thar coal-a new horizon for investment in...

By Ajaz Ali Khan Managing DirectorThar Coal & Energy [email protected]

Thar Coal- A new Horizon for

Investment in Pakistan

Review of Pakistan Coal Industry Now & the Future

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.

2www.sindhcoal.gos.pk

3

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 www.sindhcoal.gos.pk

World Coal Resources

billion tonnes %age

World Coal reserves 860

– Bituminous & anthracite 405 47

– Sub Bituminous 260 30

– Lignite 195 23

According to Survey of Energy Resources 2010 by World Energy Council

– The use of coal to rise by 60% by 2030

– Coal’s Share in Power generation is set to increase from 41% to 44% by 2030*

* ( Source- 2010 survey of energy Resources- world energy council)4www.sindhcoal.gos.pk

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

Generated from Coal

Lignite Reserves Billion

tonnes

South Africa 94 30.15*

Poland 93 1.37

China 81 18.6

Australia 76 37.2

Israel 71 -

Kazakhstan 70 12.1

India 68 4.5

Czech Republic 62 0.98

Morocco 57 -

Greece 55 3.02

USA 49 30.16

Germany 49 40.6

World Average 41 195.38

Pakistan 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)5www.sindhcoal.gos.pk

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

7

Energy Poverty & Pakistan

Per Capita Primary Commercial Energy Use

(TOE/capita)2007 2030

Pakistan 0.42 0.77

World 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)www.sindhcoal.gos.pk

Widening Demand & Supply Gap Projection for Pakistan

Current Installed Capacity (MW)Project Demand

Gap (MW)Year MW

19,566

2010 24,474 6,577

2015 36,217 18,320

202054,359 36,462

202580,566 62,669

2030113,695 95,798

Future Energy Demand Supply Gap is Alarming!

Source: Pakistan Electric Power Company (PEPCO)


9

Ensuring Economic Growth through affordable energy

Social cost of load shedding

www.sindhcoal.gos.pk

10

• Pakistan is facing acute Energy crisis leading to socio-economic costs.

• Economic cost of load shedding is estimated at $37B between 2007 and 2012*

• Loss of Rs 219 billion to industrial sector alone during 2008 in Pakistan**

Socio-economic Impact of load shedding

** Source: IPP estimates listed in Beacon House National University publication: State of the Economy – Emerging from Crisis 2008

* Source: Planning Commission of Pakistan, Draft Pakistan Integrated Energy Model by IRG-2010


11

• 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

SindhSindh

186.560 billion tonnes

PunjabPunjab235 million tonnes

BalochistanBalochistan217 million tonnes

NWFPNWFP90 million tonnes

Azad KashmirAzad Kashmir9 million tonnes

Thar


13

BLOCK-1

BLO

CK

-IVBLOCK-V

BLOCK

-VI

BLOCK-II

BLOCK

-III

BLOCK-III (B)

BLOCK –VII

BLOCK –VIII

BLOCK-III (B)

BLOCK –VII

BLOCK –VIII

SCA(DRD)

BLOCK- I

BLOCK- II

BLOCK -I II

BLOCK- I V

BLOCK- I

BLOCK- II

BLOCK -I II

BLOCK- I V

BLOCK-V

BLOCK –VI

BLOCK-V

BLOCK –VI

SCA (CNGB)

GSP

BLOCK

-VII

BLOCK

-III(B)

BLOCK-VIII

Thar Coal175 Billion tonnes of lignite

Block I, IIIB. IV & VII are being offered for Investmentwww.sindhcoal.gos.pk

CREDIBILITY OF RESERVESCREDIBILITY 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

15

COMPARISON OF STRIPPING RATIO, HEATING VALUE & COMPARISON OF STRIPPING RATIO, HEATING VALUE &

GENERATION OF LIGNITE IN OTHER COUNTRIESGENERATION OF LIGNITE IN OTHER COUNTRIES


Lignite

Coal

Combustion (Steam)

Gasification

Ash

Tar

Naphta

Phenol

Catechols

Carbon Dioxide

Dephenolized Cresylic Acid

CH4

CO2

H2

H2S

NH3

CO

H2

Ethanol

Jet Fuel

Diesel

Petrol

Paraffin

Chemicals (Ethylene �

Polymers

Ammonia

Fertilizer

Explosives

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 LigniteUses of Lignite

16 www.sindhcoal.gos.pk

“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”

Goal

To 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

17

Vision for Thar Coal


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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.

