TCEB determines coal tariff for Thar project

KARACHI: Thar Coal and Energy Board (TCEB) has determined coal tariff at an average of $60.23/tonne for Oracle Coalfields, the UK energy developer of a combined lignite mineral resource and mine mouth power plant in Thar.

The feasibility stage coal price is regulated at an average of $60.23/tonne over the 30-year period of the lease for a four million tonne per annum mine.

Shahrukh Khan, CEO of Oracle, said: “The determination of coal price by TCEB is an important milestone for the company and represents the latest step towards our goal of developing a producing mine capable of supplying indigenous coal.”

“The regulated coal pricing mechanism that applies to Thar coal isolates the project from the price fluctuations of internationally traded coal and provides an element of certainty to the equity investor.”

To encourage the development of major coal resource, the government of Sindh has put in place fiscal incentives that include a cost-plus arrangement, under which holders of mining leases in the Thar desert are allowed a coal price and electricity tariff that give a US dollar-based project internal rate of return of 20 percent.

On the basis of this determined coal price, Oracle will proceed to apply to the National Electric Power Regulation Authority (Nepra) for an initial electricity tariff for the power plant, he said.

To ensure that the internal rate of return is sustained throughout the 30-year lifetime of the project, the Thar Coal Tariff Determination Rules 2014 allow for further coal price petitions as costs change.

The electricity tariff is adjusted through a similar process, on the basis of the changing coal price and other input costs, to also maintain the allowed internal rate of return.

The coal price as determined by the TCEB is lower than the original price petitioned by the company at $76.48/tonne.

This is because TCEB applying lower capital and operating costs than presented in the company's original petition.

Financial close is to be achieved on or before December 31, 2016 for this feasibility stage tariff to remain valid.

Oracle is continuing to progress matters in relation to the shareholder framework agreement, which is subject to finalisation of terms sheets in respect of the EPC and operation and maintenance contracts for both the mine and power plant, completion of an environmental and social impact assessment and submission of an electricity tariff petition for the power plant.

The Chinese partners of the project are leading discussions on financing with Sinosure, the Chinese Export Credit Corporation.