Thar Coal Project

Achievement of a Workable Partnership

Khalid Mansoor

April 10, 2010

Public Private Partnership – a new Investment Mechanism

Sindh Engro Coal Mining Company

Public Private Partnerships (PPPs) is a new investment mechanism typified by joint workingbetween the public and private sector. PPP investments are driven by country & sectorfundamentals

PPP is basically an effort to combine the best of the public and private sectors with anemphasis on :

Value for money,

Allocating risk to the entity best able to manage it, and

Delivering quality public services

Ideally, energy/mining projects should be developed by Private Sectors but due to lack ofinfrastructure whose sole responsibility lies with Governments, are developed in PPP setting

By requiring the private sector to put its own capital at risk, Government is obliged toprovide conducive investment environment and appropriate incentive package

Catch-22 for Thar Coal Project

Should government build infrastructure first or should project demonstrate itscommercial viability?

The solution is concurrent development of infrastructure and the project becausecommercially viable projects can only attract investments if all other prerequisites are inplace

International Competitive Bidding of Thar Block II

Sindh Engro Coal Mining Company

In Block-II, GoS had invited Joint Venture Proposals for establishing Coal Mining projectdovetailed with a 1000 MW Power Plant through ICB. The following six companies submittedtheir proposals :

Al-Tuwairqi Group of Saudi Arabia

Jahangir Siddiqui Group

Engro PowerGen

Lucky Cement (YB Group)

Giga Group

Metal Investment Holding Company (British virgin Island)

Engro PowerGen was recommended by the Evaluation Committee of TC&EB. Thereafter,TC&EB gave its approval in principle

Detailed presentations have been made to the President and Prime Minister of Pakistan,who also supported GoS JV with Engro PowerGen

A joint venture agreement between GoS and Engro PowerGen Limited was signed inSeptember, 2009

Sindh Engro Coal Mining Company

May Jun Oct Nov DecApr May Jun Aug Sep

2009Activities

19th

27th

14th

20th

9th

11th

28th

Jul

- GoS Advertisement for ICB

proposals for Block II

- Sinocoal, China completed

screening study for Block II

- EPL submitted proposal to

GoS for Mining & Power

- EPL selected as perferred JV

Partner of GoS for Mining

- EPL Board of Directors

approved JV Agreement

- Engro Chemical Board of

Directors approved JVA

- Sindh Cabinet approval for

JV Agreement with Engro

- Sindh Engro Coal Mining JV

Agreement Signed

- Formation of Sindh Engro

Coal Mining Company

- DFS Kickoff Meeting

- All DFS Consultants

mobilized

2008

11th

15th

10-11th

Thar Block II Project Key Milestones

Overview of Sindh Engro Coal Mining Company

Sindh Engro Coal Mining Company

Objective :

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 resource

Joint Venture (JV) Company Structure :

40% Shares owned by the Government of Sindh (GoS)

60% Shares owned by Engro PowerGen Limited (EPL)

Core expertise of each JV Partner include :

GoS would assist in timely availability of all relevant data (previous and currentlyongoing studies), requisite approvals from Federal and Provincial Governments and

timely delivery of infrastructure requirement for the Project includingwater, roads, transmission line and effluent disposal

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

This JV reflects new strategic focus of Government & Engro to develop Thar Coalreserves, raising the bar on how mega project investment is planned, prioritized,financed and delivered

Thar Coal Block II Project Overview

Sindh Engro Coal Mining Company

Mine & power plant to be developed in parallel :

Phase 1 of the project will be development of a 6.5 million tons/annum coal mine in parallelwith development of 1200 MW capacity

DFS will investigate the most appropriate mining technique :

Single Bucket – Truck technology, or Bucket Wheel Excavators

Subsequently, the coal mine will be scaled up to 22.5 Mt/a capacity and power plant capacitywill be increased to 4000 MW expeditiously

Detailed Feasibility Study is underway and will be completed by End July

Total Project Cost is approx 3 Billion USD. Financial Close is expected in 2012

Coal Mining and Power Generation Project will start operation by December 2016

Challenges :

