PM expected to visit Thar coal project site this week

MUSHTAQ GHUMMAN

ISLAMABAD: Thar coal development project is said to be progressing at a slow pace as federal government has not made any commitment to give Rs 148 billion required for infrastructure development, well informed sources told Business Recorder.

Prime Minister Raja Pervez Ashraf is expected to visit the project site this week wherein he will be briefed about the development work done so far.

The sources said Chinese banks which had given their consent to finance the project have now had second thoughts due to the massive intractable circular debt.

“To mitigate the risk of circular debt impacting their loan repayments, Chinese banks have asked for direct and independent sovereign guarantee by the GoP for both mining and power projects,” the sources added.

The sources said National Transmission and Dispatch Company (NTDC) will lay down two transmission lines of 500 KV. However, there is a dispute between Thar Coal & Energy Board and Planning Commission.

Thar Coal and Energy Board argues that NTDC should lay transmission lines prior to setting up of power house; however, Planning Commission maintains that the power house should be set up first. This issue will be resolved by the Executive Committee National Economic Council (ECNEC) which is scheduled to meet on August 15, 2012.

Thar region is an under-developed area and lacks basic infrastructure to support such a large scale industrial project. To start mining work and set up power plant at Thar, some critical infrastructure must be provided.

Concurrently, Government is actively working to provide the required infrastructure which includes fresh water supply, effluent disposal scheme, road network and a Transmission Line from Thar to Matiari to evacuate power from Thar Block-II. Despite curtailment in the development budgets, Thar Coal development related projects were exempted from these cuts to ensure timely completion of these projects.

A total of Rs 10 billion has been allocated for the development of Infrastructure Projects by GoS in financial year 2012-13.

SIDA is working on the development of feasibility study for water supply scheme from LBOD, whereas consultants have been finalised for roads network, effluent disposal scheme and one section of water supply scheme. CDWP has granted approval for transmission line project to NTDC, ECNEC’s approval is awaited.

“From a financial risk management perspective, development of infrastructure projects is an integral part of the Thar coal mining and power plant projects. Therefore, a continuous and diligent effort by the government is required to ensure timely completion of all infrastructure projects. SECMC is working very closely with all the consultants to ensure development work on these infrastructure projects progresses at the desired pace,” said an analyst.

The total project cost of mining (6.5 Mt/a) and power project (1200 MW) is over $3 billion. The resultant electricity tariff is competitive against imported coal and much cheaper as compared to RFO and LNG based power plants.

Power sector in Pakistan is facing growing problems due to high cost of power generation, inefficiencies, low payment recovery and inability of GoP to make payments to power producers which has led to a serious “circular debt” issue which is becoming a hurdle for future investments in the energy sector.

Considering its strategic nature and readiness, Thar Coal and power projects have been selected as key energy projects for Pakistan in Pak-China Joint Energy Working Group (JEWG) meeting held in Beijing in Aug 2011 to support Pakistani energy projects through Chinese financing. Engro and GoS/GoP have been seriously pursuing financing of the project through JEWG. During the 2nd JEWG meeting held in Islamabad in May 2012, Chinese banks have agreed to conduct due diligence of Thar Mining and Power Projects to develop a way forward & strategy for financing these projects.

To expedite development of this valuable energy resource through public private partnership, in 2008, Govt. of Sindh initiated the International Competitive Bidding (ICB) process to select a preferred private sector partner. In June 2009, Engro was selected as the preferred Joint Venture partner and Sindh Engro Coal Mining Company (SECMC) was established as a Joint Venture Company between the Government of Sindh (GoS) and Engro Powergen Limited (EPL), which reflects Government’s new strategic focus in developing the Thar Coal reserves.

SECMC has completed the Bankable Feasibility Study (BFS) for Thar Block II Coal Mining Project by engaging internationally renowned Consultants such as RWE-Germany, Sinocoal-China, SRK-UK and HBP Pakistan, meeting all national/international standards.

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 the first phase, SECMC plans to develop an integrated Coal Mining and Power Project with a capacity of 6.5 Million Tons per Annum (Mt/a) & 1200 MW, respectively. The target for financial close of the project is the first quarter of 2013 and target for commencement of project is April, 2013. In the 2nd & 3rd phases, mining operations will be scaled up to 13Mt/a and 22.8 Mt/a, which will ultimately be sufficient to fuel approximately 4,000 MW of electricity generation.