A consortium led by Pakistani utility Engro Corporation (Engro) and Chinese developer China Machinery Engineering Corporation (CMEC) has secured a loan of $1.5 billion from 16 Chinese and Pakistani institutions to fund a coal mining and power project in Thar Block II.
On the China side, lenders include China Development Bank, Industrial and Commercial Bank of China and China Construction Bank. Pakistani financiers meanwhile comprise Habib Bank, United Bank, Bank Alfalah, Faysal Bank, Askari Bank, Sindh Bank, the Bank of Punjab, Nib Bank, Habib Metropolitan Bank, Meezan Bank, Soneri Bank, Pak Brunei Investment Company and National Bank of Pakistan.
The transaction will see $821 million go towards power financing and $700 million earmarked for the mine. The loan agreement, signed on 21 December in Beijing, is awaiting final clearance.
The project is the first to be financed under China’s One-Belt-One-Road (OBOR) initiative, a development framework focused on connectivity and cooperation among countries in Eurasia.
It also falls under the remit of agreements, worth $46 billion, signed under the China-Pakistan Economic Corridor (CPEC).
The total cost of upgrading the mine’s production to 3.8 million tons per annum is estimated at about $900 million. Construction of the 660-megawatt power plant is expected to cost $1 billion. Of the total project investment, around $1.2 billion comes from China. The Pakistani government has provided a sovereign guarantee of $700 million for financing the mine.
The facility is managed by Sindh Engro Coal Mining Company, a joint venture between the Government of Sindh, Engro, various Pakistani and Chinese strategic and financial investors and CMEC. The power plant is being developed by Engro Powergen, a tie-up between Engro, CMEC and a Pakistani financial investor.
Advising both project companies, Amanda Yao, a Beijing-based partner at law firm Pinsent Masons, believes that the project shows how the OBOR initiative can yield infrastructure development in countries like Pakistan.
The power plant is one of a series of energy projects designed to help the country resolve its energy crisis and reduce its over-dependency on imported oil and gas, she said.
The power generated by the plant will be purchased by the local government, according to Yao. She added that a revolving account will be set up for Engro Powergen to obtain a minimum of 22 percent of monthly power revenue from the government, as part of the supplemental agreement designed to protect Chinese investments.
Yao observed that Chinese contractors are starting to show interest in making direct investments in the project companies. Their aim, she said, is not only to win the engineering and construction contracts but also enjoy the long-term investment returns from utility projects.
The next project coming up from the CPEC is a coal-fired plant with combined capacity of 1.4-gigawatt. Developed by Shanghai Electric Group, it is expected to cost $2 billion and become operational in 2018.