ISLAMABAD: China formally approved on Wednesday $1.2 billion investment for mining of 3.8 million tons per annum (MTPA) of coal and the setting up of a 660MW coal-fired power plant in Tharparkar and invited Pakistan to sign the lending agreement early next week.

The final lending documents will be signed on Dec 21 in Beijing, according to an announcement by the ministry of water and power.

It said the China Export and Credit Insurance Corporation — commonly known as Sinosure — had written to the ministry that the coal-fired power plants and surface mining in block II of Thar coal field had been approved by the State Council of China, and was now waiting for both sides to conclude the loan agreement and insurance policy.

Take a look: China agrees to raise financing for Thar coal project

It is expected that agreements of loans required for the project — around $800 million from a Chinese banking syndicate, led by the China Development Bank and the Industrial and Commercial Bank of China, and about $500m from a Pakistani banking syndicate comprising Habib, United and Alfalah banks — will be signed in Beijing on Dec 21.

An official said financing by local banks had been arranged at Karachi Interbank Offered Rate plus 1.7 per cent and Chinese lending at London Interbank Offered Rate plus 3.3 per cent.

Sinosure has asked Islamabad to ensure that sovereign guarantee for the mining sector was issued by Dec 25. An official said arrangements had been made to ensure it as formal approval had been obtained.

Arrangement of finances and completion of lending documents are the most critical parts in any project, signifying starting point of actual work on the project.

Sinosure and the Sindh Engro Coal Mining Company (SECMC) are jointly undertaking surface mining of 3.8 MTPA of coal and establishment of a 660MW power plant in Tharparkar under the umbrella of $46bn China-Pakistan Economic Corridor (CPEC).

This is the largest project on the top priority list (early harvest programme) of the CPEC agenda and the first to have reached such an advanced stage after the signing of CPEC energy project agreements in November last year. The accords envisage 14 projects of 10,400MW in the first phase, which are targeted for commercial operation by 2017-18.

The two governments initially focused on the Thar coal mining and power project and completed regulatory approvals between Nov 2014 and March 31, 2015. The arrangements included a power generation policy approval by the Council of Common Interests, followed by standard security package, including approval of implementation and power purchase agreements.

To facilitate the project, a supplemental agreement particularly designed for Chinese investment under the CPEC was approved by the Economic Coordination Committee of the cabinet that entailed creation of a revolving account to provide for a minimum of 22 per cent of monthly power purchases and a sovereign guarantee recently issued by the federal government.

Total cost of the coal mine upgradation to 3.8MTPA has been estimated at about $900m and that of the 660MW power plant at $1bn. Of the two amounts, around $1.2bn will come from China.

About $500m equity is being arranged by the SECMC — a joint venture of the Sindh government and five private firms led by the Engro Corporation. Another $200m will be arranged by Chinese contractors.

Pakistan and China have already entered into an agreement for laying a transmission line for evacuation of electricity from the Thar plant to the national grid near Matiari and then onwards up to Lahore.

This will ensure that the first power project begins commercial operation by Dec 2017 at levelised tariff or 9.5 cents per unit.

Published in Dawn, December 17th, 2015