Projects we cannot handle
Dr A Q Khan
I am writing this column after serious consideration and hesitation. It is not meant in any way to hurt anyone’s feelings. However, since the matter under discussion is of vital national importance, I consider it a duty to inform the rulers and the public of the finer points of what I am going to discuss. The topics are the ongoing controversy and discussions about the Reko Diq mines and concessions to foreign firms for the extraction of gold and copper, the Thar Coal Project and production of power by nuclear reactors.
The Thar Coal Project was, until recently, a hot topic. We probably all remember that we were promised 50,000 MW of power for 500 years, plus hundreds of thousands of barrels of diesel. There were claims that we had 185 billion tons of coal reserves, while reliable estimates put this figure at only three billion tons, and that too of low grade. That balloon burst quite quickly. I wrote factual details in my column on the subject in Jang and The News on Nov 1, 2010. In that column I also disclosed how our able former foreign secretary, my dear friend Riaz Mohammad Khan, had worked hard to arrange a deal with one of the largest coalmining and -processing companies of the world, Shenhua Group of China. The company was willing to provide electricity at 5.39 cents per unit and had committed to providing four power plants of 325 MW each, by 2010. However, since there was no commission involved, the deal was sabotaged. Riaz Khan is still annoyed and angry at the loss of that opportunity.
Shenhua employs about 170,000 people and produces thousands of megawatts of power. It not only mines about 350 million tons of coal per annum but also converts it into gas and liquid fuel. It has put up plants in Mongolia, Indonesia and Australia. The plant in coal-rich Mongolia is functioning since 2008. It not only has the manpower, money, equipment and extensive experience required, but it would also be very reliable because of our exemplary relations with China.
Since I have studied metallurgical engineering at some of the best universities of the world and have 40 years’ experience in this field (as well as that of nuclear technology), I am in a position to write extensive, detailed articles on coalmining, coal varieties and coal’s conversion into gas and liquid. I can say with authority that we do not have experienced and qualified engineers to handle such a complicated, giant project, to say nothing of my having had to cope with those who indulge in self-projection though they don’t have fundamental knowledge or qualifications in the required field.
In my earlier column of Nov 1 I had mentioned the statements made by Dr Ansar Parvez, chairman of the Pakistan Atomic Energy Commission (PAEC) in Vienna in which he claimed that 8,080 MW of power could be produced by 2030. In order for that to be produced, either 29 reactors of 300 MW each or ten reactors of 900 MW each would be required. A 300-MW reactor costs about $1 billion and requires eight to ten years for commissioning. A 900-MW reactor would naturally cost proportionately more and would take the same time, if not longer, to commission. I am at a loss to see how Dr Parvez aims to achieve this.
The PAEC has existed for more than 50 years and employs almost 20,000 people, but it has not been able to make a single power reactor, even of a small size. This is despite the fact that the technology itself is half-a-century old, and India and South Korea are among countries which have been producing reactors for years. The one at Karachi was supplied by Canada and the two at Chashma by China.
In 1979 the-then chairman of the PAEC, Munir Ahmad Khan, had made similar claims. At that time it was said that the PAEC would commission one reactor every year from 1980 onwards until the year 2000, thus producing 20 reactors in total!
Whether we are talking about the Thar Coal Project, the Reko Diq Project or any other major project, we need young, experienced, highly committed engineers with the proper educational background. It is an extremely difficult and lengthy process and the team leaders and engineers will have to make it their life’s work to complete the project.
The Pakistani rulers and public alike seem to be under the impression that, since we managed to produce nuclear weapons and missiles, we can now achieve miracles. Those were totally different projects. As far as the nuclear programme is concerned, I had invaluable practical experience and had the required educational qualifications. My team and I were all highly committed to the goal of making the project a success. We believed that Pakistan’s very existence would be at stake if we did not complete the nuclear programme successfully.
Another important factor was the role played by personalities like Mr Zulfikar Ali Bhutto, Gen Ziaul Haq, Mr Ghulam Ishaq Khan, Mr Agha Shahi, Gen Khalid Mahmud Arif, who was vice chief of the army staff at that time, Gen Mirza Aslam Beg and Gen Abdul Wahid Kakar. All were sincere in their commitment. The necessary funds (about $25 million per year) were provided to us, as were all facilities required by the programme.
Such conditions are now non-existent. We now have corrupt, selfish people at the helm of affairs. We have only to look at the glaring examples of PIA and Pakistan Steel.