Emissions Compliance to World Bank standards for mining and power generation

Aquifer Management

Overburden dumping

Solid and liquid waste disposal

Washing & drying of coal

Mining Detailed Feasibility Study Consultants

Sindh Engro Coal Mining Company

Sindh Engro Coal Mining Company has inducted world renowned consultants to carry

out the Detailed Bankable Feasibility Study of the Project :

Detailed Feasibility Study – Sinocoal, China

Hydrological Study - Northeast Coal Bureau, China

Drilling Fieldwork – Deep Rock Drilling, Pakistan

Environmental & Social Impact Assessment – Hagler Bailly Pakistan/ SRK, UK

Develop and compile a baseline study of the Thar Block II

Groundwater analysis – Impact of mining activities on groundwater regime & proposed

mitigation strategy in Consultation with RWE

Environmental & Social Impact Assessment of the Project

Ground Water Modelling & Mitigating Strategy for ESIA – RWE

Groundwater Survey & Water Analyses - SGS

Financial Model and Economic Viability Assessment – SECMC & RWE

Mining DFS Progress

Sindh Engro Coal Mining Company

All consultants have been issued formal notice to proceed and work is underwaysince mid-November, 2009

Detailed Feasibility Study (DFS)

First interim review of progress completed and second is scheduled for mid-April. Futurereviews will be conducted as per agreed hold-points and milestones to ensure that content& quality of DFS meets International lenders requirements

Preliminary Geological Model has been received and is currently being evaluated

Work on Mine Plan and Mine Cost Model has commenced

Hydrological Study (HGS)

All Hydro-Geological fieldwork has been completed and results have been provided toSinocoal, RWE & SRK

Groundwater Modeling to assess impact of mining on underground water is underdevelopment

Environmental & Social Impact Assessment (ESIA)

HBP/SRK have completed environmental & social baseline study

Preliminary resettlement assessment survey completed

Mining DFS Progress

Sindh Engro Coal Mining Company

Financial Analysis & Economic Viability Assessment

Cost Model is developed and provided to Sinocoal to obtain budgetary estimates forcomplete mine development

Pakistan Electricity Market analysis to assess coal based electricity competitivenessunderway

Coal Pricing Analysis under progress

Financial Analysis of the Coal Mining & Power Generation Project

Assessment of Social and Economic benefits of the project to Pakistani Economy

Potential international lenders and stakeholders are being engaged

Infrastructure Development :

All infrastructure related activities (raw water, effluent disposal, transmission line, roadsetc.) are being closely monitored by a GoS & SECMC steering committee to ensure timelyavailability

Sindh Engro Coal Mining Company

Project Development & Execution Timeline

2009 2010 2011 2012 2013-Q1 2016

Q3

Q4

Q 1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Y2

Y3

Y4

JV Company Formation &

Owner’s Consultant selection

Mining

– Feasibility Study & Limited ESIA

– ITB Preparation

– EPC Bid Submission

– Selection of EPC Contractor &

Project Cost Estimation

Power Generation

– Feasibility Study

– ITB Preparation

– PPIB & NEPRA Approval

– EPC Bid Submission

– Selection of EPC Contractor &

Project Cost Estimation

Financial Close

Notice to Proceed to Contractors

Mining & Power Generation

Project Construction

Benefits of Investment in Indigenous Coal Resources

Sindh Engro Coal Mining Company

To sustain economic growth, Pakistan needs to develop its indigenous energy resourcesrapidly

To overcome the current energy crisis, Pakistan has no other alternative except importingexpensive fuels such as RFO, increasing country’s vulnerability to high oil prices in future

Thar investment will provide the following benefits :

Strategic energy resource that will guarantee energy security to Pakistan in thedecades to come

Import substitution of expensive RFO – Due to import substitution benefits, Tharmining will act as a direct “foreign exchange earning sector“ and help lower theadverse impact of imported fuel on Pakistan’s Trade Balance

Lower power tariff for Coal fired Power Plants as compared to RFO based powertariff Pakistan’s global competiveness slumped from 107 (2007) to 120 (2008) out of

134 countries for “Quality of Electricity Supply”. However, Thar development willimprove Pakistan’s competitiveness (Source : Global Competitiveness Report – 2009)

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 creationand transfer of technology

Potential for future downstream industries in Petro-chemical and Fertilizer

products

Thank You