Oracle Power has now signed an MoU with two China state-owned companies, Sichuan Provincial Investment Group Co Limited (SCIG) and PowerChina International Group Limited, to advance its coal assets in Pakistan. The MoU records the intention to proceed to a formal agreement to collaborate in setting up, constructing, owning and operating the Thar project.
The parties intend to work together to enter into definitive agreements in order to reach financial close as soon as possible.
Oracle, a UK-based company, intends to develop a combined lignite coal mine and mine mouth power plant located in Block VI of the Thar desert in the south-eastern Sindh Province of Pakistan.
The MoU specifies that the project will be funded in cash by the parties, directly into Oracle’s Pakistani subsidiaries and that it is proposed that SCIG, PowerChina and Oracle will have equity holdings in the project of 78%, 9.9% and 12.1% respectively.
SCIG may consider, as appropriate, at any time to invite other co-sponsors/co-investors to the investment of the project and SCIG will maintain the position of majority shareholder in each subsidiary of Oracle.
The parties intend to develop the project in a two-stage approach with the first phase to include further legal and financial due diligence, led by SCIG.
The second phase is expected to involve SCIG endeavouring to secure approval for the investment in, and the development of, the project from the Chinese government within three months of the completion of the first phase, after which a final development decision will be made, which is expected to take the project to financial close.
It is anticipated that the parties will then provide the equity funding to the project companies, proportionate to their proposed eventual equity holding. Equity funding during the second phase is also expected to be contributed by the parties in proportion to their proposed eventual equity holdings.
A further adjustment to the equity holdings of the parties is expected, to reflect costs already incurred by Oracle in developing the project up to the date of the MoU.
Oracle CEO Shahrukh Khan said, “I am delighted to confirm the formal signing of the MoU. This development is a transformational step for Oracle and the culmination of months of work between the various parties. We are very pleased to have formalised our relationship with both PowerChina and SCIG and look forward to working with them to develop this significant project.
“The total funding requirement is expected to be around US$1.6 billion, with funding being provided at the Pakistani project company level. The parties shall continue to optimise and reduce costs where applicable.
“The Board understands this to be one of the largest private sector investments in Pakistan, anticipated to be soundly funded by substantial Chinese SOEs, and supported by being on the priority list of the China Pakistan Economic Corridor.
“As evidenced with the recently announced power plant proposal to the Pakistani power industry regulator, further steps required to achieve financial close are firmly moving forward and the company hopes to reach financial close in the first half of 2018.”