Thar Coal- A new Horizon for Investment in Pakistan

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1 Thar Coal- A new Horizon for Investment in Pakistan Review of Pakistan Coal Industry Now & the Future By Ajaz Ali Khan Managing Director Thar Coal & Energy Board secy@sindhcoal.gos.pk

2 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. 2

Coal s Significance in Global Energy Scenario Global energy consumption will rise by 50% by 2030.

generation, by 2030* due to energy security and price volatility.

3 Coal s Significance in Global Energy Scenario Global energy consumption will rise by 50% by 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

4 World Coal Resources billion tonnes World Coal reserves 860 Bituminous & anthracite Sub Bituminous Lignite %age 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 survey of energy Resources- world energy council) 4

5 Coal Used in Electricity Generation & Lignite Reserves % age of Electricity Generated from Coal Lignite Reserves Billion tonnes South Africa * Poland China Australia Israel 71 - Kazakhstan India Czech Republic Morocco 57 - Greece USA Germany World Average Pakistan ** * 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) 5

6 A Comparison of Power Generation fuel Mix World Pakistan World Power Generation fuel Mix Others 2% Coal 41% Hydro 16% Oil 6% Gas 20% 6

7 Energy Poverty & Pakistan 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 Per Capita Primary Commercial Energy Use (TOE/capita) Pakistan 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) 7

8 Widening Demand & Supply Gap Projection for Pakistan Current Installed Capacity (MW) Year Project Demand MW Gap (MW) ,474 6, ,217 18,320 19, ,359 36,462 80,566 62, ,695 95,798 Source: Pakistan Electric Power Company (PEPCO) Future Energy Demand Supply Gap is Alarming! 3 8

9 Ensuring Economic Growth through affordable energy Social cost of load shedding 9

10 Socio-economic Impact of load shedding 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** * Source: Planning Commission of Pakistan, Draft Pakistan Integrated Energy Model by IRG-2010 ** Source: IPP estimates listed in Beacon House National University publication: State of the Economy Emerging from Crisis

11 Coal- a means to long term Energy Security for Pakistan 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 11

12 Pakistan s Coal Reserves Sindh billion tonnes Punjab 235 million tonnes Balochistan 217 million tonnes NWFP 90 million tonnes Azad Kashmir 9 million tonnes Thar 12

13 Thar Coal 175 Billion tonnes of lignite BL O BLOCK- I BLOCK- II BLOCK -I II BLOCK- I V II GSP -V K OC L B V KC O BL SCA (CNGB) -II I I OC L B BL O CK II K- -II I(B ) IV BLOCK-III (B) BLOCK VII BLOCK VIII BL OC K KOC BL BLOCK-V BLOCK VI CK -V BLOCK-1 SCA BLOCK-VIII (DRD) Block I, IIIB. IV & VII are being offered for Investment 13

14 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 14

15 COMPARISON OF STRIPPING RATIO, HEATING VALUE & GENERATION OF LIGNITE IN OTHER COUNTRIES Comparison of Thar with Other International Mines Deposit Stripping Ratio (m³ : t) Heating Value (MJ/kg) Thar 6.6 : Kosovo 1 : Rhenish Area, Germany 4.9 : Hambach, Germany 6.3 : Hungary 9 : Greece 10:

16 Uses of Lignite Lignite Coal Combustion (Steam) Gasification Ash Tar Naphta Phenol Catechols Carbon Dioxide Dephenolized Cresylic Acid Electricity (Steam Turbines) CH 4 CO 2 H 2 H 2 S NH 3 Ammonia Fertilizer Explosives CO H 2 Coal to Liquid Fisher Tropsch Synthesis Crude Oil - Refinery Ethanol Jet Fuel Diesel Petrol Paraffin Chemicals (Ethylene Polymers Source: Syngas and Coal Technology, R & D, SASOL Mr Johannes Van Heerdeen 16

