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Thar Coal - Key to Energy Security of Pakistan

Sindh Engro Coal Mining Company (SECMC): The Sindh Engro Coal Mining Company Limited is a joint venture between the Government of Sindh (GoS) and Engro Powergen Ltd (a subsidiary of Engro Corporation Limited), established for the purpose of mining coal from Thar Block II in Tharparkar district of Sindh.

Engro Powergen was incorporated in 2008 with focus on development of power projects. It is the holding company for Engro Powergen Qadirpur Limited (EPQL) and Sindh Engro Coal Mining Company (SECMC). EPQL is a unique Independent Power Project (IPP) producing 217MW net power using Permeate Gas from Qadirpur gas field, which was previously being flared. This proves the Company's commitment to conserve scarce natural resource from being wasted, and generate much needed electric power to address national crisis in addition to eliminating environmental pollution.

Project Background:

SECMC was incorporated as a public unlisted company in October 2009 as a result of a Joint Venture Agreement between Government of Sindh and Engro Powergen with shareholding of 40% and 60% respectively. The Government of Sindh through the Mines and Minerals Department issued a 30 years lease for Thar Block II for Mine Construction & Operations in that area. The lease is extendable to another 30 years through mutual agreement. Thar Block II is an area covering 79.6 square kilometers, situated at Thar Coal Field, Tharparkar district, Sindh Province.

In October 2010, SECMC completed the Bankable Feasibility Study (BFS) for Thar Block-II by engaging a team of renowned international consultants such as RWE-Germany, Sinocoal-China, SRK-UK along with HBP-Pakistan. The Feasibility has confirmed the technical and commercial viability of the project and also that there are no significant or unmanageable environmental threats and social implications associated with the Coal Mining Project in Thar Block II.

In May 2013, SECMC incorporated a subsidiary in the name of Thar Power Company Limited (THARCO), the purpose of which would be to undertake power generation based on lignite coal mined from Thar Block II.

To provide incentives for the development of local coal and encourage mining and power projects in the region, the Government of Pakistan through the Economic Co-ordination Committee (ECC) approved a number of incentives for such projects in October 2010. These included declaring Thar Coalfield a Special Economic Zone, ensuring a guaranteed return for the project investors of 20-20.5%, and exemption of various taxes and levies. In addition to this, ECC approved the provision of sovereign guarantee for debt portion of SECMC's mining project of up to USD 700Mn with the condition that GoS shall hold the majority shareholding in the project. The Company plans to undertake the project in two phases:

In Phase I, it plans to initially develop Coal Mining and Power project, with a capacity of up to 3.8 Mn tons per annum and 660MW respectively. The cumulative cost of Mining and Power projects is estimated at USD 1.6Bn with completion period of 3.5 years after financial close. Subsequently, mine will be expanded to coal capacity of 6.5Mn tons/annum, which will support up to 1300 MW power plant.

In Phase II, the Company plans to expand Mining project to 13.5Mn tons and 19.5Mn tons pa. with associated expansion of power generation projects to 2400 MW and 3600 MW.

Current Status

The Company is fully committed in taking the project to the next level, and in this regard has held discussions with various financial institutions (including Export Credit Banks) and prospective investors/sponsors for arranging the requisite financing for the Project. As of now a consortium of Chinese and Pakistani bank has offered their services for financial advisory and debt arrangement. In addition to this, Company has received firm bids from EPC contractors.

Company has also signed MOUs with various reputed Chinese companies for investment in mining and/or mine mouth power plants.

China Power International Holding (CPIH), which has expressed its interest in setting up power projects (with 51% to 100% shareholding) using lignite coal mined from the Thar Block (CPIH will set up power projects that will be fed lignite coal from both Thar Coal Block II and Block I, leaseholder for which is Sino Sindh Resources).

TBEA, a China based heavy equipment manufacturer, which is also the largest global power transformer suppliers in the world, have also expressed their interest to participate in equity investment of USD 50-80Mn in mining and/or power project of SECMC.

Infrastructural Support

The GoS is actively working to provide the required infrastructure in the area which includes fresh water supply, Effluent Disposal System and rehabilitation of road network and construction of an airport in Thar.

The status of each of the projects is hereunder:

The GoS/GoP has provided the Effluent Disposal System, which is expected to be completed on time. Government has floated the tenders for construction work of the scheme.

SECMC is involved in technical specs approval and monitoring.

SECMC is developing a back-up/contingency arrangement for ground water disposal in case of any disruption in effluent flow due to line blockage/rupture.

Transmission Line - 500KV, 230 km long Transmission Line from Thar to Matiari grid station. Project already approved by Executive Committee of the National Economic Council (ECNEC).

The construction of Islamkot Airport (20 km from site) is in progress;

The first few power projects will be based on Ground Water. Hydrological studies conducted by RWE verify ample availability of underground water to meet requirement of power plant. Moreover, provincial government has already awarded contract of Phase I for construction of fresh water line from a Left Bank Outfall Drain (LBOD).

Rationale for developing Thar Coal:

Pakistan's existing power generation mix with 40% reliance on imported furnace oil is not sustainable as reflected in country's inability to utilise 100% of its power generation capacity due to lack of funds for furnace oil purchase. In addition to this, high cost of power generation is one of the reasons of the recurring circular debt in the power sector.

Globally, coal remains fuel for choice for power generation - More than 80% of coal used by China, USA, India and Germany is indigenous assuring their energy security (Table below highlights the power generation from coal being done by various countries).

This suggests the need to tap indigenous coal reserves. Thar has enormous energy potential in this regard. The Thar coal field has total lignite reserves of 175 Billion tons, which are equivalent to total oil reserves of Iran and Saudi Arabia combined. These can be utilised to produce 100,000MW for 200 years.

SECMC's Thar Block II contains 2Bn tons of coal reserves of which 1.57Bn tons are exploitable, which can support 5,000 MW for 50 years. Development of SECMC's Thar Block II alone would add 5000 MW to the national grid. The foreign exchange savings from this addition are estimated at approximately USD 53Bn for a period of 30 years.

Primary objective of Thar Coal development is to provide affordable, reliable and sustainable electricity to consumers using indigenous resource and ensure future energy security for Pakistan.

Currently, Pakistan's total installed power generation capacity stands at 23,538 MW. Of this, the share of thermal power plants is 68%, followed by hydel power plants of 28.5% and nuclear of 3.3%.

According to NTDC, electricity demand growth rate is forecasted to hover around 5-6% over the ten years. By 2020 the demand in peak hours would reach over 36,000 MW. Catering to this increased demand through imported fuel will not be sustainable due to Pakistan's already precarious foreign exchange position. Therefore, only policy choice for Pakistan is to focus on developing hydel power and power generation based on indigenous resources.

While there can be no two opinions on maximum utilisation of Hydro potential, Hydroelectric projects have a long gestation period of 10-12 years and power generation is also seasonal and hence, addition of thermal power generation is also needed. Amongst thermal power options, Thar Coal is the cheapest and most viable option. As an abundantly available indigenous resource, extraction of Thar Coal for power generation will have a positive impact on the local economy. Reliance on indigenous fuel will help save billions of dollars in foreign exchange, which are currently being spent on import of expensive RFO (Refined Furnace Oil).

Development of Thar will also result in immense socio-economic benefits for the region, job creation for skilled, semi-skilled and unskilled labor and increase per capita income of people living in Thar region.

Thar Coal Block II Coal Mining and Power Project

As a major step towards Pakistan's energy security, Sindh Engro Coal Mining Company (SECMC) congratulates the people of Pakistan on its ground-breaking ceremony.

Copyright Business Recorder, 2014


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