19

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.


Protections

Currency Exchange Rate Protection

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

EPC Cost Escalation

Cost 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 THAR

ROAD NETWORK

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

ELECTRICITY

11 KV feeder emanating from Islamkot Grid Station 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.


AIRPORT AT ISLAMKOT

The work for construction of Airport near Islamkot has been started.

LODGE AT THAR

Lodge at Thar with 20-bedded accommodation to facilitate foreign and local investors is available at Islamkot. It has fully furnished 10 chalets and a dormitory.

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.

INFRASTRUCTURE AVAILABLE AT THAR


25

Thar Coal Block Status

Block-II

Sindh Engro Coal Mining Company

(JV: 40% Sindh Government; 60% Engro)

2X600 Power Plant planned

Open Pit Mining @ 6.5 Mtpa

Bankable Feasibility completed 31st August 2010

Project financing activity initiated.

Block III-A

Cougar Energy (UK)

400 MW Planned

Under Ground Coal Gasification Project

Ergo Exergy Technology planned

Pilot Burn planned in 36 Months

Desktop studies under process.

Block-V

UCG Project

Under Ground Coal Gasification Project

2X50 MW IGCC Power Plant Planned

Unit gasifier design prepared,

Technical team mobilized and desktop studies under

process.

Drilling in Process by GSP

Pilot Burn Planned March 2011

Block-VI

Oracle Coalfields, PLC (UK)

Strip mining;

MoU signed with KESC for 300MW

Geotechnical drilling in process through DRD

3D Block Model to be developed by Mid Nov 2010

Hydro-geological Drilling to be completed by Nov 2010

BFS completion December 2010

ESIA completed

Status of Blocks


26

BUSINESS FACILITATIONBUSINESS FACILITATION

Strategic 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 BoardThar Coal & Energy Board


Block III-B Area 76 Sq Km

Moisture %: 47.72%

Ash %: 9.30%

Volatile Matter %: 25.49%

Fixed Carbon%: 16.79%

Sulphur %: 1.15%

Heating value Btu/lb: 4808Coal Reserves

Measured 225.94 million tones

Indicated 938.91 million tones

Inferred 288.33 million tones

Total Reserves 1453.18 million tones

Block VII Area 100 Sq Km

Moisture%: 48.27%

Ash%: 8.83 %

Volatile Matter%: 25.30%

Fixed carbon%: 19.56%

Sulphur%: 1.15%

Heating value Btu/lb: 5440.95 Btu/lb

Reserves

Measured 572.12 million tons

Indicated 1514.51 million tons

Inferred 89.15 million tons

Total Reserves 2175.78 million tons

Block I Area 122 sq km

Moisture 43.13%

Ash 6.53%

Volatile Matter 30.11%

Fixed Carbon 20.11%

Sulphur 0.92%

Heating Values Btu/lb 6398

COAL RESERVES

Measured 620.42 Million tones

Indicated 1918.06 Million Tones

Inferred 1028.43 Million Tones

Total 3566.91 Million Tones

Blocks Available for Investment

Block IV Area 82 sq km

Moisture 43.24%

Ash 6.56%

Volatile Matter 29.04%

Fixed Carbon 21.13%

Sulphur 1.34%

Heating Values Btu/lb 5950

COAL RESERVES

Measured 684.09 Million tones

Indicated 1711.28 Million Tones

Inferred 176.14 Million Tones

Total 2571.51 Million Tones


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 Options

4. 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


Thank You


PakistanThar Coal Project, Sindh

Cross-Section 11fromRE-16 to RE-21DateDrawing-No.10.12.03DesignedDrawnCheckedApprovedDatamineByBy

Dune Sand

Sub-RecentBara FormationCoal SeamsSandlayersBasement/Granite

Legend

1111Top Aquifer

Geology : Columnar Section

Dune Sand Aquifer

Sub-Recent Aquifer

Bara Aquifer

55-60 m

120 m

170- 180 m


PAKISTAN POWER SECTOR PAKISTAN POWER SECTOR PAKISTAN POWER SECTOR PAKISTAN POWER SECTOR ---- TOTAL INSTALLED CAPACITYTOTAL INSTALLED CAPACITYTOTAL INSTALLED CAPACITYTOTAL INSTALLED CAPACITY

