China Development Bank (CDB) is likely to issue Condition Precedent (CP) clarification letter in favour of Sindh Engro Coal Mining Company (SECMC) on Monday (tomorrow) meant to ensure its financial close by December 31, 2019 and enactment of its already approved tariff.
The CEO of Thar Energy Limited (TEL) is in China and holding meetings and information indicates that the issue will be resolved before the end of current month.
"All formalities are completed and financial close of the project is around the corner," said Chief Executive Officer (CEO), Hub Power Company (Hubco), Khalid Mansoor while talking to Business Recorder. It was necessary for the financial close of SECMC that CDB should issue a letter that all the CP conditions of TEL SECMC are fulfilled after lenders of SECMC do its financial close.
He further stated that after financial close of SECMC, TEL will also complete its financial close by fulfilling the remaining formalities. Khalid Mansoor, in a letter to Secretary Planning, Development and Special Initiatives stated that M/s Hubco is currently developing two Independent Power Projects (IPPs) of 330 MW each namely Thar Energy Limited (TEL) and ThalNova Thar Private Limited (TNTPL) at Thar Block II, Sindh, as joint ventures with reputable local and Chinese partners including Fauji Fertilizer Company (FFC), Thal Engineering, Novatex and China Machinery Engineering Corporation.
He said both the projects are part of China Pakistan Economic Corridor (CPEC) and are critical for improving national energy security due to utilization of indigenous Thar coal to be supplied by Sindh Engro Coal Mining Company (SECMC) in its phase two expansion. The projects are being financed by the Chinese and local lending consortiums led by China Development Bank (CDB) and Habib Bank Limited (HBL), respectively.
According to M/s Hubco, TEL is working to achieve Commercial Operations Date (COD) as per Required Commercial Date (RCOD) of March 2021 under the Power Purchase Agreement (PPA). In order to meet the deadline, sponsors have commenced project construction since May 2018 by injecting 2/3rd of total equity so far which has resulted in almost 50 per cent of the project completion till date without achieving the financial close.
Furthermore, TEL has achieved major milestones towards achieving FC as follows: (i) financing documents were signed in December 2018; (ii) all condition precedents to financial close have been completed except for Implementation Agreement Director Agreement (IADA) signing and issuance of Sinosure Policy. Both these conditions/precedents are pending approval by Chinese Financial Institutions.
CEO Hubco maintains that TEL cannot achieve its financial close without SECMC achieving financial close for its phase two expansion and vice versa, adding that although TEL's Letter of Support (LoS) is valid till March 2020, however, SECMC's tariff for phase II of mine expansion is expiring on December 31, 2019. Therefore, it is essential that both TEL and SECMC achieve financial close before December 31, 2019.
"Expiry of SECMC tariff will result in significant delay in achievement of FC due to a log renewal process. Consequently, TEL project is likely to stall resulting in imposition of heavy LDs under the PPA," he continued.
Khalid Mansoor further stated that delay in SECMC expansion will result in supply of coal at around $ 15 per ton higher price to electricity consumers. On the other hand, timely commissioning of TEL project will result in foreign exchange saving of approx $ 100 million per annum post TEL COD on account of substitution of imported coal.
After explaining Hubcos' viewpoint, Khalid Mansoor has requested Power Division to take up this matter at an appropriate level in the Chinese government to push Chinese lenders namely China Development Bank and China Minsheng Bank Corporation to complete their CP satisfaction process well in time to ensure financial close by December 31, 2019.
Copyright Business Recorder, 2019