China has approved an investment of US$1.2 billion in mining of a section of the Thar Coalfield in Pakistan and the establishment of a power project. The agreement forms part of the China-Pakistan Economic Corridor project (CPEC) with final documents expected to be signed by both sides on December 21.
A statement from China’s ministry of water and power said that the China Export and Credit Insurance Corporation, commonly known as Sinosure, had written to the ministry that the coal-fired power plants and surface mining in block II of Thar coal field had been approved by the State Council of China.
The council for financing gave approval for financing of a 660MW power plant fed by indigenous coal from Thar Block-II as well as the surface mining of 3.8 million tonnes per annum of Thar coal.
The loans required for the project comprise around $800 million from a Chinese banking syndicate, led by the China Development Bank and the Industrial and Commercial Bank of China, and about $500 million from a Pakistani banking syndicate comprising Habib, United and Alfalah banks.
An official said financing by local banks had been arranged at Karachi Interbank Offered Rate plus 1.7% and Chinese lending at London Interbank Offered Rate plus 3.3%.
Sinosure has asked Islamabad to ensure that sovereign guarantee for the mining sector is issued by December 25. An official said arrangements had been made to ensure it as formal approval had been obtained.
Arrangement of finances and completion of lending documents are the most critical parts in any project, signifying starting point of actual work on the project.
Sinosure and the Sindh Engro Coal Mining Company (SECMC) are jointly undertaking the surface mining of 3.8 million tonnes of coal annually and establishment of a 660MW power plant in Tharparkar under the umbrella of the $46 billion CPEC.
It is the largest project on the top priority list of CPEC’s agenda and the first to have reached such an advanced stage after the signing of CPEC energy project agreements in November last year. The accords envisage 14 projects of 10,400MW in the first phase, which are targeted for commercial operation by 2017-18.
The two governments initially focused on the Thar coal mining and power project and completed regulatory approvals between November 2014 and March 31, 2015. The arrangements included a power generation policy approval by the Council of Common Interests, followed by standard security package, including approval of implementation and power purchase agreements.
To facilitate the project, a supplemental agreement particularly designed for Chinese investment under the CPEC was approved by the Economic Coordination Committee of the cabinet that entailed creation of a revolving account to provide for a minimum of 22% of monthly power purchases and a sovereign guarantee recently issued by the federal government.
Total cost of the coal mine upgrade has been estimated at about $900 million and that of the power plant at $1 billion with $1.2 billion to come from China.
About $500 m equity is being arranged by the SECMC, a joint venture of the Sindh government and five private firms led by the Engro Corporation. Another $200 million will be arranged by Chinese contractors.
Pakistan and China have already entered into an agreement for laying a transmission line for supply of electricity from the Thar plant to the national grid near Matiari and then onwards up to Lahore. This will ensure that the first power project begins commercial operation by December 2017.
A separate mining and power plant plan is being developed on another Thar block by Oracle Coalfields of the UK.