17 Vision for Thar Coal 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

18 Strategy to attract Private Investment Attractive incentives Concessions & protections for Investors Power Purchase guarantee Scheme Provision of Robust Infrastructure 18

19 Thar Coal -Special Economic Zone 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

20 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. 20

21 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 21

22 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 projectrelated payments 22

ROAD NETWORK INFRASTRUCTURE AVAILABLE AT THAR 70 tonnes load carrying capacity metalled

ELECTRICITY 11 KV feeder emanating from Islamkot Grid Station to Thar Coal Project

COMMUNICATION Telephone & Internet communication through Optic fiber cable is available

23 ROAD NETWORK INFRASTRUCTURE AVAILABLE AT THAR 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. 23

INFRASTRUCTURE AVAILABLE AT THAR AIRPORT AT ISLAMKOT The work for construction of

LODGE AT THAR Lodge at Thar with 20-bedded accommodation to facilitate foreign and

It has fully furnished 10 chalets and a dormitory.

24 INFRASTRUCTURE AVAILABLE AT THAR 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. 24

25 Status of Blocks Thar Coal Block Block-II Sindh Engro Coal Mining Company (JV: 40% Sindh Government; 60% Engro) 2X600 Power Plant planned Open Pit 6.5 Mtpa Block III-A Cougar Energy (UK) 400 MW Planned Under Ground Coal Gasification Project Ergo Exergy Technology planned Status Bankable Feasibility completed 31 st August 2010 Project financing activity initiated. 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 Block-VI Oracle Coalfields, PLC (UK) Strip mining; MoU signed with KESC for 300MW Unit gasifier design prepared, Technical team mobilized and desktop studies under process. Drilling in Process by GSP Pilot Burn Planned March 2011 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 25

26 BUSINESS 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 26

27 Thar Coal & Energy Board Composition of the Board is: i. Chief Minister Sindh Chairman ii. Federal Minister for Water & Power Vice-Chairman iii. Federal Minister for Finance Member iv. Federal Minister for Law and Justice Member v. Deputy Chairman, Planning Commission Member vi. Provincial Minister (Irrigation & Power) Member vii. Provincial Minister (Revenue & Relief) Member viii. Female MNA from Thar Region Member ix. Federal Secretary, Ministry of Water and Power Member x. Chief Secretary, Govt. of Sindh Member xi. Secretary, Coal & Energy Development Dept. Member xii. One eminent Person Member xiii. Managing Director, TCEB Member/Secretary 27

28 Blocks Available for Investment 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 Million tones Indicated Million Tones Inferred Million Tones Total Million Tones 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: 4808 Coal Reserves Measured million tones Indicated million tones Inferred million tones Total Reserves million tones 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 Million tones Indicated Million Tones Inferred Million Tones Total 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: Btu/lb Reserves Measured million tons Indicated million tons Inferred million tons Total Reserves million tons 28

29 Investment Options 1. Coal Mining Investors interested only in mining may apply for a mine lease for mining the coal. 2. Integrated Coal & Power Generation Project Investors may also opt for investing an integrated coal mining and power generation projects. 3. Mine Mouth Power Project Thar coalfields present best opportunity for mine mouth power projects in view of the great demand for energy in the country. 29

30 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 30

31 Thank You 31

32 DuneSand Legend Sub-RecentBaraFormationCoalSeamsSandlayersBasement/Granite TopAquifer PakistanTharCoalProject,Sindh Cross-Section11fromRE-16toRE-21DateDrawing-No DesignedDrawnCheckedApprovedDatamineByBy 1111 Geology : Columnar Section Dune Sand Aquifer m Sub-Recent Aquifer 120 m m Bara Aquifer 32

33 PAKISTAN POWER SECTOR - TOTAL INSTALLED CAPACITY Public Sector Hydel 6703 MW Nuclear 462 MW Public Sector Thermal 4900 MW MW % Public Sector WAPDA/SHYDO /NA/AJK PAEC Sub-Total Private Sector IPPs KESC Sub-Total G. Total IPPs 9009 MW 33

