Landmark deal seals finance of Thar coal mine

Published: August 18, 2015
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The project’s total debt component is of $1.5 billion, out of which $800 million will be financed by Chinese banks including China Development Bank and Industrial and Commercial Bank of China. PHOTO: FILE

The project’s total debt component is of $1.5 billion, out of which $800 million will be financed by Chinese banks including China Development Bank and Industrial and Commercial Bank of China. PHOTO: FILE

KARACHI: 

After years of hollow promises, a landmark agreement was signed on Monday to finance Pakistan’s first open-pit coal mine in the natural-resource rich Tharparkar district, which boasts holding 180 billion tons of coal but could not be exploited since it was discovered in the early 1990s.

A consortium of local banks that include HBL, UBL and Bank Alfalah will lend $500 million (Rs50 billion) – one of the largest project financing deals in recent years – to Sindh Engro Coal Mining Company (SECMC), a joint venture between Sindh government and five private companies.

This agreement is part of the $2-billion project, which includes a mine with a capacity to produce 3.8 million tons a year of coal and a 660MW coal-based power plant.

Read: Mining firm arranges funds from Chinese, local banks

This has all but sealed the project’s financial close, which is expected to be finalised in the next two months.

“When we started work on Thar coal, no one believed in our ability to achieve the target,” said Sindh Chief Minister Syed Qaim Ali Shah, addressing a ceremony held for inking three key agreements related to the project.

“There were doubts about quality of coal. Even Prime Minister (Nawaz Sharif) was in doubt. But we persisted, took coal samples to Berlin where experts verified its quality. Eventually the Prime Minister backed us.”

The other two documents included the Master Shareholder Agreement between Engro, House of Habib’s Thal Limited, Hub Power Company, HBL Bank and China Machinery Engineering Corporation. This agreement covers common equity subscription of SECMC by the five private sponsors.

The other one is the implementation agreement between SECMC and the Sindh government, which also holds majority stake in the company.

SECMC CEO Shamsuddin Shaikh said work on the mine and power plant will be completed by 2018. “It has been almost eight years and people everywhere asked me ‘when are we going to see the coal?’ Well I can now say we’ll see that very soon.”

With the western banks unwilling to back a coal mine in Pakistan, the project wouldn’t have been possible without government’s sovereign guarantee, he said.

“And let me assure everyone that when it comes to emissions, we will follow the guidelines of the World Bank and IFC.”

Debt from local banks has been raised at an interest rate of Kibor plus 1.7% whereas Chinese lenders have agreed at terms of Libor plus 3.3%.

Hussain Dawood, the chairman of Dawood Hercules, which in turn controls Engro and Hubco, thanked Chinese banks and companies for taking part in the project, which was abandoned by other international lenders.

The electricity shortage in the country along with technological advancement taking place will increase demand for power in coming years, he said.

Asked why Dawood Group exposed itself to a risky project that remained dormant for so many years, Hussain said sometimes an investor has to take a step, which might initially appear “illogical.”

“Say, if I had put the money in textiles … fine I would have increased exports a bit. But what would that textile unit do if there is no energy?”

Read: Power production: PPIB approves 1,400MW Thar coal-based project

The realisation of needing urgent megawatts is not lost on him. No wonder then that even at the important ceremony held at a local hotel and amid all dignitaries, he reminded them that they had faced three outages in a span of two hours.

The project’s total debt component is of $1.5 billion, out of which $800 million will be financed by Chinese banks including China Development Bank and Industrial and Commercial Bank of China. Another $200 million will be arranged by the Chinese contractor of the power plant.

SECMC’s sponsors have contributed equity of $500 million.

Published in The Express Tribune, August 18th,  2015.

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Reader Comments (10)

  • Woz Ahmed
    Aug 18, 2015 - 10:06AM

    The levelised tariff is 11 cents, this will only exacerbate our power distress.

    http://tribune.com.pk/story/937021/thar-coal-mining-firm-arranges-funds-from-chinese-local-banks/Recommend

  • Syed
    Aug 18, 2015 - 10:28AM

    Good work by all, couple of things to take care while this project goes online.
    – Make sure that we can give employment and training to local youth of Sindh/ Tharparkar
    – The environment effect should be monitored by local + international agencies.

    Lastly, make Hussain commerce minister in Sindh or Federal level, he has done wonders before and we need people like him at the driving seat.Recommend

  • sgrr
    Aug 18, 2015 - 10:52AM

    We will see the fate of the deal after two months, when I am sure that financial close will not be finalized as mentioned. Recommend

  • bakwaas
    Aug 18, 2015 - 11:17AM

    farcical project when coal is an environmental nightmare with its ecological issues. Money gone to waste as China embarks on ending dependence on coal power by finishing it totally by 2020. Rather then emphasizing or prioritizing on hydel power other types of projects are easy access way for corrupt malpractices!Recommend

  • Aug 18, 2015 - 11:58AM

    Well done Saad. Kindly the request is to follow this news, as i dont think this will be materialized perfectly. Because this is under Sindh government, and my personal opinion is “paper work will be done only” :pRecommend

  • Parvez
    Aug 18, 2015 - 12:29PM

    If the Sindh government is involved in this project in any meaningful way…..this project will NOT work.Recommend

  • cautious
    Aug 18, 2015 - 2:49PM

    The Thar Coal that is available for open pit mining is small …. and so is this particular project. Most of Thar Coal is under a deep layer of water and non economical to mine. Also – who’s going to pay for the power transmission lines to connect the power plant to the grid – where’s the money for that? Lastly – who gets the power – Pakistan people or Engro’s fertilizer plant?Recommend

  • IBN E ASHFAQUE
    Aug 18, 2015 - 6:41PM

    @cautious:
    Both Engro and the government of Pakistan belong to Pakistan.Recommend

  • syed & syed
    Aug 19, 2015 - 3:24AM

    I wish a similar arrangement was possible on gold mines in Jhang as stated by Mr Shabaz ShareefRecommend

  • Chemineer
    Aug 19, 2015 - 6:56AM

    Strict environment policies should be considered before firing up these projects. Coal is most vulnerable and highly motivated to SOx and NOx emissions which can leads to many health problems.

    Meanwhile China has shut down number of CFB due to high emissions of GHGs and other toxic gases. I hope Engro will keep these in mind before firing it. Recommend

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