MW %

Public Sector

WAPDA/SHYDO

/NA/AJK 11603 55

PAEC 462 2

Sub-Total 12065 57

Private Sector

IPPs 7253 35

KESC 1756 8

Sub-Total 9009 43

G. Total 21074 100

Public Sector

Thermal

4900 MW

Nuclear

462 MWPublic Sector Hydel

6703 MW

IPPs

9009 MW


PAKISTAN POWER SECTOR PAKISTAN POWER SECTOR PAKISTAN POWER SECTOR PAKISTAN POWER SECTOR PAKISTAN POWER SECTOR PAKISTAN POWER SECTOR PAKISTAN POWER SECTOR PAKISTAN POWER SECTOR –––––––– KEY PLAYERSKEY PLAYERSKEY PLAYERSKEY PLAYERSKEY PLAYERSKEY PLAYERSKEY PLAYERSKEY PLAYERS

Ministry ofWater

& Power

PakistanAtomic Energy

Commission

NEPRA

WAPDA AEDB PEPCO PPIB

Mega DamsWater

ProjectsGENCOs DISCOs NTDC

CHASNUPP KANUPP

GOVERNMENT OF PAKISTAN

PrivateSector

IPPs SPPs/CPPs KESC

TCEB

Thar Coal

Based IPPs


POLICY FOR POWER GENERATION 2002POLICY FOR POWER GENERATION 2002POLICY FOR POWER GENERATION 2002POLICY FOR POWER GENERATION 2002

SALIENT FEATURESSALIENT FEATURESSALIENT FEATURESSALIENT FEATURES

Exemption from corporate income tax, turnover tax and withholding tax,

no sales tax, only 5% concessionary Import Duty on plant & equipment

not manufactured locally

GOP guarantees obligations of power purchaser and provinces

GOP provides protection against Political Force Majeure, Change in Law

and change in duties & taxes

Power Purchaser to bear hydrological risk for hydropower projects

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 payments35


POWER POLICY 2002POWER POLICY 2002

PROCESSPROCESS

Raw site advertisement

Pre-Qualification• Technical

Strength• Financial

StrengthTimeline:

2 - 6 months

Feasibility Study

Monitoring & evaluation by

POETimeline:

18 -36 months

LO

I

NEPRA Tariff

Determination

FinancialClose

LOS

COD

3636www.sindhcoal.gos.pkwww.sindhcoal.gos.pk

IPPs IN OPERATIONIPPs IN OPERATIONIPPs IN OPERATIONIPPs IN OPERATIONIPPs IN OPERATIONIPPs IN OPERATIONIPPs IN OPERATIONIPPs IN OPERATIONAltern Energy Ltd, AttockAltern Energy Ltd, Attock 2929 Jun 2001Jun 2001

Japan Power Generation, LahoreJapan Power Generation, Lahore 120120 Jan 2000Jan 2000

Kohinoor Energy Ltd., LahoreKohinoor Energy Ltd., Lahore 131131 Jun 1997Jun 1997

Southern Electric Co., LahoreSouthern Electric Co., Lahore 135135 Jul 1999Jul 1999

Saba Power Company, LahoreSaba Power Company, Lahore 114114 Dec 1999Dec 1999

AES Lalpir Ltd., MultanAES Lalpir Ltd., Multan 362362 Nov 1997Nov 1997

AES Pak Gen, MultanAES Pak Gen, Multan 365365 Feb 1998Feb 1998

Fauji Kabirwala Co., MultanFauji Kabirwala Co., Multan 157157 Oct 1999Oct 1999

Rousch Power, MultanRousch Power, Multan 412412 Dec 1999Dec 1999

KAPCO, Muzaffargarh (privatized from KAPCO, Muzaffargarh (privatized from public sector)public sector)

16381638 Jun 1996Jun 1996

Attock Gen, RawalpindiAttock Gen, Rawalpindi 165165 Mar 2009Mar 2009

Atlas Power Ltd., SheikhupuraAtlas Power Ltd., Sheikhupura 225225 Nov 2009Nov 2009