34 PAKISTAN POWER SECTOR KEY PLAYERS GOVERNMENT OF PAKISTAN Ministry of Water & Power TCEB Pakistan Atomic Energy Commission NEPRA Private Sector WAPDA AEDB PEPCO PPIB CHASNUPP KANUPP IPPs SPPs/CPPs KESC Thar Coal Based IPPs Mega Dams Water Projects GENCOs DISCOs NTDC 34

35 POLICY FOR POWER GENERATION 2002 SALIENT 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 payments 35

36 POWER POLICY 2002 PROCESS Raw site advertisement Pre-Qualification Technical Strength Financial Strength Timeline: 2-6 months LOI Feasibility Study Monitoring & evaluation by POE Timeline: months NEPRA Tariff Determination LOS Financial Close COD 36

37 PUNJAB Altern Energy Ltd, Attock 29 Jun 2001 Japan Power Generation, Lahore 120 Jan 2000 Kohinoor Energy Ltd., Lahore 131 Jun 1997 Southern Electric Co., Lahore 135 Jul 1999 Saba Power Company, Lahore 114 Dec 1999 AES Lalpir Ltd., Multan 362 Nov 1997 AES Pak Gen, Multan 365 Feb 1998 Fauji Kabirwala Co., Multan 157 Oct 1999 Rousch Power, Multan 412 Dec 1999 KAPCO, Muzaffargarh (privatized from public sector) IPPs IN OPERATION 1638 Jun 1996 Attock Gen, Rawalpindi 165 Mar 2009 Atlas Power Ltd., Sheikhupura 225 Nov 2009 Nishat Power Ltd., Lahore 200 Nov 2009 Saif Power Ltd., Sahiwal 229 Apr 2010 Orient Power Ltd., Balloki, Kasur 229 May 2010 Nishat Chunian Power Ltd., Lahore 200 Jul 2010 Tot. Capacity: 7453 MW MULTAN BALOCHISTAN Hub Power Project, Hub 1292 Mar 1997 Uch Power Ltd., Uch 586 Oct 2000 Habibullah Coastal, Quetta 140 Sep 1999 SINDH TNB Liberty Power Ltd., Dharki 235 Jun 2001 Tapal Energy Ltd., Karachi 126 Jun 1997 Gul Ahmed Energy Ltd., Karachi 136 Nov 1996 Engro Energy Ltd., Qadirpur, Sindh 227 Mar

38 IPPs in operation INTERNATIONAL INTEREST IN PAKISTAN POWER SECTOR 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 38

39 ECONOMIC 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 billion) (equivalent to US $ 1 Source: IPP estimates listed in Beacon House National Universitypublication: State of the Economy Emerging from Crisis

40 COMPARISON OF STRIPPING RATIO, HEATING VALUE & GENERATION OF LIGNITE IN OTHER COUNTRIES India Neyvelli lignite 7:1 Heating value = 5200 Btu/lb Total generation = 2,740 MW Hungary Hungary lignite 9:1 (m3:t) Heating value = 3,035 Btu / lb Total generation = 1,852 MW Germany Rhineland lignite 4.9:1 (m3:t) Heating value = 4,514 to Btu / lb Total generation = 10,289 MW THAR COAL Lignite 6:1 Heating Value: 6200 ~ 11,000 Btu/lb Total generation = 0 MW 40

41 UNDERGROUND 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 meters Third aquifer below the coal zone at 200 meters depth: Varying thickness upto 47 meters 41

Thar Coal & Energy Board Government of Sindh

Thar Coal & Energy Board Government of Sindh www.sindhcoal.gos.pk Coal Fields of Pakistan & Thar Thar coalfield is approximately located between Latitudes 24 o 15 N and 25 o 45 N Longitudes 69 o 45 E and