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Oracle Coalfields Plc: THE INVESTMENT CASE

Better backdrop in Pakistan aids Oracle Coalfields' power station plans

Pakistan has its problems but there is an improving degree of political stability,
Picture of coal
INVESTMENT OVERVIEW: ORCP The Big Picture
Pakistan needs more energy, lots of it

Oracle Coalfields PLC’s (LON:ORCP) huge Thar coal and power project in Pakistan has received a boost from a nearby development that now started construction.

While that is partly a government-backed project, its progress suggests there is an appetite to fund huge infrastructure projects in the country.

And that appetite might be growing. Pakistan has its problems, Oracle’s chief executive Shahrukh Khan does not deny that, but there is an improving degree of political stability, he adds. 

With stability should come more prosperity and with that a need for better infrastructure and most critically power.

 

Pakistan needs power...

The idea behind Oracle’s 4Mtpa mine and a first stage 660Mw power plant at the mouth is based on a current shortfall in Pakistan of generating capacity of 8,000Mw, a number that if anything is going to rise.

The cost of realising this project is expected to be US$1.6bn, of which US$1bn will be debt.

The firm has agreements and contracts, including an EPC (engineering, procurement and  construction) term sheet and contracts with its Chinese partner SEPCO for both mine and plant.

“Progress with potential Chinese partners is taking longer than we might have hoped, but detailed discussions are at present underway with several State-owned Enterprises, as financing partners and as EPC contractors,” said Khan.

Oracle initially wants to build a 660Mw plant, rising eventually to 1,320Mw.

A ‘no objection’ letter from a key agency - the Central Power Purchasing Agency Guarantee Limited (CPPA) -  which buys electricity on behalf of Pakistan’s state-owned electricity grid operator NTDC means power from the Thar project can be transmitted into the grid.

That came a month after Oracle inked a consortium agreement with the its Chinese partner Shangdong Electric Power Corporation of China (SEPCO), which said Oracle will hold 90% of owner/ operator Thar Electricity (Private) Limited, while SEPCO has the remaining 10%.

The agreement formed part of a key submission to Pakistan’s Private Power and Infrastructure Board (PPIB), which is expected to lead to a power purchase agreement with NTDC that would, importantly from  Oracle's point of view, include a government guarantee for payment.

Previously the firm has said financing would be made up of 70% debt and 30% equity.

 

Thar project now a regional priority...

Oracle’s site was recently put on the priority list on the China-Pakistan Economic Corridor (CPEC), which should result in the fast-tracking of debt-funding for the project.

The CPEC inclusion should also assist in the various approvals required both at Federal and Provincial level in Pakistan and also with the Chinese financial institutions, said Khan.

Next steps are for a power purchase agreement (PPA) application to be made along with the electricity tariff application and a generation licence application. 

Work is continuing to complete the Environmental Impact Assessment ("EIA") for the Power Plant as part of the application process. 

In addition, on site preparation work is underway for development in particular to establish land ownership so that land acquisition and resettlement.

“Our work in 2017 will concentrate on formalising agreements and contracts to bring the project to full implementation, in line with the fiscal incentives including the continuing project Internal Rate of Return, along with securing all the financing arrangements.” 

Losses in 2016 were £913,000 (£943,000). Cash at the year-end was £506,000.

 

 

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