[CPEC, IPP] CDB contributes to $796.3 million syndicated loan for Thar Block-1 7.8Mt/a Open Pit Lignite Mine Project (Linked to Record ID#54013, 92627, 92628)

Project narrative

A feasibility study for the Thar Block-1 7.8Mt/a Open Pit Lignite Mine was completed in March 2012. Then, on May 24, 2012, Sino Sindh Resources (Pvt.) Ltd (SSRL or (華信資源有限責任公司) — a special purpose vehicle (SPV) that is legally incorporated in Pakistan and a wholly-owned subsidiary of Global Mining (China) Co., which is itself an SPV that is legally incorporated in the British Virgin Islands (BVI) and a wholly-owned subsidiary Shanghai Electric Group Company Limited (SEGCL) — was awarded a 30-year mining lease for Thar Coal Block-I. Nearly three years later, on April 20, 2015, the Industrial and Commercial Bank of China (ICBC) and SSRL signed a financing term sheet agreement for the Thar Block-1 7.8Mt/a Open Pit Lignite Mine Project. Following the signing of the financing term sheet agreement, SSRL sought to establish an arrangement for the supply of coal to satisfy the coal consumption needs of a 1320 MW (2 x 660MW) coal-fired power plant project at Thar Coal Block-1 within Thar District and the Province of Sindh. As part of this deal, SSRL and SEGCL also entered into a coal supply agreement, in which SSRL would extract coal and supply it to China Power International (CPI). The mine was eventually expected to reach 20 million tons per year, which would be used for additional power plants as well as for export. The originally estimated cost of the Thar Block-1 7.8Mt/a Open Pit Lignite Mine Project ($1,061,750,000) was expected to be financed according to a debt-to-equity ratio of 75:25. On December 31, 2019, SSRL signed a $796,312,500 syndicated buyer’s credit (loan) agreement with China Development Bank (as captured via Record ID#53674), Agricultural Bank of China (as captured via Record ID#92628), ICBC (as captured via Record ID#92627), Postal Savings Bank of China Co. Limited (as captured via Record ID#105895), China Minsheng Bank Corporation Limited, and Habib Bank for the Thar Block-1 7.8Mt/a Open Pit Lignite Mine Project. Global Mining (China) Co. agreed to provide $265,437,500 in equity contributions. The Government of Pakistan agreed to guarantee a 20% return on equity to SSRL and its sole shareholder. The original borrowing terms of the syndicated loan included a 13-year maturity, a 3-year grace period, an interest rate of 3-month LIBOR plus a 2.8% margin, a 7% Sinosure credit insurance insurance premium, a $17.49 million commitment fee, and a 0.5% ($3.97 million) upfront (management) fee. The borrower was also required to maintain a minimum cash balance of $70 million in a USD-denominated debt service reserve account (DSRA) at ICBC Karachi (as of May 2024). The proceeds of the loan were to be used by the borrower to partially finance two contracts: a $434,750,358 commercial (EPC) contract between Shanghai Electric Engineering Consulting Company Limited（上海電 氣工程設計有限公司) and SSRL, which was signed on April 17, 2019; and a $467,956,549 commercial (EPC) contract between Shanghai Electric Hongkong International Engineering Company Limited（上海電氣香港國際工程有限公司) and SSRL, which was signed on April 17, 2019. The $796,312,500 syndicated buyer’s credit (loan) ultimately achieved a 57.4% disbursement rate ($457,500,000 out of $796,312,500). In late June 2023, its interest rate was reset from 3-month LIBOR plus a 2.8% margin to 3-month SOFR plus a 2.8% margin and a 0.261261% adjustment factor. Additionally, the loan’s Sinosure credit insurance policy and was replaced by a shareholder (repayment) guarantee from Shanghai Electric Holding Group Co., Ltd. The cost of the 5% shareholder guarantee fee was $31.92 million. Due to the fact that the $796,312,500 syndicated buyer’s credit did not full disburse between December 2019 and the mine’s commercial operations date in February 2023, SSRL contracted a second (shareholder) loan worth $254.63 million from SEGCL for the Thar Block-1 7.8Mt/a Open Pit Lignite Mine Project. It carried the following borrowing terms: a 13-year maturity, a 3-year grace period, and an interest rate of 3-month SOFR plus a 2.8% margin and a 0.261261% adjustment factor. The purpose of the project was to develop the Thar Block-1 coal mine with an annual production capacity of 7.8 million tons. It was envisaged that the coal mine would eventually, in a separate/subsequent phase, be integrated with a 1320 MW supercritical indigenous coal-fired generation facility/thermal power plant. The power plant would consist of two, 660 MW supercritical units having supercritical variable pressure operation coal-fired tower type boiler with single furnace, extraction condensing steam turbine and inner-cooled generator. It was also envisaged that the power plant would eventually be connected with the 660kV Matiari-Lahore HVDC Transmission Line Project (as captured via Record ID#54013). An estimated 600 families were to be displaced due to the coal mine and installation of the power plant. The Thar Block-1 covers approximately 122 km2 in the southern part of the Thar coalfield area in the Thar Desert in the Sindh province of Pakistan, approximately 380km east of Karachi. The Thar coalfield area covers approximately 9,000 km2 and is bounded by the Pakistan-India border to the north, east, and south. The 1.3GW coal-fired power plant being developed as part of the integrated project is located approximately 5km away from the pithead of the Thar Block-1 coal mine. Shanghai Electric Engineering Consulting Company Limited and Shanghai Electric Hongkong International Engineering Company Limited were the EPC contractors responsible for implementation. After back-to-back meetings between SSRL and the Energy Department of the Government of Sindh, the first excavation took place on January 23, 2019. Mining work on the Thar Coal Block-I mine began in October 2019 (with equity contributions that were provided to SSRL prior to financial close in December 2019). Soon after the first excavation, the SSRL started importing mining equipment from China and by July 2020 all the required equipment was at the project site. Construction was temporarily suspended during the Covid-19 pandemic. However, in August 2020, a batch of 500 Chinese workers and managers arrived in Pakistan by a special chartered flight, which accelerated the implementation of the project. By February 2021, almost 40% of work related to coal mining was reportedly completed. The first shovel of lignite coal was extracted at the coal pit of Block 1 on January 31, 2022. The originally expected commercial operations date (COD) of the 1.32GW Thar Block-1 Integrated Coal Mine-Power Project was September 30, 2022. Its actual COD was February 5, 2023. 4,767 people were reportedly employed by the project (of which 1381 were Chinese and 3386 were Pakistani).