If important projects like those mentioned above are given to Pakistanis, they will become yet more PIAs and Pakistan Steel Mills. Nepotism, overstaffing with unqualified and inexperienced people, overabundance of persons of official cadre, fleets of land cruisers – you name it, it will be there. We have all heard details about the corruption related to the Agosta Submarine. Not only the fish’s head, but the whole body is rotten.
The present government, or any that may follow, will never be able to provide enough funds to keep such projects going. An initial investment of hundreds of millions of dollars will be required with little to show for it in the beginning. The projects will drag on and the poor people will see gold, copper and electricity only in their dreams. Looters will have a heyday and they will walk off with filled pockets. In a country where officials cannot even build, complete and maintain schools, colleges and hospitals, how can one expect miracles?
So what is the solution for Thar? My sincere and considered advice is to give the Thar Coal Project to Shenhua. Sort out terms and conditions that are mutually beneficial and acceptable. The Chinese are our trusted friends and they will be more than accommodating. Regarding the Reko Diq projects, either discuss acceptable, beneficial terms and conditions with the present companies or find others which can offer attractive terms and conditions. If the earlier terms and conditions set were detrimental to us, it was our fault that we accepted them, in the first place; the foreign firms are not to blame. More often than not, our own people indulge in corruption at the cost of national interests. Haven’t we got the examples of the IPPs and the RPPs?
Our financial wizards who signed the deal for F-16s had, for reasons best known only to them (money?), agreed to pay the company for the storage of the planes. We paid hundreds of millions of dollars as advance payment and the planes were ready, but we still paid millions more. If the deal for Reko Diq is faulty, hold the negotiators and the signatories responsible, not the foreign firm. It was our duty to safeguard and protect our national interests. However, such contracts are for mutual benefit – a question of give-and-take.
I am very much afraid that if we take the bait and try to do the job ourselves, gold, copper, gas and electricity will be but a mirage in the distance, with sand, rocks and bushes remaining the reality. The Pakistan Engineering Council, the Institute of Engineers and the Pakistan Academy of Sciences could all help in the negotiations, if need be. Riaz Mohammad Khan would still be our best bet to help in negotiations with Shenhua. I would assist him with great pleasure, if requested.
Source: Daily News, Monday, January 24, 2011
Cleaner Coal Technology Heats Up in Pakistan
by Zofeen Ebrahim
As a dutiful new bride, Rubina Ikram moved into her in-laws’ home lugging a huge dowry that consisted not only of clothes, furniture and linen, but also a wide array of electric appliances – from a DVD player to a washing machine.
Three weeks after the wedding, however, the electric goodies are still in their boxes in the Ikrams’ two-room home in Karachi’s Lyari district.
“What’s the point?” asks Rubina’s mother-in-law, Kulsum Begum. “We never have electricity to run the machines!”
The Ikram home is among the 40 percent of Pakistani households connected to the national electric grid. But Kulsum Begum says, “We may well be living in the Dark Ages. Half the time the power is playing truant. On top of that, come winter and the supply of gas starts to show an attitude and refuses to flow steadily.”
It’s a situation that may help explain why Pakistan is seriously considering coal to solve its energy problems, even after the conclusion of a new climate change accord in Mexico in December. After all, of all the fossil fuels, coal is the dirtiest, with its use spewing out a toxic stew that includes carbon dioxide, sulfur dioxide, and even mercury.
Just last April, the World Bank refused to finance coal exploration in Pakistan due to environmental concerns, saying it would promote renewable energy initiatives instead.
Mahfooz Bhatti, director of the Sindh government’s Thar Coal and Power Project, however, asserts that cleaner ways of extraction and power generation are possible “through coal gasification and use of supercritical technology” and abiding by international environmental and social safeguard standards”.
Kamran Kamal, senior business development advisor of Engro Powergen Ltd, explains that supercritical power plant technology uses less coal to produce more electricity. “This means lower carbon-dioxide emissions,” he says. “It’s affordable and economical and more importantly, meets World Bank emission guidelines.”
“That’s correct,” adds Prof Khalid Rashid, a physicist and environmentalist familiar with power generation technologies. “Supercritical plants and coal gasification plants are not as environmentally damaging as the conventional coal powered plants.”
“Supercritical power plants operate at a much higher temperature and boiler pressures and burn coal more efficiently,” he says. Every kilogramme of coal provides about 20 percent more electricity and in the process produces 40 percent less carbon dioxide, he adds.
