By Ajaz Ali Khan Managing Director Thar Coal & Energy Board [email protected] Thar Coal- A new Horizon for Investment in Pakistan

By

Ajaz Ali Khan

Managing Director

Thar Coal & Energy Board

[email protected]

www.sindhcoal.gos.pk

Thar Coal- A new Horizon for Investment in Pakistan

Review of Pakistan Coal Industry Now & the Future

http://www.heritage.com.pk/wp-content/uploads/2010/01/thar-1.jpg

Scheme of Presentation

• How will coal change the power scene in Pakistan?

• Strategy to attract private investments in the coal to power sector.

• Review of power purchase guarantee scheme.

• Strategic alliance between the coal & power sector.

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Coal’s Significance in Global Energy Scenario

Global energy consumption will rise by 50% by 2030. In non-OECD region, it will rise by 85% (International Energy Outlook Report 2008)

Coal use is likely to grow from 40% to 44%, as a source for power generation, by 2030* due to energy security and price volatility.

Besides use in power generation, various countries have initiated projects to produce Coal-to-Liquids, that entail producing diesel and other liquid products and Coal gasification projects in China, US, India and South Africa.

World Proven Coal Reserves – Over 860 billion tons.

* Source IEA Report 2009

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Coal Used in Electricity Generation & Lignite Reserves% age of Electricity

Generated from CoalLignite Reserves

Billion tonnesSouth Africa 94 30.15*

Poland 93 1.37China 81 18.6

Australia 76 37.2Israel 71 -

Kazakhstan 70 12.1India 68 4.5

Czech Republic 62 0.98

Morocco 57 -Greece 55 3.02

USA 49 30.16Germany 49 40.6

World Average 41 195.38Pakistan 0.1 186.2**

* Sub bituminous & Anthracite reserves only** Thar Coal Resources are 175 billion tonnes Proven Reserve in 9 explored Blocks alone is 20 billion tonnes

( Source,2008, IEA)


World Power Generation fuel Mix 2008-09

World Pakistan

A Comparison of Power Generation fuel Mix

Hydro 16%

Gas 20%

Oil 6%

Coal 41%

Others 2%


• 1.4 billion people are denied access to electricity around the world

• 2.7 billion people rely on the traditional use of biomass for cooking.

• Lack of access to modern energy services is a serious hindrance to economic and social development

Energy Poverty & Pakistan

Per Capita Primary Commercial Energy Use (TOE/capita) 2007 2030

Pakistan 0.42 0.77World average 1.82

• Electrification rate in Pakistan is 62.4%• Population without electricity in Pakistan is 68

million (40% of Population of Pakistan in 2010)

Widening Demand & Supply Gap Projection for Pakistan

Current Installed Capacity (MW)

Project DemandGap (MW)Year MW

19,566

2010 24,474 6,577

2015 36,217 18,320

2020 54,359 36,462

2025 80,566 62,669

2030 113,695 95,798

Future Energy Demand Supply Gap is Alarming!Source: Pakistan Electric Power Company (PEPCO)

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• Rebalance the Energy Mix• Ensuring economic Growth through affordable

energy to reduce Energy poverty • Cost per Kwh RFO vs Coal• Means to end Circular debt of Rs 400bn (US$

3.5 Billion)• Increasing industrial competitiveness• Checking drain on foreign exchange• Putting idle human capital to productive use

Coal- a means to long term Energy Security for Pakistan


Pakistan’s Coal Reserves

SindhSindh186.560 billion tonnes

PunjabPunjab235 million tonnes

BalochistanBalochistan217 million tonnes

NWFPNWFP90 million tonnes

Azad KashmirAzad Kashmir9 million tonnes Thar

Thar

CREDIBILITY OF RESERVES

Studies Conducted By:

United States Geological Survey John T. Boyd RWE of Germany M/s Shenhua of China Geological Survey of Pakistan Sindh Coal Authority