Nishat Power Ltd., LahoreNishat Power Ltd., Lahore 200200 Nov 2009Nov 2009

Saif Power Ltd., SahiwalSaif Power Ltd., Sahiwal 229229 Apr 2010Apr 2010

Orient Power Ltd., Balloki, KasurOrient Power Ltd., Balloki, Kasur 229229 May 2010May 2010

Nishat Chunian Power Ltd., LahoreNishat Chunian Power Ltd., Lahore 200200 Jul 2010Jul 2010

Hub Power Project, HubHub Power Project, Hub 12921292 Mar 1997Mar 1997

Uch Power Ltd., UchUch Power Ltd., Uch 586586 Oct 2000Oct 2000

Habibullah Coastal, QuettaHabibullah Coastal, Quetta 140140 Sep 1999Sep 1999

TNB Liberty Power Ltd., DharkiTNB Liberty Power Ltd., Dharki 235235 Jun 2001Jun 2001

Tapal Energy Ltd., KarachiTapal Energy Ltd., Karachi 126126 Jun 1997Jun 1997

Gul Ahmed Energy Ltd., KarachiGul Ahmed Energy Ltd., Karachi 136136 Nov 1996Nov 1996

Engro Energy Ltd., Qadirpur, SindhEngro Energy Ltd., Qadirpur, Sindh 227227 Mar 2010Mar 2010

MULTAN

PUNJABPUNJAB

BALOCHISTANBALOCHISTAN

SINDHSINDH

Tot. Capacity: 7453 MW


IPPs in operation

Sponsors

� AES, USA

� El Paso, USA

� Warstilla, USA

� Tanaska, USA

� Hawkins, USA

� National Power, UK

� Siemens, Germany

� ABB, Switzerland

� Xenel, KSA

� Mitsui Japan

� TNB, Malaysia

� Attock Oil, UK

� Orastar Limited, UK

� Oman Oil Company

� DEG Germany

etc

Lenders

� IFC� ADB,� J-Exim� ABN AMRO� EDC, Canada� Finnish Export Credit� World Bank� COFACE� MITI, Japan� CDC� SACE� US Exim Bank � Nations Banks of Texas� Toronto – Dominion Bank� DEG Germany� PROPARCO� FMO� SWEDFUND

etc

INTERNATIONAL INTEREST IN INTERNATIONAL INTEREST IN

PAKISTAN PAKISTAN ––

POWER SECTORPOWER SECTOR


ECONOMIC IMPACT DUE TO ENERGY DEFICITECONOMIC IMPACT DUE TO ENERGY DEFICIT

• Cost to the Industrial Sector Rs 157 billion

• Cost to the other sectors of industrial Loss on a/c of Value Addition

Rs 53 billion

• Total cost of industrial load shedding to the economy Rs 219 billion

• Cost as percentage of GDP 2 %

• Loss of employment in the economy 400,000

• Loss of exports Rs 75 billion

(equivalent to US $ 1

billion)

Source: IPP estimates listed in Beacon House National University publication: State of the Economy

– Emerging from Crisis 2008 39www.sindhcoal.gos.pk

Neyvelli lignite 7:1Heating value = 5200 Btu/lbTotal generation = 2,740 MW

Lignite 6:1Heating Value: 6200 ~ 11,000 Btu/lbTotal generation = 0 MW

COMPARISON OF STRIPPING RATIO, HEATING VALUE & COMPARISON OF STRIPPING RATIO, HEATING VALUE &

GENERATION OF LIGNITE IN OTHER COUNTRIESGENERATION OF LIGNITE IN OTHER COUNTRIES

IndiaRhineland lignite 4.9:1 (m3:t)Heating value = 4,514 to 11054 Btu / lbTotal generation = 10,289 MW

Germany

Hungary lignite 9:1 (m3:t)Heating value = 3,035 Btu / lbTotal generation = 1,852 MW

Hungary

THAR COAL


41

UNDERGROUND WATER RESOURCESUNDERGROUND WATER RESOURCES

Three water aquifers at an average depth of 50m, 120m and more

than 200 meters:

► First aquifer above the coal zone

► Second aquifer within the coal zone at 120 meters depth:

Varying thickness upto 68.74 meters

► Third aquifer below the coal zone at 200 meters depth:

Varying thickness upto 47 meters


thar coal-a new horizon for investment in...

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