Sindh Engro Coal Mining Company

Creating Value Through Investment

Indigenous Fuel is the Key to Energy Security of Pakistan

Khalid Mansoor, April 6, 2012

Wrong Fuel Choice

Source: 1) State of Industries Report 2010, NEPRA 2) Integrated Energy Plan

Gas 42%

RFO 25%

HSD 1%

Coal 0%

Hydel 30%

Nuclear 2%

2008-09

Gas 29%

RFO 38%

HSD 1%

Coal 0.1%

Hydel 29%

Nuclear 3%

2010-11

• Due to lack of indigenous natural gas shortages, reliance on expensive imported RFO has increased and exacerbated Circular Debt problem

• If Coal had been used instead of RFO to make up for indigenous natural gas shortage, it would have reduced energy import bill by USD 600 M and direct saving of USD 280 M to electricity consumers

• 50% reduction in use of RFO for power generation would reduce Pakistan’s energy import bill by USD 900 M and benefit electricity consumers by USD 400 M

Country Power Generated from

Coal (%)

Australia 80

China 78

India 53

USA 50

Germany 47

UK 30

World Average 42

Pakistan 0.1

Thar Coal Potential

Thar

PAKISTAN

Thar Desert contains the world’s 7th largest coal reserves:

Location of Thar Coal Field

1% = 25% Thar Coal Reserve

175 Billion Ton = 50 Billion TOE = 2000 TCF Total Thar Coal Reserve More than Saudi Arabia 68 times higher than & Iranian Oil Reserves Pakistan’s total gas reserves

Source:: GSP data/report – Energy equivalent is based on Shenhua report/RWE

Pakistan’s Power Generation Capacity in 2010

Development of Block II alone would bring in investment of USD 12 Billion

Entire Thar Coal Reserves can be used to generate 100,000 MW of electricity for over 200 years

Thar Block II - Lignite Reserves & Quality

• Total Lignite reserve in Block II is 2 Bt ; Exploitable Reserve - 1.57 Billion tons which can support 5,000 MW for

50 years . Additionally, Thar lignite can also replace imported coal after briquetting

• Average lignite quality calculated from 1618 samples :

• Heating Value 11.6 MJ/kg (~ 5000 Btu/lb)

• Ash 7.3 %,

• Moisture 47.48 %,

• Sulphur 1.1 %,

• Cumulative Lignite Seam Thickness is 32 m

Comparatively higher heating value and lower sulphur & ash content of Thar lignite to other lignite mines in

the world makes development of Thar mine favourable

Comparison of Thar Block II with Other International Mines

Deposit Stripping Ratio (m³ : t) Heating Value (MJ/kg)

Thar Block II 6.6 : 1 11.6 (5000 Btu//lb)

Kosovo 1 : 1 7.8 (3350 Btu//lb)

Rhenish Area, Germany 4.9 : 1 8.9 (3830 Btu//lb)

Hambach, Germany 6.3 : 1 10.5 (4510 Btu//lb)

Hungary 9 : 1 7.1 (3050 Btu//lb)

Greece 10 : 1 5.0 (2150 Btu//lb)

• Sindh Engro Coal Mining Company (SECMC) is a joint venture company formed in 2009 between Engro Powergen Pvt Ltd (60%) and Govt. of Sindh (40%)

• Sindh Engro Coal Mining Company’s Vision :

“To develop and execute technically and commercially viable Coal Mining Project in Thar Block II to generate electric power and bring energy security to Pakistan based

on indigenous Lignite resource”

• Core expertise and responsibilities of each JV Partner include :

• GoS to assist in obtaining requisite approvals from Federal and Provincial Governments and timely delivery of infrastructure requirement for the Project including water, roads, transmission line and effluent disposal

• Engro PowerGen will lead development, financing, management and execution of the Project in a professional and fast track manner

• This JV reflects new strategic focus of Government & Engro to develop Thar Coal reserves through Mining, Power Generation & Briquetting

Sindh Engro Coal Mining Company Overview

Bankable Feasibility Study (BFS) for Mining project :

• BFS for Thar Block II Coal Mining Project has been completed in 2010 by internationally renowned Consultants in compliance with International Standards

• Technical, environmental and social viability of the Project has been confirmed meeting all international lender’s standards (IFC/World Bank, ADB, etc.)

