The lingering issue of circular debt is whereas keeping both the national and international financers at bay in Pakistan, a lukewarm response from the PPP-dominated federal government to over $ 3 billion Thar Coal project is likely to make flee the Chinese banks that have agreed to finance the long-delayed project being envisioned as a key to energy security of the crises-hit country.
Sindh Engro Coal Mining Company (SECMC), a joint venture of Sindh government and Engro Powergen Limited (EPL), lacks funds to finance the $ 3 billion mining and power generation projects at the Thar coal fields which has 178 billion tons lignite reserves, equivalent to the oil reserves of Saudi Arabia and Iran combined.
The Chinese banks, in line with the May 2012 agreements reached at the second Pak-China Joint Energy Working Group held in Islamabad, have agreed to conduct due diligence of the Thar mining and power projects leading to their financing of the energy projects. The billions of dollars project is likely to hit a snag as the federal government which, in its frequent politically-motivated public rhetoric, does not feel tired of pledging to resolve at the earliest the energy crises, which has plagued the socio-economic life in Pakistan for years, is reluctant to provide a sovereign guarantee to the Chinese financers.
The Chinese banks, naturally haunted by the circular dent issue, have asked for what the sources privy to the project said “direct and independent” sovereign guarantee by the Government of Pakistan for both mining and power projects. “They (Chinese) want to mitigate the risk of circular debt that may impact their loan repayments,” the sources said.
When contacted Engro Corporation President and Chief Executive Officer Muhammad Aliuddin Ansari not only confirmed that the guarantee was required urgently but also expressed his disappointment over the fact that the center was surprisingly giving a cold shoulder to the Thar Coal project.
“No response from the government,” Ansari told Pakistan Today when asked about the update on Islamabad’s response to Chinese demand.
“If the government is serious on proceeding with Thar they will have to provide it as no financier has confidence due to circular debt,” he said.
To a question why the federal government was reluctant in proceeding with the much-needed sovereign guarantee, Ansari said it appeared to “want the benefits but not the costs”. “Federal govt has not made any comitments to Thar not even the transmission line has been sanctioned,” he lamented.
Asked if his side was tending to withdraw from the agreement, Ansari said Engro was rather tending to try harder to convince the federal government to act seriously and swiftly towards Thar Coal project that is a lifeline for the energy-starved Pakistan.
Thursday saw the Engro chief giving a presentation to the visiting Prime Minster Raja Pervez Ashraf at Thar coal fields outlining that how Thar could be developed. Asked if he believed his presentation to the Prime Minister would reap some fruit in the days ahead, Ansari said: “Let’s hope so”.
However, to much of his disappointment the federal government is showing reluctance even in responding positively to Engro’s proposal of designing the under-construction Japmshoro power plant to run on the Thar Coal. “We concentrated on the need for ensuring that Jamshoro new power plant, which is a government (project), should be designed to run on Thar coal,” he said adding “Even on this there is reluctance which is hard to understand”.
Thursday’s presentation came after a series of others that were given by the SECMC to federal government offices ranging from the Presidency to the finance ministry but so far to no avail.
A skeleton in federal govt’s closet
