By Alastair Ford
Towards the end of last year it all looked to be going so well for Oracle Coal. The company signed up a major Chinese backer in September and for the first time investors could really get a feel for how the company planned to go forwards with its plans for a mine and a power station at the Thar coal project in Pakistan.
SEPCO, the backer, is a serious player in Chinese power and construction, and certainly looks to be a company with pockets deep enough to cover a capital outlay that is likely to be well north of a billion dollars.
A major uncertainty about Oracle had been removed, or as they say in the trade, the project had been “de-risked” significantly. True, the final details of the financing had not been agreed. But there was an agreement to agree. And that was certainly a step in the right direction.
But just as everything seemed to be coming together for Oracle, after what’s been a pretty long journey, and unforeseen issue arose which threatened to derail the project entirely.
Oracle’s long-standing chief executive Shahrukh Khan takes up the story. “As things were progressing we were caught off guard when we suddenly got this arbitrary decision of lease cancellation”, he says.
It was doubling surprising because up until that point Oracle had been selling itself as something of a showcase in how investment in Pakistan can and does work. That, the assumption went, would be good for the Pakistani government too.
But things aren’t always quite that simple. Yes, Oracle had signed up one of the biggest groups in China, and yes it’s a UK public company with access to capital markets, but where exactly was the progress on the ground?
Somebody at some level in the hierarchy had decided that the company needed a bit of a nudge. The issues were thus: Oracle had not provided what’s known as a performance guarantee, a small non-refundable deposit that would revert to the state if the company decided not to proceed with the project. In addition, Oracle did not have a commercial office in Karachi which, potential investors in Pakistan please note, is apparently a prerequisite.
But to give the Pakistanis their due, they were quite clear about this when Oracle presented its case on 30th December, and the assurance was given that once the matters of the performance guarantee and the Karachi office had been addressed the licence would be reinstated.
And so it proved. Oracle was able to put out a positive update early in January, indicated that a restoration was probable.
And that confidence in its tenure was strong enough for Oracle to take round the capital markets that same month in order to put together a £3.4 million equity raise. That’s no mean sum given the current market conditions and just goes to show what a difference having a major Chinese parastal on your side can make.
Sure enough, shortly after that funding closed, the confirmation that the license had been restored came through. And Shahrukh breathed a long, if unsurprised sigh of relief. “We are very grateful and glad that the matter resolved in a speedy manner and amicably”, he told Minesite a few days later.
Oracle is now back in the driving seat at Thar and ready to push things on again. And that means the newsflow should start to hot up. There are three major items now on the agenda: the precise terms of the engineering, procurement and construction contract with SEPCO; the publication of the proposed price at which the coal from Thar will be sold; and an agreement on the likely electricity tariff from the power station.
All that should get nailed down over the next few months, and Shahrukh is just off to Beijing now to tell the Chinese that everything’s been dealt with as regards the license.
After that, it’ll be on to the financial closure, which Shahrukh reckons should be settled in the summer or autumn of this year. Work on the ground will then get underway in the early part of 2016, as dewatering and overburden removal commences.
There’s a lot of work to be done between here and then of course, but Shahrukh is confident that Oracle can pull it off. “Oracle remains steadfast in our objectives”, he says. Watch this space for further updates.