In gasification, he explains that coal is oxidised to produce a mixture of hydrogen and carbon monoxide, called syngas. “The syngas is then used to heat the boilers to produce steam that runs the turbines to produce electricity with carbon dioxide reduced to about 30 to 40 percent, depending on the design,” he says.
According to Rashid, the global trend has been to build plants using these technologies and give up conventional coal-powered plants. Research by International Energy Agency (IEA) states that by replacing older power stations with more efficient plants, greenhouse gas emissions can be reduced by 5.5 percent.
China, Germany, the United States, India, Greece, and South Africa use this technology for their latest coal plants, Kamal adds.
Engro Powergen, a subsidiary of one of Pakistan’s largest conglomerates, Engro Corp, is working with the government of the south-eastern province of Sindh to mine coal from Thar Block II in the Tharparkar desert and then generate about 1,200 megawatts of electricity from a plant set up there.
Lignite coal deposits that could yield as much as 185 billion tonnes were discovered in Tharparkar desert as far back as 1992 by the Geological Survey of Pakistan.
But Bhatti says that due to the “availability of cheap gas, non-availability of infrastructure, and institutional challenges for large-scale coal sector operations”, the country’s coal reserves remained untouched for almost two decades. The Sindh Mines Department says that Pakistan’s coal reserves have the potential to provide 200,000 megawatts of power – enough for the next 100 years, based on today’s consumption rate.
Many have likened these to Saudi Arabia’s oil reserves of 264 billion barrels, which amount to a quarter of the global total. But some call the comparison erroneous since coal cannot be traded like oil.
As it is, it will take up to six years before the Engro power plant can start to generate electricity. Still, Bhatti insists that once it gets going, the power to be generated by Engro from the Tharparkar deposits could meet Pakistan’s energy needs for the next half-century.
It will also save the country about one billion dollars every year, Engro says, based on its calculations. “According to Pakistan Energy Year Book 2010, Pakistan spends close to four billion dollars to import fuel for power generation. Given that our generation capacity is about 14,000 megawatts and about 35 percent comes from RFO (residual fuel oil), it translates to approximately 5,000 megawatts. Our first project will be 1,200 megawatts, which would be able to save about one billion dollars per year,” says Kamal.
The government’s plans state that Pakistan’s energy pie in 2010 would comprise 49 percent natural gas, 26 percent oil, 13.9 percent hydropower, 9 percent coal, 1.1 percent renewable, and 0.9 percent nuclear.
By 2030 it projects Pakistan’s energy generation to increase to 162,590 megawatts and to consist of 45 percent natural gas, 19 percent coal, 18.5 percent oil, 2.5 percent renewable, 10.8 percent hydropower and 4.2 percent nuclear.
The country now has a project that looks into underground coal gasification and sequestering carbon dioxide while generating 50 megawatts of electricity. The Pakistan Electric Power Co is undertaking a 1,200-megawatt coal project.
Kamal sounds exasperated by the criticism of coal, saying development cannot always be held hostage by environmental concerns. “If the rich countries of the world – also the biggest polluters – are so concerned about carbon emissions, perhaps they can set an example by closing down their coal- fired powerhouses and turn to clean energy,” says Kamal.
He says that coal remains the biggest source of energy in the United States, China, Europe, and even India next door, although they are trying to reduce reliance on it. Pakistan’s tiny carbon footprint reaches less than one percent of worldwide greenhouse gas emissions, he points out. (END)
Source: IPSNews.net, Dec 15 , 2010
Ambitious Oracle Coalfields enters the crucial phase of development in Pakistan
by Ian Lyall
PLUS-listed Oracle Coalfields (PLUS:ORCP) is a small company with big ambitions.
It hopes to bring what will be Pakistan’s largest ever coal mine into production. And after four years of hard work it is on the precipice of doing just that.
However there is a series of hurdles to negotiate in the next year to 18 months before the operation in the Thar Coalfield in the country’s Sindh Province is up and running.
None on its own is insurmountable, but each
presents its own unique challenge – and chief executive Shahrukh Khan is well aware of this as he talks me through the company’s progress to date and the plans for the future.
First let’s take a step back and look at the project being developed by Oracle.
As I said it is in the Thar Coalfield – Block VI to be precise, which is located approximately 380 kilometres east of Karachi in Sindh Province. Oracle plans to excavate lignite coal, which is brown in colour and has lower calorific value than the thermal coal that goes for export from places such as Indonesia.
