A. Shaikh is Chief Executive Officer of Sindh Engro Coal Mining Company effective from June 18, 2012. Prior to this, he was Senior Vice-President at Engro Foods. Shamsuddin A. Shaikh has an extensive career of 25+ years in Manufacturing, Sales, Commercial and Supply Chain at different levels and subsidiaries of Engro Corp. He holds MS in Industrial Engineering and an MBA from Colorado State University.
Copyright Business Recorder, 2012
BR Research: What is the progress on the financial close of the Thar Coal mining project that Engro is doing in partnership with the Sindh government? Shamsuddin Ahmed Shaikh: We started this activity about three to four months back, the initial plan was to do it before the end of this year. Our immediate concern was regarding the sovereign guarantee, as the lenders have started asking for sovereign guarantees as it is going to be a multibillion dollar project.
Sovereign guarantees in Pakistani are available with the Power Purchase Agreements. Since mining is a complete separate project, the financing companies have asked for a different set of guarantees. Being a private company, it was not going to be an easy task. We recommended in the Thar Coal Energy Board meeting to ask the government for sovereign guarantee.
They made a recommendation to the Federal Government and as per our understanding, a meeting presided by the President of Pakistan himself, the government has principally agreed in favour of providing sovereign guarantee for the Thar mining project. So, we are now working on it and then we can move on to the next phase of financing.
BRR: When do you expect the financial close to happen, should you succeed in getting the sovereign guarantee?
SAS: Financial close will happen by the first quarter of 2013. The total project cost is $3 billion and 70:30 would probably be the debt-equity composition. The bulk of financing will be arranged from China - we may also seek funds from other places if need be.
Once the financing is arranged, the project itself is going to take three and a half years. So, by the end of 2016, we will hopefully see the projects online, both the mining and the power plant. We are not sitting idle currently; we have already spent about $10 million on this project. We are working on different engineering plans and so forth beforehand, so that once the financial close happens, the physical project work starts at once.
BRR: Are there any other plans in sight besides this base project?
SAS: Yes, we are talking to different power companies in Karachi and other places to turn their power plants on Thar coal. I firmly believe that unless you don't convert them into coal, the circular debt issues will persist. The cost saving in coal conversion from RFO fired power plants is immense.
If you look at the power generation cost from furnace oil based plant, it will come to about 20-22 cents per unit. Whereas, the tariff we are quoting for Thar these days with the entire debt cost, turns out to be 11 cents. This saving can finance lots of plants. We have presented a plan to the government on how conversion on coal can save money and energy for the country. It will lower the tariff and save foreign exchange.
The emphasis should be on converting all the power plants that can be converted to coal, preferably, Thar coal. We will have to put up an effort on the railway lines to connect the major plant sites with Thar coal fields. Moreover, it needs to be ensured that whatever new power plants are coming, should be based on Thar coal instead of imported coal or any other fuel.
NEPRA and PPIB should also develop a policy for Thar coal and an upfront tariff needs to be announced instead of doing rounds of tariff petitions which takes 10-12 months to reach an agreement. So assuming that any of HUBCO, KESC or any other company agrees to convert on coal, the process will not start before the middle of 2013. The conversion to coal will take the power plants nearly two and a half years. So, around that time, Thar coal will be just about ready as well, as both these need to start in parallel.
There will not be much difference in the price of Thar coal and imported coal, because ours is a new project, which will be on a relatively smaller scale in the beginning. But with the passage of time, when the economies of scale set in, the price of Thar coal will definitely come down and will eventually be cheaper than imported coal. But even with similar price, there will be savings on the foreign exchange front.
We will start with 6.5 million tons and our price will still be comparable with imported coal. Assuming that, other power plants also decide to convert on Thar coal, we can extract up to 20 million tons per annum and that will significantly reduce the coal price.
BRR: Considering Thar's geographical proximity, which is very close to India, is there any chance Pakistan can engage with Indians in Thar?
SAS: Yes, that's something we have in mind. India is supposed to put up an additional 100,000 MW on coal in the next five years. India currently generates more than 50 percent of their electricity from coal, using about 450 million tons of coal every year. Most of that is indigenous and about 50 million tons is imported coal.
They will need to import coal, we can utilise the railway line, which will be serving our own plants as well, to export coal to India. We can also put up a power plant at the mine mouth and export electricity to India. The economics are very much there, but India-Pakistan relations are always more delicate than just the economics.
A plus point of working with Indians is that they have immense knowledge and experience of coal. They have been dealing with over 400 million tons of coal per annum for a number of years. It makes more sense for us to use their expertise instead of having experts from China or anywhere else.
BRR: Is there any plan to utilise coal for alternate products as well?
SAS: Yes, we want to convert coal into lots of other products which happens world-wide. The products can be used as raw material for ammonia, methanol, diesel, etc. But for that, coal has to be very cheap, which is not possible with 6.5 million tons a year. Once we reach 15-20 million tons, we can do all these things.
BRR: How supportive has the government been thus far?
SAS: The government's response luckily has been very refreshing as they are working seriously on infrastructure development. The government is working on water disposal and also bringing in water for cooling purposes.
BRR: There have been reports of resentment from the local community. How do you plan to deal with it?
SAS: There will be conflicts for sure when you do such a big project. But, we are studying every possible aspect of the social and cultural change that this project will bring in there. We will go there with a complete CSR plan and that will change the lives of the locals. The project will generate immense employment opportunities and their lifestyles will definitely change for the better.