► All studies confirm presence of huge coal reserves



Comparison of Thar with Other International Mines

Deposit Stripping Ratio (m³ : t) Heating Value

(MJ/kg)

Thar 6.6 : 1 11.6

Kosovo 1 : 1 7.8

Rhenish Area, Germany

4.9 : 1 8.9

Hambach, Germany

6.3 : 1 10.5

Hungary 9 : 1 7.1

Greece 10:1 5.02

COMPARISON OF STRIPPING RATIO, HEATING VALUE & GENERATION OF LIGNITE IN OTHER COUNTRIES

Lignite

Coal

Combustion (Steam)

Gasification

AshTarNaphtaPhenolCatecholsCarbon DioxideDephenolized Cresylic Acid

CH4

CO2

H2

H2S

NH3

CO

H2

EthanolJet FuelDieselPetrolParaffinChemicals (Ethylene Polymers

AmmoniaFertilizerExplosives

Fisher Tropsch Synthesis

Crude Oil - Refinery

Electricity (Steam Turbines)

Coal to Liquid

Source: Syngas and Coal Technology, R & D, SASOL – Mr Johannes Van Heerdeen

Uses of Lignite


“To develop Thar Coal as a major source of power generation for Energy & Economic Security of the country and as a Hub of Petro Chemical Industry”

GoalTo generate at least 10,000 MW by 2020

offer• Huge proven reserves with attractive incentives• Higher returns for investors• Business friendly policies & environment• Excellent incentives, concessions & protections

Vision for Thar Coal


Strategy to attract Private Investment

• Attractive incentives Concessions & protections for Investors

• Power Purchase guarantee Scheme

• Provision of Robust Infrastructure



Thar Coalfield is declared as Special Economic Zone, and the projects of development of Thar (also including coal mining and power generation) declared as ‘Projects of National Security’

Rate of Return•20% ($ Based) IRR to firms which achieve Financial Close before 31st December 2015 for Mine & Power Plants based on indigenous coal and additional half a percentage IRR i.e. 20.5% IRR for firms which Financial Close by or before 31st December 2014.

Thar Coal -Special Economic Zone


Exemptions/Concessions• Zero percent customs duties on import of coal

mining equipment and machinery including vehicles for site use.

• Exemption on withholding tax to shareholders on dividend for initial 30 years.

• Exemption on withholding tax on procurement of goods and services during project construction and operations.

• Exemption for 30 years on other levies including special excise duty, federal excise duty, WPPF and WWF.


ProtectionsCurrency Exchange Rate Protection

Mining & Power Producers are protected from the impact of exchange rate variation up to Commercial Operation Date (COD).

EPC Cost EscalationCost escalation between the date of application and the Financial Close permissible as per Power Policy 2002

Return on Equity

US Dollar based Return on Equity


Power Purchase Guarantee Scheme • GoP guarantees obligations of power purchaser• GOP provides protection against political force

majeure, change in law and change in duties & taxes

• Payment of compensation in case of termination due to GOP default

• Tariff adjustments for variation in currency exchange rates, fuel prices and inflation

• Government ensures conversion of Pak Rupee & remittance of foreign exchange for project-related payments


INFRASTRUCTURE AVAILABLE AT THARROAD NETWORK

70 tonnes load carrying capacity metalled road is available up to Coal field area.

ELECTRICITY

11 KV feeder emanating from Islamkot to Thar Coal Project areas with 200 watts transformer is available.

COMMUNICATION

Telephone & Internet communication through Optic fiber cable is available up to Thar Coalfield area.

DRINKING WATER

29 Reverse Osmosis Plants in Thar are available for provision of portable water to residents as well as project staff free of cost.

RESCUE STATION

Rescue Station in coal mining area at Thar coalfield covering an area of 8,200 sq. ft. is completed

LIBRARY

A Coal library is situated at office of Sindh Coal Authority, Karachi.


TRANSMISSION LINE

NTDC is conducting feasibility study for lying of Transmission Line for evacuation of 10,000 MW from Thar. In the first Phase they are planning to evacuate 1200 MW.