It’s the sort of stuff that is found in abundance in Victoria, Australia and Germany. Oracle has a measured JORC resource 1.4 billion tonnes and proven reserves of 371 million tonnes.The idea is the project will be developed in two stages. The first will have over 100 million tonnes in the proven category and will “get the mine up and running”, while the second phase with another 200 million tonnes on top “provides the scalability over the life of the mine”, says Khan.
Although a great deal of work had been done by American geologists, Germans from electricity giant RWE, Geological Survey of Pakistan and latterly the China North East Geological Bureau, it was important that Oracle went about things properly and got that JORC resource.
That meant re-verifying some of the earlier data. “What hasn’t been understood is things have to be standardised to attract international money,” Khan told Proactive Investors.
“You cannot compromise methodologies and disciplines. You have to stick to them and the international standards.
“When we acquired Block VI we re-verified work, did work of our own and took it to a JORC resource.
“The Pakistan government didn’t understand why we had to do this. But if we wanted to raise international money we had to do these things to bring authenticity to the area and the project.”
Power generation in Pakistan has failed to keep pace with the massive population increase of this developing nation.
This means that in major conurbations such as Karachi, population 18 million, the utilities do something called load shedding, or deliberately shutting down power generators.
This leads to outages of up six hours for some homes in the city. It is estimated there is an immediate shortfall of 2-3,000 megawatts on a daily basis.
And the problem is only going to deteriorate as the population expands further. This is why Oracle is teaming up with the Karachi Electric Supply Company, or KESC for short, which is majority owned by Dubai-based private equity group Abraaj Capital.
Output from the Thar Coalfield will be used by new plants developed by KESC. The pair have a memorandum of understanding, which it is hoped will metamorphose into a supply agreement once both sides have concluded feasibility studies.
While coal production is expected to begin in 2012, it could be another three years before KESC has a power plant up and running.
But Oracle has found a neat way use the time until then. It plans to supply coal to Lucky Cement, the nation’s biggest producer of the material, and also hopes to sign up some of its smaller rivals. Output is expected to be initially up to 1 million tonnes per year to supply the cement works with additional 2.5-3 million tonnes a year production to supply KESC at the time of power plant commissioning.
“We asked ourselves what should we do in that gestation period,” Khan says. “You can’t have a mine standing on its own.
“It needs a customer and ways to generate some cashflow. So we looked at the cement industry in Pakistan.”
I suggested earlier that Oracle is on the final lap in the race to get Thar into production. However I also said there were a few hurdles to negotiate before it crosses the finish line.
And the next year to 18 months will be the most crucial in the company’s short history. Luckily it has on board top notch consultants led by SRK, which will take the project through to a bankable feasibility study, and Dargo Associates have been appointed “to make sure things get done on the ground”, Khan says.
Wardell Armstrong have been appointed to produce the environmental and social impact assessment and Aquaterra will work on de-watering. It is a tight time-line but a bankable feasibility study is expected to be ready in 2011.
It has been reported that Oracle will in the early part of next year move from PLUS to the AIM market.
But this would make sense, particularly if the company plans an equity component to fund the mine’s development. The cost could be anywhere up to US$300 million, though again Khan won’t be drawn on the finances of the planned open pit operation at Thar.
All of this will be contained in the BFS and he is at pains not to prejudice the work of SRK and the team he has assembled.
We have come this far without mentioning the possible risks associated with investing in a company based as Oracle is in Pakistan.
The country has a politically turbulent history marked by a period of martial law at the start of the last decade and characterised of late by unrest in the region of the country that borders Afghanistan.
Khan says almost 900 miles separate his project in Sindh from the flashpoint area in the north, though the violence flared much closer to home with Thursday’s bomb in Karachi city centre.
However Khan says the political will exists to make Thar a success. Governments, ministers and officialdom have changed frequently in Pakistan, yet Oracle’s progress has been uninterrupted by the political turmoil. There is support at federal and provincial government level for Thar Coalfield projects and the project has been received warmly by the provincial Sindh government as an important British investment in the country.
“Pakistan is a progressive nation,” the Oracle chief executive tells me. “The media, however generally shows Pakistan negatively, largely driven by events in the North of the country on the TV.
“I would encourage entrepreneurial investors to go. It is not as projected. It has its shortcomings. But it is a progressive nation and we have not had any serious problems working in Sindh Province.
