Thar coalfield phase-II: Sindh govt sounds alarm over delay in financial close

ISLAMABAD: The Sindh government has conveyed its concerns to Islamabad on possible financial implications of delay in achieving financial close of phase-II of Thar Coal Mines Expansion and its impact on anticipated Commercial Operation Date (COD) of phase-III due to non-payment to Chinese lenders.

Sindh Engro Coal Mining Company (SECMC), a joint venture of the government of Sindh and Engro Energy (and its affiliates), has been at the forefront of developing the Thar coalfield.

In a letter to Prime Minister Shehbaz Sharif written by Chief Minister Sindh Syed Murad Ali Shah - written before the Karachi incident when two Chinese engineers lost their lives - explained that currently, the SECMC is producing 7.6 mtpa coal to cater 2x330 MW, 1x330 MW and 1x330 MW of M/s Engro Powergen Thar Limited, M/s Thar Energy Limited and M/s ThalNova Power Thar Limited respectively situated at mine mouth.

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Mine expansion to 11.4 mtpa capacity (Phase-III) to supply an additional coal of 3.8 mtpa to M/s Lucky Electric Power Company Limited is under process. SECMC, is however faced with challenges in achieving Financial Close (FC) for the same.

The key updates and challenges are as follows: (i) SECMC anticipates achieving Financial Close by December 2024, with the Commercial Operation Date (CoD) planned for Q4 2025. Meezan Bank Limited has approved a financing term sheet worth Rs26 billion, but prior approval from Chinese lenders involved in Phase-I and Phase-II required by SECMC remains pending.

The primary concern of these lenders is the macroeconomic situation, particularly when Government of Pakistan has sought re-profiling of power sector loans; (ii) Chinese lenders are also concerned about high outstanding receivables of SECMC amounting to Rs70 billion from IPPS (circular debt), as SECMC collection is around 90% since the COD;(iii) even with a 90% collection rate, receivables are projected to increase to Rs150 billion over the next five years following the completion of Phase-III, which would jeopardise the entire project’s financial viability ; and (iv) failure to achieve FC by December 2024 would cause SECMC to miss the TCEB-mandated phase-III COD deadline of September 30, 2025. This delay would result in financial losses of $ 5 million per month, making the entire project unsustainable.

After explaining the challenges, Chief Minister Sindh sought Prime Minister’s support in the following areas to ensure the successful progression of Phase-III: (i) the Phase-III approval must be fast-tracked through the Joint Cooperation Committee (JCC) to ensure early approval by the Chinese lenders, particularly the China Development Bank (CDB); and (ii) CPPA-G should implement a dedicated mechanism to promptly resolve outstanding receivables as well as current billing. This step is essential to acknowledge the critical role Thar coal plays as a domestic fuel source.

“Your (PM) timely intervention in these matters will help overcome the financial hurdles and ensure that the Thar coal project continues to contribute meaningfully to Pakistan’s energy security,” Shah added.

According to sources, Secretary Prime Minister, Syed Asad Gilani has sought comments from Secretary Finance and Secretary Power. Finance Division is also following Power Division on this issue.

Copyright Business Recorder, 2024