Oracle is at the centre of a major economic push in Pakistan. Oracle Power’s Thar project will benefit significantly as an important component of the China-Pakistan Economic Corridor.
The Thar coal-to-power project has enjoyed an enhanced status in official government circles and amongst the business community in Pakistan and the wider region ever since power projects were included in the purview of the China-Pakistan Economic Corridor, also known as CPEC. Although its antecedents date back decades, CPEC was formally instituted in 2015 and has since played a pivotal role in Pakistan’s economic development plans.
Oil and gas projects weren’t initially included in the list of CPEC projects, which initially focussed on infrastructure and power only, but the stimulus of big developments and the amounts committed spurred an expansion of the remit, and in the latest round the Thar coal project has been included in Oil & Gas for its additional use as coal to gas to fertilizer etc.
This is all to the good, as far as Naheed Memon is concerned. As chief executive of Oracle Power PLC, the company that owns Thar, she is only too aware of the need for big companies and big backing to make projects like Thar happen. “It’s been good,” she says. “CPEC is becoming a bigger and bigger part of the development of Pakistan. And what they are building are power-hungry projects with the potential to drive greater energy demand.
The potential on offer at Thar has never really been in doubt. Block VI, which has been Oracle’s focus to date, spans over 66.1 square kilometres and has 1.6 billion tonnes of inferred coal reserves and contains a JORC compliant resource of 529 million tonnes of coal over an area of 20 square kilometres. The size of the overall area of Thar Coalfield itself amounts to over 9,000 square kilometres and contains 175 billion tonnes of coal.
It’s big, the coal is of a quality that can be used in thermal power generation and coal to gas and liquid, and Pakistan is crying out for new sources of power. With CPEC in place, the move from concept to development now looks that much more possible, albeit that recent progress has been somewhat hampered by issues related to the coronavirus. Nevertheless, on 7th April Memon was able to tell shareholders on a conference call that “solid progress” had been made in the first quarter of the year. The crucial next step will be the official issuance of a Letter of Intent (LOI) by the government of Pakistan undertaking to purchase power generated from the proposed power station at Thar. This is expected to be completed in the current quarter, even allowing for coronavirus-related delays, and will represent a major step forward for the company.
Oracle also expects shortly to complete an agreement on the final ownership structure of the project, the three parties being Oracle itself, China National Coal Development Company Ltd, and the Private Office of His Highness Sheikh Ahmed Bin Dalmook Juma Al Maktoum. Once that’s all done, the path to financing the project with debt and equity will become clear, although given the current global health crisis Memon told shareholders that slight delays may occur. Ms. Memon is comfortable that in China National Coal Development Corporation the company has got a partner with plenty of strength and depth, which it will need, considering the size and spectrum of the project. “They are coal specialists,” she says.
“They are our first choice of an investment sponsor and partner. They are overarching coal developers. They can do coal trading too. And they are optimistic about the overall progress of this development. The first phase will be power, for which we will open up the mine. Then there will be a subsequent development for gas and chemicals, which would be done in co-operation with the government.”
“It’s a very big project and the overall value could be as much as between US$6bn and US$8bn, to be developed in phases. It would be the largest private-sector project under CPEC,” says Memon. “I think strategically there will be increased importance put on it.”
The board is confident in its ability to effectively finance its participation in the project during the development phase – with the majority being planned in debt to minimise dilution to shareholders.