“We have found ways of mitigating the project risk by the way we have carried out our work programme.
“What we are doing is not rocket science. What is crucial here is the methodology is no different to any other mining project elsewhere in the world.
“We are no different than a company working in Africa, Latin America or Australia, we just happen to be in a country that is in the headlines for all the wrong reasons. That said our coal mine project is a very long way from the troubles in the north-west of the country.”
Source: Proactiveinvestors.com,
Black magic
According to a brief of Sindh Mines Department, the estimated energy content of Pakistan’s coal reserves is equivalent to 2,000 trillion cubic feet (TCF) of gas which is about 28 times higher than Pakistan’s proven gas reserves of 30 TCF. These coal reserves have the potential to provide 200,000 MW for the next 100 years and save more than $4 billion per year in Pakistan’s oil import bill.
Whenever the government has talked about exploration of these coal reserves and electricity generation from coal powered plants, criticism has come from different quarters — like environmentalists, world donor bodies and the population likely to be displaced due to this initiative.
In April this year, World Bank went to the extent of outrightly refusing to finance coal exploration in Thar due to environmental concerns. However, it expressed its resolve to promote clean energy initiatives in the country and help it overcome the energy crisis.
The question is: Can Pakistan afford to miss this opportunity and continue to suffer from the ever-widening energy-supply gap? Or should it look out for solutions to financial and environmental problems hampering progress in this regard?
In a bid to avail the second option, the government seems to have recently started an aggressive marketing campaign. The latest overture in this regard has been the holding of Coal Forum in Houston, USA — the energy capital of the world — in collaboration with Pakistan Chamber of Commerce USA (PCC-USA). The aim obviously was to dispel some misperceptions about coal being an environmentally hazardous source of energy and invite global energy corporations to invest in Thar coal power project.
PCC-USA President Abdul Quayyum Khan Kundi tells TNS via email that environmental concerns were valid till a few years ago but now clean coal technologies are available that have reduced the adverse impact. “The coal gasification pilot project initiated by the team of Dr. Samar Mubarakmand is a step in the right direction,” he says.
Kundi adds World Bank and other multilateral financial institutions do look down upon coal but for a developing country like Pakistan there are other financial sources available in Middle East, China and Far East.
He says PCC-USA strongly feels that negotiations on bilateral Investment treaty (BIT) between US and Pakistan should be put on fast-track so that investors feel more confident in investing in Pakistan. “Besides, Pakistan’s foreign office should work with the US State Department to remove the travel advisory on US citizens travelling to Pakistan,” he adds.
Kundi says Pakistan is a large country and travel risk is only limited to Afghan border areas. US investors and technology companies should not be apprehensive of travelling to large cities like Karachi, Lahore and Islamabad to meet with Pakistani counterpart.
He tells TNS their next step will be to organise a delegation of US companies to visit Thar and other coal mines to assess the potential and appreciate the work done by organizations like Thar Coal Authority. “We will arrange a follow-up forum after the delegations visit in 2011”.
However, the concerns amongst the local populace of Thar seem to remain unaddressed.
Gulab Rai, Programme Coordinator, Thardeep Rural Development Programme (TRDP) tells TNS the environmental concerns are quite real and must be addressed before going ahead with the exploration. “As coal fields consist of about 51 per cent land of Tharparkar district, there will be a huge displacement of people from there. Tharparkar is the world’s most densely populated desert inhabited by 91,000 people. Moving them from here and settling them at another place is a Herculean task.”
Rai who was involved in an environment study conducted in the area says the biggest concern is depletion of natural aquifiers: “There are three acquifiers — one at the surface, second just above where the coal is and the third lies beneath the layers of coal,” he says.
In case of open pit digging to extract coal, the first two aquifiers have to be done away with. “Even the drainage of water will be a problem as releasing it in Run of Kuch area would trigger a row with India.”
The other method is called coal gasification in which the coal is converted into gases without digging for. This is a clean and hi-tech process and Pakistan has recently started working on it.
He says Engro Group, working in partnership with the Sindh government to set up a coal powered-plant in Thar has hired services of Haigler Bailey, a consultancy firm that has conducted environmental impact studies in the area. Rai says they have set up a control room to assess impact of coal-powered energy generation on area’s vegetation, species, moisture content in the air, direction of wind, dust pollution and humidity. It is hoped the study helps in finding ways to conserve the environment of the area to the maximum.