AIRPORT

The GoS has approved a scheme at the cost of Rs.972.070 million for the construction of Airport at Thar for Coal Fields of Sindh by the Civil Aviation Authority.

PROVISION OF HEAVY DUTY ROAD

The W&S Deptt. is upgrading the road from Karachi to Islamkot through Hyderabad- Mirpurkhas- Naukot for facilitating transportation of heavy machinery by Dec. 2012.

RAILWAY LINK

PRACS has been engaged by GoS to prepare feasibility for broad gauge rail link from Port Qasim to Islamkot.

LODGE AT THAR

Lodge at Thar with 20-bedded accommodation to facilitate foreign and local investors is being constructed at Islamkot. PROVISION OF CANAL WATER:

The GoS has planned to construct a water carrier to provide 300 Cusecs water to Thar.

INFRASTRUCTURE PLANNED AT THAR


Thar Coal Block StatusBlock-II Sindh Engro Coal Mining Company(JV: 40% Sindh Government; 60% Engro)

2X600 Power Plant plannedOpen Pit Mining @ 6.5 Mtpa

Bankable Feasibility completed 31st August 2010Project financing activity continued.Project financing is being arranged through Pak-China Joint Energy Working Group.

Block III-ACougar Energy (UK) 400 MW PlannedUnder Ground Coal Gasification ProjectErgo Exergy Technology planned

Pilot Burn planned in 36 MonthsWork on DFS in progress.

Block-VUCG ProjectUnder Ground Coal Gasification Project2X50 MW IGCC Power Plant Planned

Unit gasifier design prepared,Technical team mobilized and desktop studies under process. Drilling in Process by GSPPilot Burn is expected soon

Block-VIOracle Coalfields, PLC (UK)Strip mining; MoU signed with KESC for 300MW

Geotechnical drilling in process through DRDESIA completedBFS completion June 2011Mines Development to begin June 2012

Status of Blocks


BUSINESS FACILITATIONStrategic alliance between Coal & Power sector

► High powered Thar Coal Energy Board (TCEB) established as one stop org. with Federal and Provincial agencies to facilitate investors.

► TCEB is a decision making body on Thar Coal Mining and Power Generation Projects.

► TCEB facilitates and coordinates with all the projects related to Thar Coal.

►Causing concerned agencies to improve infrastructure

►To act as coal Pricing agency

Composition of the Board is:

i. Chief Minister Sindh Chairmanii. Federal Minister for Water & Power Vice-Chairmaniii. Federal Minister for Finance Memberiv. Federal Minister for Law and Justice Memberv. Deputy Chairman, Planning Commission Membervi. Provincial Minister (Irrigation & Power) Membervii. Provincial Minister (Revenue & Relief) Memberviii. Female MNA from Thar Region Memberix. Federal Secretary, Ministry of Water and Power Memberx. Chief Secretary, Govt. of Sindh Memberxi. Secretary, Coal & Energy Development Dept. Memberxii. One eminent Person Memberxiii. Managing Director, TCEB

Member/Secretary

Thar Coal & Energy Board


1. Coal MiningInvestors interested only in mining may apply

for a mine lease for mining the coal.

2. Integrated Coal & Power Generation ProjectInvestors may also opt for investing an

integrated coal mining and power generation projects.

3. Mine Mouth Power ProjectThar coalfields present best opportunity for mine

mouth power projects in view of the great demand for energy in the country.

Investment Options


Investment Options4. Coal Gasification

Investors may propose to convert coal into gas and market the syngas and bye products in open market, or may develop a forward integrated project on any one or more bye products from gasification project

5. Coal to Liquid Projects Investors may propose to convert coal into Liquid and market the byproducts in open market, or may develop a forward integrated project on any one or more bye products from CTL project


Thar today



Thar Tomorrow

Thank You

Documents

By Ajaz Ali Khan Managing Director Thar Coal & Energy Board [email protected] Thar Coal- A new Horizon for Investment in Pakistan