Project Scope :

• SECMC plans to develop Mining and Power Plant of capacity 6.5 Mt/a and 1200 MW respectively in phase 1 with future plans to achieve 22.8 Mt/a lignite production & 4000 MW Power generation

Current Status of the Project:

• Mine Lease has been issued to SECMC for Block II. Mine construction is targeted to start by 2013 & lignite production by 2016

• GoP has declared Thar Coal fields as Special Economic Zone and Thar Coal Projects are exempted for 30 years from all taxes and attractive USD based 20% IRR is allowed for the Projects

• Firm & cost effective Engineering Procurement & Construction (EPC) proposals have been negotiated & finalized with Chinese companies for Mining & Power generation projects on turnkey basis

Estimated project cost for Phase 1 is ~USD 3B - the largest investment in the history of Pakistan

Thar Block II Coal Projects - Scope & Status

Development of Thar Mining & Power projects will contribute to economic and social uplift of the entire Thar region:

• Creation of social assets: education institutions, medical facilities & vocational training institutes will enhance human capital, facilitate knowledge transfer and build capacity

• Infrastructure development: sewerage system, provision of clean drinking water will improve health, hygiene and environment

• Increased economic activity: will generate employment opportunities for local residents in the mining and power sector and related industries

• Dairy hub, improved livestock management, agriculture improvement programs: will contribute to sustainable livelihoods and prevent environmental degradation

• SECMC will spend 2% of Profit Before Tax on community and social development programs improving socio-economic indicators of the area and reducing burden on PSDP*

Social Benefits of Thar Projects

*Public Sector Development Program

Annual Savings in Foreign Exchange due to RFO Import Substitution

• Cumulative savings of over USD 218 Billion from Thar Block II alone

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Annual Savings in Foreign Exchange over 45 years

Benefits of Thar Coal Development

• To overcome the current energy crisis, Pakistan has no other alternative except development of

indigenous energy resources

• Investment in Thar Mining & Power projects will provide the following benefits :

•Strategic energy resource that will guarantee energy security to Pakistan in the decades to

come

• Import substitution of expensive RFO or Natural Gas – Due to import substitution benefits, Thar

mining will act as a direct “foreign exchange earning sector“ and help lower the adverse impact

of imported fuel on Pakistan’s Trade Balance

•Lower power tariff for Coal fired Power Plants as compared to RFO based power tariff

•Socio-Economic Development of Thar region

•Presently Thar District ranks lowest on all socio-economic development indicators in Sindh

•Development of indigenous coal mining industry will lead to skilled job creation and transfer of

technology

•Potential for future downstream industries in Petro-chemical and Fertilizer products

Thar Coal is a fortune turning opportunity for Pakistan

Major Challaenges on Further Development of Thar Projects

• Inspite of fast track progress achieved so far, Project financing and Financial Close of the Project could not be achieved due to following :

• Timely Completion of of Infrastructure Projects

•Govt. to expedite timley completion of critical infrastructure projetcs especially Water Supply and transmission line

•Circular Debt Crisis in Power Sector (around PKR 400 Billion in March 2012)

•Low Investor & Financial Institutions confidence for new initiatives by Engro due to the following :

•Gas curtailment for its newly commissioned Fertilizer Project (World’s Largest Urea Plant, single largest private sector investment of USD 1.1 Billion)

•Gas Supply to the Plant suspended 55% of the time by SNGPL since commissioning, inspite of Contractual Committment of GoP, incurring huge losses to production

•Only 75% of agreed quantiity supplied by SNGPL, during the supply period

THANK YOU

Bankable Feasibility Study Consultants

SECMC

RWE-Germany

* Environment and Social Impact Assessment

SGS Pakistan

Sampling/Coal

Analysis Contractor

SRK-UK /

Hagler Bailly Pakistan

ESIA* Consultants

North East Coal Bureau

(NECB) China

Hydrological Field Work

Contractor

SINOCOAL Intl.

China

Bankable Feasibility

Study Consultant

Hydrological Model

& GW Abstraction

Consultant

DRD-Pakistan

Drilling Work

Sub-contractor

RWE-Germany

Owner‘s Consultant