Rai says there’s a government plan in place to lay a pipeline to bring 300 cusec water from Indus. If implemented, this may help meet the demand of water required during power production process.
An official in Sindh Mines Department says that the only way to exploit this potential is to give exploration licenses to foreign companies who want to produce electric power from coal. “No one will extract coal for the purpose of selling it in the market,” he says.
The official who does not want his name to be printed says there are strict instructions to them to not talk to media. “The country is wooing foreign investors. Any bad mouthing by media can spoil the efforts,” was what exactly they were communicated. This is something very close to what Pakistan Ambassador to the US, Husain Haqqani, said to participants in Houston. He had advised them not to pay heed to media reports about the situation in Pakistan which according to him were mostly exaggerated.
Another reason he could not speak on record was that only Aijaz Ali Khan, Secretary Coal and Energy Development Department, Government of Sindh, was the official authorised to do so. He was part of the delegation that went to the US and has not yet returned, he adds.
The official says that the coal extracted in Pakistan is going mostly for consumption in brick kilns. Only a couple of cement factories in Balochistan consume local coal as fuel. On the other hand, he adds, every year Pakistan imports 4.5 million tonnes of coal from countries like South Africa and Indonesia. This coal, unlike the Pakistani one, has low sulphur content. “The imported coal is washed and processed to remove impurities. This technology is so far not available in Pakistan,” he adds.
He shares with TNS that German and Chinese firms had earlier started worked in Thar. They left as they were denied the rate of 7.5 cents per unit which they were demanding for producing electric power from coal.
Source: the news sunday, 28 november 2010
Engro Coal Power Project faces infrastructure deficiency
Replying to a question he elaborated that there were four vital factors required for this four billion dollar worth first of its kind power project in Pakistan. This included construction of Roads, Supply of Potable Water, Arrangement for Drainage Water, and Laying of Transmission Line for the power produced. These were the responsibilities of Sindh Government but even after six months she was unable to respond in this matter, he said.
Earlier, in his speech Asad Umar highlighting economic conditions in the country stated that in year 2005 to 2007 the annual borrowings by Central Government were not more than Rs180 billion while private sector had borrowed 768 billion rupees when the interest rate was 8.5 percent. But in year 2008 to 2009 while bank interest rate was escalated up to 12.5 percent the Government borrowings enhanced up to 931 billion rupees and private sector was restricted to Rs132 billion only. This is not a healthy sign government should strictly review its balance sheet by not only increasing its income but also controlling its expenditures, which were curtailing the GDP growth rate. We need a 7 percent GDP growth but in prevailing circumstances it could not be expected beyond 3 to 4pc, Umar added.
Citing contradictions in government policies he said that all light and heavy industrial units are facing scarcity of gas supplies, but despite promises government was unable to fulfill their need. For example Dharki Urea plant is the biggest urea manufacturing unit in the world but instead of running it at full capacity government was importing millions of tons urea from abroad at the rate of $380 per ton. This was not in the interest of national economy.
Asad said the petroleum and natural resources minister Syed Naveed Qamar and finance minister Hafeez Shaikh were quite intelligent in performing their duties but still the things were not working properly and no results were achieved which was amazing.
Cash in on Pakistan’s energy crisis
Tom Bulford
The lights have been going out across Pakistan. From Islamabad to rural villages, residents regularly have to go without power for up to 15 hours a day.
The economy is being crippled and there is a very simple reason for it: for some months now, the country’s power stations have been unable to afford to import the oil and gas that is needed to power the generators. And with the country’s own production of oil and gas going into decline, this problem is only going to get worse.
But there is a ready solution – coal. The Government is determined to reduce the country’s reliance on imports by promoting the coal industry. And one penny share company that wants to help it on its way is Oracle Coalfields (OFEX:ORCP).
Last week I met Shahrukh Khan, chief executive and 24% shareholder of this Plus Markets-quoted venture, and he explained how Oracle’s coal mining project could alleviate Pakistan’s looming power deficit and turn this penny share into mining titan in the process.
Pakistan’s desperate race against time
First and foremost I should say that Oracle’s licence is on the Thar coalfield, which is in the south-eastern province of Sindh, well away from the troubles in the north of the country. It is 380km from Karachi, with its population of an astonishing eighteen million, is well served by roads and unaffected by the recent floods.
Development of the Thar coalfield is seen as essential if Pakistan is to generate the power that it needs. Today it generates some 20,000MW of power, with some 30% of this from hydro, 66% from oil and gas and the small balance split between nuclear and coal.
