Oracle Power (LON:ORCP) is attracting further interest from investors at the moment as it negotiates with Pakistan’s Private Power and Infrastructure Board over the Thar Block VI project plan. It is part of a consortium that includes heavy hitters like China’s National Coal Development Company and Dubai’s Sheikh Ahmed Bin Dalmook Juma Al Maktoum.
The consortium is after development rights over the Thar coal field, some 9100 square kms of arid wilderness 380km east of Karachi. It holds an estimated 175 bn tonnes of lignite and is reckoned to be the sixth largest coal deposit in the world.
Oracle Power has a 30 year mining lease over Block VI through its subsidiary, Sindh Carbon Energy Ltd. Among its core objectives are mining of coal for a power plant and for sale to other power projects. There could also be the opportunity for gasification of the coal to produce urea/fertilizer, as well as the construction of a coal to liquids facility on site.
Who owns Oracle Power?
Among the significant shareholders of Oracle Power are Skeikh Al Maktoum himself, in at 14.5% and natural resources investment bank Brandon Hill Capital (8.4%). Interestingly broker InterTrader seems to have 3.5% of the equity. These figures are as of 7 September of this year. Some 27% of the company is ‘not in public hands’.
While the Thar desert is not the most hospitable part of the world – The Armchair Trader has had the opportunity to experience its delights in the past – Oracle Power has had to publish a Resettlement Action Plan in coordination with the Sindh Coal Authority and Pakistan’s Energy Department. It seems as if some of the local communities will need to be moved once the project is green-lit; Oracle says it is “working with local groups to ensure that the Block VI project delivers sustainable benefits to the communities and an overall improvement in living conditions, whilst also positively responding to the energy crisis in Pakistan.”
Pakistan’s energy challenges
Pakistan is caught between a rock and a hard price, and the Block VI project is obviously designed to help alleviate this. Imran Khan’s government has inherited a very stagnant energy sector, but needs to find a solution to the massive black outs that are seeing households experiencing load shedding for 6-8 hours per day. Industry is also being held back.
Ultimately, Pakistan is facing a serious energy crisis, with 66.7% of businesses in the country citing electricity shortages as the most significant obstacle to business, well ahead of corruption at 11.7%, this according to World Bank figures from 2018.
The result of flawed energy policies, pursued by successive governments for decades, Pakistan’s energy industry is still battling to cope with an irrational energy mix that sees 64% of its energy derived from thermal energy sources. Dependence on oil has made electricity more expensive than it needs to be. Hydropower still composes only 30% of the mix.
China’s involvement in the Oracle Power consortium is intriguing: China is interested in helping to develop Pakistan’s energy sector through its Belt and Road program. In Pakistan this is taking place under the auspices of CPEC, the China-Pakistan Economic Corridor. It includes energy projects as well as roads and other infrastructure. Some $35bn is known to be ear-marked for power, which China sees as essential for the development of Pakistan.
CPEC has already finalised 17 projects as part of a program to deliver 17,000MW of energy with more in the pipeline. But the emphasis is on bringing down the cost of generation. With oil prices in the basement, this offered a temporary boon to Pakistan, but China wants to shift that dependence on oil which is a legacy of 25 years of mismanagement.
Coal plants are going to be controversial: cities like Lahore already experience some of the worst air quality in the world and Pakistan is increasingly suffering some of the symptoms of climate change. It is an open question as to whether the mining of coal and the increased use of coal-fired stations is going to be the long term solution Pakistan requires.
Oracle Power has been a considerable player in the Thar coalfields project, along with the likes of Cougar Energy and SECMC. And other investors are involved in the construction of brand new coal fired stations.
According to the latest economic intelligence from Pakistan, there is scope to increase coal’s use within the local energy mix to 30%. This would equate to 100,000 MW and would represent a much-needed, cheaper source of fuel, while weaning the country off expensive coal imports.
On the other side of the coin, the government in Islamabad is going to see more push-back from environmental lobby groups, local action and even supranational organisations as the focus on climate change intensifies in 2021. How it will react when overseas debt is linked to climate action is an open question.