Demand for power is growing at some 7%-8% per year and the generators can barely keep pace. Next year, demand for power is forecast to exceed supply by a slim 628MW. But by 2020 Pakistan’s government has forecast that this deficit will swell to over 14,000MW unless new capacity is added. With domestic production of oil and gas in decline and the government determined that the country should not rely upon imported fuel, it wants to boost coal-fired generation using domestic supply.
How Oracle is seizing a three-million-tonne opportunity
So Oracle has taken a licence on block VI of the Thar coalfield, which is thought to host over 175 billion tonnes of coal. This is not of the highest quality and so although the China Northeast Coalfield Geological Survey Bureau has assessed the field, China is not intent upon acquiring its output for its own iron and steel industry. But this lignite coal is good enough for power stations and the energy intensive cement industry, and so Oracle is working to exploit its mine in conjunction with two such customers.
Principal of these is the Karachi Electricity Supply Company (KAR:KESC), which wants to build a power station beside the mine. Given the propensity for things to happen slowly in parts of Asia, it is reassuring to know that the KESC is owned by the Dubai-based Abraaj Capital, the largest private equity firm in the Middle East and one that should be able to push things along. This will be crucial because the majority of the mine’s projected annual output of three million tonnes is earmarked for KESC’s power station so any delays here would seriously inconvenience Oracle.
So to allow for the possibility that it will be producing coal before the power station is able to take it, Oracle has signed a second agreement with Lucky Cement, the largest cement producer in Pakistan and a major exporter to the Middle East. With energy accounting for over 70% of the production cost of cement and the world market price of coal being driven higher by Chinese demand, Lucky is also keen to find alternative sources of supply.
How to turn a 0.43p tonne of coal in an £18 haul
The greatest risks to Oracle’s plans lie with the need to attract some $300m to finance the construction of the mine in the face of Pakistan’s volatile political situation, while there is also a risk that its customers will not be ready to take the coal when production starts.
But if it all comes together then Oracle could be a winner. It has a JORC-compliant coal resource of 1.4bn tonnes which can be mined through what the industry calls a ‘muck operation’ – in other words an open pit operation that begins with the removal of the overburden. Edison Investment Research has pointed out that Oracle’s current stock market value of £6m values each tonne of coal in the resource at just 0.43p. To this must be added the $300m capital investment needed to produce 3m tonnes per year which, assuming a 20-year mine life, equates to $5 per tonne of mined coal. “Once developed,” Edison points out, “investors will have access to a profit margin of $15-$30 per tonne”. That equates to the potential of around £18 per tonne of coal.
In summary both as a project and as a penny share investment Oracle makes a lot of sense. The next step will be a ‘bankable feasibility study’ which, according to Shahrukh Khan, is being prepared to the most exacting international standards. Armed with this, Oracle is looking to step up from Plus markets to Aim early next year. As Pakistan races against time, I will be keeping a close eye on Oracle’s role in solving the country’s desperate energy crisis.
• This article was first published on 14 October in Tom Bulford’s twice-weekly small-cap investment
Couetesy: Money Week, October 18, 2010
Thar coal hush-hush
P.A. LALA, Islamabad
It was heartening to learn from Dr Samar Mubarakmand, in a TV interview recently, that a pilot coal gasification project for generation of electricity had been started under his direct supervision.
The chairman of the Board of Investment, Salim H. Mandviwala, however, stated that the project had been shelved for not being feasible technically. A denial to that was issued by none other than the Sindh chief minister (Sept 6).
The latter also went on to state that the Sindh government had pledged Rs8 billion for the said project. Earlier, he had been boasting of billions of dollars’ investment in Thar coal.
Can the chief minister make the entire handling of Thar coal transparent enough by answering the following few questions, preferably in the print media?
1. Which local and foreign companies are working on Thar coal blocks and under what kind of contractual agreements?
2. Is an Italian firm not already working on Thar coal in the garb of petroleum exploration, under some hush-hush deal at the top level?
3. Have foreign and local companies not acquired new petroleum concessions in Thar, which strangely lie on the prospective Thar coal blocks, which are their prime interest?
4. Which policy framework and rules govern award of coal concessions and contracts? Who formulated them?
5. What is the Sindh government’s Thar Coal Regulatory Framework?
6. Do you have a viable institutional framework for Thar coal?
Source: Daily Dawn, Sept 14, 2010
Thar coal project not shelved, says CM
KARACHI, Sept 5: Sindh Chief Minister Syed Qaim Ali Shah made it clear on Sunday that the Thar coal gasification project has not been shelved or abandoned because exploration of these resources held the key to Pakistan’s future prosperity.
He rejected a notion that the Sindh govt had shelved the project. “How can we do that when we have committed so much on Thar coal development,” he told Dawn.
The chief minister was asked to comment over a statement of Board of Investment chairman Saleem H. Mandviwala in which he had reportedly said that the Thar coal project had been shelved because it was not technically feasible.
The underground coal gasification scheme in Block V of Thar Coal deposits is headed by a renowned nuclear scientist, Dr Samar Mubarakmand. On January 18 this year the Sindh government had pledged Rs8 billion at a meeting of the governing body of the Underground Coal Gasification Scheme in Block V.
But Mr Mandviwala’s reported statement at a time when the drilling on site was to be commenced sent jitters in the concerned quarters and many felt it was the work of the lobby which was opposed to the development of coal based energy, especially through indigenous means.
When Dr Samar Mubarkmand was contacted in this connection he too was shocked because drilling of a well was to be started on the site in a couple of days.
Dr Mubarakmand told Dawn that everything was on track despite some financial constraints of the government and drilling on the site would start in two or three days.
“Those who say that it [the project] is technically not feasible are ill-informed and represent different lobbies and vested interest groups,” he said, adding that in India a similar project had not yet started and was still in planning stages in collaboration with an Australian company.
He pointed out that some foreign companies had also sought concessions in Thar coal blocks to establish a power plant based on gasification process.
He said that Thar Coal was ideal for gasification process and would also minimise environmental issues.
It may be noted that earlier this year the Thar Coal Energy Board had proposed that Thar be declared a special economic zone and treated as a strategic interest area to encourage investment in order to expedite the use of Thar coal deposits for energy generation.
Dr Mubarakmand had informed the meeting that drilling on the site would start within six months and a gasification process would start producing 50MW from the pilot project within a year to 18 months.
He had also said that this project would prove to the world the prudent and economic use of the coal reserves and would generate interest among foreign investors. Machinery and equipment for the project was to be locally made.
M/s Cougar Energy of the UK had also gave a presentation on Block III, based on UCG technology, and, according to their timeline, a 400-MW power plant would be established within four years.
Source: Daily Dawn, 6 September, 2010
Thar Coal Gasification Project shelved
WASIM IQBAL
The federal government has shelved ‘Thar Coal Gasification Project,’ terming it technically unfeasible, which had also sparked controversy between federal and Sindh governments. “The experiences of coal gasification in India as well as China have already failed and therefore it is not technically feasible,” Saleem Mandviwalla, Chairman, Board of Investment (BoI), said while talking to Business Recorder.
He said that Pakistan is yet at mining stage where coal gasification is not possible this time. Planning Commission, which is not an executing agency, had conceived a pilot project of ‘Thar Coal Gasification’, which created differences between federal and Sindh governments.
Sources said that Sindh government had strongly resisted and warned Planning Commission not to table it again on the agenda of Central Development Working Party (CDWP) of Planning Commission for consideration. They said that after resistance by Sindh government, the Planning Commission had said that the scope of the project had been broadened to include other coal deposit areas of the economy and there was a need to modify the title and scope of the project.
Subsequently, the Planning Commission changed the title of the project and renamed it as ‘Creation of New Processing Facilities (for handling and purification of Coal Gas (HPCG) produced by underground Coal Gasification in any Coal field in Pakistan’.
In the modified PC-1 of the project, it was proposed that the scope of the project would not be limited to district Tharparkar and be broadened to cover coal deposits in other areas so that other coal deposits of Punjab, NWFP, Balochistan, FATA, NA and AJK can be explored. Sindh had also questioned the role of the Planning Commission as executing agency of the project.
The project, titled ‘Creation of New Processing Facilities (for handling and purification of Coal Gas (HPCG) produced by underground coal gasification’ was approved in the CDWP meeting held on April 30, 2009. The aim of the project was to create new processing facility for handling and purification of coal gas produced by underground coal gasification located in Tharparkar Sindh. The proposed modifications in the title and location/scope of the project were approved and PC-1 would be modified accordingly. Total cost of the project is Rs 490.480 million including foreign exchange component of Rs 79.700 million.
Thar Coal Cell 